The Truth about the Coming Real Estate Collapse.

hey this is gonna be a pretty deep dive

into real estate investing and if you

really like a deep and thoughtful

thought-provoking information about

Finance use that coupon code expiring

tonight that price is going to go up

we're changing it this weekend prices

are going to move up and we are a

totally removing lifetime access for

some folks who don't go in with that

coupon code linked down below so make

sure if you get in using that coupon

code link down below if it still works

when you try it you're going to lock in

lifetime access to the programs on

building your wealth so use that code

linked down below we are changing all

that information this weekend so take

advantage of that link down below do it

right now just open it up while you

listen to this this is going to be a

really good dive into real estate buckle

up I hope you enjoy it because you're

going to learn a lot hey so I think it's

useful to have a real talk discussion

about the real estate market and some

expectations here because there are a

lot of uh folks who are claiming that

real estate is basically going to

collapse the entire world and I actually

don't think that is true I don't think

we're going to see a 2008 style collapse

now I do want to be very clear that real

estate prices I expect are going to

continue to come down and we're going to

go through a version of the real estate

cycle which we're going to talk about

here in the moment but these beliefs

that rents are going to collapse and

therefore prices are going to collapse

and then wealth is going to collapse and

then the economy is going to collapse I

think there are a lot of these that are

substantially overblown and so without

overwhelming you with like too much in

the way of granule data I just wanted to

have a simple discussion with you about

at least my thoughts on the real estate

market and what's to come and and maybe

how to plan uh for this real estate

market transition I think we ought to

call it so first it's worth noting that

I have been studying what I call the

real estate cycle which is actually on

screen right here now I've been studying

this real estate cycle which I created

this graphic back in Photoshop back uh

in like 2010 uh I was inspired by other

people's real estate cycle Graphics but

these particular arrows and colors are

mine uh and the reason for that uh is I

made this because I printed this out in

a very large uh frame that I would bring

to open houses because it was a

conversation starter uh remember I was a

real sleeper I still am a real estate

broker but I don't actively help people

buy and sell homes anymore so I would

hold open houses and I would set this up

in the kitchen and people would walk in

and go yeah we're in the cycle now and

and I have always been a student of the

fed and Market cycles and Booms and bus

and I think it's so incredibly

fascinating and so I think it's useful

to understand when do rents go up when

do rents go down when do prices go up

when do prices come down right and all

of this really fits in the real estate

cycle and it's really incredible because

the cycle just means you're going to hit

a low and you start going up again right

and generally the way America works and

thanks to inflationary Dynamics

generally when we go through the real

estate cycle think of it kind of like a

snowball in Reverse so it's kind of like

going uphill which is kind of

interesting because every time you go

through the cycle your previous low

tends to be lower than the next low

which is nice because that means you

sort of have this longer term

appreciation for Real Estate so do I

actually think we're going to revisit

prices of 2008 no not not even remotely

close do I even think we're going to

revisit prices of 2000 uh you know the

real certainly not the bottom in 2011

but even like 2014 or 15 probably not

you know if if we have a real estate

price correction to valuations maybe

slightly over corrected to 2017 18

levels that's probably the extent of

which we might see a real estate

correction here now there's some factors

that go into this and we'll talk about

these so let's look at this cycle in in

detail here so I'll take a little

screenshot out of this and we're going

to blow it up and we'll go through the

cycle in detail here because there's

there's a lot of drama around this and I

think it's worth you having some clarity

because then I think we're going to be

able to see okay like when do we make

profit uh and how do we make that profit

and when do we have to be really fearful

right so the first thing about when we

have to be fearful let's start there

because that's really going to help us

time this out is we know that uh

somewhere between

February and June most markets hit a

peak this is approximately when the real

estate market hit a peak is somewhere

between February and June in most

markets so most markets have already

seen an inflection point in the pricing

of real estate and we measure that by

looking at the month-over-month sales

activity if one month homes are selling

for one hundred thousand dollars in the

next month they're selling for ninety

five thousand dollars and we know prices

went down five percent that month

generally we don't see large declines

like that the average decline that we

saw during the Great Recession was

somewhere around 1.9 percent per month

and right now we're actually starting to

see some two percent month over month

declines in areas like Seattle San

Francisco San Diego Idaho Austin Texas

so on Boise Idaho specifically but the

year-over-year numbers are still higher

and so when we look at that that's

simply logical because when we look at a

year ago so let's say this is for

example uh let's let's make this a

little more clear let's say these two

dots right here

are September so right here is September

22 and this over here is sep 21. well

