Wow, the Federal Reserve is calling for a potential 20 drop in housing and I Hate to say it, but if the FED says 20, it could be worse now. I will talk about this report and we'll talk about my biases as well in this video. but at least there's a 60 off coupon code for the programs on building your wealth link down below and taking advantage of the real estate crash with a zero to millionaire real estate investing course. Okay, all right, all right I Did it I Did it? Look at this folks? Let's just get through the gnarly stuff here. U.S House prices appreciated. A remarkable 94.5 from the first quarter of 2023 to the second quarter of 2022.. that's the peak right there, boys and girls. Q2 2022 If you sold property April May June you probably hit the peak. Most areas hit Peak around that time, most of the country if you just sort of broad brush, the entire country is down about eight percent on average. now. Some hot areas are down 10 to 13 percent like Austin or San Francisco or whatever. Some areas a little bit on the Lower Side uh, some parts of Florida for example, down like six percent still. but you're you're starting to see that clear inflection point, don't Oh, and you're gonna love the part where they start talking about a spiral in this. But anyway, oh boy, this is so bad. I'm already choking on it. So look at this: Uh, this. this: if you adjust for inflation, this 94.5 rise from 13 to 2022 about nine years here is adjusted for inflation, a 60.8 percent rise. The magnitude of this is even larger than that of the previous housing boom which lasted from 1998 to 2007. Yikes. So more of a bubble than we've had previously? Yikes. All right, zooming in here, what do we have? House prices have risen, especially since the pandemic began from the first quarter of 2020 to the second quarter of 2022. So just the last two years, about 40 percent. So nearly half of that 94 appreciation was realized in just the last two years. Yikes. This is the fastest rate of of movement and uh of of measures of profitability price to rent, price to income, and a past record highs that we have seen since 1975.. So some of them measures that we're facing today in terms of housing affordability are worse than what we saw during the Paul Volcker era of 75. Quite remarkable. Now they give some reasons for this, some potential reasons here, like robust, disposable income work from home. But also, look at this one Fomo when Real Estate they say becomes frothy when the belief becomes widespread that today's robust prices will continue unabated. Yikes. Until of course, an inevitable correction ends up occurring. and we can tell if we're in a sort of a time of exuberance by looking at three specific statistics which are all plotted together on the very next graph. right here. take a look at this price to rent, price to income and real house prices which are adjusted for inflation. When you just have one of these Rising above the 95 percentile or into a what they we call an exuberant level, you get this sort of gray chart. When two rise above that level, you get this darker gray chart and when three rise above that level, you get this really dark gray spot or line and what you can see is we've got ourselves in the really dark gray section. Now, don't confuse the 95 percentile level with these numbers here. it's a little different. 95 percentile is what they consider an exuberance level and that's what creates the graphing for these or the coloring for these not necessarily these numbers, just ignore those. What you want to do is compare these numbers though to the last housing bubble and look at where they compare. I Drew this little red line right here just to kind of draw from roughly Peak to where we sit. Now, the only thing that hasn't far exceeded these levels here is price to income. it's pretty well peaked, but it hasn't exceeded the last bubble. If you actually look at real house prices and prices to rent, both of them have exceeded the last bubble media of 2006 seven and Eight, which is quite scary. The FED here in this Dallas Fed blog post suggests that the pace of acceleration we have seen cannot easily be reconciled with fundamentals, and this is why they suggest Fomo mentality is really taking over here. Which I mean hey, you know what personally and this is where I'm just going to indicate my bias. Okay I sold my real estate in Q1 Q2 of 2022. I've got a few properties left, but I sold 85 percent. So I want to be very clear I got some bias there I'm a real estate broker, but I don't represent clients so I don't think I have bias there and I run a startup called House Hack where we're looking basically to bottom feed for homes, turn them into beautiful rental properties, to bring some rental housing stock to the market by fixing up fixer-uppers and and not like flipping real estate, but instead renting it out for the short, medium and long term, depending on what's most profitable. If you're an accredited investor, you can actually invest with us by going to Househack.com Read the uh prospectus there, the private placement memorandum and if you're not accredited yet, don't worry. we expect to open up the non-accredited around. January February somewhere around there I'm hoping for my birthday January 28th Okay, bias is out of the way. yeah. I'm hoping numbers fall. uh, but I will towards the end of the video talking to you about how they might not. Uh, now let's look at some of this here. So uh, what do we have here? The pace of acceleration can't be reconciled with fundamentals. The pandemic surge