The Coming Peak *Pain* of the Housing Crisis.

so if we see people getting more

confident in the economy then that

suggests that maybe a recession's a

little bit farther away Michael McKee

thank you so much yeah that's actually a

really good about this confidence in the

economy we're actually getting a lot of

talk about that confidence in the

economy especially as how it relates to

the housing market so we've got to

provide a little bit of a housing market

update specifically because this morning

on CNBC Neil kashgari touched on the

housing market and he talked

specifically about an article in the

Wall Street Journal about signs that

maybe the housing market was slightly

starting to recover and how that could

actually lead the FED to have to keep

Financial conditions tighter again

because they see that can consumer

spending is heavily correlated to

household wealth and so is the jobs

Market in fact Neil kashgari bantered

back and forth with CNBC anchors this

morning suggesting that hey maybe maybe

it's entirely possible the reason we saw

a better employment report than we

expected is because and we saw the labor

force participation rate rise is maybe

some people who had tired which usually

retirement is relatively sticky are now

coming out of retirement and working a

part-time job or whatever and

participating with the labor market

because they're starting to see their

household net worth decline whether

that's through retirement accounts

exposed to the stock or bond market or

the real estate market softening who

knows but this idea that maybe the real

estate market hit some kind of bottom is

very interesting now it's worth noting

what's happened with interest rates

interest rates were about three four

months ago we're sitting at about seven

to seven and a quarter percent right now

we're sitting closer to 6.1 to 6.4

percent so you've really come down on

mortgage rates and as we know when rates

come down buyer purchasing power

increases and this is why the Wall

Street Journal in part is suggesting hey

we're starting to see some potential

thawing in the housing market and now

this is really interesting because the

Federal Reserve pointed out this article

this is not me by finding this article

The Fad talked about this article Neil

kashgari as we hear or as CNBC or during

his interview on CNBC this morning he

mentioned this and so the article talks

about this decline in mortgage rates

having more people contacting real

estate agents applying for mortgages and

signing purchase contracts following

mortgage rates have beginning to stir

demand or have been beginning to stir

demand in the housing market the average

home loan has is come down by just about

a full percentage point from its high

above seven this would be about seven

and a quarter to about six and a quarter

now right and it's bringing some new

buyers into the market now this on one

hand could potentially be aligning with

the seasonal move that most people who

are interested in buying real estate

don't actually get serious about

potentially buying real estate until

January and then they actually don't

really start making offers until March

this is sort of your spring buying

season right most people buy in March

most people sell in July it's kind of

weird you'd think maybe sellers would

move that up a little little bit but

that's statistically what we tend to see

now mortgage applications are up by a

little bit this also makes sense again

because rates are starting to fall the

housing market is a barometer for how

the economy is responding to looser

Financial conditions look at the FED

specifically pointing out this article

that talks about oh Financial conditions

are loosening and the fed's like no we

don't want Financial conditions to

loosen now keep in mind that did lead

and the the Federal Reserves concerns

about tighter Financial conditions have

actually LED Financial conditions to

tighten slightly again especially

following that jobs report that we had

just look at the 10-year treasury yield

over the last uh six months here if you

jump to the last six months you'll

actually see that we were sitting at a

high on the 10-year treasury around four

and a quarter to 4.3 in November which

is really about three months ago and we

fall into these lows for most of January

but if we zoom in a little bit here just

to the last month and and I'll remove

myself for a moment you can actually see

we've really spiked up to the highest

level in the last month on 10-year

treasure yields not quite yet though the

highest levels that we've seen the last

three months we'd have to get to about

3.8 to see that but now we're sitting at

about 3.66 so you are seeing at least

some tightening again in those financial

conditions as the 10-year treasury is

really correlated to a housing interest

rates mortgage rates the that has

indicated they're committed to keeping

rates High until inflation is lower

willing to risk a recession to do so

they no matter what happens it's likely

to be a slow year for the housing market

suggest the Wall Street Journal housing

activity remains down sharply from a

year ago and when the FED began to lift

its better that's when they started

racing rates pushing up uh uh mortgage

rates uh and even though the s p core

logic uh case Schiller National home

price index is up 40 from three years

ago the housing market has been in its

fifth straight month of declines and

it's hitting specific areas particularly

heartbeat Austin or Idaho and you're

starting to see more Builders try to

rush inventory out to Market to actually

catch up to make sure they don't end up

with even lower prices now here's

something that's fascinating if you go

over to the Redfin Data Center and you

look at median home sales this is for

the entire nation and we can go City by

city in a moment here but if you look at

median home sales you know that right

now medium median home sales are sitting

at around 347 they've actually declined

a little bit already in January now

that's not true for every Market but in

just January you've declined from about

350 to around 347. so about a one

percent decline but 347 if we hold at

347 until about oh call it uh what do we

have here April yeah if we hold until

April or May we'll eventually be

comparing 347 to about 387 from year

over year numbers and if we look at 347

say prices stay stable divided by 387.