visually it's it's worth considering

that maybe prices are at 95k here down

from that 100K we had before but that

might still be higher than the say 90

000 we had here so it'd be somewhere

around what five and a half percent

higher so you still have that

year-over-year growth okay worth noting

so when do we actually have a fear

moment and a fear Catalyst that comes

into this Market well in my opinion it's

when we actually get to where prices

have come down and year over year so

let's say in this case march to March

and the reason I'm picking March is

because let's say price is peaked in

March over here uh then actually we'd

probably be better off drawing it like

this watch this so if price is peaked

over here in March in an area

and now we get to march of the next year

here well now this is where you're

really going to see that year-over-year

decline in pricing and you might see

something scary like -10 or minus 15 and

I think this is really when you get that

Tucker Carlson and CNN and Anderson

Cooper kind of Click bait where it's

like oh my gosh home prices finally fall

year over year for the first time in 15

years or whatever blah blah I'm gonna

get that sort of drama and that drama

can feed upon itself unfortunately

because that could lead some folks to

sell homes who otherwise might not want

to sell homes because they've locked in

a low interest rate and they're better

off staying and so a lot of folks ask me

like why would somebody sell if they

have a low interest rate that doesn't

make sense like why wouldn't they just

stay and just wait and hoddle right well

it's important to remember that 80 year

olds own twice as much real estate as

like a 35 year old even 70 year old

statistically on twice as much real

estate as a 35 year old so you your odds

of home ownership are a lot higher the

older you get and there are a lot of

individuals who are in retirement or are

retiring who say you know what I don't

want to go through another real estate

cycle I don't have the time to go

through another cycle I'm going to sell

and downsize now maybe into something

smaller or I'm going to sell all my

rental properties that have been hodling

I'm going to dump those now maybe at

more of a a closer to Peak pricing then

maybe what I'll be able to get in the

future especially as interest rates

continue to rise remember the cycle

correction that we're going through

right now is driven like this this

inflection point is driven by nothing

other than the Federal Reserve like we

have a lack of homes there are not

enough homes we expect that excess

demand for homes before the Federal

Reserve started tightening was somewhere

around 25 even Lowe's studied this and

their earnings call they thought that

excess demand was somewhere around 25

but the problem is when interest rates

are two and a half percent for a thirty

year fixed rate mortgage and now let's

say they're seven percent for a 30-year

fixed rate mortgage that's a difference

a Delta here of four percent and a

difference of four percent I'm sorry

four and a half percent a Delta of four

and a half percent represents a forty

five percent decline in purchasing power

so now if you offset that excess demand

and lack of Supply we had with that

negative 45 drop in purchasing power you

could see a negative twenty percent

decline in prices and that would take us

to roughly uh you know maybe a year

before pre-covered levels or maybe

slightly before pre-covered uh so you're

talking end of 2019 kind of pricing

right

so this this is what it has inspired

this short sort of inflection point here

and so even though we have a shortage of

listings uh it's very important to

consider buyer purchasing power is

something that is slowing this and so

now if we couple this together with the

fear of potentially oh no we are seeing

year-over-year declines and prices we

could exacerbate the real estate fall uh

thanks to fear of loss and fear of

having to go through another cycle and

potentially over correct real estate

prices to the downside my guess would be

somewhere up to potentially 30 percent

some markets we might see a little bit

more now do I think we're going to see

something like a 2008 style recession

because of uh you know no income no job

no asset ninja loans or dead people

getting loans or people with terrible

credit scores getting loans no I I don't

think we're gonna see it as a 2008 style

recession for the real estate market

especially since credit scores today are

about 100 points on average higher than

they were back then you're talking about

780 instead of 680 and you're talking

about people who really have the ability

to repay their loans so you're gonna

have a lot more of this sort of

discretionary selling where people say

well I'm going to get rid of my

investment property so I'm going to

downsize earlier right

but there's another potential push

towards discretionary selling and that

is going to come from Pension funds

Pension funds and asset managers who say

look you know we don't know how to buy

wedge deals we don't even know how to

renovate properties we just buy and

huddle real estate and we just milk the

cash and cash return excuse me and the

cash on cash return on some real estate

in the country is like three to five

percent well some Pension funds are

going to look at that and they're going

to say well why do we deal with tenants

and toilets for three to five percent

let's just dump those and try to either

feed our margin calls that were

suffering in the stock market or in the

bond market or just go buy the dip in

the stock or the bond market and uh

we'll sell we'll liquidate some of the

real estate we'll be on we'll go we'll

go buy uh the dip in stocks or bonds or

whatever or just buy treasury bonds add

four to five percent yields like why

bother dealing with tenants and toilets

when you can get a four percent Treasury

