Have you heard the prophets lately? The market is flooded with real estate predictions, and there are a ton of people telling us what the future will look like. So naturally I figured we should have a way to test whether these voices are legit or not. Enter the flow chart below.
Okay, I created this because it tickles my funny bone. But there’s some truth in here too maybe, right? Obviously we’re all thinking about the direction of the market, and that’s exactly what we should be doing. But let’s also carefully consider the credibility of messengers out there too.
A few serious points:
1) Predictions: One of the dangers of predictions is you can end up losing credibility when/if your “prophecies” don’t come true. For years I’ve watched people prophecy the demise of the market and then move their predictions ahead when they didn’t happen.
2) Local data: Watch local data closely and study the market to know the signs of a seasonal slowing vs a tanking market.
3) Living in the tension: I stray away from big market predictions because my crystal ball is broken and I’m humble about my ability to predict the future. This doesn’t mean I’m naive to red flags or unwilling to discuss issues that could affect the future market. No. It only means I’m realistic about studying trends for hours each month and then living in the tension of not knowing the future.
By the way, download a larger version of the image above here.
I hope that was helpful.
Class I’m teaching: On September 17th I’m teaching my favorite class called “How to think like an appraiser“. I’d love to see you there.
Questions: What do you think of the chart? Anything else I should’ve added?
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You could tart up the chart a bit with a photo of a crystal ball. Good point.
That would be great. Good idea Joe. I’ll have to do a 2.0 version that’s a bit more easy on the eyes.
Okay, I added a “bubble” to the image to help spice it up a little. I like the idea of a crystal ball design in the background. Maybe version 2.0.
Nice touch.
You made some great points! Your flow chart is fantastic! Thank you for your humble approach to thoughts about what the future holds in terms of the market. To me humility is a sign of strength and integrity!
Thanks Jamie. I appreciate it. I’ve had this in my mind for a while, so I figured I’d make a chart. For me this makes me laugh, but it’s also something logical to really think through issues. We have so many predictions out there right now and I’m thinking critically about them and weighing the legitimacy of the “prophets” so to speak too. 🙂
Great Post Ryan!
This is so true. Although signs may seem to point in a specific direction at times, it doesn’t always happen. The one most important thing I’ve learned as my years as an investor is that humans can be very unpredictable and since it is human sentiment that drives most equity markets, the markets therefore can become unpredictable as well.
I have found that the average consumer does not possess the ability to value things properly. It is these consumers without a concept of proper valuations that lead the market to become overheated or oversold depending on whatever point in the economic cycle the market is currently in.
I must admit, sometimes I get frustrated because of this especially when the market grows with the irrational exuberance that is far to common today.
Even if I was a billionaire I wouldn’t buy any properties in what I see as a heavily overvalued market right now. I have been waiting on the sidelines for some time waiting for the market to finally crash and it still hasn’t happened. I must admit it is heavily frustrating but it has also been a humbling experience.
Thank you Brandon. Great comment and I appreciate hearing your story. I agree with you that markets can be frustrating and humbling. You’d think we’d be able to boil everything down to a neat little formula for what will happen, but it’s just not the case.
This reminds me of 2014 where locally we had a VERY dull fall market, and to many it seemed the market might make a turn. Yet since those seemingly gloomy days there have been four seasons of value increases. Or last year many predicted the market was going to turn, but then it didn’t.
Let’s keep watching. And for any onlookers, I’ll have a big monthly market update most likely late next week.
Damn it! I’m not a prophet.
So sorry to hear that Gary. I actually thought you were… 🙂
My prophecy: “The residential market is going to shift”. How’s that for super vague with no time-frame specified? (I plan to do a lot of bragging when whatever it means (tbd) happens)
Love the flow chart. Brilliant!
Tom, I’m blown away at how specific your prophecy is. I’ll definitely be watching for a “shift”, and please come back here to brag when you see that happen. 🙂
Wait a second…”profit”…I see what you did there. This is a fun way to look at it. Love the graphic too. Thoughts: Market analysts do look at the short term future to consider potential development potential for their clients. I think the label “prophet” or “prognosticator” tends to apply to people on the margin. i.e. extremist views such as “Boom times are coming!” or “the market is going to collapse next week.” Rather I think people like myself, you and your colleagues take a fully informed look on what is happening on the ground now, mixed with other related developments that may impact the trend and apply logic and probability to it. Its not a prediction, but rather a modest forecast with reasonable probability factored in. Especially the right amount of context. (Gasp).
Thanks Jonathan. I appreciate your take. Yeah, I think we’re on the same page here. There is a big difference between someone who is watching the market carefully and saying seemingly thoughtful things and someone who is extreme every year and maybe ends up talking more hype than not. I think of certain websites and individuals who have a shtick of saying the market is going to crash. I definitely like the idea of a “modest forecast” as you said.
Agreed. That’s why “Bubble Blogs” became a powerful genre during the “Bubble” and some have stuck around with a loyal fan base. Same goes for sites like ZeroHedge. For them, the sky is always falling.
Yeah, I like to see what the Seattle Bubble Blog talks about. I know there are numerous examples, though many stopped too when the market changed. The sky is always falling on Seeking Alpha too.
Great graphic, Ryan. I agree that there are not many if any at all, real estate prophets.
