The Foreclosure Crash is Starting | Housing Reset.

Persistent rise in foreclosures may be a

sign of cracks in the housing market.

There were just less than 37,000 US

properties with some type of foreclosure

filing in October. That's default

notices, scheduled auctions, or bank

repossessions. According to Adam, a

property data firm. That was 3% higher

than September and a 19% jump from

October of last year. And Florida, South

Carolina, and Illinois led in the nation

in state foreclosure filings. There are

now concerns about a real estate housing

crash in a very specific part of the

market and it's led by buyers who are

already heavily underwater.

This is scary because it brings us back

to the thoughts of the days of 2008 that

we thought were behind us where people

could borrow more than the home was

worth. And those ended in 2008 after the

crash or well so we thought. It turns

out home builders have figured out how

to get people underwater.

And I'm here to explain what's going on.

Listen to this. Of the roughly 28,300

FHA loans that Lenar Mortgage

originated, which is the mortgage

division of LAR Homes, a homebuilder,

over the 2-year period tracked in the

Ginnie Mays mortgage database, 27% of

them are now underwater. At Dr. Horton,

18% of those people are underwater.

So, why all of a sudden are people

underwater? And how do people get

underwater when they're buying new home

construction? This is scary and it's a

really important lesson for you as a

long-term investor. And something that I

mentioned this morning that I want to

reiterate here is folks, if there's one

thing you recall from this video is

write down a little sticky note. If you

ever see foreclosures in the long-term

future on new construction homes,

they're often really great deals to buy

because if homes are built in 2018 and

they get foreclosed in 2028, you've got

a 10year-old home, you usually don't

usually have usually, not always, some

builders suck, but usually don't have to

worry about things like the roof or the

foundation or the plumbing or the sewer

lines or whatever like you would in a

1950s home, which almost a hundred years

old, right? Instead, you could

potentially get a great deal for pennies

on the dollar, which is great for people

looking for opportunities.

Now, most of these we think are going to

be concentrated in areas of new

construction home building, which makes

sense. Sort of housing clusters they

call it. See, the Wall Street Journal

says the risk is that owners who paid an

overinflated price find will find

themselves underwater soon after the

sale closes or already do. Newly built

homes can be clustered in areas with

plenty of new supply, which exacerbates

the problem with if values fall. I've

said it a thousand times on the channel

and I'll say it again. When you get new

construction home builders gone wild,

like instead of girls gone wild, it's

new construction home builders gone

wild, you end up getting declines in

prices. And it's actually a feature of

capitalism. A feature of capitalism is

that when there's money to be made in

home sales or building homes or new

construction homes, what happens? Well,

you end up seeing a an over supply of

new construction and a decline in

prices. That's not true across most of

the nation. across most of the nation.

You could actually see that in 2025, not

only are home housing prices at the

highest level we've seen in the last

four years, but we're actually inlecting

up on home prices, which is insane. And

it's only when you go to those overbuilt

metros like Austin, Texas, that you

actually see that home prices are kind

of flat to 2023, but compared to 2022,

you're actually down a chunk. parts of

Texas and Florida. Home prices have

collapsed in part because of the

overbuilding of supply.

>> Florida, South Carolina, and Illinois

led in the nation in state foreclosure

filings. On a city level, Florida's

Tampa, Jacksonville, and Orlando had the

most filings with Now, wait a minute.

How can people actually end up buying

real estate and being upside down on it?