risk-free and and that combined with

liquidity pressures and margin calls

you're probably going to see some

Pension funds and institutions start

liquidating properties

so what's fascinating about this is you

are going to the more the FED tightens

you are going to drive people to sell

now in the short term you have this

really weird phenomenon where rent

prices can actually go up as home prices

fall but that does not last forever I

want to make that very clear like at

some point that Transitions and rents do

end up falling but rents end up falling

later and you'll actually see that in my

real estate cycle as well and that's

because of a concept known as inertial

inflation and so even though it's easy

right now to go into like an Austin

Texas or Miami or Boise or or Phoenix

Arizona and and you know pull up charts

about how rents are falling in those

areas well that's a duh because you have

a reversal of some of the kova trends

that you used to have right so you're

going to have a kind of like an earnings

recession so to speak you're going to

have a hard comparison to last year

because boom and zoom towns are now no

more but Nationwide we're still seeing

rents rise in fact Morgan Stanley

expects rents to rise three and a half

percent in 2023 you've got Bloomberg

intelligence that did analysis on about

10 different rates and they expect the

average rental increase in rental growth

to be between two to four percent over

the next year between all of those

different real estate investment trusts

so you're really not seeing less mass

panic yet in terms of rents falling and

again that's usually because you have a

lag of rental declines and that's pretty

typical the reason you see that is

because housing purchasing is very

interest rate sensitive as soon as uh

interest rates

for for homeschool purchasing power goes

down almost simultaneously it's almost

instant that can in the short term Drive

some more people to actually rent

properties and drive up rent in high

demand areas and this is where things

get a little bit convoluted and

complicated but I'm going to keep it as

simple as possible think about the rent

curve like this as home prices go down

you could actually see real estate rents

uh go up and so you kind of get this

like double double top here the Orange

Line being prices and then rents rents

do end up tending to follow down because

now the costs of mortgages goes down uh

the cost of buying let's say a rental

property is is way lower over here and

that means you could bring more Supply

to Market so more people buy homes

cheaper more Rental Supply comes to the

market for example my company house act

comes in and buys 200 homes or whatever

in a couple different markets or three

different markets whatever and now we

put this up for rent well now we we are

providing more supply of housing for

people people that's renovated and

healthy and safe to move into right and

so so rents could come down a little bit

so you want to price in these sorts of

buffers this is very typical and this is

where you get this sort of double top

shape but but the rent inertial like the

inertial inflation first pushes up rents

for a while maybe in a six to 12 months

of rent still moving up and then rents

will come down so you have to prepare

for that in the real estate market you

have to prepare for this sort of

transition that's going to come to the

downside it runs uh because of what I've

just just described but what's really

remarkable uh and and that I really love

is that people forget and and the part

that I love is not that this happens but

that people forget this people forget

that real estate is about desirability

right people want to live in areas that

are desirable

that will generally help prop up prices

and rents to a certain level

however the opposite is true of areas

that are not necessarily uniquely

desirable for example if you're in a

particular town where the weather

consistently year round is between 90

and 110 degrees you really have few

natural resources or amenities near you

you know maybe you're in a desert or

whatever or the amenities and resources

that are around you are are not ones

that are desirable to you uh certainly

not desirable for human habitability

then then you might leave maybe you move

to that area because state income taxes

were lower uh or or it was uh you know

uh the housing was initially cheaper but

then it became expensive right but what

happens in areas like this is people

move to them during these sorts of

pandemics or or life-changing events

like tax events that change or whatever

and they realized wait a minute I don't

actually want to live here and they

potentially leave so you sometimes have

this transition away from areas and you

can actually see declining rents sooner

in potentially less desirable areas so I

would say that this curve looks a lot

more like this I'll give it a little bit

more of a gap looks a lot more like this

in low desirability areas so if orange

is prices green is desirability areas

and you see those rents fall sooner and

red is going to be that Decline and runs

in higher desirability areas you're

probably still going to see those

declines but the magnitude of the

declines or the length of those declines

could occur longer you might get an

earlier bottom and some of the more

desirable areas and this actually is

where we get into a New Concept which is

quite remarkable and it's known as the

concentration of poverty and see the

concentration of poverty concept is

incredible and it's very important to

understand

so I'm going to give an example here

let's say you live on the coast of

California and you can't afford living

in the coast of California anymore and

now you're going to move Inland and I'm

not going to pick an example of a town

Inland but let's say you're going to

move Inland to California because you

