The housing market definitely going to crash in this video. We're going to answer answer that question after all mortgage rates have gone from a sweet and juicy 26. A 30 year fixed rate. Loan all the way up to now the national average of about 56 for that same 30 year fixed rate loan that three percentage point difference tends to translate to about 30 percent in buyer purchasing power so does that mean we're going to see a 2008 style real estate crash or real estate price is even going to come down at all that's what we're going to talk about in this video.

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So the sooner. You join the more value for dollar you get so at first glance. We're starting to see some of the signs that prices may begin to cool not only are we seeing inventory levels shift to the upside and we're seeing inventory growth year over year shift in a dramatic fashion especially in the west. Where in many states in the west housing inventory has increased anywhere between 40 to 100 percent.

Though. We're not seeing as much of that shift in the northeast at the same time if we look at the average list to sell ratio. We're starting to see the white line or 2022 rotate to the downside. We're also starting to see the percentage of active listings.

With price drops increase throughout the entire country and in specific areas like seattle miami florida san francisco boise idaho and places like austin texas areas that have been previously very very hot and so. When we combine all of these aspects. We look at okay well three percent increase in rates that is going to reduce buyer purchasing power. We've got inventory that is starting to go up as inventory goes up and there are less potential buyers.

There's more competition and so in order for a property to sell we tend to have to see price drops on active listings. Increase and we've seen all of these rates have gone up buyers have gotten canceled out of the market. We've actually seen cancellations up 15 year over year. This is a substantial increase in the number of cancellations and potentially represents just the beginning of people losing their purchasing power.

But then also the opportunity for them to have much more choice because as inventory. Skyrockets and people have more choice they might think to themselves. Well if i wait longer. I don't have to fomo in fact now i just have not fear of missing out.

But i have fear of getting screwed. So i'm going to sit around and wait to see how this plays out so we've got cancellations going up. We've got rates going up. We've got inventory going up.

We've got price drops going up on active listings. The next thing. That is likely to happen is we're actually going to start seeing close prices as once deals actually close. We're expecting to see those closing prices finally start rotating down.

And then if you get people like tucker carlson. Talking about how month over month. Home prices are actually falling in addition to inventory going up. Then you could create actual panic.

But i hate using the phrase this time is very different from 2008 in 2008. We had a substantially larger percentage of people on adjustable rate mortgages in the neighborhood of 30 to 40 percent who actually had massive impacts of interest rates going up now we're closer to five to seven percent. We also now have qualified mortgages and the average credit score of a home buyer is about 100 points higher than it was in 2007 and 2008. And we no longer have no income no job no asset loans or ninja loans with teaser rates and crazy high adjustable rates when the teaser rates expire leading people into foreclosure we're also in a place now where yeah foreclosures are starting to go up.

But they're actually going up to levels that are substantially lower than where we were prior to the pandemic. So is it possible that the housing market won't crash that maybe it'll just soften and the answer to this in my opinion has to do with the trajectory for the 10 year. Treasury yield. Because mortgage rates tend to follow the 10 year.

Treasury yield. If lowe's is right and we had excess demand of 27 and buyer purchasing power has just been reduced by 30 via interest rates going up three percent then we can kind of wash out that excess buyer purchasing demand with that reduction in purchasing power and potentially get to a state of economic equilibrium in the housing market. Which basically means flat prices for the time being but not necessarily a crash and the only way i would foresee a larger kind of correction is that mortgage rates continue to trend up. Which is possible if the 10 year treasury goes from three percent to four percent.

Because folks perceive the fed as having lost control of inflation. And inflation numbers keep going up. Then we could see mortgage rates go to the direction of six and a half to seven percent this would decrease buyer purchasing power an additional 10 to 15 percent. Which could correspond to an additional decline in home prices of 10 to 15 percent.

If on top of that we then compound this with the fear or panic of the mainstream media. Talking about home price reductions. It's entirely possible that we could see price reductions in the neighborhood of 20 to 25. Which would basically take us back to levels of right.

Before the pandemic. So that kind of bubble run of the 2020 and 2021 years would sort of evaporate with a correction of about 20 to 25 percent in real estate prices. But again this would in my opinion really require that treasury yields stay high longer and potentially go up even more now while this is absolutely possible analysts overhead goldman sachs don't necessarily think the trajectory is that rates are going to explode we're currently sitting at about 32. Percent for 10 year treasuries and they expect that ten year treasuries will run up to about.

