The Fed JUST said THIS | Coming Housing Crash.

hey everyone we kevin here look i know

there are a lot of you who do not

necessarily trust the federal reserve

especially after jerome powell's

transitory faux pas but researchers a

substantial amount of researchers over

at the dallas federal reserve just put

together a warning for the entire u.s

housing market

the market may be in a bubble and we're

going to take a look at the research

that they're looking at and what they

suggest in terms of how bad a potential

crash or correction could be in housing

now keep in mind the federal reserve

employs over 2 000 researchers whose

goals are to signal these sort of red

flags now there's an ongoing joke that

hey economists have predicted 11 of the

last two recessions but hey

i always think it's worth heeding

warnings when we get warnings especially

if we've been feeling some of these

things and having suspicions and then we

start getting information that either

says our suspicions are correct or wrong

in this case i've been warning of

potential issues coming to the housing

market since january and i've been

putting my money where my mouth is

selling some of my real estate trying to

refinance early before rates started

skyrocketing and even going as far as

taking a million dollars and shorting

treasury bonds by the way all of my

trades and every single move i make in

uh either real estate or the markets is

disclosed to course members in the links

down below stocks in the stock side

college stocks and psychology money

group and real estate in the real estate

investing group but of course we talk

about these in the course member live

streams anyway but folks let's get into

this piece because it's pretty wild take

a look at this okay

so real-time monitoring find signs of

brewing housing bubble now i'm going to

just simplify this and go through some

of the big things they talk about here

but what they notice here is that the

housing market really strengthened

notably starting in early 2020. in other

words we had this sort of appreciation

of home prices doing this since about

2012 but then we've really seen this

sort of almost exuberant bubbling up of

home prices and we're wondering what's

the sustainability of this right one of

the big things to also keep in mind is

one what you can do when it comes to

housing is you can track a data

speci generally with your real estate

agent you have to be really on top of

this and i'm going to be releasing some

updated statistics on this in a future

video but what you really want to do is

you want to track the month over month

differences in mls data and if you ask

your real estate agent for this

information you could see changes in

your local market pretty dang quickly

you want to pay attention to these

because right now everybody still feels

like the housing market is booming in

fact every time i make a video like this

people leave comments like you're crazy

the market's still booming the market's

doing fine

okay all right i'm gonna look at the

early facts all right we know that rates

are up we know we don't expect rates to

come down anytime soon even if war ends

we're still focused on inflationary

concern potentially somewhere between 7

to 17 federal reserve rate hikes we

don't have a u-turn anywhere in store in

2018 we had a u-turn in store remember

at the end of 2018 the fedu turned on

rate hikes so so there are definitely

some issues here but what we're looking

here at are uh statistics from the

federal reserve what are they looking at

right and so they talk about how

obviously this run-up has different

causes

but what's more important to me is what

they suggest here is how you can end up

having rising home prices

leading home prices to actually diverge

from market fundamentals as guess what

existing investors and new investors buy

more real estate because of fear of

missing out you literally have the

federal reserve here citing fomo as a

risk factor for the real estate market

and they measure this with two specific

charts which i'm going to show you in

just a moment but it's important before

we go to those to know that what they

say is important to focus on is any sign

of exuberance in a market because

exuberance takes what they call

non-linear courses when it comes to the

path of real estate price appreciation

and then of course crashes so linear

appreciation would just be kind of like

this okay three percent home price

appreciation per year right

non-linear would be something like we

had our three percent but then we get

into some bubble or exuberant phase and

any time we get into these exuberant

phases this is where you can have all of

a sudden these sharp and sudden declines

before you sort of have this recovery

and then of course it depends how long

that recovery is is it a quick v-shape

is it a longer you know maybe more nike

swoosh-ish style recovery right but

anyway

so uh the indicators they've put

together here shockingly in my opinion

see this is the part where they talk

about non-linear exuberance but don't

worry so much about that what's shocking

about this is the data that they put

together on these charts that i'm going

to show you now really only go back to

the third quarter of 2021 and i promise

you out of every indicator i'm looking

at this has only gotten worse so

whatever you see here if what you see in

these charts makes you nervous the

data's gotten worse and it should make

you more nervous we'll see but take a

look at this so this here is a chart of

real housing prices okay great they've

gone up and they bubbled up sort of here

in the 2000s and then we had the bust

