In this video, we're going to talk about a double dip, housing crash, and what happened the last time we faced something like this. First, let's talk about some things that are a little scary. and get you started with just some of the latest updates. and it's not to be.

You know, fear, uncertainty, and doubt channel. It's to be reporting reality. I'm not making this stuff up I'm just the messenger here. Okay, this is Lennar Lennar says between quarter three and Quarter Four, home prices declined 9.5 sequentially from our third quarter.

That's insane because if you fall 9.5 in a quarter, if you keep falling at that rate, it means home prices for are falling at an annualized rate times four of 38. That's really, really scary. And it now makes sense that in their last earnings report, they actually reported that new orders dollar value declined 24 with their back backlog declining 23. This is the second largest homebuilder in the United States and it's a big deal.

They are clearly seeing a massive drop off in demand. Not only are they seeing demand cooling very quickly, but I'm worried we could end up seeing an over correction in the housing market, especially with bankruptcies now starting to take place in the housing market. Consider this. look at the reverse mortgage industry.

Now this is an interesting one. If you're 62 and older, you can get something known as reverse mortgage and then usually what happens is you don't actually make a payment on the home you're living in. Instead, you kind of get like monthly cash flow, but the amount you owe goes up over time and the bank is kind of thinking that you'll probably die before you use up all your Equity that they're paying you. But if home values Decline and you live longer, those companies go bankrupt and what's happening right now is Cove It's over.

People are living longer and home values are starting to decline. So what's happened at one of the largest uh, reverse mortgage funding companies in the country? They just filed bankruptcy Reverse Mortgage Funding LLC which is owned like 94 plus percent by Starwood Huge real estate company in the in the United States this one the Reverse Mortgage Funding LLC Company just laid off 80 percent of their staff. 400 people laid off about a hundred left filing for chapter 11 reorganization citing a worsening interest rate environment. Fewer Federal Reserve Holdings Mortgage-backed Securities And the quote.

perfect storm for an unsustainable business model. Yikes. We have seen reverse mortgages have in originations in just the last few months. If we look at September for example, we're at half the rate of typical 30-year uh or I should say typical reverse mortgage originations, substantially fewer than the rate where we ended uh, year over year ending in September.

So we're down about half in originations here. Less people taking on these reverse mortgages or seeing lending standards tighten. Lenders are making less money, they're taking more losses. It's scary.

on top of that. And before we talk about this, potential for a double dip, it's worth looking at. uh, you know some of the latest Uh numbers, so we can see or at least try to visualize what's actually happening. One of the things we really have to pay attention to when it comes to real estate is not this idea of oh, there's a housing shortage.

It's actually what happens with people's changes and behaviors. So after the pandemic started, a lot of people went out and started moving to pandemic towns. Zoom Towns younger individuals moved out of their parents' homes and and lived on their own. A lot more people got into housing, a lot more people got into real estate and household formation.

And so we saw this massive explosion and households being created. This is a chart of household formation right here now. I'm going to remove myself for a moment so you can really see the magnitude of this chart even though it looks like that leg to the downside on the right right here. let's use a different color.

Let's go with green. Even though this looks like it's just as bad as this and you could kind of just like, maybe wash those away, you actually can't because look at this. household formation boomed to positive 5000 on this chart, but actually only fell to about negative 800.. So this, even though the chart looks funny here, but considering this, this over here is actually about five to six times as many households being formed as we briefly rebounded to the negative side over here.

So the point is, one of the reasons we saw this massive run up in housing is because we had this massive set of household formation right here. and when you net this off the bottom part, maybe you'd only take off a little bit of an edge here Now We had a lot more houses formed great. But what's the trend now? and that's what we want to talk about. the trend now and what it could mean going forward from all of the madness.

The concern now is that household formation is trending down, and right now we're kind of teetering around some of the lower periods of like 2016 and 17. we didn't have as much household formation right after the housing recession. That makes sense. You did see a boom of housing formation in like 2005 and six when home prices were just going to the moon.

But the concern with this is if household formation goes down, then what you could actually see is a dual folded attack on real estate pricing where basically what you're doing is you're forcing rents down because fewer people are renting. That is, older folks are moving in with younger folks, younger folks are staying at home. Whatever people are creating less households. But then at the same time prices are going down because rates are still high, even though they've come down to about 6 percent from Seven, Seven and a quarter percent, they're still very high.

You're still over three percent higher than where you were in December of last year. And so when you see both rent and price go down, you actually get a little bit of a spiral Because now you enter what's called buyer psychology where buyer psychology gets screwed because one of the reasons people buy a home is because they think they can rent it out in the future for a profit. But if rents are falling, then they're thinking, well, gosh, I'll just rent a cheaper place. Even though rents have been rising, they're starting to inflect down.

