The 50% Crash in Housing will Destroy Stocks | Prepare NOW.

oh man the entire real estate Market's

demise could end up being an anchor for

the stock market for over another year

there's a new report just out that is

absolutely devastating on

inflationary induced aspects from Real

Estate and we're going to talk about

that in this video and it's a disaster

I'm going to start with some initial

data and just to catch you up to speed

first of all I'm a big Fanboy of real

estate and buying and holding real

estate long term but this January I made

the decision to sell all of my rental

properties and I'm not a landlord right

now because I wanted to sell my property

so what I thought would be the top of

the market so far that has proven to be

true and I've started a company called

House hack which is now accepting a

money from accredited investors we've

got a deadline of October 31st coming up

by the way that's a big deadline for

free call options that you get other

warrants technically but read the PPM on

the website for more details and we

expect to go bottom feeding for Real

Estate what's the market actually

continues to fall but the data that we

have now suggests it could take even

longer than previously expected for the

market to bottom which is actually bad

for the stock market

not only because interest rates are

skyrocketing just look at the basics of

the 10-year treasury yield which we've

talked about for years on this channel

that mortgage rates follow roughly the

10-year treasure yield and we thought

the highs of this summer were bad which

were right over here around three and a

half percent now we're sitting at 4.1

for the 10-year and some folks are

saying this is going higher potentially

to five percent this is leading mortgage

rates to absolutely Skyrocket now

remember for a moment the rule of 10x

when interest rates go up one percent

home purchasing power goes down by 10

that's because the amount of money

people have to pay on a monthly basis

skyrockets when interest rates Skyrocket

logical sense and since most home buyers

use leverage whether they're investors

or not whether they use cash initially

and then refinance or not they end up

using leverage and real estate to

increase their returns higher interest

rates are a big problem for the real

estate market we know that in fact

mortgage rates were sitting around two

and a half percent in December of 2021

where do they sit now well for a 740

credit score you're sitting somewhere

around

7.28 percent way higher I mean we are

talking about five percentage points

higher that's a 50 decline in buyer

purchasing power that's way worse than

we even expected the beginning of the

year I thought rates might go to you

know five and a half to six percent now

they're at seven and a quarter percent

absolutely insane on top of that we see

that cancellations have skyrocketed we

have had 60 000 home purchase agreements

cancel in a single month per Redfin that

is the highest on record when you take

out March and April of 2020 when

everything came to a sudden stance

that's scary highest amount of Home

cancellations on record and we're not

just talking about new construction

Builders because we already know they

have a disaster going on days on the

market is now averaging 50 versus 31 in

May that's almost double and that's per

the St Louis Federal Reserve that's

scary as well

Supply 27 greater Supply it's even

gotten to where buyers are now asking

for more repairs because they have more

power more leverage over sellers there's

a prop Tech inspection and repair

company called punch list USA they work

in like 14 different cities the average

work order last year was

2537 now it's three thousand eight

hundred thirty one dollars that is an

average of a 37 percent increase way

higher than the increase in inflation

because we're seeing buyers asking and

demanding for more from sellers

personally I don't even think they

should be buying I mean they better be

getting a smoking hot deal if they're

buying right now but whatever

now we're also or have already seen

prices come off tops right we've seen

prices come down about six and a half

percent we've already seen that happen

but interestingly we've kind of seen

that decline stabilize over here in the

last few weeks right

but what I want you to see is go to

Price drops because price drops tells

you what's going to happen with prices

before you actually see the change in

prices go to Price drops what did you

have happen here price drops skyrocketed

the entire beginning of the year then

they plateaued because interest rates

plateaued for a moment

look at it okay jump on over to this

particular chart right here in this

purple box you could actually see that

interest rates came down for a moment

see that we kind of peaked in the summer

and then they kind of came down that

lead price drops to level off see that

leveling off right there okay now go

back over here to median sales price you

see prices came down when rates went up

leveled off what do you think is next

the next dog like down and price is

going down then once we get to uh the

peak so about uh you know in this case

you've got a Redfin national average

Peak the peak was different in different

areas you've had Peaks somewhere in

February for some markets June for some

markets April for others but Nationwide

the peak was somewhere around May

May year over year when we get to March

April and May of 2023 we're going to

look back at these high numbers and go

oh wow prices are down like 10 or 15

from a year ago how much fear is that

going to cause in sellers leading

potentially more sellers to sell now of

course we have this bias that oh well

people are going to be stuck because why

would you sell if you have to go buy a

new property fine but it's not just

people who have to buy a new property

who sell divorce says deaths

foreclosures although we expected the

Foreclosure part to be nominal uh people

who have rental properties who are just

dumping Pension funds and institutions

who are dumping to prevent margin calls

on let's say their bond portfolios a lot

of things that could go on over here

that could really lead to a lot more

inventory beginning next year especially

when we start getting that fear but what

is the big new report that is now

suggesting we can have massive Mega pain

for the stock market for longer because

of inflation lasting longer well folks

it's out from Goldman Sachs