And this takes a little bit of an

explanation, but it's actually pretty

simple. So, I already wrote this out for

us to make it simple. Let's say you want

a three-bedroom, two bath house in the

1337 zip code. You look at homes, you

get preapproved, and everything's a

1960s,7s or 80 home, and you're like,

"Oh my gosh, old neighborhoods, smelly,

dated homes. You feel like you got to

remodel everything. They're all selling

for $450. That means for $450,000,

those are your comps. Three-bedroom, two

bath, call it 2,000 ft². Those are your

comps in that zip code. Then you go walk

into the LAR neighborhood. And the LAR

neighborhood neighborhood is basically

like a sexy girl pulling her top off

going, "Look at my package, bro." And

the package is really sexy. It's only

$50,000 more than all the comps in the

neighborhood, but we'll buy down your

interest rate to 2.99%

and we'll throw in some upgrades for

you. You get a quartz counter. You get a

quartz countertop. You get a quartz

countertop. Why? Because that's how the

homebuilders prop up the prices in the

neighborhood, which they have to do.

Think about it, folks. If you're selling

homes or that you're building, you build

them in phases. You build them in phases

because you can't afford to build five

phases of homes at once. Lenders or

construction lenders will actually give

you money for phase one. You build it

out, you sell it, and then you got to

show them that you sold phase one, so

you can actually start financing the

construction of phase two. This only

works if prices are going up $4.99,

you know, call it 509 for the next

phase, 519 for the next phase, 529, 539.

Well, how do they do this in a market

that's declining in new construction

neighborhoods, parts of Texas or

Florida, where you have this glut of

homes? How do they do this? Well, even

though market values might be declining,

what they do is they throw in more

incentives. Oh, these titties aren't

good enough for you at 2.99. How about

1% mortgages? We'll buy you down to a 1%

mortgage for a limited time only.

Seriously, you're literally starting to

see some of these things get pitched at

new construction homes because that's

how they can end up selling

properties. I kid you not. Look at this

realtor.com. Mortgages below 1%. They

exist, but only for those who buy before

the end of the year. I kid you not.

Pressure sales endofthe-year sales tap

tactics. Look at this. Dr. R. Horton,

the nation's largest home builder, has

introduced a mortgage incentive program

that drops the intro rate below 1% for

qualified home buyers only. Oh boy,

we're back to 2007, boys and girls. You

can now get a 1% mortgage. And how's

that for propping up phase 5 home

prices? Oh, but wait, then you go buy a

phase 5 property and then guess what

happens? Well, all of a sudden you go

into escrow and you're like, "Oh, I'm

going to finance even more upgrades. I'm

going to finance crown molding. I'm

going to finance new flooring. I'm going

to finance blinds. I'm going to finance

solar panels." Now, you buy a house for

550 to 500, you know, or even $600,000.

And then somebody's like, "Hey, you

know, what's this place going to be

worth uh after you buy it?" Well, much

like a new car, I hate to say it. You

end up walking out and guess what? all

the neighborhoods, all the houses in

that neighborhood are selling for

$450,000.

And so it's like, well crap, the new

construction

is all of a sudden now what? Way

overvalued and way overpriced. And this

is how you end up getting a lot of these

first-time home buyers or FHA home

buyers absolutely screwed. You rope them

in to these terrible deals that are

introductory financing motivating people

by, oh, you don't have to refinance or

you don't have to renovate the property.

You don't have to do anything. You could

just move in. It's so great. It's nice

and easy for you. And you wrote people

in with 3.5% down payments and

introductory loans. They finance

themselves to the to the, you know,

whatever max. And then guess what? Oopsy

dupsies. you're upside down and that

sucks. That's how foreclosures happen.

And it's not good because it's exactly

what's happening, especially in

overbuilt areas right now. People are

getting suckered in to what are bad

deals. Now, I'm not saying you shouldn't

buy a place with 3 and 12% down. I

actually think you can get a good deal

with 3 and 12% down. You just got to

make sure you buy a wedge deal. I talk

about that a lot on the channel. Quick

example, you buy a $450,000 home for

like $350,000 because it needs 50 grand

of work. then you're into it for four.

