Oh, 11 months of straight declines and not the kind of Double D We want to be talking about 175 billion dollars of distressed real estate debt, real estate, prices of falling pain with liquidations and real estate investment trusts. And we haven't even gotten started with the real pain in this video. We're going to talk about a lot of data regarding the real estate market, but most importantly, we're going to be focused on: when do we think the real estate market is going to start showing some real signs of pain? Where could the bottom end up being? what's going on with rates? And how could we take advantage of investing in the pain that's coming to the real estate market? Hey everyone! Me: Kevin Here we're going to go through all of this and more in this video. If You like this content, Make sure to subscribe and remember: I've got a program zero to Millionaire Real Estate Investing.

So if you get excited about the ideas of opportunities of investing in real estate, make sure to learn everything in my zero to Millionaire Real Estate Investing course. So you get a blueprint for how to get through your first purchase, your second purchase, and Beyond so we can get you to Millionaire. For now, though, let's get started with what is going on. And oh boy, it is not the expiring coupon code for said programs on January 30th.

It is the following: sales of previously owned homes dropping to the lowest level since 2010. if we visualize that here, what do we see? 11 months of straight declines? The lowest level since 2010.. If we zoom out to incorporate the 2008 recession, we could see we are at levels nearing the bottom of 2008 and 2010. In terms of home sales, keep in mind, home sales are the volume of properties that are selling, not necessarily the prices.

We're just seeing a substantially reduced volume of sales as people are fearful about the real estate market and as they should be. because if we pop over here, take a look at this. Real estate has far more distressed debt than any other industry. Over four times as much distressed debt.

This is not regular debt. Like sure, there's more debt in real estate. There are also more Assets in real estate. No, no, we're talking about distressed debt.

Think China think ever. Grand think Bond defaults. We have four times as much distressed debt in the real estate sector as we do in software and services. Way more distressed debt than any other category here, from retail to healthcare to Pharma Financial Services Industrials Commodities You name it, Real Estate is the big boy in the room that's starting to have issues.

Think about. For example, what happened in China China's real estate bubble turned so disastrously to the dark side that the government had to finally step in and say, look, we'll reduce lending, Please just go back to buying homes. Please stop the stalling of construction on two million homes because you all are going bankrupt and the developers are getting screwed in China But we don't think things are going to get that bad in America or Europe or the United Kingdom But things are starting to look a little bit painful. And the best case scenario when you have debt distress is people start getting nervous about buying bonds.

The bottom line of that is: rates go up. Think about it, less people buy bonds, yields go up in English when rates stay higher longer, Prices for Real Estate go down more. So think about the bond market disaster as either potential turning into really bad news or just subtly bad news. But either way, you slice it price is for Real Estate are likely to continue trending down because again, fear in the debt markets leads to higher interest rates.

That should make logical sense if there's more risk, the yield or the rate you demand goes up. So in English mortgage rates go up. Now we know that recently in the last few weeks we've actually seen real estate rates come down. Mortgage rates on the 30-year fixed down to about 6.15 and this is leading a lot of folks to say oh well, this is wonderful.

If we're at 6.15 percent for mortgage rates, that's down from seven percent. What a bargain. Everybody should go back to buying. Well, unfortunately, that's not how it works and the trajectory doesn't look good.

Let's answer both of those or go into both of those into a little bit more detail. First, when we have mortgage rates go from a low of about three percent in fact, they were closer to an average of about 2.75 for quite a while in December of 2021. And now we're sitting at six. Let's just call it six.

I'll round down a bit. We're at about 6.15 With some buy Downs, we're a little bit lower. We are still 3.25 percentage points higher on an interest rate basis than where we were a year and two months ago. Unfortunately, for every interest rate bump of one percent, we tend to see buyer pricing power decline by 10 percent.

So simply put, a one percent increase in interest rates leads to a 10 decline in per purchasing power or affordability. For buyers. it doesn't necessarily mean prices go down 10, but we'll talk about that in just a moment. First, if we still have a 3.25 bump in interest rates, we're still looking at about a 32.5 percent decline in purchasing power solely because of the increase in interest rates.