and I hate to bring it up but we have to

bring it up right after I again remind

you that if you are an accredited

investor please check out househack.com

learn about how we are starting a

startup that we will use to bottom feed

in the real estate market and diversify

our allocation of real estate whether

it's single family multi-family

short-term rental long-term rental you

name it and make sure we get wedge deals

buying deals below market value in

whatever markets we're participating in

so that way not only are we trying to

time buying a lot of real estate towards

a bottom it doesn't have to be right at

the bottom but once we start troughing

right that's when we want to go shopping

we'll buy cash and then we'll refinance

when rates come down a few years later

we'll take our time with it we'll manage

these properties in-house and we'll have

an opportunity for people to have a

diversive way away from the stock market

essentially by investing in real estate

now if you're not an accredited investor

yet don't worry we expect to have a

non-accredited investors eligible to

invest as soon as January maybe February

of 2023 so stay tuned for that if you're

not accredited if you are accredited you

can go to how

househack.investready.com click the link

in the description get your accredited

investor letter submit it to

househack.com and you can contribute to

people who have all the already wired us

over 20 million dollars of funds for

this startup that gives us over 60

million dollars of buying power for Real

Estate that could be a hundred twenty

five hundred thousand dollar homes

saying we're going to be growing if you

want to get in with founder shares Now's

the Time to get in but folks what is

this report that we need to talk about

all right so this report out from

Goldman is the following

when we look at the measure of rent how

rents are going up because rent is a big

part of inflationary datum we can see

that current asking price-based rent is

actually sitting at a year over year

rate of 9.4 percent

but we expect that to actually already

have peaked if not start trending down

problem with that is that even though

rents went up hit a peak and are now

trending down

CPI measures rinse differently and we

actually think that CPI right now is

measuring at about 6.8 percent shelter

inflation but it should be peaking at

10.3 percent

now why is that bad why is it bad that

the chart looks like this that actual

rents are starting to Trend down that we

have an inflection point to the downside

in actual rent but we have an uptrend

over here in CPI rent why are we seeing

this right here well it's because

inflation data measured by CPI uses uses

something known as the owner's

equivalent rents and the problem with

that is they try to measure hey what are

current rents for people who currently

have leases and what are new rents

the problem with that is you're actually

measuring rent for people who've already

locked in their rent for a year term and

when rents that are locked in renew

landlords don't always give them the

full market value rent bump because the

tenant might move leading to turnover

which is a headache and potentially

leading to repairs sometimes you have

landlords who never raise the rent which

that's stupid you should raise the rent

all like every time you can you should

raise the rent because otherwise you lag

behind now that might not sound so PC

but the reality is usually what happens

is tenants who stay longer have lower

rents than Market rents over the long

term let me give you an example a

property renting for three thousand

dollars a month might now be renting for

four thousand dollars a month but a

tenant might only get a hundred dollar

or two hundred dollar rent hike that

might seem like a lot but they're still

getting an 800 discount to Market rents

even at that 200 rent hike but you can't

give them the full thousand dollar bump

because again they'd move you might have

to deal with repairs or you're limited

by rent control limitations which limit

how high you can actually raise rent

even for example California Statewide

limits that say you can't raise the rent

more than ten percent well that would

only let you go to 3 300 even though the

rent has gone up so much more in some

markets as much as 30 percent to give

you that example of going from three

thousand to four thousand or thirty nine

hundred right

so the problem is when CPI measures

existing rents going up existing rents

go up way slower for existing leases

than they do for new leases and so when

we look at data from asking uh uh rents

from all of these companies that

actually track what's actually happening

in the world what do we find well we

find that according to co-star and

apartment list and rentpath and Yardie

and Zillow and whatever and CoreLogic

that rents have peaked

and that they're trending down but the

CPI does not see that Peak at the CPI

still sees rent increasing and this is a

big problem because

owners rents and shelters inflate and

shelter inflation makes up a huge

portion of our CPI this is really bad

because look at this

Cleveland fed CPI

uh the average shelter inflation has

made up 50 percent of the entire CPI

measure core CPI is somewhere around the

high 30s percent of the weight that it's

had over the last 10 years

in measuring inflation look at core pce

it's lower somewhere around 18 but it's

still a large chunk you look at headline

inflation it's around headline CPI it's

around 32 percent the point is

these Antiquated measures of of rent are

going to make inflation look like it's

higher for longer they're not catching

the peak and so this is what the

projection is from Goldman Sachs charted

they believe that inflation has already

peaked in fact you could see that Peak

right here right inflation has already

peaked right at the middle of we're

towards the end of 2022. we're right

here every single measure that Goldman

is looking at has seen rents come down

every single Mission yeah look at that

CPI is still Rising see that rise right

there and not only that it's expected to

rise into 2023 and then actually out

Pace all of the other measures of rental

inflation because it's so slow to

actually come down this is leading to a

dirty prediction from Goldman's ax

Goldman Sachs is predicting the

following they're predicting a peak of

seven and a half percent shelter

inflation by next spring

and that it is only likely to decelerate

to six percent by the end of 2023.

