This could be a critical indicator for the housing market and history says what we're about to talk about is right and it could be right again going forward. Yet nobody really talks about this. Everybody's speculating that oh yeah, The Fed's Cutting rates so prices are going to Skyrocket not so fast. There could actually be something else at play here and I think I may have found it I've already touched on this over at Ec.com if you haven't checked out Ec.com yet.

but let's go a little bit deeper first into the data. So I personally like looking at history because I think looking at history and expecting it to be substantially different is generally a Fool's Aon We want to look at history and see where are things truly the opposite. Not expecting or hoping that things are just going to be different in some diluted manner. that, oh, everything's going to be all golden and we're going back to 2021.

You know, everybody buys a house and it goes up 20% the next year. So what do we have here? This right here is history. It tells us real property values in blue. Which means it's inflation adjusted, right? An inflation adjusted number.

So if home prices go up 10% inflation is 5% This chart would show 5% the difference. Fed funds rate is actually in red. Now we noticed something very, very clear. every time the Federal Funds rate increases as it does in the red line.

here, we see the Blue Line decline. That's pretty obvious and that makes a lot of sense. And anytime that blue line is under the big middle black line, we have negative home appreciation. Which means home values are falling.

So we know that when these rates go up, we can drive prices down just like we saw over here in 200, Five, Six and seven. The increase of rates could have potentially pushed to the end of that housing bubble and pushed housing and the housing market over the cliff, so to speak. It's almost like every single time that Fom C rate pops up, we either push housing prices negative or we substantially slow the progress of housing. Look over here.

For example, as rates really start Rising around 18 2018 is we really slow down that growth in housing prices? So there's a clear correlation between fed rates up and housing prices either down or slower growth. That's really clear, but this actually starts falling apart when we start looking at rates down equals prices? Wait, what? Yeah, Look at this rates down over here in the 70s, but very little movement at least rapidly until we get this. Spike over here. But I want you to keep that end that December 17, uh or 1976 spike in mind because maybe there's something else that explains that and some of the other spikes that we see here.

Let's go to 86 86 Over here, rates have been falling over here consistently and we slowly see this weird spike in home prices. That blue line? Uh, right here we see that blue line. But it's not associated with the direct fall in rates. We just see this slow decline, average decline in Fed rates here.

Uh, and all of a sudden, as Fed rates move up, we do see softening just like we did here. Fed rates up softening. But here, we're pretty stable. Why all of a sudden, do we see a spike in home prices here in 86? And it's almost like this happens every 10 years.

Because once again, over here in 96, look at that blue spike in home prices? Yet no change at all in the Fomc rates. So maybe it's not actually the Fomc rates that are driving the housing prices. In fact, take a look at this rates over here during the recession. In 20, 8 and9 plummeted and rates went less negative.

This line went up, Yes. but it's still negative. Home prices still lost value. In fact.

Look, you literally had your double dip almost in home prices. and these are all negative values right here. All of them. So wait a minute.

Rate cuts are supposed to lead home prices to go up, right? Not necessarily. Now we could argue. Well, maybe it happens with a delay or is it something else? I Believe the answer is something else. Now, take a look at this.

This right here is a measure and it's a proxy. Because this is not on residential, it's on Commercial and Industrial But they tend to move together so it's not the best relationship. but it's a strong relationship. Look at this: Lending Standards Tightening Anytime Lending standards go negative which means you have a loosening or you see this line go under the black line here.

Which means it got easier to get loans. Look at the dates where it got easier to get loans 94 to 96, 2004 to 2006, 2011 and 12ish, 13ish and of course 2020. W It was really easy to get loans because lenders wanted to give loans to everybody. So take a look closely at this and mind you, I posted this on Eack.

So if you want to kind of see these charts and play with them, the links are there. Take a look and that's going to be free forever. I Want you to know that? So look at this real property prices saw, not their Peak prices. We care about when the boom starts right.

The boom here about 2004, right at the beginning, about 2012 12, right about the beginning and 2021 right about the beginning here, right? Okay, we'll compare that to when lending standards were negative. Beginning of 2004, they went negative for a period of two years. Uh, you had, uh, this period over here 2011 to 2012 13, 14 They went negative. You really ushered in home price appreciation with loose lending standards.

Same thing here in 2021. So what can we conclude from this? Well, it's not actually rates going down that lead the housing market to go up. it's actually looser lending standards that lead housing to really boom. And so when we look at this little note I threw in here from house Haack We study the real estate market daily and we don't just study it, we participate in it.

We write offers. we purposefully skip deals we think are overvalued. What we're seeing is a lot of speculation that that has really started in the last 6 weeks where we're looking at deals and we're underwriting deals and we're getting deals we're getting deals off Market We're getting great deals with a margin of safety, but we're seeing some deals we're losing. and I like losing deals because that means I'm not overpaying, right? If I win every single deal, it means I'm underwriting way too Loosely right? So you have to lose deals and that's okay, it's it's just like sales you just keep writing offers.

You win some, you lose some. It's fine. but what's really interesting is the ones that we're losing. We're losing to what I think is almost rampant speculation that solely because the FED is going to cut in 2024, people think, oh my gosh, that's that means housing is going to Moon I'm not convinced by that.

I actually think it's going to take until we get to loose lending standards, so that way we can really increase the buyer pool. The people who are going to be buying next year at 5% interest, 6% interest. Those are going to be people who qualify for those tight lending standards. It's going to be a small buyer pool relative to I think the increase in Supply we're going to get now I'm not calling for any kind of housing crash, but I think it's probably going to take about 2 years to really get lending standards loose again.

which means you might have about 2 years to go do your shopping before you actually get Euphoria To the upside, but let's watch those lending standards because it's a crazy and I think potentially very accurate indicator and it's a leading one at that. Why not advertise these things that you told us here I Feel like nobody else knows about this? We'll We'll try a little advertising and see how it goes. Congratulations man, you have done so much people Love you people look up to you Kevin PA there financial analyst and YouTuber meet Kevin Always great to get your take even though I'm a licensed financial adviser, real estate broker, and becoming a stock broker. This video is neither personalized Financial advice nor real estate advice for you.

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