The Biggest Housing Crash Of Our Generation Is Coming

Let’s talk about declining home sales, and what this means for the 2022 Housing Market – Enjoy! Trade Bitcoin, Doge, and other crypto with low fees on FTX. Use my referral code GRAHAM and get up to $100 FOR FREE: – Add me on Instagram: GPStephan

What’s up guys it’s graham here so i normally don’t post back-to-back real estate videos but when i saw this headline i had a feeling that quite a few people are going to be asking for my thoughts and if you don’t know what i’m talking about it’s this mortgage demand drops to a 22-year low as higher interest rates and inflation crush home buyers to make matters worse

Some articles are even saying that foreclosures have increased at a rate of 700 percent well the federal reserve is days away from another rate hike of an additional 75 to 100 basis points giving us the clear signal that mortgages could soon get a lot more expensive so let’s talk about the new housing data that was just released what the signals in terms of the future

Of the housing market if there will be an opportunity for millennials to finally afford a home and then the question i’m sure you all want answered how did this man push a peanut up a mountain using his nose yeah seriously that was a real news article as of a few days ago but don’t you worry i got you covered on that and more on today’s episode of everything is fine

Although before we start since mortgage rates have increased it wouldn’t mean a lot to me if you increased that like button and subscribed if you haven’t done that already for the youtube algorithm doing that costs you nothing it’s totally free it takes you just a split second and as a thank you for doing that here’s a picture of a baby dolphin so thank you so much

And now with that said let’s begin all right so to start once a month the national association of realtors publishes their data on the latest market updates home pricing and mortgage trends to give their insight as to the direction of our economy and this last month was uh well surprising now on the most basic level we have the stats that everyone is talking about

Mortgage demand plummets 22 new applications for a mortgage fell 19 lower than the same week in 2021 and refinances saw an 80 drop year-over-year but the most mind-boggling part from all of this is that home prices still went up and are now 13.4 higher than they were a year ago so how is that even possible well as they explain part of this price increase has to

Do with time on the market which references how long a home is listed for before it sells and in june homes stayed on the market for an average of 14 days which is two days less than they were back in may and three days less than we saw a year ago in 2021 this means that despite all the anecdotal stories sellers are actually getting faster offers at higher prices

But there is a bit of a catch even though more inventory is being listed the record low pace of time on the market implies that homes priced right are selling quickly and homes priced too high are simply deterring buyers from even making an offer this partially explains why we’re seeing so many price cuts despite the average selling price continuing to go higher

And is a simple way to visualize it here’s a very silly looking cartoon when sellers expect their home to continue appreciating at 30 percent every single year it’s easy to get ahead of themselves and ask a price that’s unrealistic in a market that’s beginning to soften on the other hand sellers who price in line with current values get their asking prices and

Earn more today than they would of a year ago now in terms of who’s buying these homes it’s mostly blackrock so that they could rent the back to you for an even higher price just kidding first-time buyers actually made up the largest share of purchases with 30 of the overall sales volume while investors and second home buyers came in at 16 but in terms of where

Future values might be headed there’s one other report to look at and that would be a report from homebuilders now just like the national association of realtors pulls data and then extrapolates what we’ve already seen homebuilder information gives us an in-depth look into the future and evidently based on the data the housing market is in a meltdown according to

The most recent report builder confidence for new single family homes posted its seven straight monthly decline in july which is one of the biggest single month drops in its 35 year history as they explain production bottlenecks rising home building costs and high inflation are causing many builders to halt construction because the cost of the land construction

And financing exceeds the market value of the home while 13 of builders reported reducing home prices in the last month to bolster sales and or limit cancellations however that’s just for single family homes and once you look at multi-family construction that number changes substantially with construction for five units or more rising by 15 as they say rising rents

Are creating an incentive to build more rental units even in the face of rising finance costs so in a way it’s kind of like a double-edged sword because if builders scale back during a time where inventory is already extremely low we’ll be faced with an even worse housing shortage keeping prices high so in terms of what we could wind up seeing throughout these next

Few years i wanted to share a really interesting breakdown from the newsletter calculated risk which i’ll link to down below in the description because this gets good as bill mcbride points out most people are making the mistake of comparing our current housing market with that of 2008 but lending requirements are vastly different today than they were in the past

And to get a true reflection on what’s actually going on look no further than 1978. that was a time when the u.s experienced runaway inflation interest rates spiked as high as 20 percent gas and energy prices soared and home prices were caught in the crossfire both in 1978 and today we’ve seen a similar uptick in year-over-year mortgage increases with rates rising

By more than 50 percent and even though mortgage rates are lower today than they were in the past there are a lot of similarities so what happened well to get into that it’s really important that you understand the difference between nominal and real returns in really simple terms a nominal return would be your hundred dollars today growing to 120 a year from now

That would represent a 20 profit and on the surface it looks pretty good but real returns factor in the boogeyman of inflation where even if you make a 20 return if inflation is 21 you’ve officially lost money in terms of your net purchasing power despite your account growing in value by 20 now if that part doesn’t make sense to you just rewind by about 20 seconds

And watch it over again because once you understand that all of this is going to start to make a lot of sense as bill points out from 1978 through 1982 nominal home prices continued going higher but real returns when accounting for inflation fell by 11 over three years meaning home prices went up in terms of dollars but because of inflation their net value declined

