The Coming Housing Disaster | Protect Yourself w/ THIS.

will the housing market crash or has war

in Ukraine delayed this well in this

video we're going to talk about just

that look in previous videos on the real

estate market we've made it very clear

that as interest rates come down

individuals purchasing power goes up and

that means people can afford to pay more

for homes to get in that leads prices to

go up which ultimately leads more people

to say wow I should get into real estate

because look prices just went up double

over the last seven years or 20 within

the last year I'm missing out fear of

missing out it's not a good feeling so

people buy before the feeling that

prices might continue to go up but what

happens if interest rates start going up

a lot of folks point to this 60s and 70s

and say ah when interest rates go while

prices can still go up problem with

comparing to the 60s and 70s is this is

really when the 30-year mortgage started

taking 10 down payment loans and five

percent down payment loans and even as

low as three and a half percent down

payment loans so sure while wages went

up and interest rates went up and there

was a lot of inflation home prices still

went up it could be entirely related to

the fact that loans were a lot easier to

get you could qualify for a lot more

money in the 70s just like today you

could qualify to pay more for a house

because interest rates are lower you can

still do that three and a half five ten

fifteen twenty percent down if you want

so it's really uncertain in terms of

what happens when interest rates go up

are we definitely going to see home

prices go down generally the only thing

we can point to is actual math and that

is without any changes in our policies

that is we're still doing 30-year

mortgages we're not making loans easier

or harder to get assuming loan standards

stay flat unlike what happened leading

into 2008 right in 2006 and seven loan

standards got loosened and even though

we were walking into a recession

partially caused by this housing Madness

home prices ballooned why because it was

easier to get a loan and so this is why

why sometimes looking into the lens of

history is so complicated because truly

this time is different in the 60s and

70s lone standards changed in 2004 to

2006 and seven loan standards loosened

in both these instances you had loan

standards loosening leading to prices

going up but the only thing that's

really LED prices to go up over the last

12 years has not been loan standards

getting looser if anything they've

gotten harder through the Dodd-Frank Act

and many of the other regulatory reforms

after the recession to try to prevent

the Great Recession from happening again

the only thing that's actually happened

has been interest rates have gone down

so the question is with loan standards

stable and interest rates going down we

obviously expect home prices to go up so

now if interest rates go up which they

have been going up they taked up

substantially from about an average of

2.7 to an average of 3.7 that's one

percent in just the last three months is

it possible that home prices will start

coming down

well this depends again it always

depends first it's worth noting that

with basic basic math that you can do on

a mortgage calculator we find that

purchasing power tends to go down about

10 percent for every increase in one

percent interest rates so that means if

interest rates go up one percent

people's purchasing power goes down 10

but that does not necessarily mean real

estate prices have to go down 10 so what

we've drawn out this is very simple when

we go from 2.7 interest to 3.7 for an

average 30-year fixed that should lead

to a decline of about 10 in prices but

that doesn't really work when at the

same time you have so much demand that

you might actually have demand that

outpaces Supply by let's say 20 so now

you're only really reducing some of this

some of the cream off the top by 10 but

you still have more demand than you

actually have Supply so prices can still

Trend up so it is my opinion and this is

where it's very important that we talk

about and make it clear this is my

opinion it is my opinion that for us to

actually see a shock to real estate

prices and after I tell you this opinion

I'm also going to tell you how to

potentially insulate yourself from no

matter what happens for us to actually

see a shock to real estate prices we

probably need to see interest rates go

up a total of about two and a half

percent that way interest rates would go

from December of 2021 of about 2.7

percent December 2021. we'd see interest

rates all the way up to a new level of

about 5.2 percent which sounds really

really expensive but we're not too far

off of that I just refinanced a few

investment properties at 4.25 investment

properties tend to have a higher

interest rate anyway so we're not that

far off of this with treasury yields

currently sitting at about 1.9 on the

10-year Treasury and historical treasury

yield sitting closer to three percent

which mortgage rates tend to track or

follow at least we could easily see that

additional move from where we sit now

3.7 to 4.7 and potentially even 5.2 if

this happens then we would have seen

about a 25 move in uh purchasing power

to the downside so this would represent

minus because interest rates went up 2.5

percent this would represent a minus 25

purchasing power movement for home

buyers that is substantial in my opinion

that is the level where we get to actual

negative real estate appreciation and

this is where some interesting things

are going to happen and this is of

course where we have to talk about how

