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oh my gosh home sales just absolutely

got arraigned we were expecting a

month-over-month decline of four percent

for pending home sales we actually got a

negative 10

decline in September way worse than

expected sales are now down 31 year over

year and this is where a lot of folks

who talk about the housing market say

hey but inventory is still in short

supply yes maybe inventory might be at

much lower levels than what we've

previously seen But if you start

actually selling less of these homes the

metric of months supply of homes extends

that's because if let's say in a normal

Market you have 200 homes on the market

but now you have a hundred homes on the

market you have half the supply but if

usually 10 sell a month that would be 10

months of Supply but if now only five

are selling a month you have 20 months

of Supply so the fact that less homes

are selling is a concern for how much

home prices could continue to fall and

in this video I want to touch on some of

the reasons we could actually see that

sort of Supply increase and we could

continue to see pain in the mortgage

rate market now first things first

generally we pay attention to the

10-year treasury yield for what

inflation is doing and I think we're

going to still have a very hawkish

Federal Reserve here in the November 2nd

meeting which is likely to drive and

keep those 10-year treasury yields right

around four percent which is roughly

where we sit now I don't really expect

these treasure yields to Peak until two

to three months before we actually see

the Federal Reserve get to Peak a rate

hiking cycle well or a rate hiking cycle

which if we expect the FED to Peak out

on rate hiking around March of 2023

probably going to see the 10-year Peak

closer to January of

2023. now with a 10 year sitting at 3.99

we're really seeing mortgage rates above

seven percent you could easily see this

just by typing into Google mortgage

rates I generally recommend you change

this interest rate to uh 740 that's

generally your prime mortgage rate and

you can see that mortgage rates for the

third year fixed are sitting about 7.2

percent that's a solid four and a half

percent greater than where we sat in

December of last year which reduces

about 45 percent of buyer purchasing

power uh but there's a problem with

mortgages and that's the potential that

the Federal Reserve starts selling off

mortgage-backed Securities see unlike

treasuries where they just roll them off

mortgage-backed Securities might

actually begin to be sold by the Federal

Reserve and this is going to create a

very very real risk for Real Estate the

10-year treasury yield could begin to

fall early next year but mortgage rates

could potentially stay high if the

Federal Reserve starts selling mortgage

bonds which means that we will see

prices for Bonds on mortgages come down

and mortgage bonds actually increase

that means you see what's known as a

wider spread between risk-free

treasuries and mortgage rates and when

credit spreads rise you could actually

be in a situation where the 10-year

Trends down while mortgage rates

continue to Trend up and the FED while

they've been talking about selling

mortgages mortgage-backed Securities

they have not actually undertaken excuse

me they have not actually undertaken

they're still getting over this this

cold it was ridiculous uh they've

actually not undertaken selling mbs's

yet mortgage-backed Securities when that

occurs there could be some real fears

that mortgage rates continue to maintain

higher levels and we see more pressure

on the real estate market take a look

here this shows us that with caps on

redemptions on treasuries and agency

mortgage-backed Securities doubling in

September the pace of the balance sheet

runoff was set to increase in the coming

months the markets for treasury

Securities and agency mortgage-backed

Securities continue to function although

liquidity conditions in both markets

remained low low liquidity conditions is

not good that means you have less buyers

for treasuries and mortgage-backed

securities less buyers means higher

rates and listen to this we're starting

to get this talk a couple of

participants uh remarked that after the

process of balance sheet reduction was

well underway it would be appropriate

for the committee to consider the sale

of mortgage-backed Securities in order

to enable suitable progress to their

longer term goals notice folks this was

the report of the minutes that came out

just a few weeks ago for from the FED

Reserve meeting of September 20th so

they're already having murmurangs of

dumping mortgage-backed Securities dump

mortgage-backed Securities and what do

you end up with you end up with more

pain for the housing market which

obviously is great for my startup

currently accepting a credit investors

house hack but in addition to that when

we see pain in the bond market would

potentially create a new cohort of

sellers for real estate and that's

Pension funds selling real estate see

most people think about individuals

selling real estate as being the driver

of what is going to increase inventory

for the real estate market and really in

order for people to sell a home right

now they would in my opinion have to be

willing to rent at high rents or move

into another property that they own I

don't think a lot of homeowners really

want to sell right now and buy a new

