The Massive, Housing Bankruptcy Coming in 2023.

the real estate market is about to face a whole lot of hell and folks I've got

bad news potentially for a particular eye buying company that might be getting

ready to close its doors in this video not only are we going to talk about this

closing of doors we're going to talk about what's going on with limited

redemptions in the real estate space we'll talk about home affordability how

much real estate prices might have to fall how much they're likely to fall

recession or not and we'll also talk about interest rates because yeah they

have taked down a little bit recently but will it be enough to quell fears of

the recession here we go folks all right first up oh my gosh look at this tweet

circulating from a writer at Fortune Magazine now it's unverified but I'm

gonna put some details together here that could actually make this seem very

very legitimate Lance Lambert says this week a company in the family of I buy

reached out to the co-star co-star by the way is a real estate listing

platform like co-star Loop net they do a lot in commercial real estate anyway

this week a company in the family of eye buying reached out to co-star CEO Andy

Florence the company is that is the company being the company reaching out

is that a quote point of failure and asks Florence if co-star can quote fund

them Florence tells Fortune Magazine he turned them down more details here to be

clear I don't know what company he's talking about I asked co-star CEO Andy

Florence if I buyers will still be around in two years he said I think

people will learn from the first generation he added that cost of capital

would rise so remember eye buying is when companies buy homes off the

internet without actually knowing what the hell they're doing they don't buy

wedge Deals they just try to buy deals to get transaction fees and flip them

again that works fine in an appreciating Market but oh my gosh I hate flipping

homes I flipped one property in my life I think flipping homes is the worst way

to make money because it's so risky you make lots of money when you're a king in

the markets Rising but other times you just get screwed very very dangerous to

be an eye buyer this is why I like wedge deal and rent model not buy and flip

very very dangerous so what company could this potentially be and is it

possible that this eye buying company is going bankrupt well my belief is a it's

open door and B yes first of all Open Door rumoredly sent out an email just a

few days ago shutting down their Mortgage business this comes after they

laid off individuals earlier this year and comes after on November 2nd them

laying off 18 of their staff last quarter before their last earnings

report I also suggested that they will face at least a 10 markdown on their

inventory and guess what happened when they announced earning earnings they

announced yeah we're taking a 10 markdown on our inventory on top of that

we're going to get into the real estate Marketplace which is a way of saying

yeah our eye buying is failing so badly we're gonna try to turn our website into

a platform for people to buy and sell homes rather than just try to buy and

sell homes ourselves in other words the core business model of Open Door is

faltering so badly they're trying to change their business model and so when

I'm trying to align the potential okay well could it be open door that's asking

for emergency funding what I did of course is I went over to their balance

sheet because when you think a company is going to go bankrupt what do you do

well you follow what we talk about in the stocks and psychology of money group

combined with the zero to millionaire real estate investing course both

available with a coupon code expiring Friday coupon code PP expiring Friday

the 9th and what do you get well you get knowledge okay you go over the balance

sheet and look what you get first what do we have over here we have seven

billion dollars in debt on flips how do I get to that number well I get to that

number by going right here which is non-recourse asset backed debt current

portion plus the non-recourse asset back debt net of the current portion you add

that up you get about seven billion dollars in debt on flips that's not good

especially when the amount of real estate value you have is about six

billion dollars okay so you've got six billion dollars in real estate you've

got seven billion dollars in debts that means you are already upside down by one

billion dollars not considering the fact that

you might not even be able to sell those properties for six billion dollars you

might have to take another 10 to 15 haircut which would mean you really only

have about five billion dollars of real estate left which means you could be

upside down to the tune of two billion dollars but let's just assume they're

only upside down by one billion dollars and that they do not have to take an

additional cut what do we have well we have 1.3 million dollars of cash on the

balance sheet we do have 1.7 million dollars in restricted cash but the

assumption is that 1.7 million dollars in restricted cash cash is going into

New Deals that's why it's restricted that they're still buying which is

stupid they should stop they're operating a money losing business stop

operating the business they're putting money into a vending machine to get no

money out it's stupid it's a stupid business model in the last quarter by

the way they lost 810 million dollars 425 of which just on taking losses on

homes and the rest 385 on their operating expenses which have

exploded by about 120 million dollars 115 million dollars from last year yikes

so what do we have over here well we've got a business that's upside down by

about a billion dollars they have 1.3 billion dollars in cash that's 1.3 B not

M there we go so they have 1.3 billion in cash and they're losing about 800

million dollars a quarter which means this company is probably on the verge of

bankruptcy this quarter because if last quarter they had about one quarter left

of cash and now you're going into the Q4 winter season for selling real estate

which is historically slower you have debts coming due you're burning probably

about a billion dollars in the in this Q4 quarter with losses and expenses

they're out of cash they're not going to be able to operate anymore past q1

they're done they're cooked like we saw this coming for probably all year we've

been talking about this Open Door disaster coming and now we see this

rumor it has to be this company now it could be look zillow's out of the game