just can't afford living on the coast

anymore well you and many others make

that same move Inland and now you go to

a small town of say 30 000 people and

you move from a larger City on the coast

that was very expensive to a low cost of

living area where there are 30 000

people but now all of a sudden you get

this rapid growth in population from

thirty thousand to say thirty six

thousand so now all of a sudden

population grew 20 in this area and

initially you get rents that boom up

maybe that's what happened during the

pandemic right you get rents that boom

up and they boom up so much and so

quickly that it's actually an

unsustainable rise and then you actually

start seeing something incredible

happening and that's known as a service

service decline because of the

concentration of poverty so you take

people who can't afford living in

expensive areas anymore you move them to

poorer areas and now you overwhelm poor

infrastructure schools police fire uh

street cleaning roads everything

everything stores everything is now

overwhelmed and overfilled and you

actually reduce the value of living in

that now 36 000 Town 36 population town

because everything's actually worse than

before those folks move there now you

have this really interesting curve that

you want to think about because really

what you've done here is you had some

form of a shock or either a tax change

or a pandemic or whatever that led rents

to artificially run up above uh the the

trajectory of sort of the nation right

like if the orange line is sort of

national rents for some reason this one

particular area just exploded but then

all of a sudden because of the

concentration of poverty becomes a will

actually overpopulate and less desirable

to live here or raise children here and

you actually end up seeing a quicker

decline here and even though everywhere

rents might slow those areas have become

concentrated for poverty can quickly

actually become towns that could

eventually go bankrupt and you could see

a substantial correction to the downside

in rents

so this is where balancing desirability

in real estate is is so important and

this is where I want to give you sort of

a road map for when you're thinking

about real estate is you have to think

about real estate as what it is first

people have to want to live there if

you're simply looking at a spreadsheet

and cash on cash returns you could end

up investing in a bankrupt town that has

one source of jobs and if that one

source of jobs goes away you're done all

those rental properties go to zero or

they're worthless or people just leave

and you can't rent them out anymore and

then you lose liquidity right liquidity

is something that's already not

synonymous with real estate real estate

is not known as being a liquid

investment but your investment will be

more liquid if you invest in a desirable

area for example I sold 85 percent of my

real estate portfolio in an extremely

desirable City actually multiple

extremely desirable cities

and I was able to do so very quickly

because there are plenty of people

willing to buy

because there are more than 700 000

people in the county that I was selling

these properties in

well if you're selling an accounting

that has 20 000 people and all of a

sudden you've got to dump 20 or 50

properties what are you gonna do the

liquidity won't be there so smaller

towns have liquidity risk they have this

this potential uh key employment risk

they have desirability risks and so

there are a lot of these Zoom towns that

are actually going to see these massive

declining rents very very quickly and

potentially pension fund liquidations of

properties to where yeah you could in

isolated regions actually see prices

fall substantially more than you might

Nationwide and so this is where when

people say all real estate is local

they're right like every Market's going

to behave differently you can't like

paint the whole Market with a with a you

know one big brush and say that's it

everything's going down 30 no do I think

everything is going to Trend down yes

absolutely I think all real estate

markets across the entire United States

and probably the world are going to

Trend down under these higher interest

rate regimes that we're facing and we

probably won't see a trough in uh real

estate prices like a bottom until a year

to a year and a half after the Federal

Reserve finishes their tightening

that's kind of scary

but it all goes back to the real estate

cycle and what's fascinating is the real

estate cycle actually teaches us about

that delay in rent but I I wanted to

before we talked about the real estate

cycle just teach that real estate is

local not only is real estate local but

you have this concentration of poverty

risk and this Zoom down issue that

occurred that could lead you to see some

dramatic changes to the downside in

rents in some areas that that are just

not going to be true in others so do

keep that in mind inertial inflation

first then rents go down how can we see

that depicted here well let's start

here which is what is the bottom of the

market look like well the bottom of the

market actually is very interesting

I remember this very very clearly

because I remember marking the bottom of

the market uh in November of 2021 and

the reason I was able to do that was

because I I saw housing inventory rise

rise rise rise rise rise rise rise up to

the point where the one city that I

worked in had 450 properties on the

market when somebody came to me and said

Kevin I want to buy a three bedroom two

bath house I said sure uh which

neighborhood because there are 10 in

each it was incredible and I remember at

the time

we had about

450 properties on the market and that

was about November of 2011. and I began

noticing that the number of properties

on the market began falling we went from

450 to 420 to 400 to 380 to 350. and

before you knew it

by November of 2012.