now that's a disaster because even if

rents were flat we would still see CPI

shelter inflation at five percent but if

rents are the way we expect them to be

they could be at between six to seven

percent by the end of 2023 which means

we're likely to see inflation be much

more sticky and above Target for all of

next year

even if rent growth was Zero because of

the crappy way they measure rent-based

inflation so what does that mean well

what it means is

a more aggressive fed for longer a more

aggressive fed for longer means again

higher treasury yields for longer the

more the markets prepare to to realize

or do realize that treasury yields are

going to be higher for longer

the less inclined they are to buy

treasuries today why would you buy a

four percent tenure treasury today if

you could get a five percent treasury in

a month

you wouldn't he would just wait well

less buying pressure on these means

lower prices and higher yields and you

actually self-fulfill higher yields and

now we go full circle folks higher

yields on the 10-year treasury lead to

what

higher mortgage rates higher mortgage

rates lead to more pain for the real

estate market more paying for the real

estate market means what more paying for

companies like Generac and face Home

Depot Lowe's and anyone related to the

Home Improvement sector

this morning we went through generac's

earnings and they the preliminary

earnings they were complete disaster

now the last time we went through their

earnings call Generac was talking about

and bragging about all this demand they

still had

but I said no I will not invest in

Generac because they're exposed to real

estate and I think when you're exposed

to real estate and homeowners start

realizing their prices are going down

homeowner prices are going down like

prices of homes are going down they're

not going to spend money investing in

their homes

Home Depot tells us in their own reports

Home Depot says homeowners consider

spending on their home on investment

when prices are going up and an expense

when prices are going down well prices

are going down so now you have expenses

so what did Generac report this morning

they reported that their growth is no

longer 40 percent

it's now 15

uh oh

now they are blaming delays in

installations but folks those

installation delays were also a problem

earlier this year they had supply chain

issues as well so what's happening is

less residential customers are

pre-ordering these systems which Generac

recognizes revenues as they're making

these sales and ship them out so they're

still shipping these things they're just

not getting installed Generac still

recognizing the revenue so the point is

Generac clearly is getting smashed by

declining homeowner demand that means

homeowners are finally spending less

money on their homes that's why endphase

is finally coming off its high horse

which it deserves to it needs to plummet

now I'll buy a ton of enface in the

future when real estate prices actually

come down that's when you want to buy

those real estate companies when they're

like loans okay

so

big bottom line here

stickier inflation for longer that means

stay away from YOLO bats okay I'm like

so tempted I'm like treasure Eagles have

to come down let's YOLO TMF triple

leverage treasury let's buy the bottom

buy the dip and it's gonna go to the

Moon maybe if inflation comes down and

treasury's come down maybe but not if

CPI inflation keeps it up CPI inflation

keeps everything up because of shelter

inflation built into CPI and rates and

yields stay up

and they stay up longer and if anything

they get worse then mortgage rates go up

then the real estate market Falls even

more and then earnings for companies get

even worse

it's just bad I think with the data that

we're seeing now

not only are we going to see a 15 to 20

drop in prices for Real Estate but we'll

probably see a 20 to 30 decline prices

which is really going to be a big

opportunity for house hack because we

expect to buy below market value deals

at already discounted prices in fact

sellers are already dumping real estate

that is home builders at bulk prices

like 20 off to companies like mine now

we're not buying yet because we think

the market will fall 20 and then we'll

get another 20 off like

sorry now some people in the comments

say oh Kevin you just think it's so bad

because because you were trying to

massage the real estate market down so

you guys could go buy more this is all

just an ad for housing no this is just

convenient for house hack like I'm

trying to just give you the facts I mean

you do what you want with the facts you

saw the reports you see what's going on

with mortgage yields you've seen what

I've been saying since before house hack

was an issue like wasn't an issue but

before house I existed because I've been

talking about this in January I've been

warning about this since January Hey

where's probably gonna come down be

prepared sell now if you need to like if

you're about to retire and you're like I

can't wait hold another cycle sell no

obviously I can't keep you Financial

advice can't tell you what to do but I

sold

now

I got a lot of hate for that but oh well

hate is ain't starting house hack haters

didn't just raise basically a million

bucks a day for a startup

haters don't read data hate is just

gonna hate

that's all right everybody's gonna have

some of them you know so anyway look how

do you actually prepare well again and I

just want to reiterate this every day

increase your income decrease your debt

don't go YOLO when you see a couple

rallies in the stock market don't get

overly excited don't go YOLO this could

all last a lot longer than we expect now

maybe it won't maybe inflation will

surprise to the downside everything will

fall and uh and and we'll have a a

glorious rally and we'll all go to the

Moon fine and we'll start buying homes

earlier like we're flexible we could

start buying homes tomorrow if we needed

to but we're like we're not because

everything's still trending down so

you'll see when we obviously switch and

start buying homes

um

but that ain't now

good luck my friends