Now, interest rates sitting at about six percent tends to correspond to about three and a half percent on the 10-year treasury. Now, why is that important? Well, it's really important because if three and a half percent is the equivalent of the 10-year Treasury and six percent is then where mortgages are. Well, then your hope is that the 10-year treasury. Falls So mortgage rates fall right? You want mortgage rates to come down to Signal Potentially a bottom coming in the real estate market and affordability going up again so we could actually buy and finance homes right? The problem is: Bloomberg Intelligence is a little bit concerned about this thesis.

Now this is a little wild, but I Was reading about aircraft leases because there are some companies that people like investing in when it comes to aircraft leases. Now what does that have to do with housing You say? Well, pretty much nothing. But this note in here was very concerning for the housing market. I'm going to remove myself for a moment, take a look at this treasury.

Futures Indicate you can see me writing right there. Treasury: Futures Indicate the yield on the 10-year bond should remain around three and a half percent through the decade. OMG If the 10-year treasury stays at three and a half percent through the decade, then that means the best mortgage rate you might see for the rest of the 2020s is six percent. That is insane and it blew my mind when I saw that because my thesis has been that yields should be coming down once inflation is eradicated.

In other words, think about that. You would hope that yields go down with inflation going down. but because of this thing called quantitative tightening at the Federal Reserve which basically means they're buying less bonds and more Bond Distress and risk meaning less Bond purchases, right? So you have two big factors here. Distress and quantitative tightening leading to less Bond purchases.

What happens? Well, less people buy bonds, bond prices go down and yields stay up. So in English Even as inflation goes away, there is the possibility bond yields do stay up and mortgage rates stay high for longer. Now that's a problem because real estate prices are on a downtrend. We'll go through the exact numbers in just a moment, but let's understand just in theory how this should work.

and then we'll look at the actual numbers. We know that price is skyrocketed as prices or as interest rates came down. duh, because you could afford more home. Okay, fine.

Now that interest rates have skyrocketed and home sales are plummeting, we're actually starting to see a decline in real estate prices. Now we know that year over year when we look at January to January, we actually still have a slight positive in some markets, right? So on the national average, we still see home prices are up a tiny bit. That's going to change soon. When we start looking at let's say, May, which will be over here to May Up here we're going to be looking at an oopsie doopsies of a decline, but we already know that.

The concern though, is if interest rates stay higher longer then the hope that lower interest rates would create a floor under this pain goes away. There is no floor and if there's no floor, because interest rates stay higher longer, then the pain of the 2023 housing market crash could be worse than expected. See, most people have been under the thesis that oh, real estate prices will just correct back in line with the 2020 or the 2019 trend line. So basically get rid of the coveted bubble, go back to the 2019.

Trend Okay, we have a little bit of a correction. All things are good. Well, guess what everybody said in 2006. Oh, real estate prices are coming down again a bit, but that's okay.

Things got a little unaffordable. We need a slight correction. Anyway, it'll all be fine. And then sure enough, the bottom fell out and home prices fell.

Not 15 or 20 percent like a correction, but rather 35 to 50 percent. That is scary. Now this is where we have to look at. well, what a Real Estate Prices doing today.

How are they behaving today? And when are we expecting potentially to see the real pain in the housing market? And when does Fear actually start coming out? All right? Well for this, we're going to go to the Redfin Data Center And what we're going to look at is we're going to look at the median sales price. and the first thing I want you to pay attention to is the fact that the Blue Line is 2023 and you will notice we are still positive over 2022 by about one percent. Okay, that's kind of what I've already said right? But now what I want you to do is pretend this Blue line moves over to the right in a flat level that is Housing prices don't even fall, they just stay flat where they are. Imagine that scenario, if they fall, it gets worse, right? But imagine home prices stay flat and now you get into February.

Well, if home prices stay flat at a national median of 350 000, today, year over year they look up, but in three weeks you're going to look like home prices are down two percent year over year and then down three percent year over year and then down four percent year over year. And come May and June it is going to look like the 350 000 median. Assuming no further declines is a national average decline, or a national average decline of nine and a half percent is what the media is going to start screaming about. So you're actually in this really weird position where when you start looking at the year over year numbers, here's how the headlines are going to look: starting in, probably about because it's so delayed starting in about March or about April.

You're going to be looking at the February numbers because the K-shiller Indices reports are about two months lagged, but we already see the data coming months. We've known this was coming forever, right? So you want to prepare for this and I want you as a watcher and subscriber of the channel to be ready for this when the February data comes out. what in March and April What are we going to hear on the media? Oh no. Real estate prices have fallen for the first time since 2008 year of a year? Oh no.

