The 2023 Real Estate CRASH.

it's time to talk about the famed real

estate crash when did real estate prices

actually bottom what are real estate

prices doing right now and could real

estate be the cause of the current

recession or not recession let's talk

about that in this video first let's

understand where we came from we came

from interest rates below three percent

on a 30-year fixed rate mortgage sitting

around 2.75 percent with over 90 percent

of individuals having an interest rate

of under six percent over 70 percent

having an interest rate of under four

percent most Americans are doing pretty

dang well with their home mortgages and

what makes America different from other

countries in America today different

from the past

was what I just described in most other

countries you get what are known as five

or ten year fixed rate terms which means

you have to refinance every five or ten

years and you don't get this 30-year

fixed trade mortgage that increases the

pressure to sell or to refinance and if

you can't refinance than to sell or make

the payment if you have to make the

higher payment then you end up getting

hit as a consumer

in America

with the 30-year mortgage we've actually

been relatively resilient from this sort

of pain if you look at the housing

market in the United Kingdom it's in the

doldrums down 20 plus percent the same

thing in Canada and it's still down by

those levels if anything in some cases

it's actually worsening whereas in the

United States even though interest rates

are going higher home prices aren't

actually worsening anymore and this

feels very different from the last

Cycles in the last cycles and it's

always dangerous to say the proverbial

this time is different but in the last

cycle you know we we had a massive

economic recession led by the housing

market and that was because most

individuals were actually on a variable

loans in other words as interest rates

went up they immediately were within six

months I had to start paying higher

interest rates were introduced to more

expensive housing using teaser loans or

the inability to actually qualify for

loans using non-qualified mortgages

which now most mortgages qualified

Dodd-Frank ability to repay requirements

exist today for both qualified mortgages

and non-qualified mortgages whereas back

in 2005 thanks and seven you did not as

a borrower have to have the ability to

repay you could be a teacher and get a

loan for a 1.5 million dollar house

because you said you could afford it you

didn't have to prove your ability to

repay massive difference and again most

did not lock in the 30-year fixed rate

mortgage whereas today we're locking the

30 year fixed rate mortgage which

potentially establishes the idea

that the housing market crash

may actually be entirely avoided

as long as rates do not continue to stay

at this level which they may for too

long

and that is because we are preventing

price Discovery by preventing people

from selling we're preventing inventory

by preventing inventory we keep pricing

stable because people continue to buy

properties based on comps and there's no

forced selling of distressed properties

because people's mortgages are going

nutty instead people's mortgages are

affordable not new mortgages new

mortgage affordability is off the charts

but the number of buyers actually

financing homes at these new mortgage

levels is extremely low you're down 30

from last year and even last year's

levels were down from the year before

that so what's actually happening to

prices well there are two pieces we need

to cover there's a Wall Street Journal

piece and there's a Morgan Stanley piece

and what I'd like to do is start with

the Morgan Stanley base

Morgan Stanley's prices reapproaching

Peak well this is really interesting and

we should analyze this the way I'd like

to start analyzing it is that I actually

like to look at the chart uh and so what

you can see is you can see here pending

home sales down 14 year over year uh

some markets are down even more than

that new home sales are up that's great

this tells us about purchase

applications these the number of people

going for mortgages the number of people

actually buying we know those numbers

are down and that's fine but what we

think is most interesting uh is actually

the following listen to this I'm trying

to find exactly where it is where is it

here it is uh we expect to return to

positive prints with next month's case

Chiller real estate home price index

actually showing a positive read for

Real Estate home prices on a

year-over-year level again with our

forecasts now showing a base case of a

zero percent gain in real estate prices

in a bull case of a five percent

elevation in real estate prices wide do

they believe this well they believe that

real estate prices basically bottomed in

March I'm trying to find exactly where

that chart is we're going to end up

finding it but anyway they believe that

real estate prices have ended up

bottoming in March of 2023 we'll find in

a moment uh and when real estate prices

bottomed in March of 2023 they actually

started recovering from March of 2023.

