Home Prices to Fall 45% | Terrible Housing Crash.

this video we're going to talk about

housing we're going to talk about how

bad the housing crisis is now estimated

to get how much it's already a fallen

some new warnings from the Realtor

Association imagine that the Realtor

Association actually giving a warning

about the housing market we'll talk

about exactly what goes into the pain

that we're experiencing and we'll talk

about which areas are just getting

whacked the absolute most as well as

where some folks are potentially getting

bulk deals and discounts to buy real

estate in bulk welcome back everyone I'm

meet Kevin and let me ask you this do

you know what could cause banks in China

to collapse well if you take a look at

this particular Bloomberg article here

it says that thanks to the housing slump

where home prices have already fallen by

some accounts over 30 percent by some

accounts up to 37 housing could

potentially start taking out some of the

smallest banks in China with in one

scenario 15 of small Banks going

bankrupt housing is a big deal not only

to the Chinese economy but also to the

American economy and of course this

video isn't about China but boy oh boy

we've got some things to talk about

let's go ahead and start with the

realtor Association look at this the

Realtor Association on October 12th

that's today made uh or provided an

update and suggested that mortgage rates

will likely resume their upward Trek

this week moving closer to the seven

percent threshold well golly if you

already type into Google mortgage rates

you're already going to see that

mortgage rates are sitting at about 7.4

percent with a forward trajectory but of

course the Realtor Association likes to

use backward looking data so we're not

quite there yet now the Realtor

Association goes on to say that data

suggests that inflation will remain

elevated putting additional upward

pressure on rights they say that job

growth continues to be strong and

producer prices for goods and services

which data came out this morning Rose

for the month that is rather than

inflation going down it actually went up

more for producers or sellers of goods

and services while producers typically

pass on the increases in production

prices to retailers and consumers

producer price fluctuations serve as a

good indicator of inflation to come as a

result the director of forecasting a

senior Economist at the National

Association of Realtors is warning that

we should stay tuned because we're about

to potentially see even higher rates now

one of the issues with rates is not only

people getting screwed like home

flippers getting screwed which is

probably the worst Market to be flipping

in by some accounts Open Door is losing

money on 42 percent of their flips in

some markets like in Arizona they're

losing money on as many as 72 percent of

their flips by some third-party

researchers we are seeing a lot of pain

and that pain could worsen as rates

continue to rise remember the formula of

10x for every one percent rise in

interest rates buyer purchasing power

goes down by about 10 percent given that

interest rates were sitting at about 2.8

percent in December and now here in

October just 10 months later uh 10 and a

half months later they're sitting at 6.8

at least if not more closer to seven and

a half percent by some accounts we're

probably losing somewhere between 50 to

55 of buyer purchasing power but that's

not the only thing that actually affects

real estate pricing see there are four

pillars for how the real estate market

and its pricing is determined number one

is Supply number two is demand now these

are considered your sort of structural

aspects these generally have to do with

how many homes are actually available

how many houses or how many households

are available or looking for homes and

when you have a supply and demand

imbalance you could see prices rise over

time now typically we see prices rise in

conjunction with interest rates going

down because people can afford to pay

more and there's a lack of Supply well

now we have the other two pillar dollars

at getting hit so if pillar number one

is Supply pillar number two is demand

the other two are affordability and

credit availability or in other words

the ability to make your payment and

actually afford the property and the

opportunity to even get a loan in the

first place and well supply and demand

are really quite entrenched right now

the two that can affect prices in the

near term according to most economists

are mortgage affordability and of course

credit availability and if we take a

look at some of the drama that we're

seeing right now in markets we can see

some real pain first we know that home

buyer affordability has plummeted to

those that we have not seen in over 40

years this is absolutely ridiculous the

red line here represents home buyer

affordability and we have not seen such

a rapid deterioration in home buyer

affordability in 35 to 40 years in fact

affordability compared to January has

fallen by over 50 percent year over year

during the great financial crisis the

declines of homeowner affordability

never exceeded 30 percent that's nearly

half of the decline in affordability

that we're seeing now basically what

we're saying is for the 10 years of a

real estate Bull Run that we had with

the money printer going Burr and rates

really low and trending towards zero we

took all of those 11 years of easy money

policy and easy affordability and turned

it into six months of how that is in six

months we saw affordability get

completely crushed and it's very painful

so mortgage affordability has absolutely

been destroyed and now we're starting to

actually potentially see changes to

credit availability and this is quite

logical according to the CNBC article

mortgage credit available ability is now

at the lowest level since March of 2013

which is when housing was in a slow

recovery from the financial crisis at

the end of the prior decade it fell for

the seventh consecutive month in

September now down 5.4 percent just from

August means in a one month period

mortgage credit availability fell 5.4

percent and this is despite the fact

that CNBC here says mortgage lenders may

be desperate for business as mortgage

demand drops due to higher demand but

they are also now more concerned about a

weaker economy which could lead to

higher delinquencies and this makes

total sense if you were a lender right

now lending money to people or you were

a local credit union do you want people

walking in going hey I barely qualify

for this home if home prices go down and

I'm putting three percent down I might

walk away because I'll be upside down uh

but in the meantime would you mind

lending me that six hundred thousand

dollars yeah no now sometimes you can

like like going into a housing crash

like while prices are kind of peaking

and affordability is falling like what

we saw in the summer and spring price is

peaking affordability like zero because

affordability had already crashed you

sometimes see programs come out like

Bank of America zero percent down option

where you actually see lenders loosening

credit availability but I think that was

just an inconvenient time for Bank of

America and even though that went viral

it's not usually what happens during

this part of the real estate cycle see

something we talk about in my courses on

building your wealth specifically

through real estate remember I'm a

founder and CEO of house hack if you're

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Wealth through real estate whether

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everything has to do with real estate