And then all of a sudden people are gonna go huh? Real estate prices are going down. Oh no. and then what's gonna happen? Well then come March you're going which you're gonna get in probably April or May that data. You're going to have the same news people going oh no.

Real estate prices are now down five percent year of a year and then people, oh no, it's getting worse and then this will continue all the way through. presumably until about when we get our May data. Let's say late June slash July when you get the May data and at this point you'll be looking at a year over year number of negative about 10 percent. So come this summer you're probably if if prices just stay flat.

Okay, think about that assumption. The assumption is right now: prices stay flat. Mass media Panic actually occurs in June and July when everybody's like oh no, prices have been falling for three and a half months. Oh no, now it's double digit declines and real estate.

Holy shy says panic Panic is what happens And that doesn't even assume that prices continue to fall. If prices continue to fall because real estate rates stay high, this gets worse. Then the question becomes: how much does Fear actually impact prices And this is where we have to think about a few things because there's a fear element and then there's a supply element. Let me first explain fear and then I'm going to explain Supply And then after I explain fear.

And Supply I'm going to explain how to identify Bottoms in markets and strategies for buying real estate. Remember folks, January 30th mark your calendars. You are never going to get a better price on the programs on building your wealth. Link down below after January 30th This is a big expiration we're doing away with the coupons.

Prices will be net substantially higher and when you're in, you get lifetime access to me In the Q a morning live streams we do every morning at 9 00 a.m Eastern Standard Time Every morning for 45 minutes when the market is open, you can dialogue with me. We do real estate analysis, technical analysis and stocks trade ideas, fundamental analysis all grouped together and soon we'll be launching a separate live stream for those of you who join the Elite Hustlers Live Stream group that is For those of you looking to raise your income, that'll be a once a week live stream. Those are separate. Keep in mind every course though comes with access to Lifetime Live Streams With me for Market open I'm super excited to see you there and make sure you get in before January 30th.

You'd also use the coupon on shadowing me on the jet as we go. look at real estate in person so you can learn real estate for me in person. Okay, now let's talk about fear. So fear.

Home buyers are inherently extremely fearful in the real estate market. When I started representing folks as a real estate agent, I realized uh oh, we're coming out of this sort of double pricing dip that we had in 2009 and 2011.. And when I was working with clients in 2010 and 2011, what I found was even though prices were at bottom Psychology was terrible. The only people buying were investors.

Home buyers were very reluctant to buy because guess what, even in a good time, home buyers are fearful of getting into real estate. They just don't know what. They don't know what's Behind the Walls what are Home Inspections Like, how's the foundation? We don't have the answers. Unfortunately, when we look at fear in mortgage rates, you see mortgage rates have skyrocketed and pricing power has declined and you add to that declining home prices.

Fear escalates for home buyers. So as difficult as it is for a real estate agent to sell a home to an individual in a good Market that becomes even more difficult in a bad market. And there's a reason why. 30 percent of real estate agents can't even pay their office rent.

It's because the number of homes being sold is plummeting. Look at the number of Realtors real estate agents who are members of the Realtor Association per reventure Consulting Over time, it shows you that we hit a real estate agent bubble in 2022. Everybody and their mom wanted to be a real estate agent. Guess where? I got in the market right here, baby! I am someone who joined at one of the lowest points of real estate membership.

Everyone was telling you not to become a real estate agent and I dealt with the fear of home buyers I dealt with the personal fear of people concerned about rates and macro cycles and I taught the real estate cycle I Thought that the best time to buy real estate is in the bottom half of the real estate cycle, not in the top half. And folks, what are we walking into Now the bottom half. and I believe that's where the opportunities lay. but I believe that home sales will continue to plummet as they already are.

We are 11. We're on an 11 month trajectory of declining home sales and now what does that do? Because a lot of people talk about housing inventory and they say, well, Kevin home sales might be declining and maybe maybe rates are up, but we have a lack of housing inventory every one and their mom thinks that housing inventory is what matters. But here's here's a fascinating about housing inventory. Consider this for a moment.

