What's up? Graham It's guys here and the housing market is continuing to get worse. For example, you now need to make more than a hundred and seven thousand dollars a year to afford the average home in the United States Home builder sales have collapsed by 46 percent as companies begin to walk away from their future land deals and month over month prices are falling for the first time since 2012. that's why we should really discuss the latest data that was just released, exactly which markets are most likely to see the largest declines, what this means for you, And then finally, how you could use this information to make money on today's episode of the Good News is that you could finally buy a home in Oahu for less than a million dollars. Although before we start, there's a rumor that for every person who subscribes on this video, a first-time home buyer gets their offer accepted.

Okay, I Have no idea if that's actually true, but it doesn't hurt to try. And as a thank you, here's a picture of what was voted the worst listing photo on Zillow So thank you guys so much. And now with that said, let's begin all right now in terms of why housing prices are falling so fast. It all comes down to 1 word: affordability.

Just consider this: A year ago, the average person had to make an income of seventy six thousand dollars a year to be able to afford the average home here in the United States But with mortgage rates now passing seven percent at today's prices, that same person would have to make an income of a hundred and seven thousand dollars a year to purchase that exact same home. And as you would expect, incomes have not gone up by Thirty One thousand dollars year over year. So here's the thing. Anytime you want to get approved for a mortgage, Banks will calculate the amount that you could qualify for by taking your total income, subtracting the total cost of housing, and then assessing whether or not you have enough money left over to pay for all of your other expenses.

Generally, lenders need to make sure that less than 45 percent of your income goes towards housing. so for every thousand dollars you make, four hundred and fifty dollars of that, at the very most, can go towards the property. This is also what's known as your debt to income ratio, and it's incredibly important that you understand this calculation because it's basically the E equals MC squared of the real estate market as an exam. Simple, Let's just say you make six thousand dollars a month and you want to buy a property that's four hundred and Fifty thousand dollars.

In this case, your total housing payment would be three thousand, one hundred and seventy four dollars a month with fifteen percent down at a six point eight percent interest rate, including property taxes and insurance. Under these conditions, your debt to income ratio would be your total housing payment divided by the amount of money that you make and that works out to 0.52 which is substantially higher than what a lender would allow you to purchase. You know, just to put all of this into perspective, one year ago when interest rates were at three percent, that exact same monthly payment would have only been twenty two hundred and ninety three dollars a month, and you would have easily qualified with a 38 debt to income ratio. So I think you could see where this is going now before we dive into the specific cities about to see the largest declines in terms of pricing.

A recent index found that just 38 of homes sold between October and December were affordable to U.S families earning the median income of ninety thousand dollars. Because of that, Agencies like Core Logic, gather sales data on a monthly and annual basis to determine just how much and where prices are expected to fall. And as they found so far, Idaho is the only state to post a year-over-year decline in prices, with just about every other location posting an average month-over-month decline of 0.4 percent. Zillow Also found something similar, noting that there were 16.7 percent fewer new listings than last January and 29.8 percent fewer than in January of 2021.

Although what I personally find the most interesting is the difference between a year ago and a month ago, because once you zoom in, you'll begin to see the trajectory of each location's price. With many more markets posting a decline from the month prior. In fact, the National Association of Realtors said that markets in roughly half the country are likely to offer potential buyers discounted prices compared to last year. So for anyone looking to purchase a home in the near future, this is really good news.

For instance, San Francisco has already seen a 14 price drop from the peak Seattle's Fallen 13 percent, San Diego is down 10 percent and Phoenix Denver is tied for eight percent. But where this gets concerning is when you begin to look at National levels because several metrics are dropping and fast. Like I mentioned earlier, sales volume for Meritage Homes dropped 46 in Q4 Sales volume in terms of dollars was down by 52 percent. Customers have already canceled 39 of their contracts and the average sale price has fallen by 20.

But in addition to that, you also have several home buying companies that are left holding the bag on a lot of inventory that they can't seem to get rid of. In this case, Ribbon Homes is a business that bought houses and cash on behalf of their buyers and then resold them for a fee once that buyer was able to obtain a loan. In theory, it's a great business model because the buyer gets a competitive Advantage potentially at a lower price than the fee that they would pay, and Ribbon Homes gets to make a little money in the process until everything goes horribly wrong. The Wall Street Journal Recently reported that once interest rates increased, Ribbon Home buyers back down to their deals, leaving them them with 400 homes that they'll likely need to take a loss on.

The same thing happened with Orchard Technologies Who guaranteed that they'd buy their customers home if it didn't sell within four months? and now they're sitting on 200 homes? Or there's Open Door the eye buyer that would give you a guaranteed cash offer within 24 to 72 hours with flexible terms before fixing it up and flipping it. But in Q4 of 2022, they reported a loss of almost a billion dollars as the market began to slow down. And I'm not gonna lie, their sales numbers are atrocious. It was reported that in Denver Colorado more than half of their inventory sold for less than what they paid.

With one example that Open Door paid 779 thousand dollars for a home on April 20th and six months later sold it for 625 000. All of that is to say that we are seeing a dramatic shift in the market where sellers are no longer able to get the price that they want with Buyers frantically offering whatever they can to get the deal. We're also seeing a very similar shift in rents with prices rising at the slowest Pace in almost two years. As as Redfin explains, price growth is slowing due to increasing Supply and waning Demand with rents falling As much as 6.7 percent in areas like Phoenix simply because more people are becoming landlords.