And why bother rent? Or why bother buying a place at a six percent mortgage? If you could just rent a new place for cheaper. and remember, the more rents fall, the more risky buying real estate seems, The more prices fall, the more risky buying real estate seems Nick Whom I follow on Twitter I Think he's great. He basically has taken some really great data from the Redfin data center which I love. Using the Redfin data center, he put it into this beautiful chart right here and he's showing us.

look at some of these price declines already. from the Peak in May to November median sales prices I mean we're at an 18 housing crash in: Austin San Jose Oakland Anaheim Seattle San Francisco Boise all down between 17 and 11 Vegas over here at 11.1 percent. these are some substantial declines in pricing, and what's fascinating is mainstream media is still telling us today that prices are actually trending up, not down and there's a reason for that. It's very simple.

the mainstream media is still stuck in this idea that oh well, wait a minute. Home prices when we look at last December are actually lower than we are in this December. But what they're ignoring is the fact that then we were trending up, peaked out around April and May and now we're on this ugly downtrend and so when we get to next May, we might be over here, right? This will end up being next May And then we'll actually have the mainstream media comparing May to May and they'll go. Holy smokes, we've got a massive decline over here and this is where I Want to talk about the idea of the double dip housing recession and what happened the last time.

So one of the first things that happens when interest rates go up is home sales decline. Like the actual volume of sales declining here again. Nick has broken out a nice chart that kind of just shows you this graphically, but we already know that home sales are declining. What I actually want to talk about is the last time we had this fear about a potential double dip housing crash.

So the last double dip housing crash fear actually occurred in about 2011.. And if you look at the St Louis Fred's housing or home price a chart. What you can do is you can change the chart to just show you data on a year-over-year change basis and so all you have to do is pop on over here to edit graph. We're going to go change this to percent change from a year ago and here you can actually kind of see how this double dip occurred.

You had this fall in home prices that was quite dramatic, going from really the end of 2005 to the beginning of 2009 when the Federal Reserve stepped in U-turn started cutting rates like crazy. This is not a pivot. A pivot is when they reduce the pace of their hikes or or of them hiking at all. A U-turn is when they say we've caused too much damage, we've done screwed up.

We're causing too much of a recession here. we're gonna pivot. You can see that actually. oh, we're gonna U-turn you can see that's actually happened relatively close to the end of of the recession.

Here, their their bailout essentially marked the end. But even though the FED had turned on the money printer, what happened nearly a year and a half after the Federal Reserve's U-turn in the real estate market was you had buyer psychology. That said buying real estate is bad. Home prices under this black line were still declining, and the lingering fear of home prices still declining compounded with first-time home buyer fears about getting into real estate at all.

Let me explain that briefly. It's something we've talked about in our course member live streams before and in the courses on building your wealth link down below, but it's something that is a big factor in psychology. As a real estate broker, when people come to me or used to come to me since I don't service clients anymore, when people come to me or used to come to me and they would say hey, we're thinking about buying a home, the amount of fear that there is in a first-time homebuyer is insane. Now things got euphoric in like 2021 when everybody was like let's buy a home Prices only go up, That's easy.

Okay, that's that's like buying a meme stock when it's going up like that's easy. There's no pain in that, but usually anywhere really between 2010 when I was representing home buyers all the way through 2019.. what I saw was home buyers took a lot of educating a lot of seeing different properties, understanding potential defects and downfalls and neighborhoods and and crime and school statistics everything. How much could we rent this out for? Worst case, what's the management going to cost? The diligence was extreme and that diligence back in 2010 and 11 was also extreme except it was Extreme Plus People had a fear that they weren't going to be able to rent the properties out for what they were paying for them and people had a fear that oh no, what if home prices continue to decline Now, back then, we didn't really see rent prices decline as much.

so the rent issue wasn't as big of a deal as it potentially is now. because now when you combine the fact that we're seeing less household formations and rents now pointing to the downside, rents are rotating down. We're seeing this undoing of the pandemic. Zoom Towns you potentially create this fear of oh no, what if we're going to have a double dip housing Bust Or basically, you see home prices drop by May of 2023, somewhere between 15 to 25 percent.

Now, all of a sudden, that's the headline and the Fed maybe bails out Mark markets in March to May, but home buyers are actually too fearful to get in because they fear a double dip recession and we actually end up having a double dip of real estate pain for another year until maybe well into 2024.. that's entirely possible. it's happened before and it can happen again. History can be a good guide in terms of real estate growth and you can see we're just now.

or real estate. uh, pain I should say. And you can see that dip right here in in housing prices, just like we sort of saw in 2006.. that line there is showing you a deceleration of accelerating home prices.

So again, like I Drew, we're still gaining. But when we actually go negative, even when we bottom out and start turning up that home buyer psychology might be so fearful against the potential for a double tip housing recession that we could actually extend the buying window for getting into real estate uh, by certainly at least a year, if not even multiple years, even as interest rates fall. So think about that. you could have low housing supply, low home buyer formations, falling rents, and falling mortgage rates, but still have home prices either low or falling because of how sticky real estate psychology is.

It's way slower than the stock market I Mean you get like five green days in a row in the stock market and everybody's like, that's it. We're going to the Moon right? Very different in real estate, especially since it takes so long for prices to actually reflect Market changes. So anyway, oh boy, buckle up. They're gonna be some amazing opportunities to buy real estate I Believe somewhere probably starting mid-2023 all the way extending out to potentially 2025.

So buckle up, get ready, and good luck and stay safe. Thanks! Goodbye.