Shocking Housing Numbers Prove the Housing Crash is Here.

just had terrible news about the housing

market with a complete disastrous miss

in the amount of new home sales of folks

the real estate market is at the

beginning of a downtrend it's a

downtrend that on this channel i have

been warning about since january because

not only have i been a real estate agent

and a broker for over 10 years but i've

also been a real estate investor for

over 10 years and folks the writing is

so clearly on the wall that real estate

prices are going to be negative

year over year when we look back in 2023

to 2022 now it's just a matter of how

much let me give you the data then i

want to qualify this data a little bit

and talk about some things that you can

track to make sure you're aware of

what's going on in the housing market

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analysis in my live streams for real

estate included now new single family

homes

home sales fell 12.6 in july that's down

to an annualized pace of 511 000 homes

of new homes that would sell every year

compared to the expectation of 575 000.

it's a big miss and it's the sixth time

this year we've not only had a decline

but a miss and it's the slowest pace

since

2016.

construction has slowed cancellations

are up applications for mortgages are

plummeting and inventory is finally

starting to skyrocket in fact if you

take a look at housing supply take a

look at this particular chart here this

is the new

single family home supply chart we are

back at 2009

and 2008 levels

this is not a sustainable

chart

and it's not a sustainable area to be in

within the housing market and that's

because here's what happens when it

comes to real estate real estate's very

very slow but real estate follows a very

simple pattern

the first thing that happens is interest

rates move and they affect affordability

and either interest rates move or loan

conditions move that take away the

opportunity for some people to be able

to qualify that's what started in the

great recession as we started seeing

some banks realize oh wow we just lent

money to a bunch of people who really

shouldn't be lent this money let's

tighten a little bit as soon as you see

lending tighten whether interest rates

go up or lending standards tighten

affordability goes down that removes

buyer demand and one of the most

important things that i hear that i

think is such a great misconception

is that there's more demand than there

is supply and therefore prices keep

going up

that might have been true at the

beginning of the year

but if you're still saying that you're

missing the point because here's what

happens let's just say

that you have a typical equilibrium that

means you have the same amount of

sellers as you have buyers well then

prices should be relatively stable maybe

increasing at a nominal pace three to

four percent per year fine

but what happens when you have an excess

amount of buyers and too few sellers

well in that case prices go up more

rapidly potentially as much as 20 in a

year like what we've seen recently right

which is quite shocking and also quite

exciting it leads to a lot of fomo for

the real estate market well the first

thing that happens when buyer

affordability

gets crypt by higher interest rates is

this excess demand

goes away it gets pushed down

lows and and i know it might seem ironic

that lows would give us a statistic on

this but

90 percent of their customers are home

buyers like related homeowners or

landlords related to homes

customers over at lowe's

they

suggest that the excess buyer demand

used to be somewhere between 20 to 27

percent

and because interest rates have gone up

about three percent now and we know that

for every one percent that interest

rates go up we see buyer purchasing

power go down about 10 percent we

actually expect that this excess buyer

demand could have been reduced by about

30 percent which would actually then

bring us to

a lower level of buyers than what we've

previously had at the same time we're

seeing inventory

increase and so now you're actually

flipping the script you're going from

potentially this feeling of excess buyer

demand to actually going to excess

supply

and now even when this happens i

scribbled the wrong one there we go even

when this happens

it still takes time for real estate to

react now that reaction has already

happened the greatest decline that we've

seen in home prices on a

month-over-month basis during the great

recession was 1.9 percent

but it's already started in this cycle

and you can track that by going to the

redfin data center you can see that here

we had a peak of about 395 000

for resale homes this is not just new

construction that's seeing price

reductions but it's resale homes we had

a peak closing price of 395 000

throughout the entire country

that is now down over five percent

already in just three months

we are on a similar trajectory as what

we have seen at the early parts of 2006

and 2007 when the real estate market

began to turn

now we don't actually expect to see a

mega real estate crash where we see

prices decline 30 to 50 percent mostly

because home buyers and homeowners who

are existing homeowners still have

substantial homeowner equity and

the qualifying that's required in order

to own homes is so stringent today

that you'd really have to see a

substantial amount of job loss to really

see a mega 30 plus percent crash in the

real estate market in my opinion

but could we stand to see a 10 to 25

decline as we get more sellers

potentially fomoing their sales onto the

market and less buyers buying for fear

of getting screwed

absolutely in fact that fear is already

taking place in the market that is what

we covered last week when i covered the

housing market last week we talked about

how fear is creeping back in not only

are institutions uh like wall street

buyers

pausing their purchases but you've got

companies like redfin and open door

dumping their inventory because they

realize they have too much of it by some

accounts open door has as much of 20 of

the active listings on the market right

now in phoenix arizona that's insane

that's asking for massive massive drops

in areas like phoenix you've got in

areas like boise idaho which was

considered a zoom town a lot of folks

who wanted to zoom to work went to boise

idaho anyway

over 70 percent of listings have a price

reduction and i want to share an

anecdote here

of

one of the fascinating things about how

how

sellers mentality operates

seller mentality

is really such that

and it's a terrible thing but seller

mentality is really such that

sellers will look at comps

they'll look at this sort of data

and let's say they have a median home

they won't price their property what we

call

a head of the running deer like when we

say shoot ahead of the running deer you

might price a property here at 369 like

right here right to try to sell your

property before the actual value of it

goes below that maybe you could even get

multiple offers if you did that right

because remember folks just because a

property has multiple offers and just

because the comments come up all the

time oh but properties are still getting

multiple offers in my town yeah well so

do ebay listings when things are under

listed anything under listed should get

multiple offers okay it comes down to

the actual value if something is listed

for 500 000

and it's worth 369 or 374 thousand

dollars it's not going to get multiple

offers if something is listed for 299

000 it'll get 50 offers even in this

market doesn't matter

but anyway the point is most sellers do

not shoot ahead of the running deer they

won't price their property for 269.