by November of 2012 you won't believe

this

we were down to 80 properties on the

market

that's it it got so bad that real estate

agents were wondering how am I going to

be able to survive there are not enough

homes to sell I remember this clearly

I'll never forget that

and sure enough

that next year

in March of 2023 uh sorry 2023 2013. we

actually saw home prices jump about 20

percent in not the span of a year but in

the span of two months it was April and

it was March so we saw this explosion in

home prices very very quickly because

there were just so few homes somebody

put a place up for 350 itself for 400 so

somebody else put a place up for 400 and

that's sell for 450. until it found that

equilibrium right so Supply is such a

such a clear indicator of a bottom in a

market the tracking Supply is probably

the best thing that you can do but

notice that you get an absorption of

real estate for sale Supply

before you actually get low tenant

vacancies

and then when you get low tenant

vacancies you see increased rent in

prices obviously prices go up kind of

through the whole curve here then you

get sort of this glut of new

construction kind of what we got going

on right now we've got the most homes

under construction right now that we've

seen over the last decade we have the

most homes under construction now

yeah and some of that has to do with

supply chain bottlenecks and hold ups

and such but there's a lot of new

construction right now and this is where

then you start actually having the

opposite effect

where you potentially go from a shortage

of homes to an oversupply and this is

roughly where we sit right now right if

if we just hit you know if March was

2022 was over here

we're we're just the beginning of

potentially even touching oversupply in

some markets but a lot of areas are

still very very low in Supply we're just

in the trajectory of adding more homes

on the market so it's going to be a

while before we're actually at

saturation on the market where there's

so many for sale signs around that

you're just like oh my gosh what's going

on to this town there's so many for sale

signs around only after you get this is

over Supply and you start seeing prices

actually come down do you then start

getting higher vacancies and that's

because people are moving out of

potentially certain areas that they move

to for again Zoom purposes and are now

leaving and now these places become

harder to rent out and because there are

more there's now an oversupply you have

potentially more sellers who are saying

oh it's time for me to rent out my

property instead of trying to sell it

and that leads to vacancies because they

can't sell it and now they can't rent it

either but only later

do we actually get uh the the full

realization of declining prices on a

year-over-year basis month over month

begins a lot earlier and declining rent

in general tends to occur later in in

that bottoming process I think it's kind

of fascinating I think it's it's not

like a perfect cycle here I think I

could tell you that declining prices uh

really start here but you don't see

those year-over-year moves over here

same thing with increased prices

probably begin over here so probably be

worth updating that to say declining

prices here increased prices over here

sort of the oranges right but those

rents lag you generally don't see those

rents until vacancies change and that's

why the order of this cycle is so

important

so the the point of all of this is is to

first of all encourage you to be

prepared right get educated I mean you

all know I sell courses on this kind of

stuff but get educated you know watch

YouTube videos uh you know go to my real

estate playlist you can go to

metcaven.com links and the real estate

playlist uh is on there uh I will double

check after I post this video

but uh you can click the real estate

playlist and watch the real estate

videos metcaven.com links uh you know if

you just want to watch Fed videos or