that's going to represent a national

decline of real estate prices about 10

and a half percent

and that could lead to some potential

Panic where all of a sudden now home

buyers are hearing that home prices

aren't actually Rising anymore but

instead they're falling and if that

Panic comes at the same time as more

home builders list properties for sale

because we know existing homeowners are

locked into low rates they're not super

interested in bailing out of the housing

market well then uh but we do have the

largest backlog of homes under

construction that we've had since 2006

and if those homes start hitting the

market there's a potential you could see

some real softness in the real estate

market come spring and the summer unless

for some reason the lowering of interest

rates of one percent from seven and a

quarter to six and a quarter percent

leads to some kind of real rise in

prices again and then that was year over

year numbers don't look as dramatic I

don't know we'll see what ends up

happening but we can look at individual

areas for example if we go to Austin

Texas we can actually see you get this

slight sort of take up in home prices

here in January sorry followed by a

slight decline so you do have a lot of

volatility in these sort of four week

measures but even right now if we look

at 460 right now relative to 571 where

we were you're looking at home prices

that are already down 19.5 percent in

Austin if we go to Boise

and you can do this on the Redfin data

center for any area you want you can

actually see that home prices feel like

they're still plummeting you're actually

sitting at a 444 median versus the 547

Peak a year ago also sitting at about a

19 Decline and still declining however

if you go to let's say a San Diego you

can also see that Austin style pickup in

pricing here and

if you go to Tampa Florida you could

also see that pricing is still year over

year higher but it's sitting at about

357 started with a decline in the year

357 is roughly uh it's actually lower

than where we were at the end of last

year and it's well off that peak of 394

so let's see 357 divided by 394 puts us

at about 9.5 percent declines for Tampa

now if we can move up and catch up with

this black line which represents last

year's data hey then you can actually

potentially have a relatively flat real

estate market with pricing this year uh

and and maybe you get less of sort of a

fear movement so it's very interesting

what's happening but it's also

fascinating that the Federal Reserve is

paying attention very closely to what's

happening uh to to uh the the to the

interest rate Market especially since

now a lot of people are suggesting hey

look if rates start trending down let's

just buy now take advantage of those

lower prices and then we could always

refinance in the future now that's risky

because that's what people said in 2007

and eight was oh let's just buy a home

now we could always refinance in the

future not necessarily especially since

you're starting to get tighter Financial

conditions starting to show up at

lenders a survey by uh uh the Federal

Reserve of lenders are starting to

indicate tighter conditions for Real

Estate lending whether it's commercial

residential or credit card lending so

you are starting to see Banks tighten up

a little bit we saw Banks tighten up a

lot during the Great Recession how much

will they Tighten Up Now who knows so

far they've only tightened up modestly

we'll see

now going on with the Wall Street

Journal article it actually ends talking

about how pending home sales a leading

indicator for the housing market rose

2.5 percent in December led by gains in

the South and the West so what does this

tell

well it really tells us that we don't

really know yet right we don't know

what's going to happen but as far as

what I can tell here's what I believe I

believe that you're by no means going to

see a 2008 style housing market crash

the folks calling for that I think have

luster marbles because we are in a

totally different uh and fundamental uh

housing market now than we have been

previously don't get me wrong I know

housing is expensive and it'd be nice

for housing to become less expensive for

folks that way more people can get into

Home Ownership which I'm a big fan of

and those are things that I teach about

in my program so I'm building your

wealth link down below and almost on a

daily basis I'm talking about building

your wealth through real estate

but I don't believe we're going to have

any kind of 30 to 50 declines like what

we saw in the great financial crisis

specifically because the type of lending

that we've had build up our housing

market over the last 10 years has been

extremely sound credit scores that are

100 points higher no dead people getting

loans no no income no job no asset loans

instead you have loans where people have

to have the ability to repay these are

mostly fully amortized loans in America

people have locked in their low rates

there's no reason for them to dump out

and move sure you might see more people

rather than selling rent out their

properties and that could put some

pressure on rents which might eventually

put some pressure on valuations but

we've already seen the pressure on

valuations the real question now and

this is sort of the lingering question

is what is the likelihood that when we

have those year-over-year case Shiller

numbers come out and the national media

starts talking about how oh no home

prices have fallen 10 15 20 year over

year uh and maybe in some markets

they're still falling what is that going

to mean for a home buyer sentiment and

is it potentially going to reduce

people's willingness to buy even a

little bit while at the same time you

get a lot more housing inventory from

new construction home builders or

potentially even real estate investment

trusts like institutionals uh like

BlackRock KKR blacks or whatever right

the the B REITs these potentially

liquidating real estate because they're

suffering from so many withdrawal

requests that's possible and it could

lead to increases in inventory keep in

mind you could have stable

uh or low inventory but if you have less

buyers at the same time as you have

stable inventory what happens so think

about that think about it logically for

a moment less buyers but low inventory

well if you have low inventory and then

less buyers your month's supply of homes

goes up because even at a low inventory

