The Coming Double Dip Housing Crash.

in this video we're going to talk about

a double dip housing crash and what

happened the last time we faced

something like this first let's talk

about some things that are a little

scary and get you started with just some

of the latest updates and it's not to be

you know fear uncertainty and doubt

channel it's to be reporting reality I'm

not making this stuff up I'm just the

messenger here okay this is Lennar

Lennar says between quarter three and

quarter four home prices declined

9.5

sequentially from our third quarter

that's insane because if you fall 9.5 in

a quarter if you keep falling at that

rate it means home prices for are

falling at an annualized rate times four

of 38

that's really really scary and it now

makes sense that in their last earnings

report they actually reported that new

orders dollar value declined 24 with

their back backlog declining 23 this is

the second largest homebuilder in the

United States and it's a big deal they

are clearly seeing a massive drop off in

demand not only are they seeing demand

cooling very quickly but I'm worried we

could end up seeing an over correction

in the housing market especially with

bankruptcies now starting to take place

in the housing market consider this look

at the reverse mortgage industry now

this is an interesting one if you're 62

and older you can get something known as

reverse mortgage and then usually what

happens is you don't actually make a

payment on the home you're living in

instead you kind of get like monthly

cash flow but the amount you owe goes up

over time and the bank is kind of

thinking that you'll probably die before

you use up all your Equity that they're

paying you but if home values Decline

and you live longer those companies go

bankrupt and what's happening right now

is Cove it's over people are living

longer and home values are starting to

decline so what's happened at one of the

largest uh reverse mortgage funding

companies in the country

they just filed bankruptcy reverse

mortgage funding LLC which is owned like

94 plus percent by Starwood huge real

estate company in the in the United

States this one the reverse mortgage

funding LLC company just laid off 80

percent of their staff

400 people laid off about a hundred left

filing for chapter 11 reorganization

citing a worsening interest rate

environment fewer Federal Reserve

Holdings mortgage-backed Securities and

the quote perfect storm for an

unsustainable business model yikes we

have seen reverse mortgages have in

originations in just the last few months

if we look at September for example

we're at half the rate of typical

30-year uh or I should say typical

reverse mortgage originations

substantially fewer than the rate where

we ended uh year over year ending in

September so we're down about half in

originations here less people taking on

these reverse mortgages or seeing

lending standards tighten lenders are

making less money they're taking more

losses it's scary on top of that and

before we talk about this potential for

a double dip it's worth looking at uh

you know some of the latest uh numbers

so we can see or at least try to

visualize what's actually happening one

of the things we really have to pay

attention to when it comes to real

estate is not this idea of oh there's a

housing shortage it's actually what

happens with people's changes and

behaviors so after the pandemic started

a lot of people went out and started

moving to pandemic towns Zoom towns

younger individuals moved out of their

parents homes and and lived on their own

a lot more people got into housing a lot

more people got into real estate and

household formation and so we saw this

massive explosion and households being

created this is a chart of household

formation right here now I'm going to

remove myself for a moment so you can

really see the magnitude of this chart

even though it looks like that leg to

the downside on the right right here

let's use a different color let's go

with green even though this looks like

it's just as bad as this and you could

kind of just like maybe wash those away

you actually can't because look at this

household formation boomed to positive

5000 on this chart but actually only

fell to about negative 800. so this even

though the chart looks funny here but

considering this this over here is

actually about five to six times as many

households being formed as we briefly

rebounded to the negative side over here

so the point is one of the reasons we

saw this massive run up in housing is

because we had this massive set of

household formation right here and when

you net this off the bottom part maybe

you'd only take off a little bit of an

edge here now we had a lot more houses

formed great but what's the trend now

and that's what we want to talk about

the trend now and what it could mean

going forward from all of the madness

the concern now is that household

formation is trending down and right now

we're kind of teetering around some of

the lower periods of like 2016 and 17.

