Fed *JUST* Released Housing Report | 2008-Style Collapse.

oh nasty hit piece out from the Federal

Reserve in the financial stability

report about real estate let's talk

about that Financial stability report

let's talk about what Bank of America

just said about the housing market and

holy smokes well we talked about just a

couple weeks ago is actually starting to

happen in the housing market now look we

know about like four percent of the

audience small tiny group has the

notification Bell on that is also a

hater so haters plus notification Bell

on about four percent and the cool thing

about those haters is even they know

that Kevin loves real estate so much and

knock on wood so far been pretty dang

accurate about the real estate market

peaking in q1 and Q2 and that's exactly

what's happening so far exactly what we

see in the trends continues to take hold

let me go ahead and explain exactly what

I mean by showing you what we talked

about just even two weeks ago and how

that's already changing the markets

let's get into that fed stability report

here we go look you know I sold most of

my real estate in q1 and Q2 I sold 85

over 20 different properties in SoCal

because we saw these price drops coming

and what have we just recently seen well

we saw this flattening we saw this

flattening right here in the number of

price drops happening nationally because

this is when we had a trough of interest

rates that is interest rates like you

could see this on the 10-year treasury

charts they stopped Rising as much going

into August so August as evidenced not

only by this chart but by Pulte Homes

actually saw a pretty decent Resurgence

in real estate and real estate pricing

showing you how sensitive real estate is

that if rates just stop going up we

could see some stability come to the

real estate market and maybe prices will

just stop falling which would be nice

and would be a sign that all right soon

it's going to be time to start buying

especially when those rates come down

and hopefully by then those prices are

at a lower level where it's more

affordable for all of us to buy although

valuations are still pretty high as

we'll see from what the Federal Reserve

has to say in just a moment so we've

surmised that because of this trough

likely turning into a higher level of

price drops following the 10-year

treasury moving up we surmise that price

drops would lead to lower sales prices

after this little trough here and that's

exactly what happened not only did we

see those price drops come in but take a

look at actual median closed sale prices

in different areas so this is across the

entire country you can kind of see the

little flattening that we saw over here

and now we're going even lower across

the entire country now down eight

percent from the peak of real estate

pricing look at Seattle you saw the

pause now we're dropping lower eleven

and a half percent what are we seeing in

Austin Texas you see the pause roughly

of over here you see the peak over here

now we're down 16 percent down 3.8

percent in Tampa so as we saw from the

case yellow report Tampa and parts of

Florida are actually holding up quite

well it's a lot of the Westerly markets

uh with with some other markets that are

getting hit a lot harder like Seattle

down 10.5 percent Denver down seven

percent Vegas down 9.6 La San Diego and

San Francisco down 11

from their Peak kind of wild moves in

pricing here quite substantially wild

and what is Bank of America remind us of

well Bank of America suggests this is

starting to look a whole like the bubble

popping in 2008 and 2010. take a look at

the green here at a reading of 79.5 the

seasonally adjusted index the index that

they're referring to for data here

regarding home sales is at April 2020

lows and back to the levels following

the bursting of the housing bubble in

2008 and 2010 likely because mortgage

rates are now above 10 percent less

people are wanting to sell only the

people who have to sell or selling or

you get some investors that are dumping

be it reads Pension funds or just

individual parental homeowners who were

speculating on an Airbnb or whatever

and Bank of America hear warns in purple

that housing activity is likely to

retrench even further going into the

year end so you've got definitely some

pain here in real estate but what's this

financial stability report and what is

the Fed telling us about housing well in

general Jerome Powell in his last press

conference told us that housing is

clearly seeing a sharp deceleration and

in some areas we're seeing price drops

and the reality is in many areas we're

already seen actual closing prices come

down but we've clearly seen a U-turn so

what does that mean for valuations and

stability well let's go to the financial

stability report which just came out oh

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conditions of course May apply Financial