so you had this decline from about May

of 2022 to about December to March so

December 22 to March of 2023 and since

then you've actually started having a

recovery and that recovery is really

weird because so many less homes are

actually selling because there's so few

so many fewer buyers and this is having

a really weird dynamic on Supply you're

actually in many markets seeing the

months of supply of homes

go up not down now that's crazy people

say like Kevin that's crazy what do you

mean the months of Supply is going up

there are way fewer homes on the market

that's true but they're also way fewer

buyers and that does still create a risk

for the real estate market remember

quick math how this could work if there

are 100 homes on the market

and 20 homes sell every single month

then when you divide the two you have

five months of inventory on the market

if now you have 70 or let's make the

math easy let's go with 80 homes on the

market so 20 less inventory but you have

half as many buyers uh you actually now

have eight months of housing inventory

so housing inventory actually went up by

over 50 percent

as your buyers dropped by 50 because

inventory is down 20 isn't that crazy it

is and that is a risk factor for yes

prices

but only if price Discovery is forced

forcing price Discovery is usually done

by short sales foreclosures and distress

sales

we're getting very few of those right

now in fact in a lot of markets

specifically like in the San Diego

Market you're actually seeing

substantially more competition now than

you saw at the beginning of the year

implying actually a market where buyers

are saying okay like the worst is behind

us it's time to continue buying and in a

weird way you're getting asset Rich home

buyers coming out and buying more

properties not less

The Wall Street Journal just released a

piece indicating that the fall and home

prices may already be over home prices

aren't falling anymore after declining

on a year-over-year basis for five

consecutive months the longest run in 11

years home prices Rose in July this

aligns with the idea that the bottom was

probably somewhere between March and

June somewhere around there March and

June of 2023 was probably the bottom

bottom uh although December was

potentially considered a bottom in some

markets but it is somewhere in that

six-month region seems to have been so

far where that inflection point is which

I've been waiting for that inflection

point and that's one of the reasons

we've started buying with house Hack

That We're cautiously buying right we're

not like oh my gosh we need to blow

everything because we actually don't

think that real estate prices are going

to escape we think real estate prices

will probably be somewhat volatile and

relatively more neutral we don't see a

big crash just like we don't see a big

runaway that's just Based on data we're

looking at right now what we're seeing

in the markets I combine data with

actually being in markets talking to

Realtors and seeing what the competition

is doing there's nothing like having a

read on the housing market like actually

writing offers and seeing what deals

you're winning and what deals you're

losing that gives you a great

perspective for what is actually

happening in the market not what the

Twitter trolls want you to believe is

happening in the market because I'll

tell you the Twitter trolls are really

good at taking things out of context and

we could look at some of these things

for taking things out of context and and

potentially add some context to some of

the things that are being said mostly

because generally what you find is that

the folks on Twitter are going to take

charts that say that tell you about

uh what housing affordability is doing

for new home buyers who are financing

all of their homes

but those charts generally completely

forget

that there is a very high likelihood

that you could end up with a greater

wealth Gap than you've previously ever

had before and that's scary and it

should be scary for people it's sad we

don't want the wealth Gap to widen but

it actually can widen and this is why

when you see charts like the buying

versus renting charts like this here's a

buying versus renting chart the only

reason this chart exists the way it does

is because interest rates are as high as

they are right now but if interest rates

normalize which we expect them to you

might actually end up seeing the monthly

cost to buy a house be lower than the

accelerated price of what rents have

done notice this if you drew a trend

line on the increase of rent prices

notice this inflection point in rents

right here this inflection point in

rents is driven by fundamental increases

in rent and wages whereas this is driven

by artificially High interest rates

right now yes we've previously had

artificially low interest rates

but this is artificially high right now

to deal with the money printing that

occurred

as interest rates come back down you

probably will actually see the monthly

cost to buy a house lower than the cost

of rent which will be pretty remarkable

and so that's why asset Rich buyers are

actually buying now because they expect

that will actually be a Tailwind to home

prices in the future and it might take a

couple years might take three years for

rates to come back down that's okay

but anyway the Wall Street Journal

suggests here uh that a residential the

residential real estate downturn is

turning out to be shorter and shallower

