The Housing Market Bubble is Bursting like it's 2008 | Danger.

hey everyone me Kevin here I've got my

prayer potion because boy oh boy the

real estate market is just getting

reamed right now so much so that

Bloomberg is running articles about

crazy Peak fear now coming to the real

estate market and what I wanted to

address was is there the potential that

the real estate market has actually been

in a bubble the last few years so we're

going to look at a few charts and try to

understand this remember if you want to

go from zero to millionaire in real

estate I've got programs on real estate

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coupon code expiring at the end of the

month so the first thing that we want to

look at here is this particular chart

this chart it takes a ratio of price to

earnings and we call this a cape ratio

and in the case of the stock market

sometimes we'll use like a p e ratio is

somewhat similar to this and the cape

ratio here for the stock market is in

Orange you can see that the stock market

orange line has gone down and the

housing ratio which uses rents as

earnings is still relatively High

although it's clearly crested right over

here and what's fascinating is you kind

of with the exception of over in this

area here where you see this weird sort

of double peak of these two you actually

have a very interesting alignment right

here which is when we started printing

money printing printing printing money

and we roughly followed exactly the same

path as we printed money well now that

the housing or rather the stock market

bubble has essentially burst there are a

lot of murmurings that the housing

market is next to burst and of course

the rationale for this is relatively

simple it's that housing is a very

interest rate sensitive Market Jerome

Powell says we might be facing a

difficult correction soon Jerome Powell

says that even though we expect uh rents

to go down in the future they might stay

higher for longer and of course when we

look at the real estate market we

realize ah a lot of the real estate

market is driven by people's ability to

borrow money and if interest rates were

two and a half percent and now they're

nearly seven percent then people are

probably going to lose a lot of

purchasing power in this case they might

be losing as much as 45 of their

purchasing power comparing a two and a

half percent purchase on a 30-year fixed

rate mortgage to a 7 30-year fixed rate

mortgage it's pretty wild but is

potentially the housing market in a

bubble and what could Define a real

estate bubble well this next chart is

going to help us understand this but

it's a little bit of a tricky chart to

understand so let me explain it as

simply as possible what I've done is

I've put numbers on this and it's really

important that you go with me through

this one by one so the first thing I

want you to understand is that this

chart on the left side tells you the

cape ratio so the higher we go the more

expensive things are relative to the

income that those things are creating in

this case houses this over here

represents how expensive interest rates

are it's not the 30-year mortgage this

chart shows the 10-year treasury but

mortgage rates tend to follow these

they're a little bit more expensive than

these but they tend to follow these uh

with a spread of anywhere between two to

three percent so now we understand the

chart let's understand number one over

here so number one has a bunch of blue

dots and blue dots represents a period

of time from 1995 to 2002 and what you

notice is that as these yields were

actually at the far right of the chart

you can see that only the blue dots are

on the far right as housing prices uh or

sorry as the housing market was in 1995

to 2002 and rates were this high High

housing prices were lower notice how

they're in the bottom right corner of

this chart basically where the

expensiveness level of houses is the

lowest and it's when rates to the

highest okay that makes sense right

rates go up prices go down okay but

there's something weird that happens in

bubbles and that's what we're going to

talk about in this chart but first we

got to look at number two so number two

shows us these yellow dots so what is

number two for yellow well it's actually

2021 to 2020 20 or 2022 so that's post

pandemic okay interesting so what do we

have here ah how fascinating we have

some of the lowest interest rates in the

chart and some of the most expensive

valuations okay well that makes sense

this totally makes sense so far so we

understand the chart so far right that's

the easy part okay interest rates high

price low interest rates low price High

yay easy right

and now I want you to see a little bit

of a moderate example take a look at

this period of money printing from 2014

to 2022 or 2020 actually you can see

that as we're printing money rates were

relatively stable right here between two

and three percent on the 10-year and

what did housing prices do they stayed

relatively stable in valuation in fact

they didn't balloon or Bubble Up in

valuation very interesting so as rates

were stable

we didn't have a housing market bubble

and valuations never bubbled up in 2014

to 2020 even though they were growing

they weren't growing more than earnings

were growing earnings anchored them to

reality at least to some degree right I

know some people will dispute that

housing was was you know

affordable in 2014 to 2020 and certainly

it's less affordable than it was over

here in like 1995 but the point is that

rates were stable and we didn't see

houses become more expensive for that

six to seven year period

but what happened over here in these

