Fed JUST Warned: Substantial Housing Crash

wow the Federal Reserve is calling for a

potential 20 drop in housing and I hate

to say it but if the FED says 20

it could be worse now I will talk about

this report and we'll talk about my

biases as well in this video but

at least there's a 60 off coupon code

for the programs on building your wealth

link down below and taking advantage of

the real estate crash with a zero to

millionaire real estate investing course

okay all right all right I did it I did

it look at this folks let's just get

through the gnarly stuff here U.S house

prices appreciated a remarkable 94.5

from the first quarter of 2023 to the

second quarter of 2022. that's the peak

right there boys and girls Q2 2022 if

you sold property April May June you

probably hit the peak most areas hit

Peak around that time most of the

country if you just sort of broad brush

the entire country is down about eight

percent on average now some hot areas

are down 10 to 13 percent like Austin or

San Francisco or whatever some areas a

little bit on the Lower Side uh some

parts of Florida for example down like

six percent still but you're you're

starting to see that clear inflection

point don't oh and you're gonna love the

part where they start talking about a

spiral in this but anyway oh boy this is

so bad I'm already choking on it so look

at this uh this this if you adjust for

inflation this 94.5 rise from 13 to 2022

about nine years here is adjusted for

inflation a 60.8 percent rise the

magnitude of this is even larger than

that of the previous housing boom which

lasted from 1998 to 2007 yikes so more

of a bubble than we've had previously

yikes all right zooming in here what do

we have house prices have risen

especially since the pandemic began from

the first quarter of 2020 to the second

quarter of 2022 so just the last two

years about 40 percent so nearly half of

that 94 appreciation was realized in

just the last two years

yikes this is the fastest rate of of

movement and uh of of measures of

profitability price to rent price to

income and a past record highs that we

have seen since

1975. so some of them measures that

we're facing today in terms of housing

affordability are worse than what we saw

during the Paul volcker era of 75 quite

remarkable now they give some reasons

for this some potential reasons here

like robust disposable income work from

home but also look at this one fomo when

Real Estate they say becomes frothy when

the belief becomes widespread that

today's robust prices will continue

unabated yikes until of course an

inevitable correction ends up occurring

and we can tell if we're in a sort of a

time of exuberance by looking at three

specific statistics which are all

plotted together on the very next graph

right here take a look at this price to

rent price to income and real house

prices which are adjusted for inflation

when you just have one of these Rising

above the 95 percentile or into a what

they we call an exuberant level you get

this sort of gray chart when two rise

above that level you get this darker

gray chart and when three rise above

that level you get this really dark gray

spot or line and what you can see is

we've got ourselves in the really dark

gray section now don't confuse the 95

percentile level with these numbers here

it's a little different 95 percentile is

what they consider an exuberance level

and that's what creates the graphing for

these or the coloring for these not

necessarily these numbers just ignore

those what you want to do is compare

these numbers though to the last housing

bubble and look at where they compare I

drew this little red line right here

just to kind of draw from roughly Peak

to where we sit now the only thing that

hasn't far exceeded these levels here is

price to income it's pretty well peaked

but it hasn't exceeded the last bubble

if you actually look at real house

prices and prices to rent both of them

have exceeded the last bubble media of

2006 seven and eight which is quite

scary

the FED here in this Dallas fed blog

post suggests that the pace of

acceleration we have seen cannot easily

be reconciled with fundamentals and this

is why they suggest fomo mentality is

really taking over here which I mean hey

you know what personally and this is

where I'm just going to indicate my bias

okay I sold my real estate in q1 Q2 of

2022. I've got a few properties left but

I sold 85 percent so I want to be very

clear I got some bias there I'm a real

estate broker but I don't represent

clients so I don't think I have bias

there and I run a startup called House

hack where we're looking basically to

bottom feed for homes turn them into

beautiful rental properties to bring

some rental housing stock to the market

by fixing up fixer-uppers and and not

like flipping real estate but instead

renting it out for the short medium and

long term depending on what's most

profitable if you're an accredited

investor you can actually invest with us

by going to househack.com read the uh

prospectus there the private placement

memorandum and if you're not accredited

yet don't worry we expect to open up the

non-accredited around January February

somewhere around there I'm hoping for my

birthday January 28th okay bias is out

of the way yeah I'm hoping numbers fall

uh but I will towards the end of the

video talking to you about how they

might not uh now let's look at some of

this here so uh what do we have here the

pace of acceleration can't be reconciled

with fundamentals the pandemic surge