In fact, the New York Times recently posted a feature describing the reality that anyone who already owns a piece of real estate has very little reason to sell it right now and I completely agree. Homeowners are currently able to charge a high rent relative to a low mortgage rate and equivalent properties are almost impossible to find at the same monthly payment. That means as long as they're not cash flow. Negative: Homeowners can afford to rent out their home with the mindset that they'll be able to hold off long enough for the market to recover Now, of course, the downside is that for landlords, competition is picking up with one Airbnb manager who's stunned that half of his homes were empty over Super Bowl weekend, even after dropping the price from twelve hundred dollars down to five hundred dollars in terms of how much new competition there is air DNA found that from February 2017 through today Airbnb and Brbl listings in Phoenix more than quadrupled growing from five thousand to twenty one thousand and as more people decide to go the rental route while prices are softening I'd expect that Trend to continue even more, but even though we have so much more data to talk about I also think it's incredibly important that we get as many different perspectives as possible.

So I flew all the way to New York City to get Barbara Corcoran's thoughts on the current housing market. As someone who's been in the real estate market for 50 years with over 4 billion dollars in sales volume, here you go: Well, it's a choppy market right now. I mean we had a a super duper Market as a result of coven nobody saw was coming. okay, even I didn't see it coming like wow, how did this happen? Prices went up by 20 25.

most places crazy. So now we're in the deflation area. it's shaking out. but I'm not worried about it long term at all because it's on investor.

Market It's on a hyped up Market It's not bought for the wrong reasons. It's individuals who have a home. They're all worried that they paid too much but happy they got low interest rate eight and it's kind of a stuck market. now.

the best time to buy real estate of course is the worst time. But who wants to do it because we're all scared. But but we're getting deals uh, back from uh, sellers who wouldn't even entertain our offer. They're calling us back there.

so it's a great time and yet rents are going up. So think of that, you pay less for the real estate and rents are going up. That's a perfect storm. Do you believe that rents though would go down? For people who can't sell their home, they don't want to get rid of their mortgage at three percent so they'll rent their home.

Don't you think that excess inventory might suppress prices? No, it's just not enough. First of all, think of that circumstance: someone's living in a home and wants to rent their home. Very few people are comfortable with that. They typically sell or need the money to get something else.

So no, not enough inventory. There really is the biggest bottleneck in the market right now is shortage of inventory. It sounds absurd, right? But not enough listings coming on Market to choose from. And then the second biggest problem is the higher interest rate.

It's funny to me, I Bought real estate when it was 18 17 percent I Don't know what all the squawking's about, you know? Yeah, So how do you approach negotiating a property today? Are you going in and trying to lowball it? or make an aggressive offer? And then Waits Or how do you do that? The latter, you make an aggressive offer, people are offended, and then you wait it out. If you do that with enough properties, say 30 properties, somebody bites, somebody calls you back in, you know you're going to get a good deal all right now. on a more positive note, not everything is necessarily Doom and Gloom and depending on who you listen to, the overall impact might not actually be that bad. For example, Goldman Sachs expects National home prices to decline just 2.6 percent in 2023, with a total Peak to trough decline of only six percent, which is just a blip on the radar.

As they explain, three factors are keeping the housing market from falling. Number one is that there's a lot of untapped Equity acting as a buffer, meaning there's very few mortgages that would be underwater. Second, ninety percent of mortgages are at a fixed interest rates, so their monthly payments would stay the exact same and third people are not over leveraged like they they were back in 2008. Now CoreLogic even believes that home prices would rise this year by 2.8 percent simply because there's a massive shortage of inventory and only a few markets risk seeing more than a 10 decline from where we are right now.

So for all intents and purposes, we're likely not going to see anything close to what we saw back in the great financial crisis. Although, as far as my own thoughts, here's what I've noticed: I Was able to sell two of my rental properties last year and there is a dramatic difference between the two. The first property was listed at the beginning of the year when interest rates were low and I priced it on the high end of what I thought I could get. Well, to my surprise, there were multiple offers over asking and it sold within a few weeks.

The second property was listed a little bit more towards the middle of the year after interest rates had already increased and it took a few weeks to get an offer below asking, and then it sold a month later. All in all, I did not get as much as I could have gotten a few months earlier, but the change was pretty quick and I could absolutely understand how a buyer needs to prioritize affordable ability first. separate from that, I've also been actively looking to purchase a commercial office space, and to my utter amazement, it is still insanely competitive. I'm making the occasional offer here and there, but multiple properties are either already in escrow, already have an offer, or are getting multiple offers to accept the highest bid.

This tells me that buyers are looking for alternative Investments outside of stocks and treasuries that might be offering a better long-term yield. That also means there's not a substantial shift in pricing yet. Personally, I believe that real estate offers no incentive at a six percent return. When Risk-free treasuries are paying four and a half to five percent with no work whatsoever.

That's why I believe that prices will have to fall accordingly, so that real estate offers a yield that compensates for the additional time and risk. I'm also seeing a lot of Unfinished construction throughout the United States and I think that should begin to soften rental prices. So I think we have even more room to fall. That's why making offers at a price where I would be insulated if the market keeps falling further.

And until then, I'm just sitting on treasuries that are paying almost five percent at this point. But then again, I could also be totally wrong. So I'd love to hear your thoughts on this down below in the comments. As usual, I do my best to read and respond to as many of them as I can.

Oh, and by the way, speaking of treasuries or Sponsorpublic.com is soon allowing you to buy treasuries directly from their app or website. So in addition to getting a free stock worth all the way up to a thousand dollars, you could also use it as a way to avoid that really outdated treasury's direct website. So enjoy! Thank you so much for watching! And until next time.