than many housing economists expected

scarcity is a big reason High interest

rates have promoted homeowners to stay

put rather than buy new homes or take on

expensive mortgages resulting in an

unusually low inventory of homes for

sale many potential home buyers have

given up their search because mortgage

rates are just simply too high at a two

decade High sure mortgage rates are

ridiculous right now seven eight percent

is very very expensive right now in

August prices in 30 of the 50 biggest

markets actually hit a record high

according to Black Knight now you also

have to keep in mind you have to add

inflation an inflation adjustment into

some of these prices you know you look

at oh here's the chart uh this this

gives you sort of your your chart yeah

look at that so it kind of shows you a

bottom march to May that's what I've

been looking for uh and here's your

inflection point which you're finally

reiterating right now that doesn't mean

you can't be volatile that's why you

want to be careful but you want to watch

this but what's fascinating is

if you look at an eight hundred thousand

dollar house today and you take off you

know uh well let's do it the other way

take a 650 000 house and you add 20

inflation which we've had that's a 780

000 house nearly 800 000 house so it's

kind of like

800 is the new 660 ish it's scary but

it's just the way it is you kind of have

to like reprogram our mindsets it's

bizarre but anyway uh and it's probably

I mean the inflation probably isn't

going to go away you know it's the same

thing for grocery prices and some of the

other prices that we're just dealing

with and uh but anyway other economists

have been torn uh I have torn up bearish

forecasts you know my belief was that

prices would fall between 10 to 25

percent uh and they did

in many markets you look at Boise you

look at Austin you look at Phoenix these

markets were down 20 they've just

started recovery now some of these

markets are only down five to ten

percent uh it's pretty incredible but

anyway uh new listings of homes for sale

are so low that baiting Wars are still

breaking out yes in move-in ready

properties you're getting a lot of

bidding wars for move-in ready homes and

it's another thing that we're

consistently seeing is that move-in

ready homes are more desirable for most

home buyers right now as opposed to like

hoarding fix droppers or whatever

specifically because people don't have a

lot of money left to actually do the

renovations and that's hurting people

even more from being able to get good

deals in real estate you know I teach in

the zero to millionaire course how to

actually do what I do to buy real estate

uh you know I think it's I think it's so

jaded but there are a lot of people that

are like oh you know if somebody's not

going to tell you their secrets I

literally tell you all my secrets uh

it's like because there's I have an

abundance mindset there's there's so

much opportunity out there all of them

are on the zero to millionaire course

which by the way we're bringing back our

partnership with I'm not allowed to say

in the name but let's just say a big box

retailer where we can now get five to

Seventeen percent off the products we

buy there for home renovations should be

coming back this week which uh will be a

course member only benefit which we're

really excited about uh and it's gonna

be great for househack as well because

you're doing a big fat discounts for

house hacks as well house hacks as well

but anyway another thing is interesting

is that the pace of affordability for

homes has actually deteriorated again

see like this is a chart here and

basically when the line goes up from the

private previous line it means that

things are getting worse instead of

better and it means unaffordability is

actually even getting worse now than it

has been and it's already been bad uh

and then that's because we've recently

seen oil prices go up and rates go up

higher uh it's unfortunate but it's it's

exactly what's happening uh Builders

building more but uh even starts not

that great what you're actually fighting

is more starts in 5u and it's under

construction than single family I

thought that was somewhat interesting oh

there we go here's another chart year

over year change in median prices this

shows you that bottom right there in

March to May

all right march to May uh and and I

waited to for that inflection to really

confirm itself uh and then we started

buying in August so uh you know maybe

could have been a couple months earlier

but honestly I think we're pretty pretty

pretty close and there's still so many

deals to get I mean each of the deals we

bought so far has been you know a home

that people can't live in hoarding homes

uh water leaks whatever and they're each

going to be probably 120 000 wedges each

I mean you're just plucking them up it's

kind of incredible you could do it too

you know so anyway these are some of the

things we wrote down but uh it's very

interesting the the real estate crash uh

that the Bears are really calling for

isn't happening here I will tell you

though where there is some pain organ

and Boise there's pain and the Airbnb

market and then obviously office space

so you have more individualized pain

like I'm seeing more institutions off

offload airbnbs and short-term rentals

and corporate rentals

and I'm also seeing more pain uh in

certain markets again like the Boise's

uh and uh and those may turn around but

some of the more coveted levels areas