over here and great they've kind of been

up since then fine that doesn't tell us

much but what's this gray section

because it certainly doesn't signal a

recession because the recession was like

over here right so it doesn't what this

grape box here signals

is actually a period of time during

which the federal reserve believes that

real housing prices adjusted for

inflation

are above the 95 confidence interval

that we're in a time of exuberance and

so they they give a lot of tests for

this they they talk about all the

indicators they use here uh and when

they put these indicators together their

formula says any result above a 95

threshold

signifies 95 confidence of abnormal

explosive behavior or housing market

fever or in other words exuberance and

fomo and so this is the fomo chart that

there was fomo between the period of

1998 and about 2007

that we briefly had fomo over here at

the beginning of 2018 which is crazy

because you could actually go back to my

videos at the beginning of 2018 and i

talk about how uh oh it feels like the

housing market is shifting we actually

ended up having a brief decline of about

12 percent the real estate market still

ended a positive that year when the fed

u-turn but we had a brief decline in

real estate prices following that

exuberance and it's crazy to see their

chart sort of aligned with exactly the

videos that i was making because i

didn't see this chart then it's kind of

a cool chart uh but anyway so now

they're saying here we are again in this

exuberance phase and so you can see that

at the bottom here see this sort of red

line that goes across the bottom here

this dotted line that red line says

anytime

real home prices are above that sort of

95

confidence interval we're in a period of

potentially a bubble in the making right

or that people are being a little too

fomo ish when it comes to real estate

now look i'm a big fan of buy and huddle

real estate and i'll talk about some of

the ideas that i have regarding what to

do with real estate towards the end of

the video but let's see what else they

say so this is chart number one chart

number one is yeah okay we're seeing

signs of exuberance

the second chart that they refer to so i

should actually put number two so this

is number number one right here this is

real house prices and their level of

exuberance so chart number one here so

in this chart what we actually have is a

fundamental price to rent ratio now we

know rents have popped up a little bit

lately but not as much as housing prices

and so when we look at the fundamentals

hey based on interest rates based on

costs for actually being a landlord what

should rents be you can see there are

periods of excess where home prices have

actually substantially exceeded what

rents are and we're seeing that again

right here look at that you saw it over

here in 8788 you saw it over here top

out in about 2007 and you're seeing that

excess above fundamental rent value

happen again this next line below it

here is basically just a way of of

charting how much excess there has been

and so if we only chart the excess

or the price to rent exuberance along

with the price to rent

fundamental exuberance we can see we're

definitely above again that 95 line here

in 2000 to 2007 and again right here so

in other words a second chart saying

based on rent fundamentals things are

getting a little heated right now

but then there's a third chart and this

is quite an interesting one because this

one isn't as alarming

but there might be a reason why it's

actually not alarming and why it really

should be take a look at this one this

one takes individuals disposable income

how much extra money do they have and

how do prices relate to their disposable

income

and when they factor their individuals

real disposable income into this chart

anytime we've been over a level of 95

confidence has been another

sign or another element of evidence that

we're in sort of a housing bubble

starting to form right again we had that

over here substantially between 2003 and

2007 makes sense that's when we had a

real big uninterrupted period of these

problems above that 95 interval right

but wait a minute

why are we not above that now

well the federal reserve has an idea

listen to this the delay in elevation of

this exuberance statistic is partly the

consequence of a surge in real

disposable income during the pandemic

that led to slower growth rates of this

chart in other words this chart didn't

move up as much as it should have

because of why folks

stimulus

the surge in disposable income is mostly

associated with pandemic related fiscal

and monetary stimulus efforts and

reduced household consumption arising

from mobility restrictions and lockdowns

if disposable income increases turn out

to be transitory as fiscal stimulus

wanes and the federal reserve reverses

its accommodative monetary policy recent

patterns in this chart may prove to be

less useful for determining a bubble in

other words

in other words this chart may be overly

conservative so now you have these three

charts here where the federal reserve is

saying uh-oh red flag starting to see a

little bit of a sign of a bubble mind

you again this is only taking data from

q3 2021. this is what i hate about like

this research is sometimes they're just

they're behind they're behind the curve

like i try to be at the forefront of the

curve but this is corroborating the

shift that i'm seeing right now

especially with interest rates and

softening in the market already okay

anyway

number two this chart right here with

price to rents the number one chart of

course the real house price

sign of exuberance again price to rent

