The housing market has seen one of the biggest bull runs over the last three years in the history of history. Are we gon na see that continue on, or is it gon na all come crashing down hello, everyone and welcome back to a new video shawn's, a name and today we're talking about real estate now, unless you've been living under a rock for the last couple of Years you should know that the housing market has been fire hot. So today i want to explain first why prices have been absolutely skyrocketing and then two where the market is going to be heading over the next year or two, as the market shifts, so first hit that like button. But i want to jump right into it and basically say the main reason why prices have been absolutely skyrocketing is due to three things.

Firstly, and probably the most important thing that kind of started this spiral is supply. There has been a significant lack of homes for people to buy and when there aren't very many homes for people to buy, then the existing ones that are for sale are highly competitive and when there's competition, that means prices are driven up now. Why is that the case? Well, if there's only one house for sale and there's 10 buyers all bidding on one specific house, then the seller of that house is going to be basically giving you know the offer to the buyer, who offers them the most money. Now, when in college and i started learning about supply and demand, it was always so hard for me to understand unless i related it to real world examples.

So again, 10 people trying to buy a house one house available that house went instantly up in price versus on the flip side of the spectrum. Let's say there was one guy shopping for houses and there were 10 houses available for him to bid on well now he has all of these options and he's going to be very picky, which means that each of those sellers are going to be bidding for that Buyer's attention and say hey. I know i have a great house, but i'm willing to sell to you for really cheap, because i really want to earn your business, that's how supply and demand works, and lately in the housing market we have had a very low supply. Now you might ask: why is there a shortage of homes? Well, the main reason there has been a shortage of homes lately in the last couple of years is because home builders basically took a nap in 2008.

Okay, when 2008 happened - and we had this big crash - there were so many homes on the market and, like we just said when supply is high, that means prices are low, so home builders were like we're not making any money building these homes. I need to either switch industries or i need to build different types of properties and as a whole, production of housing in the united states slowed tremendously, and you can't build a house overnight. So no one really predicted, which made the shortage even worse, was when rates were drastically reduced because of the pandemic of the election of all the other crap that happened in 2020. So the fact that rates fell tremendously also hurt the supply of homes, because now more people are buying homes, which is the second point we'll get into in just a second.

Before we talk rates, we have to understand how crucial it is for home builders to continue to build homes, regardless of the shape of the market. The reason i love real estate so much is because there is only a finite amount of land or real estate in this world without getting into like metaverses and all the other craps going on. But let's just say: there's just a finite amount of land on this planet and before elon musk goes and colonizes other planets again finite amount of land, which means over time that land is going to get more profitable and worth a lot more. Just because there is less and less supply of it as we grow as a population, which is a big reason, so we will always continue to grow in population unless we have some sort of massive genocide or something like that.

But the population will always increase over time, even through a pandemic, so if more homes or housing is not being built, then where are these people going to live, and not only is the population increasing, but the life expectancy of human beings is increasing over time due To the fact that we've got advancements in technology and medicine and all this other stuff, so people are living longer, there's more people being born. We are basically over populating this planet and if more housing is not being built, then again that is just going to increase demand of real estate more and more we're not even going to talk about immigration into the u.s, but you just need to understand that new Homes need to be built every single year at a steady rate, or else we're going to hit a shortage regardless of the value of those homes that are being built. People need places to live. Okay.

We hammered that point home, though supply is a big issue. Now the second issue as to why the housing market has been fire hot, like i previously mentioned, is because of rates, as you probably know, by now rates took a nosedive at the start of corona, which really exaggerated this housing supply problem that my friends sent already Rising home prices through the roof, even more. Why? Because a 350 000 home has the same monthly payment at a 4 interest rate than a 425 000 home at a 2.5 interest rate. That basically means when something is more affordable.

People are willing to spend higher prices for it now. This is very basic economics, but when interest rates fall, asset prices increase because of the fact that things are more affordable and people are willing to pay more for it right now. This will be very troublesome which i'll get to in a little bit, but when supply was an issue now it's an even bigger issue, because rates are lower and more people can actually afford homes, meaning there's more buyers in the market and that's probably the main reason. Those two right there that home prices in general have been up like 20 in the last 14 months, but the third problem, which kind of is like the cherry on the top, is the fact that we had a massive pandemic corona.