to insulate ourselves if the Federal

Reserve needs to continue to raise rates

at a high at a pace of about 25 basis

points every about six weeks it's

probably going to take us about nine

months to a year before we actually get

to that sort of level now that 25 basis

point hike does not directly correspond

to mortgage rates my guess it's going to

take us about nine months to 12 months

to act actually get to about 5.2 percent

real estate interest rates the longer it

takes the better and the more smoothed

out any kind of potential pain would be

and the more balancing we get between

supply and demand now the big issue in

my opinion is this if we end up getting

to an average of a 5.2 percent mortgage

rate even if it's just temporary

somewhere between a year to two years of

these elevated mortgage rates while we

wait for inflation to head back down and

the Federal Reserve then eventually to

you turn back down we start seeing

interest rates come back down while we

wait for that to happen it is entirely

possible that this negative 25 percent

burn to barring a recession of course to

real estate prices could end up

offsetting that anywhere between let's

just say excess demand of 15 to 20

percent of excess demand in real estate

prices this this gets washed by the pain

of real estate prices coming by

potentially seeing that purchasing power

compression of 25 and then in where

things get really interesting is when we

have the first reports of negative real

estate pricing honestly even if it's

just prices falling one percent one of

the big things that happens when real

estate prices start falling they just

slightly start you turning down it

starts with one percent turns into five

percent one of the big things that comes

out of this is all of a sudden fomo

dries up you go from a seller's market

to a buyer's market because buyers no

longer fear missing out because the

longer they wait potentially the lower

prices end up getting so while these

percentages are really just used as an

example here the point is when we hit

the moment where CNN and Fox start

talking about falling real estate prices

because interest rates have gone up

whenever that happens the likelihood of

us having a seller's market still will

go down we will see that buyer fomo

evaporate buyers who are on the fence

are more likely to be patient buyers who

are in deals or negotiating are likely

to dig their heels in more and that

means we're likely to see a reiteration

of median home prices come down and this

is where there's always the concern of

is there a risk of investors who

ultimately believe in let's say two

three four or five years that inflation

will be transitory is it then possible

that investors who are buying real

estate like hedge funds as an inflation

hedge say you know what we've peaked on

pricing we're starting to see maybe

inflation head down because rates are

finally higher maybe now it's time to

sell and we'll buy back in later and so

how do we apply this because that's

obviously a potential downside risk here

does not necessarily mean we're going to

hit a recession uh recession would be a

topic for a totally different video

obviously if we had a recession this

would be this would have an accelerated

odds of happening but what we got to

understand or think about rather is how

we protect ourselves so in my opinion

there are a few things to do first let's

go through the scenario of let's say we

are not homeowners so we're not

homeowners uh or we do not own rental

property in my opinion the best way to

insulate ourselves if we're thinking

about buying real estate and we want to

get real estate is make sure we do what

I always talk about and that is buy a

wedge deal see here's the thing if

you're looking for a property and you're

trying to find something that's staged a

flip it's move-in ready it's new

construction I promise you you are

paying at the top of the market I can

look at the pictures and if it's clean

and move and ready you're paying

top market prices it's very difficult to

get a discount when these properties are

listed on the market if you get it off

Market before it hits the market maybe

you can get a discount you get an off

Market deal that could be a good

opportunity let's say this is the chart

of real estate prices right now if if

this is where we are right now you're

buying right here if the property is on

the market it's on the MLS it's on

Zillow it's on Redfin it's properly

marketed it's properly listed and it

looks move-in ready you're buying there

now if you can get a property that's

stinky and gross like let's say it's got

good windows and a good roof and a good

plumbing and electrical system but it's

got old nasty carpet it's got ugly paint

or wallpaper or stains on the carpet the

kitchens and bathrooms are the old

cabinets they're kind of gross they're a

little sticky and stinky or whatever

these are properties you could usually

negotiate under market value now that

does not necessarily mean you're getting

it for less than less price for example

I just bought a property for uh that was

listed for 995 000 and I paid seven

hundred and twenty thousand dollars for

the property now I expect the property

is going to be worth nine hundred

thousand dollars so I bought the

property a hundred and eighty thousand

dollars under market value or 20 percent

and under market value now I expect I'm

going to have to spend about forty

thousand dollars fixing it up but that

doesn't change the fact that I got the

initial price twenty percent on a market

value and I'm still going to be up a

hundred forty thousand dollars in in

room that is in potential profit because