stability report says although housing

activity weakened and national average

price increases slowed that would be

year over year right year over year you

can have price increases but then month

over month you can have these sort of

decreases right you have that inflection

point down home prices are still even

after these price drops that we've seen

they are still historically High

relative to rents that's not good and

it's not just home prices it's

commercial real estate and farmland as

well as we'll see in another slide here

household debt however remained at

modest levels relative to GDP and most

of that debt is owned by households with

strong credit histories and considerable

home equity so even though we have a lot

of pain and real estate because of high

rates and yes we have low Supply to

offset that the big thing that makes

this time different dangerous words but

true from now to 2008 is we don't have

the Reckless lending standards that we

had in 2008 so we're really not

expecting a crazy kind of foreclosure

crisis and real estate could actually

U-turn relatively quickly if we see

interest rates plummet quickly if let's

say we started actually seeing inflation

come down uh overall that is the big

priority we don't actually need jobs to

go down if we can get inflation to go

down right that's the big priority just

get inflation down now regarding

valuation pressures on real estate

national average home prices continue to

rise year over year although recent data

showed a significant slowdown in growth

and falling prices in some GEOS while

valuations are at high levels home

prices could be particular sensitive

particularly sensitive to shocks and

Commercial Real Estate continue to

increase since the last stability report

in May albeit at a slower price at the

same time we're starting to see

valuation pressures for commercial real

estate also move higher especially since

in commercial real estate you're much

more likely to see a lot of those

adjustable rate mortgages whether it's

in multi-family commercial or an office

or whatever come due for refinance

forcing some to sell you have less of

this issue in the residential space

where most of your mortgages are fully

amortized which means they're fully paid

off at the end of the loan there's no

big balloon payment and they're either

15 or 30 year terms you've got a long

duration on these now the Federal

Reserve does mention that house prices

have decelerated sharply but valuation

prices remain uh or valuations remain

high and the way they look at that is

they basically look at two different

forms of rent they look at home prices

relative to owners equivalent rents and

they look at home prices relative to

current market rents owners equivalent

rents are deemed to be lower than actual

Market rents but the FED here says that

by both metrics house prices are

elevated to levels that we haven't seen

since the mid-2000s peak that's a very

scary reference so they're really

comparing us via this chart right here

look at this

stretched house price valuations which

we did not see all the way up to the

pandemic we did not see that so for the

10 years prior to the pandemic even

though it felt like housing was

expensive it was nowhere near as

expensive relative to rents as it is now

the only time it's been this expensive

before is right before the 2008 bubble

that is scary because it really sends

the signal that wow we could be in for

years of a correction unless of course

those mortgage rates come down very

quickly and put a floor under this

Market in some ways that housing

inventory shortages already have as well

in addition to that Rising borrowing

costs is definitely going to put

pressure on households and businesses

especially those with adjustable rate

mortgages and an economic downturn or

correction in real estate prices would

also put pressure on businesses and

household balance sheets really

suggesting that hey like we get a

downturn in real estate you're going to

put pressure on households and

businesses but households and businesses

have really strong credit and low credit

or debt risk what are they saying with

that let me translate that and I think

the easiest way to translate that is

just go over here what they're really

saying is we need to slow the economy

and an easy way to slow the economy is

slow real estate if you slow real estate

per the case uh per Robert Chiller

actually and his uh his research over at

Princeton you have the largest wealth

effect which means for every dollar of

net worth you lose in real estate you're

incentivized to generally spend a buck

50 to uh two dollars less for every Buck

you lose in net worth and stocks that

correlation is a lot less clear maybe

you spend a buck less but it's not as

Amplified as what you see in real estate

in real estate it's where you see the

real slowing of the wealth effect and

since credit is strong here it actually

makes sense for this fed to say look we

need to slow the economy let's just kill

real estate because if you selectively

kill real estate you're going to have

the largest wealth effect and you'll

have the biggest impact on people

stopping spending money and that'll kill

inflation so there's it's no surprise

that the Federal Reserve Jerome Powell

literally said if I were a first time

home buyer right now I would wait for a

bit of a reset you know when prices come

back in line and buy and supply and

demand Are Back in Balance he basically

bluntly told us wait for prices to come

down and then wait for rates to come

back down it's a great thing if you're

looking to buy it sucks if you're an

owner but we're going to be going

shopping with house hack it's great for

credited investors if you're not

accredited yet I think we're only about

three months away which is exciting from

accepting non-accredited investors the

cool thing is we're working really hard

on expanding our accommodations platform

because we see a really big opportunity

in midterm accommodation so not

necessarily like one day in and out

right but that two-week to maybe 16 week

customer like that business traveler

customer who wants a house and not a

hotel that area yielding substantially

higher rents for the flexibility ability

and there's little competition according

to airbnb's earnings call only 10

percent of airbnbs are actually

professionally managed that is low low

hanging fruit to professionally compete

against well there you have it thanks so

much for watching good luck out there

with the housing market Payne is here

Payne's likely to continue and if you go

ahead and jump on over to the 10-year

mortgage rate right now to get a little

bit of a preview as to potentially

what's to come on some of these charts

let's just put it this way it hasn't

relaxed any okay look this is the 10

year right now it's at

4.163 now decently over four percent

notice we did trough over here and we

fell back under four percent but we just

couldn't last under four percent sorry

that's the last Peak there uh there we

go we trough down to 3.93 and shot right

back up to basically highs where we were

uh just uh the third week of October

quite remarkable anyway thanks again for

watching we'll see in the next one

goodbye and good luck