Even though people’s net worths were going up on paper does that make sense the thing is since homeowners are able to lock in low-interest fixed-rate mortgages home values tend to remain sticky in the sense that those who aren’t forced to sell won’t sell that’s why we could very well see home prices continue to go up even though real values might decline it’s also

Important to mention that this isn’t just a matter of increased home prices but also rents because this has a huge impact throughout the entire housing market and to almost no one is talking about it as reuters pointed out multi-family construction gained ground as rising rents burnish the appeal of apartment projects and this is an extremely important sentence

That should not be missed see in most cases investment properties sell for a multiple of what they make relative to other investment properties that are listed for sale so in really simple terms if there’s a building that makes a hundred thousand dollars a year in rent there’s most likely going to be a buyer out there willing to pay a million dollars and get a 10

Return but if rents rise and now all of a sudden that building makes 120 000 a year does it still sell for the same million dollars well the answer is probably not even though some of that rent increase would be used to offset the cost of higher interest rates most likely you would be able to find a buyer willing to pay 1.1 million dollars just because your building

Makes an extra 20 000 a year in rent and this is something that a lot of people forget large construction projects and apartment buildings are valued based on their gross rents and net operating income so when rents are going up long-term investors see this as an incentive to hold even more multi-family real estate and therefore prices remain high in addition to

That rents don’t always rise because of greedy soul-sucking landlords that try to extract as much value from society as possible but instead because overhead costs increase and there needs to be an equilibrium between what a tenant pays and what a property needs to make to simply break even what many people fail to realize is that for a landlord there is going to

Be ongoing maintenance property taxes insurance repairs vacancy and a multitude of other factors that need to be accounted for that go into the bottom line of what needs to be charged in rent anything below that threshold would result in a loss to the point that it makes more sense to take the property off of the market thankfully you could make up for some of

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In the description with the code gram okay but in all seriousness inflation is increasing the bottom line for rents which in turn is boosting up property values but what about the foreclosures graham and that’s actually a really good point because as i was planning this out patrickbet david posted a video explaining how foreclosures are up by 700 so that’s going

To be bad news right we have 700 more foreclosures this year same time than we did last year 23 204 foreclosures according to the database management company attom well i found the exact source that he referenced and i couldn’t find a single mention of a 700 foreclosure increase anywhere in fact they say that foreclosures are up by 188 from a year ago but i don’t

Give up easily so i did some more digging and the only mention that i could find of a 700 increase in foreclosures came from a self-published article on fool.com in march of 2022 which references their source as black knight without providing a link and then everyone else picked it up as a fact so then of course i went back to black night and even when you look at

Their own article from the exact same month there is no mention anywhere of a 700 increase in foreclosure rates if anything they say that the number of active foreclosures edged slightly higher in march making it the first year-over-year increase in almost 10 years that hardly sounds like a 700 increase so if there’s any credible source out there that says this i

Would love to hear it because i couldn’t find it anywhere but anyway i digress foreclosures are up 188 but that only sounds bad until you realize just how few foreclosures there were to begin with it’s kind of like saying foreclosure activity went up by three hundred percent because they went from one to three and uh in this case it’s kind of similar for the last

13 years foreclosures have been trending downwards with even pre-covered markets stabilizing with just under a hundred thousand foreclosures a year today we’re at 33 000 foreclosures or one-third of already extremely low levels and if you’re thinking about patiently waiting for one of those foreclosures to come on the markets that could scoop it up all i gotta

Say is good luck and you’ll have to be extremely patient because it’ll take an average of 917 days to make its way through the legal system the truth is as it stands today homeowners have on average 185 000 worth of equity in their homes meaning on an average selling price of five hundred and seven thousand dollars home prices would have to decline by 36 percent

Across the board just for those homeowners to break even that means the chance of this happening even worse on a large scale while homeowners stop making their payments while you then wait another three years to make its way through the system is rather unlikely in a way that would make any meaningful difference on the market not to mention less than half a percent

Of homeowners with a mortgage are more than 90 days later in their payments compared to almost five percent at the peak of the housing bubble so from everything that i could see there is no risk of foreclosures flooding the market and i cannot find a single piece of data that credibly says that foreclosures are up by 700 so overall in my own opinion i would not be

Surprised if nominal values continued going even higher while real values stayed flat or even saw a bit of a decline for real estate investors that could actually make a pretty good opportunity for rising rents but for everybody else my advice is pretty simple just buy what you’re comfortably able to afford when you’re ready on a home that you plan to keep for at

Least seven to ten years but from all the data that we’re beginning to see i would not be surprised if some markets begin to soften and the rate of returns begins to return back to somewhat of a new normal it’s nothing to me that spells out a disaster and depending on the deal you get hey you can actually make some money but you know what what do i know i’m just

A talking head here on youtube so with that said you guys thank you so much for watching also feel free to add me on instagram and don’t forget to get your free stock down below in the description when you sign up for public using the codegram because that could be worth all the way up to a thousand dollars you may as well do it it’s pretty much like free money

Enjoy thank you so much and until next time

Transcribed from video
The Biggest Housing Crash Of Our Generation Is Coming By Graham Stephan