I bought a stinky and gross house so

it's okay to pay above list price but

you generally don't want to pay Market

or above market so for example twenty

percent below means I'm really buying

right here and this right here is the

wedge because that twenty percent gives

me insulation if I now am stuck with a

720 000 house plus forty thousand

dollars into it and it's a 760 house and

the real estate market drops ten percent

now my 900 000 house is worth 810 000

but it's okay because I'm only into it

for 960. I still got a fifty thousand

dollar cushion and that's why I like

buying fixer-uppers and then renting

those fixers out airbnbing them or

living in them those are the best best

ways to insulate yourself whether you're

not a homeowner or you are an investor

now uh or not an investor yet what is

the second best thing that you could do

to insulate yourself well this is going

to go a little Contra to what a lot of

people like to hear but personally I

believe that first of all you should

have no Consumer Debt whatsoever no

Consumer Debt absolutely at all but in

my opinion you should have the max

available real estate debt

re debt as long as it's covered by rents

that is if you could potentially

refinance a rental property and your

tenant pays the mortgage for you or

you're paying less than 25 of your

monthly expenses for your own home and

you could refinance that and that

refinance is considered in that that is

your your housing cost is very very low

then it's okay in my opinion to maximize

your available real estate debt closer

to the top of the market why would you

do that well don't do it to buy stupid

stuff like a boat or a plane or a jet

ski or new clothing or a vacation that

would be a big mistake take the money

and if you're going to refinance it's

very very very delicate I hate

recommending this because then people in

the comments start saying stupid stuff

like oh you want us to take out debt

going into a recession that's so stupid

hello it's very stupid to take out debt

and then buy spend it on stupid stuff

and walk into a recession but if you

take out cash and you park it somewhere

you're not going to look at it park it

in a brokerage account somewhere and in

the event the market goes dirty and now

market prices fall you've got cash

available to go buy the dip in real

estate prices come down 10 percent it's

a lot easier for you to negotiate on

deals because prices maybe even only

came down one two three percent but that

fomo is gone that's the time to strike

now it's going to be so much easier for

you to get wedge deals because nobody

else is buying those wedge deals because

people are a little bit more afraid you

know once and again we do not have to

see a big crash I honestly do not think

we are going to see any kind of real

estate crash like where we see minus 35

anytime soon like we saw in the

recession or 45 for certain commercial

or multi-family buildings I I don't see

that happening but I do think even a one

to five percent drop a little bit of a

Slowdown would not only be welcome for a

lot of folks but it's very very likely

to lead to the reduction of that fomo

and make it a lot easier to get in so

what are some things that you want to

consider right now well number one

always patience okay number two you want

to look for those wedges wedge deals

number three you want to eliminate

Consumer Debt because if you have too

much Consumer Debt it becomes impossible

for you to qualify for the real estate

that you want to buy anyway remember you

as an individual as an individual have

great opportunities to buy homes

especially considering the fact that you

could Bank hack we talk about all the

stuff in the real estate course that

I've linked down below we do have a

coupon code expiring for those programs

in about a couple weeks anyway you're

welcome to check this out talk about all

these different strategies but you could

Bank hack again with a low down payment

move in for a year and move on to the

next one right but anyway patience

wedges get rid of Consumer Debt and this

is really Advanced okay so I'm gonna put

Pro only Pro only not to be confused

that you know noobs start doing this

okay so if you're a noob do not do this

okay this is where you take out uh the

um we'll call it the uh the war chest ah

and that's the war chest of of good debt

that is paid for by either Your Capacity

to make payments on your own property or

your tenants okay so things to consider

about the real estate market coming up

now it's also worth talking a little bit

briefly about what we talked about at

the beginning of the video uh which is

Ukraine okay the crisis in Ukraine is

delaying this potential rise in interest

rates and that's also very important to

know so when the disaster ends in

Ukraine it's likely that 10-year

treasury bonds are going to jump again

wouldn't be surprised if we see 2.1 2.25

2.5 percent very very quickly we get a

negotiated end of the war in Ukraine

those 10-year treasury yields are going

to spike personally I'm actually

shorting 10 uh 20-year bonds right now

because I expect you know that uh

essentially I'm gonna make money because

the value these bonds is going to go

down as uh yields rise

no I know that sounds crazy and this

kind of goes into the whole Bond thing

but basically as bond prices fall yields

go up topic for a different video okay

anyway the point is I'm making a bet

that we're going to see these rates go

up

will be delayed by Ukraine but I do

expect it to come I do expect it to

happen so stay tuned buckle up and folks

thank you so much for watching this

video see you in the next one goodbye