Thanks Tom. Agreed. I would say a true real estate prophet (in the biblical sense) likely does not exist. Though there are some smart people out there, and I love hearing what people have to say. The irony is there are brilliant minds that still get it vastly wrong. Even Robert Kiyosaki predicted a market collapse in 2016. Yeah, it didn’t happen.
But I think you need to make another category for someone that simply tracks historical metrics and indicators to form an opinion about where a market is headed.
It happens in slow-motion so it isn’t that hard really IMO.
I can be a prophet if you wish in the since that I can guarantee (of zero value to you personally) that this market will reverse itself and prices will be hammered. They will.
It is not because I am prophetic it is because it is Econ 101. K-Waves, animal spirits.
We are likely in the ‘profit taking’ stage of the bubble we are in. I think we might have passed ‘euphoria’ for this one.
That is as close as I can get to a prophecy. It has made me a multimillionaire in only 2 market cycles though so I am doing something right by letting history be my guide.
Permabearing is no good, I agree, nor is being totally certain you know where a given market is headed in a specific sense.
But I don’t think you can discount following historical metrics like price vs. HHI which tell us just how frothy a given market is.
This one will crash. It is only a matter of when. No other outcome is likely. Humility is good, but being a student of history/markets and letting that be the source of your confidence in spotting market direction is also good.
As always, thanks for your take. I’m really poking fun here at hardcore predictions and people making predictions year after year until they’re actually fulfilled (eventually). In no way am I speaking against watching the market carefully and being thoughtful about data. If that wasn’t clear in the post, hopefully it’s clear in the comments. I concur with your last paragraph here. Be humble, but keep your eyes open and be a student. That’s my message and hopefully representative of the body of my work that people pick up on over time.
Plus, only listen to prophets that are self made independently wealthy real estate investors. I’m sorry if that offends some of you who are not but nobody should seek RE investing advice from anyone that does not derive 100% of their income from real estate investing. That means you agents, lenders, appraisers, managers.
When I started in RE everyone offered me advice, some of the worst was from real estate agents. Listen to people that actually derive their income from RE investing. In other words, don’t take advice on your heart disorder from a foot doctor.
This will offend a lot of people who think they are qualified to dispense RE investing advice (lenders, REIT managers etc., bankers, property managers, top production real estate agents) freely to everyone.
I don’t care if you’ve been a ‘lender for 52 years.’ Sorry, you aren’t qualified if you aren’t deriving your income from real estate investing. Your advice should be taken with a huge grain of salt. If you really had it all dialed then you wouldn’t still be a lender after 52 years.
That guys has been doing something wrong. Don’t follow his advice.
Hey Ryan, My number 1 rule is never to listen or read advice from anonymous prognosticators. If someone isn’t brave enough to stand by their views with their actual name, then run away from them as quickly as you can and never engage. 🙂
I suspect by your headshot you are in sales? Lender, appraiser, realtor? Which one?
You clearly aren’t a full-time principal or you would know the benefit of anonymity.
I mean, in some sense I get what you’re saying, except for that I’m not selling anything here. I stand to gain nothing by advertising my name and social security number and mailing address. I simply enjoy this blog and posting my input. Whether you believe me makes not difference whatsoever.
I’d be glad to compare bank accounts with you and subject properties owned, provided that it is supplied directly to Mr. Lundquist and he promises to keep our information 100% confidential.
I’m serious. I bet you would get quiet very quickly when Mr. Lundquist (playing moderator) reports back to you.
Let me know if you want to play if you seek such need for my validation.
I can play moderator, but I would need a 3% processing fee…. 🙂 I’m kidding.
Mr. Miyagi, thanks for your comment as always. Joking aside, no bank accounts need to be compared here. As an FYI, Jonathan is one of the most well-known appraisers in the United States. He researches many markets throughout the county and he’s definitely a thought leader. I read his housing notes every Friday (here they are for any onlookers https://www.millersamuel.com/housing-notes/).
So I was right then.
That is great and I will visit his site.
My point still stands though.
Whether I’m talking to the top appraiser in the planet or the top loan broker or top real estate agent…I’d still advise newbies to get real estate investing advice from people that derive 100% of their income from their real estate investments and have done it through various cycles.
That person does not have to be me. To be clear I am NOT asking for that nor do I have time to mentor anyone beyond who I already do. But seek that person out in your circle, if you wish to become a full time successful RE investor with a ‘prophetic pulse’ on the market.
Enough from me. Cheers!
Ha, no. Stay anonymous, please.
Thanks Mr. Miyagi. And thanks for the add-on Jonathan. Regarding advice, I do agree to a certain extent, though just because someone has a proven track record in a previous market does not mean advice is going to be good for a current market heading into the future. Moreover, it’s possible to have some wisdom without a lifetime of experience. Obviously it’s preferable to have massive experience, but wisdom isn’t only found with old age in every case. Let’s be real too. Sometimes well-known financial gurus with brand recognition are selling something too, and consumers need to be cautious of that also because the message doesn’t always come without strings attached.
Love the flow chart! Making absolute precise predictions such as “The market will drop by 50% by the end of the October” would be foolish. What you do, as well as many others, is analyze what the market is currently doing, what it did in the past, look at what are some of the signs or trends that could indicate change, as well as give some reasons for the changes since there are multiples of thing that affect the market. As always, thanks for your informational and interesting content!
Thanks Shannon. I appreciate it. I always look forward to your market updates too. It’s fascinating to see similarities and differences between how our markets behave.