exacerbated The Fomo Driven bubble. However, there are some things that are actually keeping the market propped up right: The fact that houses under construction aren't really helping Supply yet because the completions lag and Mortgage Debt Service payments as a percentage of personal income or personal disposable income are at a historic low of 3.9 percent. When we go back to 2005 and 2007, we were closer to six to seven percent. So mortgage payments and debt just aren't much as much of a burden today as they were then. But that could change as a higher rates start really getting built into the economy. But that takes a lot of time because people are on these 15 30-year fixed rate mortgages and they don't unlike in other countries, have to refinance and take that higher interest rate as soon. So as they say in this chart here, housing finances are affected with a lag. So I think this is where if you're looking for really pain in real estate, you want to be patient. Now is the time to learn about real estate and become as expert as you can in real estate so you can get the best possible deals when that time comes. And so as they say here, our markets gradually incorporate higher rates. Then they also talk about how housing provides a proposes a vulnerability for the U.S economy. And really what they do is they talk about this idea that as housing prices fall, you tend to potentially see spending go down. Robert Schiller Who's famous for the case? Shiller Housing Index and a Princeton Economist. He argues that it's not actually stock declines that reduce people's willingness to spend money. it's actually housing net worth declines that reduce people's willingness to spend money. And so the FED somewhat reiterates that here that if we faced a real that's a flash inflation adjusted price correction of 15 to 20 percent, we could shave 0.5 to 0.7 percentage points from real personal consumption expenditures. That's actually a pretty substantial hit to GDP If you think about GDP maybe growing at uh, you know, one to two percent over the next year, you're shaving a very large chunk of GDP out of that, especially since the consumer makes up over 70 percent of the US economy, right? So a really big piece of GDP could be sliced out over there if people really to pull back on that spending as driven by. potentially a housing correction. Now, while they do suggest that this 20 crash is likely, it's not guaranteed. Of course, the higher policy rates go, the more likely it is. we limit a prolonged housing boom and we could potentially thread the needle as they say and soften the housing market without actually crashing the housing market. But while that's a possibility, something we really have to recognize is that a 15 to 20 percent decline is a real outcome. So what's what's my take on this? Well, my base case base case. So I would say probably 70 likely. My base case is that real estate prices are going to be down 15 to 25 off a peak. That's my base case. Is it possible that inflation plummets in December January February March And then all of a sudden the FED says, geez, our job is becoming so easy. Let's uh, let's not only reduce rates, but all of a sudden, as they reduce rates, the bond market drops 10-year yields back to you know, two, two and a half percent. And then what happens. All of a sudden, you're in a situation where mortgage rates are back to five percent instead of over seven percent where they've been recently. Although I think they're like 6.9 right now. What happens? People start thinking, okay, the floor is putting a bottom under the market. Maybe we're not going to have as much pain in that sort of scenario where inflation really drops fast. I Think this may be 20 likely for the housing market. Maybe the housing market pauses at a 10 to 15 percent loss. Which kind of is where we already are. And that means all right. go time to go shopping for House Hack. You better hop on a plane and start. Uh, start buying. Uh, which is fine. that's my job. It'll be a lot of traveling next year it, and that's fine, but we really want to pay attention to the FED because they're going to be the drivers here of the real estate market. And I think once we see mortgage rates fall below five percent again, it's going to be like taking a bailout and going okay. Prices have adjusted down more Falls are unlikely. ring the bell. bye bye bye bye. Now it's not necessarily true I Don't think the housing market V-shaped recoveries like the stock market does, so you want to be very, very patient. It's not like you want to blow everything all at once and all of a sudden inflation goes up again and then you're in a protracted and longer housing market downturn. The last housing market downturn. remember this started peaking into it actually started peaking at the end of O5. If you actually look at the data, most people identify the peak as somewhere like oh, six beginning of O7 That's where you really saw the noticeable declines. But stock market didn't bottom until November of 2011.

dude that's like four or five years. That's crazy. Now that was a completely different time and I hate saying this time is different. but that was a housing market bubble inflated by people who could not qualify for homes. Today we have a Fomo driven bubble driven mostly by people who can qualify for homes. So it is different. That's just the fact so we'll see how it plays out. My take: Thank you so much for watching. We'll see in the next one. Goodbye Oh And check out the programs link Down Below on building your wealthy Yeah.