stock videos and click those links you

can do whatever you want you want to

invest in house hack or learn about the

courses click those links just

everything's at my kevin.com links

but pay down debt

get a better job you know somebody

suggested the other day that they were

going to get a second job like they make

six figures at one job and they're like

I have so much free time I'm just gonna

get a second job

and it's like hey well if you can have

two six figure jobs for example I mean

even if you had a six figure job and a

50k job it's like well now you're able

to qualify for that much more real

estate right I know you're probably

going to need to do that for two years

and prove that or at least one year plus

like some kind of year-to-date income

statements uh which some lenders will do

not all lenders will do but get your

income up now is the time and I hate to

say it but it's true it's Now's the Time

to like

Double Down uh you know tighten those

boot straps save money and see what you

can really do to prepare yourself to buy

real estate getting educated paying down

debt having a lower debt to income and

having more cash available for a down

payment and to qualify for a loan is is

what's going to get you into real estate

and so if I had to paint uh sort of a

projection for the real estate market

right now in terms of where I think top

and bottom is we'll do that together and

then we'll end the video okay I think

this is actually quite useful

so we basically had this near straight

up certainly an acceleration I'd say in

2013 uh in 2018 we had a minor little

dip here you know and then in the

coveted pandemic we had a minor little

dip and then we went a little parabolic

and I'd say now we're turning okay

so I'm gonna make that turn a little bit

more abrupt since I'm running out of

space

so we're gonna go with a turn here so

let's go ahead and label this you know

let's call this

2011

2013

2018

2020 here's your pandemic boom time

right now here you sit

at 2022 you're not you're not going to

go back to these sorts of levels all the

way down on the left side but but I do

think there's a chance you'll probably

go somewhere over here and so I would

say we're going to compress this a

little bit just so I can like

graphically kind of show it to you

um I I would guess the real estate

market will probably do something like

this

uh where we do go back maybe to those

2019-ish levels right

yeah I believe that this uh we'll

probably see a Fed u-turn

uh probably if if this is I think you're

gonna see a more dramatic drop here

in March of 23 you probably have a Fed

u-turn

here

and I'm gonna go with q

4

2023 oops

2023 there we go something like this

and then probably like a q

to 2024 maybe trough

bottom somewhere on here

maybe maybe even a little bit earlier so

like q1

2024 to Q2 like that winter quarter

could be very interesting as well so

maybe even like Q4 23 something like

that so fed U-turn called that Q3 to Q4

Q3 to Q4 2023 bottom somewhere between

Q4 2023 and Q2 2024 but then it's going

to take a little while to really get out

of this because I don't think rates are

going to plummet very very quickly

although they could and they could drive

the market up quickly but I would say

you'd certainly be back to some form of

appreciation by 2025

q1 almost certainly but you can't make

any guarantees you know these are just

guesses and and all of these facts could

change dramatically so uh these are just

my thoughts uh personally with househack

I probably want to be

buying

here

you know as as the market kind of is

here so I don't want to be buying now

this right here this is wait wait wait

wait wait wait wait wait wait wait wait

wait patience I think will be rewarded

that's and so that's going to be a

little bit of the goal

for us anyway hopefully that provides

you some insight if you found it helpful

consider sharing the video

appreciate you as always and I will see

the next one thanks goodbye