orange bubbles is really really weird

and it's dangerous because we know what

happened at the end of

2008. we had a complete popping of not

just the stock market bubble but of the

housing market bubble 2008 is generally

considered the housing market recession

and the housing market controls

everything especially a lot of household

net worth

and so what do we have here well between

2003 and 2013 we actually saw valuations

relatively stable like the green section

at first

but then when Markets started

overheating rates went up notice how

they didn't just stay over here these

orange dots we actually saw interest

rates go up that's this lower section

right here and what happened was as

interest rates went up we actually saw

Home valuations go

up

that was really really weird

and the reason this happened

is because folks we were in a bubble

in fact when you look at 2005 to 2007

you see that treasury yields went up to

try to slow the economy housing prices

still went up and we created one of the

worst housing bubbles ever that's

because as rates went up prices still

and valuations not just prices

valuations went up that is the

definition of a housing market bubble a

housing market bubble is when people say

I don't care if housing is getting more

expensive I need to buy now because I

don't want to miss out and I hate to say

it but many people who are buying homes

today are saying I need to buy a home

now because I don't want to miss out on

interest rates where they are now

because interest rates could go even

higher that is the bubble talking and

that's really really scary because if

you look at what interest rates were in

2010 10 in 2011 they had actually come

back down and that's really really

important because as they came back down

valuations came back down and that is

critical we can evidence this simply by

looking up the 10-year Treasury and then

what we're going to do is we're going to

look up well what does this mean for

where we are now and I hate to say it

but it's a little on the scary side all

right so let's go ahead and take a look

at the 10-year treasure yield which is

currently substantially spiking it's at

3.71 and if I go back to the let's just

zoom into the 2003 era here we go 2003

era notice when you had high rates here

between 2003 Rising rates all the way to

2007. this is the era where you actually

had housing prices explode and

valuations go bubble crazy and as the

mark collapsed interest rates actually

fell and bottomed in 2012 in this 2003

to 2013 cycle right so you can see

substantially lower rates after prices

came down but rates Rose while prices

were still going up and people were

still buying and paying higher prices

and higher valuations compared to rent

because they had fomo they had fear of

missing out so when you actually look at

this chart it's a little bit complicated

but when you actually look at this chart

and now you have all this data you can

actually correctly say wait a minute

Kevin so what you're saying is maybe

this right here was 2004 and 2005 and

2006 rates going up and valuations going

stupid correct and that is a bubble

and when interest rates then later ended

up coming down we ended up having

reasonable valuations some kind of

adjusting how this chart looks for you

to you for some more understanding right

this is why we're going through this

chart very slowly because I know it's a

very tricky chart but it is incredibly

insightful especially because now folks

what's happening right now with yields

well you should already know this

because quite frankly I just showed you

but it's okay if you don't remember

they're skyrocketing again every time or

every day that the 10-year treasury is

over a rate of 2.75 in my opinion we

create permanent damage to the housing

market so much so that I want you to see

what happens to the dots when we start

plotting what's happening right now in

2022 and it's scary before I do that I

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learn more by going to househack.com but

what do we have on the chart now well

folks take a look at the chart here

let's just go ahead and erase some of

the nonsense that we've drawn over here

there we go okay so what do we have well

folks the yellow is

2021-2022 well interest rates in 2022

have risen so these low interest rates

around one percent over here represent

valuations that are actually around this

45 level right so you have low interest

rates lower valuations you're not

actually seeing a bubble

but what's happened recently folks is

actually a lot more scary what's

happened recently is the following

remember the yellow dots are only

2021-2022 interest rates have started

going up dramatically they have gone up

a lot you just saw the 10-year treasury

is basically at 3.7 which is somewhere

right around here so this chart isn't

even showing this yet

but what the chart is showing you for

interest rates going up to about 3.25 is

that as interest rates are going up

valuations are not going down yet

they're actually going up that's because

we are seeing the peaking of the bubble

before the burst just like we did in

2005 and 2006.

now

some folks tell us the following

that as long as rents accelerate then

maybe these valuations won't be a

problem because these valuations based

on a ratio of earnings will come down

because rents will go up but folks right

here

if rents do not go up

then the following might be true

according to Bloomberg quote everything

seems to be in place for historic crash

in housing prices

inflicting broad economic damage folks

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for watching we'll see you soon bye