cycle and as the real estate cycle turns

down you generally see less availability

of mortgages that's because lenders get

nervous and this makes sense why would

Banks want to give out risky loans

during this time it's better to give out

safe loans during boom time because even

if you gave a loan to somebody who

wasn't as qualified as they should have

been as long as the price went up things

were okay that's what was said in 2006

and 2007 as well as people would always

have another opportunity to refinance

now don't get me wrong credit quality is

way stronger today than it was during

2007. this is not another 2007. it's

very different from 2007. now I don't

like to say this time is different but

let's be real mortgage quality is 10x

safer today than it was in 2007 but what

we have that's different it's the utter

collapse of mortgage affordability we

have more fixed rate loans less variable

rate loans and ninja loans no income no

job no asset loans like we had in the

last crash but which all of that of

course led to short sales and

foreclosures and all that but we're in a

situation now where we see buyers are

just essentially locked out of the

market it's very difficult to buy right

now and this is why we're starting to

see changes in in Supply that's the next

phase what you see is you see mortgage

availability tightened because credit

availability goes down buyer purchasing

power goes down because interest rates

are going up then Supply starts changing

but not because more people are selling

it's actually because less people are

buying and see this is where rather than

just measuring the nominal number of

homes on the market it's actually really

important to look at something known as

the months supply of homes on the market

and when we look at the month's supply

of homes on the market we actually see a

metric that's Rising right now we're at

the highest level of homes on the market

that we've seen since July of 2020. it's

not really that big of a spectacular

number but it's very important because

the way supply of homes on a month over

month or sort of how many months of

Supply we have is measured is you simply

take the outstanding supply of homes and

you divide that by the number number of

homes sold in a month and the reason

that's a really important ratio is

because if the number of homes sold per

month plummets

then the then the denominator gets

smaller and when the denominator gets

smaller the end result gets bigger in

other words you have more homes

available for longer that's because

you're actually selling less homes so

even though you might see low Supply you

could actually still see the month of

Supply or how many months of Supply we

have available go up without actually

seeing more Homes at the market because

less homes are selling and when months

Supply goes up the next thing that

usually happens is prices fall now we've

already talked about how prices have

moved so far prices so far are down

roughly about six and a half percent

across the entire country in some areas

prices are actually down more than that

but that's from Peak from about March

now we'll talk about some specific areas

in just a moment but what's important to

know is it takes a while for all of

these sorts of pain thresholds to

actually really manifest in the realest

say Market again you get buyer

purchasing power going down that's

because interest rates are going up

right then you get Banks start getting

nervous and they actually restrain buyer

demand even more then you reduce the

volume of properties sold when you

reduce the volume of property sold how's

the stay on the market longer more

supply of homes for longer available and

then sellers who have to sell end up

having to drop their prices and that's

how we slowly start seeing price drops

that's why we've already seen about six

and a half percent price drops

Nationwide since about March to June

every different sort of different areas

kind of peaked out at different times

now one of the reasons we're not

actually seeing this big surge of

sellers all of a sudden wanting to sell

is because of something known as the

lock-in effect this is basically where

you ask yourself the question why would

you sell in this market like why would

you sell if most people have locked in a

mortgage rate of under four percent

refinances are virtually zero over

ninety percent of homes have rates of

under five percent why would you sell

well the reasons you might sell would be

job loss which we might see happen more

so because of the economy that we're

going into but we haven't started seeing

that yet still have a very strong labor

market you could probably lose your job

and still get another job pretty quickly

we've seen the potential uh increase of

inventory from natural things like

divorce or death which those are

unfortunate circumstances but those

could lead to sort of a foreselling and

then generally those individuals either

move into a different property or move

into a rental property you do see some

investors though decide that they want

to sell their rental properties because

keep this in mind up until recently in

some markets one out of every eight home

purchases were to a flipper Nationwide

one out of 10 home purchases were to a

flipper those people like Open Door have

to sell you could also see a lot of the

people who bought up homes for

short-term rentals decide you know what

it's time to take my profit on this

puppy and wait out this recession or go

buy the dip in the stock market that's

what a lot of people are doing as well

they're dumping their homes putting into

the stock market so they can lose even

more money with the hopes that

eventually the stock market will recover

before the real estate market does

because that's usually what happens

consider the stock market bottom in

February of 2009 and the real estate

