Author Topic: Escalation Clause  (Read 1723 times)

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Offline Compressed-Village

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Re: Escalation Clause
« Reply #30 on: April 04, 2021, 08:25:59 PM »
I just reviewed some of kpatnps's various other posts. My suspicions were confirmed: dude may suffer a little bit from BDH! LOL.
What is BDH?

Please do a search. I'm afraid to type it.

Have NO FEAR. TI hero is here: BIG DICK HUNTS :-)

Offline CogNeuroSci

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Re: Escalation Clause
« Reply #31 on: April 04, 2021, 09:07:38 PM »
I just reviewed some of kpatnps's various other posts. My suspicions were confirmed: dude may suffer a little bit from BDH! LOL.
What is BDH?

Please do a search. I'm afraid to type it.

Have NO FEAR. TI hero is here: BIG DICK HUNTS :-)

Hunts? LOL. I thought the "h" was for "hanging"!

Offline USCTrojanCPA

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Re: Escalation Clause
« Reply #32 on: April 04, 2021, 10:44:56 PM »

What is happening in the market is just about everywhere....Irvine, the rest of Orange County, most all parts of CA, Vegas, Arizona, Utah, Idaho, Texas, Florida, Nashville, Atlanta, etc.  The only larger market that isn't on fire is NYC. So what is going on is real and not froth.  It reminds me of what happened in late 2012 to the end of 2013 when prices rose about 20%.  At some point, we will calm down and get more to a balanced market but that won't happen until prices go higher and/or interest rates go significantly higher and/or we get significantly more supply.

curious why you think that just because it is happening everywhere it is "real and not froth".  Do overpriced markets only happen in small pockets?

It is real because it's not just one buyer, pretty much every home that I've made offers on (ranging from $600s to $3m) has 3 to 20+ offers.  So do you think that all those buyers that are making strong offers are doing so based upon market dynamics. It's as simple as economics 101 where demand is outstripping supply by a wide margin so in order for the market to find equilibrium prices have to continue to increase unless the inventory of homes significantly increases.  It's not a supply problem, it's a strong demand problem because sales volumes are at record levels (March 2021 was another record closing month).  Saying a market is overpriced is subjective...you may consider home prices to be overpriced in many areas but the market doesn't agree with you because you are seeing record transaction levels.

No one is arguing with you whether this is or is not a bubble.  Neither me nor the two people I agreed with regarding the state of the market insinuated or implied we are in a bubble.  Yet you hilariously implied we made that argument and argued against it, when all I asked you was to clarify why it was “real and not froth” (your words not mine) simply because “it is happening everywhere”.  Unfortunately that logic fails miserably.   The very nature in which a bubble is formed is because many people continue to buy at overpriced valuations, not just one or a few. 

The “market” may not agree with someone saying a home (or the stocks or gold or crypto or tulips bulb) was overpriced at a certain time, but that doesnt mean the market is right.  Many in mid-2000’s were saying homes were overpriced and the market didnt agree with them either….. until it did.  That, however, is a whole new argument. 

However not to detract, all I wanted to know was your logic in thinking that bubbles cant form because its happening everywhere.

You are right, I don't think I've provided good, logical support for why I believe that the current market has legs and prices will continue to increase this year.  I've been tracking real estate prices since I bought my first condo back in 2000 and then began tracking Irvine home prices once I got into contact on my Quail Hill condo in 2003.  In that time, there have been 2 other price run-ups like we are seeing today. 

The first one was in 2003-2007 where loans were made to anyone who could breathe and sign loan docs due to lax underwriting standards.  Flipping was rampant during this time as were people trying to buy as many homes as possible before they thought prices were going to the moon.  Once the music stopped, all the weak hands got crushed and we almost had a financial meltdown which led to the great recession.  Irvine prices went down about 25-30% from peak to trough while other markets went down as much as 50-70%.  Prices did a double bottom, once in late 2009/early 2010 and then again in late 2011/early 2012 (between those 2 periods we had the $8k first-time homeowner tax credit gov't cheese program which provided a sugar rush for the market). 

Then the second big price run-up came in late 2012 to the end of 2013 where prices ran up about 20% (Irvine median home prices increase from around $330/sf to $400/sf) before things leveled out.  We saw a combination of low and decreasing interest rate environment, increasing buyer demand (record sales volume from March to August 2013), and declining supply (at the low point we only had 3 weeks of inventory on the market).  I saw the same multiple offer situation back then as I'm seeing today and buyers were lifting appraisal and loan contingencies back then to try to compete against increasing FCB demand. 

So now we are in the second significant price run-up in the past 10 years.  Prices are now up approx. 12% since the pre-covid days in Jan/Feb 2020.  Many of buyers, including several of mine, believe that it is frothy and unsustainable (like with BitCoin and Tesla stock) where prices may decline once people come to their senses.  I don't agree, I believe that this rise in prices is sustainable and we will continue to see further increases in prices this year that will be on par with the price increases that we saw in 2012-2013 (I think prices may be up another 5-8% by the end of 2021 from today's prices).  Here are the fundamental reasons why prices have increased and why they will continue to increase this year IMHO...