they got out they were smart it's not Airbnb because they don't I buy it's

probably not going to be Redfin though there's always the risk it's Redfin uh

they still have the services side of their business and I think they are a

little bit more reasonable in their Acquisitions than open door has been

it's probably open door which is soon to be closed door which is pretty

embarrassing but anyway uh this is why flipping is so freaking dangerous okay

so now that's open door what else is going on in the real estate world oh

right redemptions are getting Frozen Yes Baron suggests and Barons just reported

that Star Wars Star Wood Property Group Starwood real estate income trust is

curbing redemptions after withdrawal requests exceeded the monthly limit in

November Starwood capital is the sort of the umbrella company of the Starwood

real estate income trust the real estate income trust has about 14.6 billion

dollars of assets under management they are halting withdrawals the total

Starwood group has about 125 billion dollars of assets under management so

this is slightly more than 10 percent of the Starwood group is halting

withdrawals and they are now the second largest

non-traded Reit after blackstone's real estate income trust which has 69 billion

dollars of assets under management moved to also limit withdrawals both of them

allow about two percent of monthly withdrawals of net asset value or five

percent of quarterly withdrawals and so far Starwood has fulfilled 63 percent of

investor Redemption requests the rest will rule over to next month

yikes yikes so this is a way of saying that

there is such a liquidity crunch right now there's such a dash for cash that

people are trying to claw their money out of anything they can they're selling

their crypto they're selling their stocks they're selling their real estate

they're dumping out of REITs they're trying to get cash this is what happens

in a recession this is why in January I said the most powerful asset you could

have this year is cash and the reason is not because inflation is high but

because the stuff you're going to buy is probably going to go down in value

assets real estate boats planes cars stocks whatever it is that floats your

boat so to speak it's going down it's all going down it sucks anyway

oh Bloomberg is also now reporting that on a 75 city-wide average that used to

rank better Nationwide for home affordability is now worse than the

average cities like Tampa Florida Boise Idaho Glenwood Springs Colorado

exceeding 50 percent of people's median income to be able to afford a home in

those areas median home price to income ratios over

a hundred percent in areas like Key West Florida we're also now according to

Redfin facing record D listings two percent of homes for sale were delisted

without being sold each week during the three months ended November 20th

comparing to 1.6 percent a year earlier this is leading Bloomberg to cite that

the Boom is over now we're seeing a complete reversal in real estate and

although costs have recently cooled with some reduction in interest rates many

buyers are sidelined because guess what now the fear of a recession is out some

of the towns seeing the worst hits are the Sun Belt areas and areas like

Seattle Phoenix Denver Sacramento and Austin

new home prices have to fall about 34 for payment to income ratios to go back

in line with historical averages this is according to Bloomberg intelligence a 15

decline Nationwide looks very likely assuming rates are stabilize at about

five and a half percent right now they are at about six and a half percent so

you still have some rotation downward to go newer smaller homes are more likely

to be resilient with the upper end suffering worse

Fortune does a breakdown of Moody's Analytics report on real estate

suggesting that real estate could fall as much as 15 to 25 percent assuming no

recession in the event of a recession those real estate prices could fall even

more the case Shiller index also fell one percent in September although the

fhfa measure actually increased 0.1 percent in September the reason for this

could be that fhfa has most of its market share focused on the lower and

middle end this suggests that it's the top and higher end that's actually

getting crushed much more than the lower end now this is right now with rates

hovering around six and a half percent The Wall Street Journal is also now

reporting that more renters are starting to renovate places like their own they

say that nesting renters are a sign that the housing market is at Peak at least

this is per the FAU economics professor they interviewed Wayfarer seeing

bookings for doorknobs and drawer pulls and wallpaper way up doorknobs and

drawer pulls tripled from last year and after all it makes no Financial sense to

invest in a place that you're just renting but a potential reason could be

it's more expensive to move than to just stay put and make the place look the way

you want it to look while you're there this is all bad news for Real Estate

especially if real estate prices could fall even more if we enter a recession

which more and more seems more likely and it seems like the FED is going to

have to massively u-term to bail this Market out of the pain that we're about

to experience in addition to that interest rates

following the 10-year yield curve have calmed substantially in the last six

weeks if we pull up the 10-year treasury curve we could see that right here we

can see the 10-year treasury curve is nicely down from nearly four and a

quarter percent about a month and a half ago six weeks ago down to about

3.59 right now which is roughly in line of with where we were in mid-september

this does lead mortgage rates to cool if we just Google mortgage rates and then I

always like to throw in the 740 credit score

that is generally your your best rate you're sitting at about 6.6 percent for

the 30-year fixed down off of some of the over seven to seven and a half

percent rates we saw at the beginning of October However unfortunately still

similar to those mid-september levels where we've also been seeing some

serious pain in the real estate market so unfortunately more pain is likely

ahead for the real estate market and most unfortunately it doesn't look like

Open Door is going to be open much longer no guarantees so far this is just

a rumor and there's also the rumor that they're shutting their mortgage division

but we'll see so far though their balance sheet doesn't look good thanks

for watching folks and we'll see the next one goodbye