But you're into it for four in a $450

neighborhood. You have $50,000 of

buffer. It's new construction is

literally a negative wedge. So you are

literally upside down on new

construction. Uh most of the time,

yeah, if you're going to be for there

for the long term and you can afford it,

great. But I'm I typically tell home

buyers of new construction that you

generally pay a little bit above market

value. And if you get too crazy with

financing, it gets even worse. And

that's great if you can afford it, but

if you lose your job and you're upside

down, it sucks. Now, if you are going to

buy real estate, here are a couple

things to pay attention to. Number one,

try to find areas where there is low new

construction because it keeps you away

from this sort of foreclosure madness.

Think liberal or blue states. I know

half of you are going to hate that idea,

but the reality is they're so bad at

building new housing, prices just go up.

It's kind of this great irony because

usually politicians run on the idea of

affordable housing and they just make it

more unaffordable. Uh, and then of

course, while you don't have to find

something as advanced as what I'm about

to show you, I just want you to know

this is a deal I walked through

yesterday. These things hit the market

all of the time all across the country

and there are no shortages of deals. By

the way, I just like to be clear. What

you buy to get an positive wedge doesn't

have to look like this. This is a

hoarder property that I went through

with my little guy, and it's a disaster.

It needs a lot of love. Hoarder

properties aren't easy, but they can

make you money. But you don't have to

buy something like this where the poor

kiddo is like, "Bro, this is this is

insane, man." Right? It doesn't have to

be that extreme. I'll show you another

one because these properties come up all

of the time. I I run a business doing

this and I'm not trying to pitch you on

the business, but I run a business

where, you know, we buy properties like

this that other people don't want to buy

and and then I do my best to just sort

of teach and educate like why these

could be good deals. Like here's an

example of a hoarder house that had been

cleaned out. And unfortunately, well,

this was filmed with the meta glasses,

but unfortunately, so the framing is a

little weird, but unfortunately, because

this has been so filled up with junk,

you've got this mildew at the side of

the property here. You can see that at

the bottom few feet over here. So, this

is obviously a little bit advanced. You

know, there's a little bit of love to do

here or a little bit of work to do here.

I film it as I walk through the

property, I guess, on my iPhone or parts

of it. But anyway, uh I love the meta

glasses for exactly this sort of

purpose. But you go through these

properties and these are properties that

create fear for other people because

they're stinky and they're gross and

nobody wants to handle this. It doesn't

have to be this extreme. But the point

is there's no shortage of properties

that need love out there that can create

value for you as a home buyer or a new

investor or whatever. Uh and so I just

want to remind folks that when you do

that, you're providing a service for

people, right? You're taking a home that

nobody can safely live in and you're

turning it into a property that somebody

can safely live in. That's providing a

service. In this case, the vent hood was

split open inside there. So, all the

grease was spewing out when they turned

on the vent hood. Kind of wild.

Beautiful house though. Beautiful

neighborhood. A lot of potential over

here. And so, uh, yes. Yes. If you want

to learn more about what it is that we

do and you want to invest with us, you

can. Uh, you could go to househack.com

or reinvest.co.

That's the shirt I was wearing there.

Uh, and uh, this is my startup. And what

we do is we buy homes and we fix them

up. You can actually see all the homes

if you just click on little real estate

button. Well, you can see a lot of them.

We just bought 11 more, so we've got to

add, but you can kind of see where we

transform what's gross and make it nice.

And you can see these different examples

and estimates and stuff uh, in terms of

how we do these transitions. And so, we

think it's kind of cool. You can page

around there if you want. And if you

want to invest, you could always read

the information here, see what we're

doing with artificial intelligence, uh

the app that we're launching, see what

the investment is all about. And uh

check it out over at houseack.com or

reinvest.co. Make sure to read the

offering circular to understand all of

your risks because every investment

comes with risk and this video can't be

a solicitation. Thanks for watching.

We'll see you in the next one.

>> Why not advertise these things that you

told us here? I feel like nobody else

knows about this.

>> We'll we'll try a little advertising and

see how it goes.

>> Congratulations, man. You have done so

much. People love you. People look up to

you.

>> Kevin Papra there, financial analyst and

YouTuber. Meet Kevin. Always great to

get your take.