- Strong move-up buyer demand from people who are looking for extra space due to the work-from-home trend (want an extra bedroom and/or office/den)
- Middle market and high-end buyers looking to upgrade to a home with a large lot, including one that has a pool or one where they can build a pool
- Significant increase in first-time millennial buyer demand where people are getting married and looking to have kids in the near future (That is the majority of the buyers that I'm working with now)
- Low interest rate environment from Fed MBS bond purchases
- As rates have risen that has pushed some buyers off the sideline because they worry that rates will continue to go in the future
- Move-up buyers who have significant equity from their current homes to parlay that equity into a larger more expensive home and not have their monthly payment be materially higher
- Significant stock market and other financial instrument gains (e.g. BitCoin) have enabled middle market and high-end buyers to take money off the table and purchase larger homes and start actively looking for rental properties to diversify their assets
- Increase investor activity from first-time real estate investors to experienced 1031 cash buyers and FBCs (I've seen this on my listings this year)
- Income gains from professionally employed buyers, including larger bonuses, raises, and stock option payouts
- Strong job market and economic backdrop for professionally employed buyers
- Significant cash savings due to lockdown and not spending as much on travel, dining, and entertainment
- Buyer expectation of further price inflation in housing due to the trillions and trillions of gov't spending (lumber prices are up almost 300% since the lows in April 2010 and are up above 50% from the end of 2020)
- Input prices for home construction materials (lumber, copper, plastic, etc) have increased significantly in the past year and builders will pass along those higher prices to buyers which will lift resale prices
- Loan underwriting standards are as strict as they've ever been in the past 10 years (experienced this first hand and how painful it was to refi 3 of my loans being a self-employed borrower)
- Due to the ultra-competitive market, today's buyers are very strong financially as sellers want to select a buyer who will be able to close on the price submitted (many of these buyers covering appraised value shortfalls with large down payments). 

No one could have predicted that we would have gotten the price run-up that we got after covid hit, but here we are and the trajectory continues to point to higher prices in the near term.  As Zubs stated, the gov't and Fed have gone all-in when it came to supporting the real estate market and this will continue to be the case going into the future so any significant real estate price weakness may be met with more money printing by the invisible hand of the gov't and Fed.  What better way to eliminate debt than by printing more money and inflating our way out of debt, right?  As the saying goes, don't fight the Fed.
Martin Mania, CPA
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Offline USCTrojanCPA

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Re: Escalation Clause
« Reply #33 on: April 04, 2021, 10:46:44 PM »

What is happening in the market is just about everywhere....Irvine, the rest of Orange County, most all parts of CA, Vegas, Arizona, Utah, Idaho, Texas, Florida, Nashville, Atlanta, etc.  The only larger market that isn't on fire is NYC. So what is going on is real and not froth.  It reminds me of what happened in late 2012 to the end of 2013 when prices rose about 20%.  At some point, we will calm down and get more to a balanced market but that won't happen until prices go higher and/or interest rates go significantly higher and/or we get significantly more supply.

curious why you think that just because it is happening everywhere it is "real and not froth".  Do overpriced markets only happen in small pockets?

I believe rental prices have drop significantly throughout the US. (For example San Francisco) So this might be a sign. Also, the cdc no eviction order. It is a problem now for landlords and it will become a big mess once lifted.

Not true in Orange County at all.  Just as an example, there are about half as many rental listings in Irvine as there were right before covid hit.  I've rented several properties in the past year within days.
Martin Mania, CPA
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Offline USCTrojanCPA

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Re: Escalation Clause
« Reply #34 on: April 04, 2021, 10:49:03 PM »
Once again for new readers, talkirvine is the evolution from IHB which was a bear blog back in 2006.
After 14 years, do you think the participants who laughed at all the buyers in 2006 have morphed into bulls?

It certainly can happen, but we were the original bears.

I was one of those bears myself and then I saw the light in 2011 when the market bottomed a second time after the first-time buyer tax credit sugar rush and bought my West Irvine home at the end of 2011.  Also helped seeing more and more buyers contacting me to buy.
« Last Edit: April 04, 2021, 11:17:25 PM by USCTrojanCPA »
Martin Mania, CPA
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Often imitated....Never duplicated!

Offline zubs

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Re: Escalation Clause
« Reply #35 on: April 04, 2021, 11:09:21 PM »
I know u were a bear back then.  I just can't stand readers today thinking TI is full of bulls.  Cause it's not.  It's full of retards.


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Offline Kenkoko

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Re: Escalation Clause
« Reply #36 on: April 05, 2021, 12:36:01 AM »
- Significant stock market and other financial instrument gains (e.g. BitCoin) have enabled middle market and high-end buyers to take money off the table and purchase larger homes and start actively looking for rental properties to diversify their assets

- Income gains from professionally employed buyers, including larger bonuses, raises, and stock option payouts

Great list by USC.

I see these 2 factors quite a bit in my circle.

Common among friends and colleagues in my age group (just turned 40) - many had saved up money to buy homes but were scared off by the 07-09 crash and the double dip in 11. Were not dumb enough to let down payment sit in cash, so invested in equities and rode the biggest bull run in decades. Now are cashing out some gains and buying real estate.

My wife works in tech and the industry overall has been killing it for past 5 years. People are cashing out on their stock grants / stock options and buying REs.

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