33 and kind of stay flat around 315 for the next couple of years. Next couple of years having. Rates around 315. Percent.

Means that maybe for the next. Two years mortgage rates are stable around five and a half percent. But if that just brings us to an equilibrium market. It might not be enough of a push to the downside to actually get home prices to substantially full.

Again we probably need to see somewhere around 65. To 7 for maybe a year year. And a half to really see home prices start getting pushed into that negative. 10 to negative 20 range maybe.

Even as much as negative. 25 in case. We get a fomo cycle or rather. I should say a real fear cycle.

Not fear of missing out. Which is fomo. But just straight up f fear cycle. Right now.

There is a caveat to this we expect rents to stay high. Now this can do two things if rents stay high. They might increase the number of people who want to invest in real estate. So you get more investors investing in real estate means more bottom feeding if prices start ticking down.

Which actually helps prices stay up again. Because you're introducing that new buyer demand as a rents increase more people going in to buy real estate. However higher rents could mean that the owner's equivalent rents. Which are the measure or the measures of inflation related to the consumer price index for rents if that owner's equivalent rent stays high and rents continue to go up in cpi where rents make up 33 of the inflation rating.

Then the fed might actually have to get more aggressive and increase interest rates. More potentially leading mortgage rates to finally go up to that six and a half to seven percent range. And that's how we get our real estate price fall. But if the fed doesn't react to high owner's equivalent rents and you get more investors buying because rents are up then you could be in a situation.

Where you actually do have flat or modest appreciation in real estate. There's no guarantee that with certainty. Real estate prices are going to go down. Now.

Some folks are saying. Hey. You know what how do i apply this to myself. Well there are few trains of thought number one train of thought is if you own real estate.

You just hold. And the reason you hold is every time you sell real estate. You're going to pay somewhere between seven to ten percent in fees and then you're going to pay your capital gains taxes on top of that either long or short term. So you could be spending a lot of money dumping real estate.

When you're not necessarily guaranteed to see a decline in prices. Those. And this is why a lot of folks say hold and a lot of other folks say hey. While i hold why don't i just pull a bunch of equity out.

Which is another thing that we're seeing is households in q1 of 2022 withdrew. The most equity that we have seen withdrawn since 2007. So obviously people are preparing with cash which is one of the best hedges in an uncertain and recession recessionary excuse me style of market so one idea is hold and maybe just refinance to take out cash tax free and prepare using real estate as a piggy bank. Other folks who have not bought real estate.

Yet say you know what i'm going to wait until i find some fearful sellers. And if i find some fearful sellers. Maybe i can buy one of those fearful properties. Get a little bit of a discount.

Maybe we don't necessarily have market wide price decreases. But we have opportunities to buy good deals because people are fearful that real estate prices will be coming down. That's the potential as well the third option. Which is the most risky is to sell and either wait or what some people are doing is they're selling and then they're buying stocks and the reason they're doing.

That is because stocks have already compressed substantially. And even though stocks might compress a little bit more by some accounts anywhere between four to ten percent further compression a lot of folks say hey well if i could go from the top of the real estate cycle to a temporary bottom in stocks let me load up in stocks. And then who knows maybe in the future. What will actually happen is we'll actually see stocks rebound.

Maybe they'll go down again a little bit. But we'll actually see stocks rebound and that rebound could happen at the same time as real estate prices fall. So if real estate prices were to compress that 10 to 15 percent and then stocks were up let's say 40 or 50 percent. Here.

Well. Now what you've done is you've moved from real estate. At the top to stocks at a low and then you potentially go from stocks at a higher level to now real estate at a lower level now. That is extremely advanced and i don't recommend it for anyone because this is essentially timing the market and even though.

It is possible to time the market. It's a lot easier to do so with real estate. It is very very risky and you expose yourself to a lot of taxation risk as well. But this is the point of the video.

Where the most important thing to think about is get educated join the programs on building your wealth link down below. Learn everything that i know about real estate. So that way you can take a small investment and turn it into hundreds of thousands of dollars in real estate. Consider checking out the opportunities to invest in real estate link down below check out the programs use the coupon code and we'll see you in the live streams and in the lectures where we will teach you everything we know about real estate thanks so much.