we didn't have as much household

formation right after the housing

recession that makes sense you did see a

boom of housing formation in like 2005

and six when home prices were just going

to the moon but the concern with this is

if household formation goes down then

what you could actually see is a dual

folded attack on real estate pricing

where basically what you're doing is

you're forcing rents down because fewer

people are renting that is older folks

are moving in with younger folks younger

folks are staying at home whatever

people are creating less households but

then at the same time prices are going

down because rates are still high even

though they've come down to about 6

percent from seven seven and a quarter

percent they're still very high you're

still over three percent higher than

where you were in December of last year

and so when you see both rent and price

go down you actually get a little bit of

a spiral because now you enter what's

called buyer psychology where buyer

psychology gets screwed because one of

the reasons people buy a home is because

they think they can rent it out in the

future for a profit but if rents are

falling then they're thinking well gosh

I'll just rent a cheaper place even

though rents have been rising they're

starting to inflect down and why bother

rent or why bother buying a place at a

six percent mortgage if you could just

rent a new place for cheaper and

remember the more rents fall the more

risky buying real estate seems the more

prices fall the more risky buying real

estate seems Nick whom I follow on

Twitter I think he's great he basically

has taken some really great data from

the Redfin data center which I love

using the Redfin data center he put it

into this beautiful chart right here and

he's showing us look at some of these

price declines already from the Peak in

May

to November median sales prices I mean

we're at an 18 housing crash in Austin

San Jose Oakland Anaheim Seattle San

Francisco Boise all down between 17 and

11 Vegas over here at 11.1 percent these

are some substantial declines in pricing

and what's fascinating is mainstream

media is still telling us today that

prices are actually trending up not down

and there's a reason for that it's very

simple the mainstream media is still

stuck in this idea that oh well wait a

minute home prices when we look at last

December are actually lower than we are

in this December but what they're

ignoring is the fact that then we were

trending up peaked out around April and

May and now we're on this ugly downtrend

and so when we get to next may we might

be over here right this will end up

being next May and then we'll actually

have the mainstream media comparing May

to May and they'll go holy smokes we've

got a massive decline over here and this

is where I want to talk about the idea

of the double dip housing recession and

what happened the last time so one of

the first things that happens when

interest rates go up is home sales

decline like the actual volume of sales

declining here again Nick has broken out

a nice chart that kind of just shows you

this graphically but we already know

that home sales are declining what I

actually want to talk about is the last

time we had this fear about a potential

double dip housing crash so the last

double dip housing crash fear actually

occurred in about 2011. and if you look

at the St Louis Fred's housing or home

price a chart what you can do is you can

change the chart to just show you data

on a year-over-year change basis and so

all you have to do is pop on over here

to edit graph we're going to go change

this to percent change from a year ago

and here you can actually kind of see

how this double dip occurred you had

this fall in home prices that was quite

dramatic going from really the end of

2005 to the beginning of 2009 when the

Federal Reserve stepped in U-turn

started cutting rates like crazy this is

not a pivot a pivot is when they reduce

the pace of their hikes or or of them

hiking at all a U-turn is when they say

we've caused too much damage we've done

screwed up we're causing too much of a

recession here we're gonna pivot you can

see that actually oh we're gonna U-turn

you can see that's actually happened

relatively close to the end of of the

recession here their their bailout

essentially marked the end but even

though the FED had turned on the money

printer what happened nearly a year and

a half after the federal reserve's

U-turn in the real estate market was you

had buyer psychology that said buying

real estate is bad home prices under

this black line were still declining and

the lingering fear of home prices still

declining

compounded with first-time home buyer

fears about getting into real estate at

all let me explain that briefly it's

something we've talked about in our

course member live streams before and in

the courses on building your wealth link

down below but it's something that is a

big factor in psychology

as a real estate broker when people come

to me or used to come to me since I

don't service clients anymore when

people come to me or used to come to me

and they would say hey we're thinking

about buying a home the amount of fear

that there is in a first-time homebuyer

is insane now things got euphoric in

like 2021 when everybody was like let's

buy a home prices only go up that's easy

okay that's that's like buying a meme

stock when it's going up like that's

easy there's no pain in that but usually

anywhere really between 2010 when I was

representing home buyers all the way

through

2019. what I saw was home buyers took a

lot of educating a lot of seeing

different properties understanding

potential defects and downfalls and

neighborhoods and and crime and school

statistics everything how much could we

rent this out for worst case what's the

management going to cost the diligence

was extreme

and that diligence back in 2010 and 11

was also extreme except it was Extreme

Plus people had a fear that they weren't

going to be able to rent the properties

out for what they were paying for them

and people had a fear that oh no what if

home prices continue to decline now back

then we didn't really see rent prices

decline as much so the rent issue wasn't

as big of a deal as it potentially is

now because now when you combine the

fact that we're seeing less household

formations and rents now pointing to the

downside rents are rotating down we're

seeing this

undoing of the pandemic Zoom towns you

potentially create this fear of oh no

what if we're going to have a double dip

housing Bust or basically you see home

prices drop by May of 2023 somewhere

between 15 to 25 percent now all of a

sudden that's the headline and the fed

maybe bails out Mark markets in March to

may but home buyers are actually too

fearful to get in because they fear a

double dip recession and we actually end

up having a double dip of real estate

pain for another year until maybe well

into

2024. that's entirely possible it's

happened before and it can happen again

history can be a good guide in terms of

real estate growth and you can see we're

just now or real estate uh pain I should

say and you can see that dip right here

in in housing prices just like we sort

of saw in 2006. that line there is

showing you a deceleration of

accelerating home prices so again like I

drew we're still gaining but when we

actually go negative even when we bottom

out and start turning up that home buyer

psychology might be so fearful against

the potential for a double tip housing

recession that we could actually extend

the buying window for getting into real

estate uh by certainly at least a year

if not even multiple years even as

interest rates fall so think about that

you could have low housing supply low

home buyer formations falling rents and

falling mortgage rates but still have

home prices either low or falling

because of how sticky real estate

psychology is it's way slower than the

stock market I mean you get like five

green days in a row in the stock market

and everybody's like that's it we're

going to the Moon right very different

in real estate especially since it takes

so long for prices to actually reflect

Market changes so anyway

oh boy buckle up they're gonna be some

amazing opportunities to buy real estate

I believe somewhere probably starting

mid-2023 all the way extending out to

potentially 2025 so buckle up get ready

and good luck and stay safe thanks

goodbye