If there are 100 properties in a market and 10 properties sell per month, how many months of Supply do you have in housing inventory? Well, 10 or 100 properties 10 per month you have 10 months of inventory. But what if now only five homes sell per month and there are 200 homes on the market? Well, now, instead of having 10 months of supply for housing markets, you actually end up with 40 months of supply. And this is exactly what's starting to happen. The months supply of inventory is starting to Skyrocket as fewer people buy homes.

even if potentially inventory stays stable because that is what's happening in many markets right now. The inventory number is stable, but the number of homes purchased is plummeting. What do you think then happens when the upper number skyrockets months Supply skyrockets even more? Here's today's data. Today's data shows you that the month of supply for Real Estate Across The Nation is twice the level it was in 2022 with twice as much Supply on a basis of how much is selling as we had in 2020 too.

But where are the sales going to come from? Where is more inventory going to come from is what everyone says. After all, home sellers don't want to sell because the move up Market is basically dead because people who own homes have low interest rates two and a half percent rates. Why would anybody sell their home and buy something else if their interest rate is going to reset so high? Well, this is where you have to remember: it's not just homeowners who own real estate and sure, people could die or move in with family and that's going to lead to some increase of inventory. Sure, some people could go through foreclosure that we're not really experiencing a foreclosure crisis right now.

We're still at lower levels than where we were in 2019. in terms of foreclosures. Yes, they're ticking up, but there were nowhere near what we saw pre-pandemic too many forbearance programs. It's not really the crisis we face now.

crisis we face now, instead, in my opinion, is one of an Institutional liquidation. Think about that for a moment. What is an institution? Well, it's a company like Invitation Homes or BlackRock or a black stone or Starwood real estate. Investments And what's actually happening at these companies and institutions? Well, they're facing massive Redemption requests.

Consider for example: Starwood which recently announced out of the 14.2 billion dollars of real estate they control, they are facing a 4.2 percent liquidation and only one in five has actually been fulfilled. That means only one in five people who are trying to get their money out of Starwood real estate Investments are able to, because Starwood much like KKR and Blackstone are limiting the number of requests they're willing to fulfill. This makes sense because if you're an institution and all your money's tied up in real estate and everybody wants to get their money out, well, you look and go. Well, we only have so much cash.

Here's some of the cash. Oh God More people need money out. well. I Guess we have to start liquidating real estate.

And if we start liquidating real estate, what happens. Inventory goes up. So unless These funds completely pause withdrawals, These funds will have to start liquidating assets to give people their money. and the more people realize that these companies are only honoring like at Starwood one in five requests, the more we potentially start inducing the bank run mentality of oh my gosh, only one in five people are getting their money out I better get in line and get my money out now before I'm at the end of the list or I can't get my money out at all.

Now if you have institutional liquidation of real estate which is a group of individuals institutions companies are a group of home owners or Property Owners commercial and residential who aren't selling because they're thinking oh, if I move I'll get a better interest rate, right? They're different from home sellers. They're actually institutional home sellers who are selling because they have to because their investors are demanding withdrawals, not because it's a good time in the market. They just have to Unless they completely stop liquidations and say nah, it's not a good time. We're just not going to let you get your money out, which could hurt their long-term reputation of giving people at least some flexibility.

Institutional sellers will probably begin to liquidate inventory here in 2020. Three, that is an issue That is not a good issue because guess what it will do. It is likely to increase inventory and remember what we said right here right now. even though inventory levels themselves might be stable and and the purchases is going down if we start seeing or are going down.

If we start seeing purchases plummet and inventory increase, that's when the true pain happens. and now I Want you to think for a moment: Pain Trade: Okay, think pain Trade Pain Trade Mid 2023 What do you expect? Mass media induced capitulation on real estate thanks to Tucker Carlson and all their moms talking about how terrible the real estate market is plus institutional liquidations plus yields or mortgage rates higher for longer actually creates a very fascinating instance where in a weird and crazy way I want you to think about this for a moment because this is this is insane. Okay, especially For You Stock Investors: Okay, this is insane. You could potentially have inflation go down and earnings at companies yes, go down, but maybe not that bad.

You could potentially be in a situation where stocks go up, but bonds stay down due to distress and so distress. But also quantitative tightening which keeps yields up which is bad. So in other words, you could be in a situation where stocks start Rising coming out of this recession. but the real estate market continues its decline.