exacerbated The fomo Driven bubble

however there are some things that are

actually keeping the market propped up

right the fact that houses under

construction aren't really helping

Supply yet because the completions lag

and Mortgage Debt Service payments as a

percentage of personal income or

personal disposable income are at a

historic low of 3.9 percent when we go

back to 2005 and 2007 we were closer to

six to seven percent so mortgage

payments and debt just aren't much as

much of a burden today as they were then

but that could change as a higher rates

start really getting built into the

economy but that takes a lot of time

because people are on these 15 30-year

fixed rate mortgages and they don't

unlike in other countries have to

refinance and take that higher interest

rate as soon so as they say in this

chart here housing finances are affected

with a lag so I think this is where if

you're looking for really pain in real

estate you want to be patient now is the

time to learn about real estate and

become as expert as you can in real

estate so you can get the best possible

deals when that time comes and so as

they say here our markets gradually

incorporate higher rates then they also

talk about how housing provides a

proposes a vulnerability for the U.S

economy and really what they do is they

talk about this idea that as housing

prices fall you tend to potentially see

spending go down Robert Schiller who's

famous for the case Shiller housing

index and a Princeton Economist he

argues that it's not actually stock

declines that reduce people's

willingness to spend money it's actually

housing net worth declines that reduce

people's willingness to spend money and

so the FED somewhat reiterates that here

that if we faced a real that's a flash

inflation adjusted price correction of

15 to 20 percent we could shave 0.5 to

0.7 percentage points from real personal

consumption expenditures that's actually

a pretty substantial hit to GDP if you

think about GDP maybe growing at uh you

know one to two percent over the next

year you're shaving a very large chunk

of GDP out of that especially since the

consumer makes up over 70 percent of the

US economy right so a really big piece

of GDP could be sliced out over there if

people really to pull back on that

spending as driven by potentially a

housing correction now while they do

suggest that this 20 crash is likely

it's not guaranteed of course the higher

policy rates go the more likely it is we

limit a prolonged housing boom

and we could potentially thread the

needle as they say and soften the

housing market without actually crashing

the housing market but while that's a

possibility something we really have to

recognize is that a 15 to 20 percent

decline is a real outcome so what's

what's my take on this well my base case

base case so I would say probably 70

likely my base case is that real estate

prices are going to be down 15 to 25 off

a peak

that's my base case is it possible that

inflation plummets in December January

February March and then all of a sudden

the FED says geez our job is becoming so

easy let's uh let's not only reduce

rates but all of a sudden as they reduce

rates the bond market drops 10-year

yields back to you know two two and a

half percent and then what happens all

of a sudden you're in a situation where

mortgage rates are back to five percent

instead of over seven percent where

they've been recently although I think

they're like 6.9 right now what happens

people start thinking okay the floor is

putting a bottom under the market maybe

we're not going to have as much pain in

that sort of scenario where inflation

really drops fast I think this may be 20

likely for the housing market maybe the

housing market pauses at a 10 to 15

percent loss which kind of is where we

already are and that means all right go

time to go shopping for house hack you

better hop on a plane and start uh start

buying uh which is fine that's my job

it'll be a lot of traveling next year it

and that's fine but we really want to

pay attention to the FED because they're

going to be the drivers here of the real

estate market and I think once we see

mortgage rates fall below five percent

again it's going to be like taking a

bailout and going okay prices have

adjusted down more Falls are unlikely

ring the bell bye bye bye bye now it's

not necessarily true I don't think the

housing market v-shaped recoveries like

the stock market does so you want to be

very very patient it's not like you want

to blow everything all at once and all

of a sudden inflation goes up again and

then you're in a protracted and longer

housing market downturn the last housing

market downturn remember this started

peaking into it actually started peaking

at the end of o5 if you actually look at

the data most people identify the peak

as somewhere like oh six beginning of O7

that's where you really saw the

noticeable declines but stock market

didn't bottom until November of 2011.

dude that's like four or five years

that's crazy now that was a completely

different time and I hate saying this

time is different but that was a housing

market bubble inflated by people who

could not qualify for homes today we

have a fomo driven bubble driven mostly

by people who can qualify for homes so

it is different that's just the fact so

we'll see how it plays out my take thank

you so much for watching we'll see in

the next one Goodbye Oh and check out

the programs link Down Below on building

your wealthy yeah