market bottomed two and a half years

later in about November of 2011. now

you've also recently had about one in

five homes sold to institutions and some

markets like Miami one in four homes

were being sold to institutions some

institutions especially Pension funds

might actually be forced to sell

properties because their bond portfolios

and Equity portfolios are getting

completely decimated so rather than sell

bonds or sell their stocks and equities

at Lowe's they could break the piggy

bank so to speak of real estate however

it takes time to sell real estate

especially if you're a pension fund with

thousands of homes so do we expect to

see price drops like the Global

Financial or the great financial crisis

probably not but we do expect to see

some substantial pain mostly because

while we don't expect to short sell in

foreclosure price a crisis which is

where prices fell 40 to 50 percent

because after all when you're doing a

short seller foreclosure you don't care

about how much of a loss you're taking

because it's not your loss it's the

bank's loss right and so that really

those short sales really tanked the

market in 2008 we don't really expect to

see that kind of disaster again while

it's entirely possible we expect more of

this kind of Crash depending on whether

or not we have a recession take a look

at what Mark Zandy says an economist who

studies this pretty regularly on Twitter

he mentions here that sellers are caving

they understand that potential buyers

can't afford the price they want due to

the surge in mortgage rates the price

the sellers want right and unlike times

in the past when rates Rose they know

they won't be coming down anytime soon

and so sellers could also be motivated

by fee here there's that word and we're

going to have real fear by the way when

we actually not only start seeing these

month-over-month declines which we're

seeing now but when we actually do

year-over-year comparisons and we start

looking from a low to a peak and we go

oh my gosh year over year prices are

really coming down then I really expect

fears to explode but anyway Mark goes on

to say here buckle up he says assuming

rates remain near their current 6.5 and

the economy skirts a recession the

national home prices will fall almost 10

percent Peak through the trough well

we've almost hit that because we're

already down about six and a half

percent Nationwide now most of these

declines will happen sooner rather than

later exactly we've already seen them

however he does say house prices will

fall 20 percent if there's a typical

recession now I usually find that Wall

Street economists tend to be pretty

lowball on their actual expectations of

how long pain will last it seems like

economists are this read of Optimus and

the reality is

the difference here is what you want to

pay attention to if you think we're

actually going to have a real recession

and the FED is going to push us through

and drag us through a recession with

real sustained rate hikes yeah we'll

probably have a more substantial fall in

real estate prices now we'll look at

some specific areas in just a moment but

what's worth remembering is no matter

what if all of a sudden tomorrow

inflation comes in at let's say five

percent and the Federal Reserve says you

know what we're not going to raise rates

anymore we're done we're doing a zero

percent rate hike we could see mortgage

rates plummet very quickly and we could

actually just see what will end up

proving to be a temporary dip in the

real estate market where you kind of see

like this six and a half eight percent

Decline and then it's kind of Back Off

to the Races and money printing because

the FED screwed up

that's possible but that's a very Rosy

Outlook and so we have to be prepared to

react not based on what we believe but

what the FED actually does so me I'm

ready to move if tomorrow inflation

plummeted to say five percent and then

it went down to three percent by the end

of the year and the FEDS like we're done

with rate hikes heck I might consider

going shopping for Real Estate now and

remember I am leading the startup

househack househack.com if you're an

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make sure you join by Halloween and send

your Wire by then too because that's how

you're going to lock in the greatest

benefits now what's also very important

is where are potentially the greatest

deals happening well it depends some

markets are really suffering a lot more

than others some areas like Austin

Phoenix Seattle and San Diego some of

these high priced areas San Francisco

they're already seeing substantial

declines in prices to where some of

these areas are already negative year

over year Nationwide we're not but some

of these areas already are not great but

what's more interesting is actually the

areas that potentially still have pain

ahead of them take a look at this

particular chart here this is a chart

from uh Merrill Lynch about which areas

are potentially the most overvalued the

top ranked most overvalued city is a

zoom town called Boise City Idaho

followed by these other areas here

including Flagstaff Arizona some

locations in Florida and Texas there's

Idaho Falls on here as well wow I've

been there Cleveland Tennessee's on here

Vegas and Henderson is on here Flint

Michigan is over here I wonder if they

still have lead in the water okay bad

joke bad

sorry Spokane Washington is on here

you've got some some big names on here

some very well-known names I was just in

Spokane so we have to be prepared

and the biggest thing that you want to

pay attention to is the Federal Reserve

now how can you be prepared to buy real

estate well increase your income lower

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watching folks check out the links down

below and we'll see the next one good

luck and goodbye