Afraid to buy home but won’t sell stocks whatever happens


#1

I had an interesting conversation with a guy I know in a dink couple.

He said he believes in holding stocks for the long term and not selling despite the prospect of a down turn. “In the long-term the stock market always goes up.”

He also said he’s not planning to buy a primary home (they rent) until prices drop 40%. He feels housing market is overvalued.

As far as he is typical (and lots of people have told me, oh no don’t sell stock and keep investing even if there will be a recession! It sounds like how people talked about holding Bitcoin…and look what happened there) then some common thinking in 2018 is:

  • In long-term the stock market will always go up. So hodl!
  • In long-term or medium term housing won’t go up. Hesitate!

I’m pretty sure the thinking around real estate before the bust was similar to how people feel about stocks now - in long-term it will always always go up! Buy regardless of price! Temporary dips are going to be just temporary.

The reality is that when/if the stock market does fall 40 percent people aren’t going to feel good about it.

Based on what I’m seeing, the stock market is overvalued. I’m not sure about real estate as there are conflicting indicators. When the stock market falls it will have an impact on real estate but I think it will be softened by people who have low interest rates not wanting to sell, and the “winners” from ipos like uber walking away with enough money to still buy a home.

I’m predicting 20-30 percent fall in Bay Area real estate prices and 60% drop in stock market in next 2 years.


#2

I could care less about stocks but a roof over your head is #1 in mine and many people’s book. It is the foundation that everything else rests on. No one can take it away from you as long as you are current. I know of people who thought they could rent forever and oops got the rug pulled from under them. The last thing one wants to do in your golden or retirement years is to worry about housing needs. I would prefer that people at that time of their lives worry about whether to have a pina colada or a mai tai…


#3

Since 1940, how many times has RE dropped by 40%? Why didn’t he buy in the 2008-2012 time frame when housing was still low? If someone didn’t have the guts and vision to buy then, I call BS that they’d buy on a 40% drop. They’ll sit there thinking it’s still over valued expecting another 20% drop, or they’d be too scared.

You can’t live in bitcoin. Bitcoin also doesn’t generate any earnings. It doesn’t have any commercial value like gold. It also costs $20 in electricity for a transaction. That means it can never be a currency. That was an obvious bubble.


#4

Question for him:
40% from which price? Today’s? What if it goes up another 30% and falls 10-15%?

A college mate of mine was of similar thought in 2012, but made financial calculations & bought a primary in 2013 & he has 100% + appreciation.

Reality is people are still stuck up with the fear of 2008 crash. Those kind of crashes do not happen every decade. Reality is house ownership in USA is still close to historic low today.


#5

Why those numbers? And more importantly, what’s your plan if RE and stock don’t drop that much or even rise in 2 years?


#6

This means another big recession. What event can cause this? I can’t think of anything.
It would be intetesting to see how next correction would look like. During the last recession, SFH in prime locations with good school district such as PA or Cupertino didn’t go down much (like 10%). I guess it is because people with kids in school don’t want to move and try their best to stay. However, since then, people’s preference changed from school to proximity to work. I am curious if such trend would change or stay during recession. Well, in that sesnse, PA and LA are the best (good school and proximity to big companies).


#7

I predict no recession till end of 2018. End of 2019 if trump does not go too far with trade war(mainly due to uncertainty)


#8

He should join patrick.net :rofl:


#9

The reality is complete opposite !

I am afraid of holding stocks near term, 2 years, rather than buying home in near future, even if it drops in next two years !

“He’s not planning to buy a primary home (they rent) until prices drop 40%” ==. This is blunder.

My friend and I landed here at the same time, started earning similar. In fact, he pay is higher than mine initially.

25 years roll on, now I have minimum 50x Net worth over him as he is still renting. He is eligible to buy 1/4th of bay area home (Condo only for him) what I am eligible to buy.

I am financially free to retire any time, but he needs to work life long. The major difference is that he rented all along while I am not.


#10

You earned the bragging rights :+1:


#11

He is right! However, stock market != individual stocks :rofl: If he is holding only index, then ok. If stocks, better pray one or two stocks are AAPL-like or AMZN-like.

So what? I would hedge by selling stocks and buy RE :slight_smile:


#12

I do not mean to Bragg, but to show the difference why it is blunder not buying primary home!

I purchased just 12 years before, but I should have done when I landed here within 2-3 years.


#13

Before I’d listen to any doomsday prediction, I’d ask them how much they made shorting in 2008. If they look at you with a confused look, then you know all you need to know about their advice.


#14

Market is driven by supply and demand. He might think a house is overvalued but somebody will think it’s a screaming buy. Good luck waiting.


#15

This chart is illustrative of the demographic driver for housing over the next generation. Gen Y is just starting to hit their house buying years. There are a lot more Gen Y than Gen X. Follow the demand. :slight_smile:image


#16

@manch i agree, I think people are more afraid of housing and less afraid of stocks now! Lending standards have been far higher the past few years but the emotional impact of the housing crash is still there.

@Roy321 @marcus335 He said that he would buy the kind of home that is currently 1.6M in his preferred neighborhoods in SF (a large condo or small single family) when it gets to 1M! He has a clear picture of what he wants…Whether it becomes possible and he follows through is another matter.

@Jane @manch I plucked those drop numbers based on feel. I think the rising interest rates or geopolitical instability may be the recession triggers. I’m not sure as it can be any number of things…the main thing I’m seeing is that beliefs about the stock market market are overly optimistic right now and that sets things up where anything can be a trigger.

The other factor I find unsettling is that FB is being put through the ringer now. They have always been protected by the “powers that be” as it were. Now they’re being pushed around. If I were the sec I would have blocked the Instagram acquisition years ago, that was some real competition that they had there but it’s too late for that now. Something has changed that the media and government is attacking the biggest FANG jewel, it feels like a power shift.

Another thing I find unsettling is that the media is downplaying is how much the new tax plan is punishing states like California and New York vs. the red states. I think they’re wary of building support in trumps heartland by reporting that widely. So we have a situation where there’s a lot of change happening and mainstream thought is diverging from reality, it feels like matchsticks waiting for a spark.

My plan is to hoard cash and then use that to invest in high yield properties with low leverage so that I’m very cash-flow positive.


#17

Sounds like someone is in disbelief that they can’t afford the type of home they think they deserve. That describes every housing bear we’ve seen here.

Are you sure about the tax plan? I think everyone here except one person will pay less taxes under the new plan. People are only considering the negative impacts the media covers. They aren’t considering the positives. When they consider both, almost everyone will pay less.


#18

Yeah I think I will pay less but those in states with low taxes / low property prices will pay a LOT less relatively, no?


#19

Rising interest rates could trigger correction but not sure about recession. Unless Fed screws up, I guess it should be correction (but who knows.). Anyway, I am monitoring US treasury yield curve carefully to get some leading sign of potential recession. So far, no inverted yield curve.
I am also holding cash (sold big chunk of stock. To me, stock seems like most vulnerable asset (losing 20% in a few days? too much for me) and too time consuming to follow up.) but as for real estate, I guess correction can be multiple small windows unless there is big recession. Based on my limited experiences, real estate transactions are weird psychological l games. Thus, I am actively watching for any good deal in the area I am interested in. I am not going to overbid like desperate buyers mainly because price went up too fast last 6 months.
If you have enough cash, why not looking for good opportunity? It may come and go quickly.


#20

not even that, last 3 months, i have seen places going ridiculously higher than their comps.