I’m surprised by this housing indicator

this could be a critical indicator for

the housing market and history says what

we're about to talk about is right and

it could be right again going forward

yet nobody really talks about this

everybody's speculating that oh yeah The

fed's Cutting rates so prices are going

to

Skyrocket not so fast there could

actually be something else at play here

and I think I may have found it I've

already touched on this over at ec.com

if you haven't checked out ec.com yet

but let's go a little bit deeper first

into the data so I personally like

looking at history because I think

looking at history and expecting it to

be substantially different is generally

a Fool's Aon we want to look at history

and see where are things truly the

opposite not expecting or hoping that

things are just going to be different in

some diluted manner that oh everything's

going to be all golden and we're going

back to 2021 you know everybody buys a

house and it goes up 20% the next year

so what do we have here this right here

is history it tells us real property

values in blue which means it's

inflation adjusted right an inflation

adjusted number so if home prices go up

10% inflation is 5% this chart would

show 5% the difference fed funds rate is

actually in red now we noticed something

very very clear every time the federal

funds rate increases as it does in the

red line here we see the Blue Line

decline that's pretty obvious and that

makes a lot of sense and anytime that

blue line is under the big middle black

line we have negative home appreciation

which means home values are falling so

we know that when these rates go up we

can drive prices down just like we saw

over here in 200 five six and seven the

increase of rates could have potentially

pushed to the end of that housing bubble

and pushed housing and the housing

market over the cliff so to speak it's

almost like every single time that fom C

rate pops up we either push housing

prices negative or we substantially slow

the progress of housing look over here

for example as rates really start Rising

around 18 2018 is we really slow down

that growth in housing prices so there's

a clear correlation between fed rates up

and housing prices either down or slower

growth that's really clear but this

actually starts falling apart when we

start looking at

rates down equals prices wait what yeah

look at this rates down over here in the

70s but very little movement at least

rapidly until we get this Spike over

here but I want you to keep that end

that December 17 uh or

1976 spike in mind because maybe there's

something else that explains that and

some of the other spikes that we see

here let's go to 86 86 over here rates

have been falling over here

consistently and we slowly see this

weird spike in home prices that blue

line uh right here we see that blue line

but it's not associated with the direct

fall in rates we just see this slow

decline average decline in fed rates

here uh and all of a sudden as fed rates

move up we do see softening just like we

did here fed rates up softening but here

we're pretty stable why all of a sudden

do we see a spike in home prices here in

86 and it's almost like this happens

every 10 years because once again over

here in 96 look at that blue spike in

home prices yet no change at all in the

fomc rates so maybe it's not actually

the fomc rates that are driving the

housing prices in fact take a look at

this rates over here during the

recession in 20 8 and9 plummeted and

rates went less negative this line went

up yes but it's still negative home

prices still lost value in fact look you

literally had your double dip almost in

home prices and these are all negative

values right here all of them so wait a

minute rate cuts are supposed to lead

home prices to go up right not

necessarily now we could argue well

maybe it happens with a delay or is it

something else

I believe the answer is something else

now take a look at this this right here

is a measure and it's a proxy because

this is not on residential it's on

Commercial and Industrial but they tend

to move together so it's not the best

relationship but it's a strong

relationship look at this lending

standards tightening anytime lending

standards go

negative which means you have a

loosening or you see this line go under

the black line here which means it got

easier to get

loans look at the dates where it got

easier to get loans 94 to

96 2004 to

2006

2011 and 12ish

13ish and of course 2020 W it was really

easy to get loans because lenders wanted

to give loans to everybody so take a

look closely at this and mind you I

posted this on eack so if you want to

kind of see these charts and play with

them the links are there take a look and

that's going to be free forever I want

you to know that so look at this real

property prices saw not their Peak

prices we care about when the boom

starts right the boom here about 2004

right at the beginning about 2012 12

right about the beginning and 2021 right

about the beginning here right okay

we'll compare that to when lending

standards were negative beginning of

2004 they went negative for a period of

two years uh you had uh this period over

here 2011 to 2012 13 14 they went

negative you really ushered in home

price appreciation with loose lending

standards same thing here in 2021 so

what can we conclude from this well it's

not actually rates going down that

lead the housing market to go up it's

actually looser lending standards that

lead housing to really boom and so when

we look at this little note I threw in

here from house Haack we study the real

estate market daily and we don't just

study it we participate in it we write

offers we purposefully skip deals we

think are overvalued what we're seeing

is a lot of speculation that that has

really started in the last 6 weeks where

we're looking at deals and we're

underwriting deals and we're getting

deals we're getting deals off Market

we're getting great deals with a margin

of safety but we're seeing some deals

we're losing and I like losing deals

because that means I'm not overpaying

right if I win every single deal it

means I'm underwriting way too Loosely

right so you have to lose deals and

that's okay it's it's just like sales

you just keep writing offers you win

some you lose some it's fine but what's

really interesting is the ones that

we're losing we're losing to what I

think is almost rampant speculation

that solely because the FED is going to

cut in

2024 people think oh my gosh that's that

means housing is going to Moon I'm not

convinced by that I actually think it's

going to take until we get to loose

lending standards so that way we can

really increase the buyer pool the

people who are going to be buying next

year at 5% interest 6% interest those

are going to be people who qualify for

those tight lending standards it's going

to be a small buyer pool relative to I

think the increase in Supply we're going

to get now I'm not calling for any kind

of housing crash but I think it's

probably going to take about 2 years to

really get lending standards loose again

which means you might have about 2 years

to go do your shopping before you

actually get Euphoria to the upside but

let's watch those lending standards

because it's a crazy and I think

potentially very accurate indicator and

it's a leading one at that why not

advertise these things that you told us

here I feel like nobody else knows about

this we'll we'll try a little

advertising and see how it goes

congratulations man you have done so

much people love you people look up to

you Kevin PA there financial analyst and

YouTuber meet Kevin always great to get

your

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maker