In fact, the decline just gets started. We have already seen the median prices of homes plummet. You could see that very easily by going to the Redfin Data Center And looking at the median sale prices of homes. Remember, the top for the national average was 388 000.

But it's not just this area. You could very simply go into individual areas here. just red tag Google Redfin Data Center and then type in your Market, go ahead, type in Austin Texas for example, and then just measure the top to the bottom. So the top over here.

573 Where we now look at that. It's even inflecting down more right now to 453. So 453 divided by 573 20. That's 20.5 percent of a decline for the Austin Market I've already got some math for you for some other markets, If Austin's down over 20, you've got Oakland down over 21 San Jose 18 San Francisco 16.

Seattle 15 Sacramento to 14 Boise 12.5 percent. You know one of the markets that's been holding up has been Idaho Let's go ahead and look at Boise for example, I was actually just there touring real estate not ready to buy yet I'll talk about House Hack in just a moment. In terms of what we expect to buy. But let's look at Boise What do we have here? Oh remember how I was saying flat would actually still create panic In the summer it's declining? That's now more than a 12 drop already.

You're at a 16 drop. Oh boy, it's getting worse. Oh, on top of this and I Hate to say this, but this is Real Estate 101. Okay, ready for this? Real Estate 101.

Not great here. Now this is where you get valuation compression Because remember, most valuations for real estate for investors are done through either gross rent multipliers or cap rates. And honestly, if you keep the repairs expense constant, these numbers scale in exactly the same way so it doesn't really matter what you use cap rate or gross rents. So let's use gross rents.

For example, Let's say you have an eight unit apartment building that has a hundred thousand dollars of annual gross rents and the market is selling for a multiple of 15.. Okay, well, that means your apartment building is selling for 1.5 million dollars. But what now happens if those gross rents Which rents are falling if rents go down by 10 percent? Well, now you only have Ninety thousand dollars of rents. Ninety thousand dollars of rent times Fifteen just brought your building down.

uh, all the way to 13.50 which is obviously also a consistent 10. But the point is, when rents start declining, property values will also decline. Then you get the teeter-totter cycle where apartment buildings are falling in price. Rents are falling in price.

so Apartments fall more in price. That makes apartments look maybe more attractive to single family. So less investors buy single family. And what happens? Single family falls even more so.

the more apartment buildings get hurt, the more single family can get hurt. It doesn't help that Morgan Stanley tells us more apartments are being built right now than they were a year ago. and we have over 800 000 single-family homes in the pipeline of construction more than ever since 2006.. which means we're expecting a flood of single-family homes within the next two years.

But we're still seeing apartment building starts because today rents are still relatively High so you're probably going to see a bigger, even wave of inventory from Apartments Come after the single family dump, you've got multiple problems: institutional liquidations, too much building rents coming down, valuations coming down. It's a bad spiral, and if yields stay up. The real estate market isn't going to get a bailout. You could be looking at years of a bottoming process for the real estate market.

So how do you play this? How do you make money in this? Okay, so my take is the following: First, you have two big choices when it comes to investing in real estate. In my opinion, you either invest in real estate yourself or you find an institution to do it for you that's really good at working on timing the real estate market or somehow has exposure to the real estate market where they can buy great deals like wedge deals. I Always talk about they can fix up and renovate properties for you and you could get exposure to those. So I Really encourage people to buy their own real estate.

If you don't want to buy your own real estate or you want to buy your own real estate and diversify great, then look for opportunities to invest outside of your own properties. I Have a real estate housing startup if you're interested in that. We've got a huge Tech release coming over the next two months when we do our regulation A release. So just pay attention to Housac.com if you are accredited, you can invest now and you get some pretty cool options.

but read the website in the solicitation there. This video is not that. If you're not accredited, that's okay. Stay tuned, subscribe to the channel, pay attention and think about first preparing to buy real estate yourself and maybe diversifying a little bit.

investing into some other investment opportunities as well. Maybe househack. Maybe something else for you. To be prepared to buy real estate yourself, you have to lower your debt to income ratio.

You could do that in two ways: increase your income, make sure you have a stable job, and try to increase your income provide more value at your job, and make more money. Minimize your debts. Don't lease a new car now. Don't buy a new car.