over here and then this conservative

chart about price to income okay

interesting

and so then they talk about how hey look

we've had a lot of reasons here for

prices going up low interest rates

supply chain disruptions stimulus

programs and

prices that have been fueled by a fear

of missing out wave of exuberance

now

they do say bottom line in terms of a

correction and then i'm going to talk

sort of about my opinion here and and

this is also kind of aligned with what

i've said they say here based on

president present evidence there is no

expectation that a fallout from a

housing comp

correction would be comparable to the

2007 to 2009 financial crisis this is

where values went down 40 right

in terms of magnitude and gravity that's

because household balance sheets are in

better shape credit scores are in better

shape borrowing everything's in better

shape right but that a housing

correction could still come and we've

got some red flag indicators here now

here's something that we talked about

with course members this morning and we

regularly have these sort of deep dive

discussions consider this really quickly

if you bought a house for 350 000

and your equity in that house was thirty

thousand dollars you put thirty thousand

dollars down when you bought it and

ignoring principal pay down here let's

say that house is worth six hundred

thousand dollars down well folks that

would mean you have two hundred eighty

thousand dollars of equity in this

property right well what happens if the

housing market doesn't go down 40 like

in 2008 right let's just say the housing

market goes down 20 percent

well a 20 reduction would mean you've

lost 120 000 that doesn't mean your net

worth went down twenty percent in fact

your net worth just went from two

hundred eighty thousand dollars down a

hundred twenty thousand dollars went

down to a hundred sixty thousand dollars

for your equity in this property

assuming this was all you're not worth

here right that actually represents

about a forty percent decline so look at

that multiplier i mean it's the same

thing in stocks when you're using

leverage right but your your equity is

evaporating substantially faster so a 10

decline could divide

evaporate your equity by 21.5 right just

as an example and so that has

implications to how people feel about

their own personal wealth and how much

they're willing to spend and that has

potential implications for stock

earnings right

so so what do you do

in this scenario and uh federal reserve

basically ends up just by talking about

how these are warning indicators okay

got it so so what do you do in the

scenario well at this point it does seem

a little bit late to to refinance so in

talking with course members i sent

alerts that i was refinancing as much as

possible

starting in the third week of january in

the first week of february and then that

was potentially also a time to start

selling some properties but i'm not a

big fan of selling properties unless you

have a better opportunity to go to i'd

rather potentially take a little bit of

that equity out and have it ready in the

event i can go shopping for more real

estate right now it's gotten a lot

tougher to do refinances now it might be

a little too late because rates are

already so high so it might make more

sense to do nothing

now i'm not also a big fan of selling

because if you sell you're probably

gonna you know take a you're already

gonna take a beating on rates being

higher and you're probably looking at

somewhere between seven to eight percent

in selling costs repairs commissions

escrow title all this crap and then

we're gonna potentially pay taxes and

then we're gonna put the money right so

unless you have a solution for all of

these things taxes where you're gonna

put the money you have a better

opportunity and you wanna try to time

the market it probably doesn't make

sense to actually do anything now while

i can't give financial advice being a

real estate broker ironically we can

actually give real estate advice and and

in this market if i were to give real

estate advice to a client i would say

hey look i don't necessarily think it's

a

terrible time to buy but i would hold

for good deals if i found a good

fixer-upper something that could

insulate me in the event that there was

a somewhere between a 5

to

15 percent drawdown in real estate

prices over the next 18 months during

the fed hiking cycle i would want to be

prepared for this so i would only

want to see somebody going into real

estate who could withstand that kind of

a shock you know something like this is

going to put them upside down because

they're they're doing you know hard

money loans and they're yolo betting

that that everything's going to be fine

then i then i'd be a little bit more

nervous i would want to make sure that

i'm insulated against this kind of

potential downside but it's also

entirely possible that the fomo cycle

continues and this is where we don't

have a crystal ball we can't guarantee

but look how long the fomo cycle lasted

over here i mean quite frankly if you

just and this is if there's an upshot i

mean look at this if you took this

section over here well what if you

compared that to like 98 to 2 000.

maybe that means the fomo cycle keeps

going for another six years and we're

nowhere even close to tops right

no i mean if you overlay rate hikes uh

who knows maybe that changes your

opinion but these are things to be aware

of and if you ever want to ask questions

directly to me about real estate check

out joining those courses on building

your wealth link down below and folks

see in the next one thanks so much

goodbye