level takes you longer to sell that

inventory because you have less buyers

but if now if you have less buyers and

inventory goes up because of the

builders or the REITs or whatever uh oh

now you have a real problem with weeks

of supply of housing skyrocketing and oh

look at this convenient chart here

that's literally exactly what's

happening weeks of Supply peaked at the

end of November at about 15.8 weeks of

housing Supply that's a very very high

level that compares to 2021 when we were

sitting at nine weeks of housing Supply

that also compares to earlier in the

springtime of 2021 when we had eight

weeks of Supply so we peaked at about 50

18 weeks of Supply which is about twice

as much but right now the latest

measures that we are and not at 15 at a

peak of weak Supply we are actually at

18.3 so weeks supply has doubled year

over year uh and if that continues to

Trend up you're probably going to see

more price drops Across the Nation now

the level of price drops the number of

active listings with price drops did

fall into the close of the year we were

at a peak of about 7.1 percent price

drops as people either canceled listings

removed listings at the end of the year

you get a lot of listings that expire at

the end of the year so it's very common

to see some kind of listing reset at the

end of the year those that listing reset

pulled the percentage of active listings

with price drops down to 4.6 but I think

that's a temporarily a temporary anomaly

since most listing contracts are written

to the end of the year uh and now you're

starting to see those take up again

right those price drops take up again so

we're not out of the woods at all All

For Real Estate not only do you have

like let's try to summarize this okay

because I think it's worth considering a

summary when we go through all of these

sorts of um data points here the first

thing is you have the FED wanting to

keep housing tight the FED wants housing

tight they mentioned it this morning

Neil kashgari talked about an interview

that hey we're looking at this and and

we want it to remain tight the other

thing that's happening is the 10-year

treasury yield after the jobs report

started increasing right we're back at

about 3.6 percent in my opinion for us

to really have the green light on on

housing the green light on housing

really comes when the 10-year treasury

is around two and a half percent we'll

see that's just my thesis could be wrong

but that's my thesis the other thing

that we've got is we've got uh probably

a massive wave of uh of Supply coming

not from your traditional home sellers

but from REITs institutions uh and

Builders that's where you're getting

massive Supply coming and you're already

seeing in those indicators you're

already seeing increases in months

Supply and that is that that measure is

so nice nice because it includes it

considers people buying less or more and

inventory being up or down right it

merges those together so it's a really

good indicator you're seeing uh median

home prices a volatile volatile for

January it's not a clear up everywhere

right some areas uh are declining some

areas are rising so you were seeing that

and will want to pay attention to that

obviously uh and on top of that we we

have no idea how is that fear wave come

probably march to May for year-over-year

numbers actually it's probably going to

be more like March to July because the

numbers are so delayed when they come

out how is that fear wave going to

affect buyers what's inflation going to

be like at that point there are a lot of

uncertainties but I would make it very

clear I don't see any signs of a 2008

Style crash or recession and as long as

inflation continues to to blow over

you're probably going to look at Peak

pain for Real Estate either it was in

December of 2022 or that Peak pain for

Real Estate is going to be somewhere

around uh the summer of 2023 to about

the end of 2023. the best case scenarios

that we're seeing at least based on what

what professionals uh you know like

those interviewed by Barons who work on

the case Shiller indices are saying is

probably the best you're looking at is

going to be a flat year for 2023 real

estate which I think is pretty

interesting especially as it relates to

the housing startup that that we're

creating let me get you that Barons

piece quickly so the Barons piece on

housing yeah here it is so this was the

Barons piece and we think the housing

market let's see uh we think that

housing market could help pull the

economy out of recession in 2024 or say

these economists interviewed by Barons

inventories of completed homes are up

completely so that suggests that home

builders are working through backlogs

and they actually expect that

discounting could start to rise in this

spring and summer and this sort of

reiterates that that potential bottom

closer to spring or summer where you get

sort of peak fear then as Builders

really start trying to liquidate homes

and keep in mind they can drag down the

resale Market as well of course

everybody really does think that

interest rates are going to be lower at

the end of the year so who knows maybe

that's either the time to refinance or

buy and if that ends up being the time

to refinance boy it might be an

interesting opportunity to start looking

at some of the lenders like a rocket

mortgage or United Wholesale and maybe

start making some investments into those

sort of stocks assuming there'll be a

big refinance boom when and if real

estate's do real estate rates end up

coming down now another thing that I I

want to mention is uh just briefly

obviously many of you know uh and and

many of you have been adding to your

Investments over the last uh a few few

weeks here uh many of you know I've got

a housing startup it's called House hack

you go to househack.com read the

solicitation there we expect to have the

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know like at this point it's looking

like April uh we're submitting to the

SEC very soon here I'm told within the

next week we'll see uh when the

attorney's ready but uh it's very very

exciting and we've uh over the last few

weeks we've we found a model that we

think could could really allow us and

without going into too much detail here

could really allow us to go from buying

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insight on that so that gives you a

little bit of an update there on house

hack and my thoughts on the housing

market