home in fact when we look at the Pulte

earnings report and pulled a homes

report we find that move up buyers are

down like 31 percent compared to last

year so you're really seeing less of a

transition there it makes sense because

you'd be going for mortgage rate of say

three percent to seven and a half

percent like why would you be doing that

that doesn't make sense right now but

that's okay because you don't need that

cohort to sell all you really need to

see pain in the real estate market is

rental property owners selling or

Pension funds starting to sell and

unfortunately uh you're you're likely to

continue to see that sort of of pain

increase over the next months why

because well take a look at things like

what's happening in the United Kingdom

who's having Its Real uh you know Bond

crisis we just saw the Central Bank of

the United Kingdom have to essentially

turn on the money printer again to bail

out the bond market because of pain and

so as a result of this pain in the bond

market what's happening real estate

funds whose investors include Pension

funds have began offering properties for

sale to meet Redemption requests in

other words people are taking their

money out of funds real estate funds

Pension funds are taking their money out

of real estate funds and that is forcing

real estate funds to have to start

offloading properties

pooled pension property funds are

selling warehouses Residential

Properties are being sold any kind of

property is likely to come up on the

market why because here you go Pension

funds have been dumping stocks bonds

collateralized loan obligations as well

as pulling money from almost any fund

that'll give it back the more Pension

funds pull back the more real estate

funds have to start dumping real estate

this is a Bloomberg article here from

just uh what nine days ago here this is

recent information in its recent

information that unfortunately is likely

to get worse and it's not just

commercial real estate it's also

residential real estate and that's just

the nature of Pension funds having to

balance uh the fact that they have a lot

of debt unfortunately a lot of this

occurs with a lag in the real estate

market and that unfortunately leads to

pain likely not really being fully

realized in the real estate market until

we start lapping the highs of real

estate prices that occurred between

March and may of 2022 lapping means we

get to a year-over-year lap where all of

a sudden in March to May of 2023 we're

comparing back to the high peaks at the

beginning of 2022 when mortgage rates

were still relatively low and that's

when we potentially see real fear enter

the real estate market which hopefully

actually occurs after the pain of the

stock market pain because presently if

you have pension fund uh uh recipients

or really retirees who are also invested

in a balanced stock and bond portfolio

they've been absolutely decimated on

average bonds are down just as much as

the stock market 20 to 30 percent and a

retiree who's relying on their homeowner

equity and their Diversified stock and

bond portfolio they've been destroyed

this year and their retirement is in

question lasting people want to do is

potentially as a retiree sit through

another real estate cycle where real

estate prices are bottoming out and uh

and their opportunity to stay retired is

in Jeopardy and the risk of them having

to go back to work Rises it would make

more sense for a retiree to say you know

what let's downsize now even if it means

renting but let's capture our homeowner

Equity since our taxes are potentially

low anyway because their income might be

lower pay the cap gains that you need to

but take money off the Vegas table so

that way you could retire with the

equity you have now rather than having

to maybe wait another five years for

that Equity to build back up or more so

a lot of risks coming to the real estate

space but I really believe these risks

will create an opportunity the most

important thing for you to remember

though is that during real estate

recessions the average

uh home ownership rate declines that

means less homeowners are buying homes

that means more investors are able to

buy homes that's because investors tend

to have cash like house hack has

millions of dollars of cash available uh

and probably will have in excess of 50

60 million dollars available uh in not

only purchasing power but cash uh come

come 2023 that uh the those are

companies and that can go by individuals

unfortunately tend to see their incomes

decline or layoffs happen or they didn't

properly prepare by getting out of debt

to be able to afford real estate and so

what ends up happening well they end up

in a situation where they can't qualify

for real estate and investors are the

only ones who can at the bottom of the

market and then again individual

investors get screwed not because there

are other investors but because they

themselves can't qualify and that's a

downside so I would do whatever I could

if I were in your situation increase

your income minimize your debt maximize

your own opportunity to call qualify for

Real Estate to make sure that you can

buy when the time is right which will

probably my opinion be sometime in 2023

and we might even have some patience

into 2024. because the real estate

market does move so much slower anyway

thanks so much for watching this we'll

see in the next one goodbye