Now, i'm only going to touch on this very briefly, since this has been like all over the news for the last two years, but basically when people are mandated to stay in their houses, not travel and not be able to match anything else. That means any sort of cash money that they have they're spending it on the thing that they are confined to, which is their home, which means home renovations, shot up, which means you know, people are trying to upgrade their houses because they're stuck in it, so they Want to make sure that it's a place that they enjoy, and that means that more people find value in houses, which means the value of those houses go up and the prices go up. So all three of those reasons combined are the reasons why home prices have gone absolutely bonkers over the last three years and if you've owned real estate. Prior to these three years, then you've probably doubled your net worth in your real estate alone, which is awesome.

But what happened moving forward now, like i just mentioned corona, we are through the thick of it all so we're kind of past that big hurdle and when it comes to the supply of the housing market, there are tons of contractors and builders that are just flooding. The market daily, because how profitable that industry is right now, so that's going to help with our supply in the market as we get caught up on homes being built and then lastly, that means we have rates. I hate to be the bearer of bad news, but mortgage rates are going to be increasing and they actually already have been increasing since the new year. The feds have basically confirmed it multiple times now that rates will be increasing, and it's just it's just what it is guys.

A lot of people are like no we're going to these rates. Are they going to start falling again? No rates will be increasing, they've been low for way too long and it's actually healthy for them to be increasing, but on top of the feds, actually raising rates and bonds and yields kind of changing in the market. Mortgage companies have also seen the most profitable two years they've ever had. I want to say ever in the mortgage industry, which means they want to hold those profit margins for as long as possible.

Even though rates are increasing, so you as the borrower as the client is going to be feeling that in the rates you are offered, it basically means if a mortgage company was doing 10 loans a month for the entire year they're willing to make a lot less Doing 10 loans a month than they are doing only five loans a month right. They have all that overhead that they need to cover, which means hey you, as the consumer is going to be paying a higher rate than normal, because overall mortgage applications and volume is going to be falling a ton in 2022, so kind of a double whammy. In terms of rates increasing, which is a little bit crappy for consumers, now super important, remember what i said earlier: when rates go up, asset prices go down. Well.

Does that mean i'm basically saying that the housing market is going to be crashing or prices are going to be falling? No, it does not, but what it does mean is that the growth rate, so the rate at which homes are appreciating or going up in value? Yes, that growth rate is going to be going down until we can get back to a more normal appreciation rate. So, instead of homes going up 15 to 20 percent a year, they should kind of come back to that level of going up. Only five to nine percent a year which again, in my opinion, is a very good thing to have more bats in the markets. So we don't hit this massive bull run to hit a bubble and come all crashing down.

We want that nice and even growth going upwards and while i don't have a crystal ball - and this is not financial advice - i'm just some rando on youtube - this will likely happen. Rates are increasing and when rates increase, this is what happens to assets. Now i'm a mortgage broker, i don't want rates to increase, because that means we're going to have far less mortgage applications refinances and all that stuff going on, which means we're going to see a lot less profit margin moving forward in 2022 2023. So those are the facts on what happened over the last two to three years, and you also got my opinion on what i think is going to happen over the next two to three years and again, you have to remember that this market shift doesn't happen overnight.

It does take time and it will happen over time over this year and over next year. So don't think things are going to just absolutely plummet or things are going to crap. Don't worry, it'll take time as things balance out and again i think it's a good sustainable bounce, but anywho that's my two cents. Hopefully you found some value, or at least some entertainment out of this video.

If you did please hit the like button, please share the video with a friend, because i know a lot of people are talking about this right now. It would help me out and make you look like a baller. So definitely do that also. I would like to know what your opinion is on, where you think the market is headed and if it's good or bad in the comments down below so definitely leave me a comment.

Otherwise, i hope you enjoyed the video and i will see you in the next one me.