instead they'll do this interesting

phenomenon well it's not much of a

phenomenon it's just greed really

and they'll price their property for

3.99 because obviously their property is

better

and what happens when they price their

property for 3.99 is the market

continues to fall and now the market

potentially goes to 349 for the value of

the home and then the sellers after 60

days are like all right let's drop the

price

to 379 doesn't sell

and then the actual value goes down to

339 and then they drop the price to 369

and notice how they're chasing the

market down

but there's another problem that comes

out of this and the other problem that

comes out of this is while this is

happening and these price drops are

happening

you're actually increasing substantially

the amount of inventory of resale

properties on the market

in most markets that i look at that i

study on a regular basis because i have

a real estate company that's getting

ready to launch

and this real estate company will be

doing a lot of shopping for real estate

so i am personally

very very attuned to the real estate

market and the changes that we're seeing

but what happens is as inventory

increases in almost every single market

that we're looking at we're also seeing

price drops skyrocket

nationally and in virtually every single

market that we're looking at

and this is the precursor to a

continuation of prices declining now by

some accounts we could get month over

month volatility where oh did prices go

down one month and then they went up a

little bit the next month

maybe and that can happen and this is

why i want to give you a better

indicator that you should pay attention

to

in my opinion the critical threshold for

real estate

is any time the 10-year treasury yield

which you could just go to cnbc.com

click on bonds at the top and then click

on tenure anytime you see this number

over

2.75

it means we're going to have

interest rates at such a high level

somewhere around five and a half to six

percent

that we are going to see real estate

prices come under pressure

now there was actually hope that real

estate wouldn't come under pressure

because take a look at this

in july we actually saw interest rates

or the 10-year fall all the way to about

2.59 percent and what was remarkable

about that was there were rumors that

maybe the 10-year treasury would fall

all the way down to 2

and if that happened the real estate

party could keep going

because we would see mortgage rates back

to four percent

folks would be very very excited to have

cheap interest rates again compared to

the six percent many people were

qualifying for

unfortunately that decline stopped

and now we have an increase of these

10-year yields again to right now above

3

and here's the thing

the longer these interest rates stay

above 2.75 percent

the more

time the housing market will have to

adjust to higher interest rates

the more time the housing market has to

adjust to higher interest rates means

more price drops more inventory more

seller fear of getting top dog pricing

or top dollar pricing and getting

excited to sell properties

the more fear you have with buyers the

more you end up seeing

selling prices come down and the more

you see selling prices come down on a

month-over-month basis which we're

already seeing that decline the more

self-fulfilling the fear becomes the

more prices decline and the more people

say oh wow prices are down five percent

already from their peak and it's only

been a few months imagine where we're

going to be next year it'd be an easy 10

to 25 percent

well in that case and that's of course

my opinion but in that case you'll

create more fear which will self-fulfill

these price reductions and ultimate

cheaper closing prices and again my

argument is that the critical price

point

is

10-year treasury above 2.75 the longer

we're at 2.75 the worse and more

self-fulfilling this real estate

slowdown becomes

now some folks make the argument that a

slowdown in the real estate market will

affect our gdp

and this has merit

due to something called the wealth

effect

the wealth effect suggests that if most

americans hold most of their wealth in

their homes and they start seeing their

wealth decline they might actually start

spending less

now while i agree

that it is very likely american

consumers will be spending less

and we could be in a technical recession

not just for two quarters but

potentially potentially four quarters or

six quarters or eight quarters which is

sort of a very shallow but elongated

recession as we compare to these high

sales numbers that we've had before with

consumers

the industries that i think are most at

risk

are industries related to directly

homeowner spending which generally

consumers do not spend money on their

homes

when home values are falling in fact

home depot in

their last earnings call mentioned that

individuals who spend money on their

homes while prices are going up don't

see that spent money as an expense they

see it as an investment

but that u-turns when the market is

falling and every dollar spent on a home

is now seen as a loss

because you're spending money on

something that's going down in value

and in my opinion we're going to see a

substantial slowdown in not only home

prices as long as these 10-year

treasuries stay above 2.75

but we'll also then see a subsequent

slowdown

in building materials

lumber

solar solar panels solar inverters for

homes

anything related to services around

homes whether that's handyman services

any person services construction

contracting painting plumbing electrical

whatever we might think there's job

security yes there's job security and

plumbing for fixing things that leak

but for upgrading that old plumbing to

copper we're gonna have to postpone that

upgrading to pex is gonna have to

postpone that right

so this is where if i were a contractor

i would be preparing

for the potential slowdown in

contracting business activity

by making sure i'm running a lean and

tight ship and i have ample cash

reserves and i'm not heavily leveraged

but the same is the advice that i would

give

to individuals who are potentially

considering buying real estate

get out of debt

increase your income and get educated on

real estate and on buying wedge deals

because no matter the market you're in

i personally believe that you can become

a millionaire

by buying wedge deals

wedge deals are again no matter what the

market does

your goal becomes buying properties

about

20

under market value this is the wedge and

the way you accomplish this is by

targeting very specific aspects which

are different for single families and

multi-family for multi-family you have

to get what i call

rent wedges for single family you have

to get condition wedges

low rents bad condition

but you have to strategize this

appropriately

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good luck out there