Stay away from anything that's going to increase your debt. Stay away from that more income less debts An employee of mine was asking hey, should I buy a Tesla You know prices are coming down I'm like, no, you want to buy real estate in this dip Look at how much it's going to affect your purchasing power and he was quoted that he could qualify now for like a six hundred thousand dollar house. But if he bought a car, it would go down to four hundred fifty thousand dollars. You don't want that destruction purchasing power going into a crash.

Instead, what you want is you want to increase your access to debt. If you already own real estate, maybe you actually consider getting a home equity line of credit don't actually use the money yet. But if you have equity in your home now, secure that. Equity While valuations are at the top without paying any money on it, because it's kind of like opening a credit card on your property.

even if the value of your property comes down. As long as that credit line remains open, you have access to that cash. And that way, when the market starts falling more, you might be able to take that money out and deploy it to buy real estate at an opportune time. Just make sure You can make the payments on your home equity line of credit, especially if you're getting to the level if you don't want to be upside down, right? so you want to be very, very comfortable with your debt situation if you're going to do a home equity line of credit, but I think Home Medical Equity lines of credit are great.

Do keep in mind though, as a warning in 2006 and seven, they did start freezing home equity lines of credit because home values fell so much. Uh, probably more actually in 2008. So you get that tightness in lending that's pretty typical. So how do you actually find a market bottom? Well, there are a few things that you have to look for.

In my opinion, the biggest is you have to start with the Federal Reserve you turning on inflation that's going to YOLO the stock market to new heights First, because there's a chance interest rates will actually stay high for longer based on what we've talked about. Quantitative tightening uh, projections of yield Staying High longer bond market distress. If yields stay up, it's not go time yet in real estate. go time in real estate is probably when the 10-year treasury Falls below two and a half percent.

By then, mortgage rates would probably be back in the four percent range. that's starting to look good. Another thing you want to look for is an indicator that homes in really good neighborhoods are no longer sitting stagnant on the market. So right now you can go into great neighborhoods and you're seeing even great properties not sell.

That's a red flag because prices are falling or they're taking longer to sell. So what you usually want to do is you track neighborhoods. Let's say you go into a neighborhood where you know you know what I would do. Craigslist Deals there at nine o'clock and at night.

no harm, no foul. I'm not nervous at all. I Like that neighborhood, that neighborhood is safe. So let's say this is an intersection and this is where you're happy at night doing transactions.

and this is where you're sad at night doing Craigslist deals or whatever other kind of transactions you do in back alleys at night. This is probably not the area you want to invest. You probably want to invest over here. and what you do is you track this.

Market You go into this market and you say okay, this Market is a tracked home of usual three-bedroom two-bath homes around 1500 square feet. Right now, we're seeing days on the market for these homes go up. They used to sell in three days, now they're selling in 30 days. Well, that number is probably going to continue to climb.

Oh no, they're sitting on the market for 60 days. An inflection point in the real estate market is when mortgage rates come down and you start seeing that days on the market number go back down to 15 to 7 to 3.. Oh no. Now we're getting multiple offers.

That's a sign that you're at that bottoming process of real estate which will be lumpy and bumpy, but it brings you closer to the bottom. So watch those days on the market for Sizzle hot properties. The good neighborhoods will always have their property sell first. They tend to bottom out first.

Now as these values go up, they'll bring up the valuation of others as well. It's kind of like the stock market where good companies tend to come out of a recession with valuation increases first, but everything goes up in value, even the crappy companies. It's just the long-term returns in good companies tends to be better over the long term than in worse areas where you have more turnover, more rental headache more Property Management headache. Whatever.

But the point out of all of this is to say that 2023 is probably going to be the year of fear and I suspect it's going to substantially hurt companies and investment opportunities like the solar industry as well because once people realize that there's Mass fear coming to the real estate market, valuation of solar companies probably going to start plummeting and that's not great, but it'll create in my opinion, a buying opportunity within those companies which is very exciting because the solar industry I Expect will come back with a vengeance, which is very exciting. So with all of that said, prepare yourself for Real Estate Get excited, Get educated. Now is the time to learn and study. It's not by time yet, but check out those programs on building your wealth.

Link down below: I Promise to provide the most value you've ever seen in the real estate market in those programs and teach you all the pitfalls of real estate and how to make sure you avoid the pitfalls and make money. Check them out! Link down below. Subscribe to the channel for more insights and we'll see you soon!.