The real estate market is about to face a whole lot of hell and folks. I've got bad news, potentially for a particular eye buying company that might be getting ready to close its doors in this video. Not only are we going to talk about this closing of doors, we're going to talk about what's going on with limited redemptions in the real estate space. We'll talk about home affordability, how much real estate prices might have to fall, how much they're likely to fall recession or not.

And we'll also talk about interest rates because yeah, they have taked down a little bit recently. but will it be enough to quell fears of the recession? Here we go, folks. All right. First up, Oh my gosh, look at this tweet circulating from a writer at Fortune Magazine Now it's unverified.

but I'm gonna put some details together here that could actually make this seem very, very legitimate. Lance Lambert Says this week a company in the family of I buy reached out to the co-star co-star by the way, is a real estate listing platform like Co-star Loop net They do a lot in commercial real estate. Anyway, this week a company in the family of eye buying reached out to co-star CEO Andy Florence The company is that is the company being the company reaching out is that a quote point of failure and asks Florence if co-star can quote fund them Florence tells Fortune Magazine he turned them down More details here. to be clear: I don't know what company he's talking about I asked co-star CEO Andy Florence if I buyers will still be around in two years, he said I think people will learn from the first generation.

He added that cost of capital would rise. So remember, eye buying is when companies buy homes off the internet without actually knowing what the hell they're doing. They don't buy wedge. Deals They just try to buy deals to get transaction fees and flip them again.

That works fine in an appreciating Market But oh my gosh. I Hate flipping homes I Flipped one property in my life I Think flipping homes is the worst way to make money because it's so risky. You make lots of money when you're a king in the markets Rising but other times you just get screwed. Very very dangerous to be an eye buyer.

This is why I like wedge deal and rent model not buy and flip. Very very dangerous. So what company could this potentially be? And is it possible that this eye buying company is going bankrupt? Well my belief is a it's open door and B yes first of all. Open Door Rumoredly sent out an email just a few days ago shutting down their Mortgage business.

This comes after they laid off individuals earlier this year and comes after on. November 2nd them laying off 18 of their staff last quarter before their last earnings report. I Also suggested that they will face at least a 10 markdown on their inventory. And guess what happened when they announced earning earnings? They announced yeah, we're taking a 10 markdown on our inventory.

On top of that, we're going to get into the real estate Marketplace which is a way of saying yeah, our eye buying is failing so badly, we're gonna try to turn our website into a platform for people to buy and sell homes rather than just try to buy and sell homes ourselves. In other words, the core business model of Open Door is faltering so badly. They're trying to change their business model and so when I'm trying to align the potential okay, well, could it be open door that's asking for emergency funding. What I did of course is I went over to their balance sheet because when you think a company is going to go bankrupt, what do you do? Well, you follow what we talk about in the Stocks and Psychology of Money Group combined with the zero to millionaire real Estate investing course both available with a coupon code expiring Friday coupon code PP expiring Friday the 9th and what do you get? Well, you get knowledge.

Okay, you go over the balance sheet and look what you get first. What do we have over here? We have seven billion dollars in debt on flips. How do I get to that number? Well, I Get to that number by going right here which is non-recourse asset backed debt current portion plus the non-recourse asset back debt net of the current portion, you add that up, you get about seven billion dollars in debt on flips. That's not good, especially when the amount of real estate value you have is about six billion dollars.

Okay, so you've got six billion dollars in real estate. You've got Seven billion dollars in debts. That means you are already upside down by one billion dollars. Not considering the fact that you might not even be able to sell those properties.

For six billion dollars, you might have to take another 10 to 15 haircut. Which would mean you really only have about five billion dollars of real estate left. Which means you could be upside down to the tune of two billion dollars. But let's just assume they're only upside down by one billion dollars and that they do not have to take an additional cut.

What do we have? Well, we have 1.3 million dollars of cash on the balance sheet. We do have 1.7 million dollars in restricted cash, but the assumption is that 1.7 million dollars in restricted cash cash is going into New Deals That's why it's restricted that they're still buying. Which is stupid. They should stop.

They're operating a money losing business. Stop operating the business. They're putting money into a vending machine to get no money out. It's stupid.

It's a stupid business model. In the last quarter, By the way, they lost 810 million dollars, 425 of which just on taking losses on homes and the rest 385 on their operating expenses which have exploded by about 120 million dollars 115 million dollars from last year. Yikes. So what do we have over here? Well, we've got a business that's upside down by about a billion dollars.

They have 1.3 billion dollars in cash. That's 1.3 B not M There we go. So they have 1.3 billion in cash and they're losing about 800 million dollars a quarter. Which means this company is probably on the verge of bankruptcy this quarter because if last quarter, they had about one quarter left of cash.

and now you're going into the Q4 winter season for selling real estate which is historically slower. You have debts coming due, you're burning probably about a billion dollars in the in this Q4 quarter. with losses and expenses, they're out of cash. They're not going to be able to operate anymore Past Q1, they're done.

They're cooked like we saw this coming for probably all year. We've been talking about this Open Door disaster coming and now we see this rumor. It has to be this company. Now it could be.

Look, Zillow's out of the game. They got out. They were smart. It's not Airbnb because they don't I buy.

It's probably not going to be Redfin though there's always the risk. it's Redfin Uh, they still have the services side of their business and I think they are a little bit more reasonable in their Acquisitions than open door has been. It's probably open Door which is soon to be closed door which is pretty embarrassing. but anyway.

uh, this is why flipping is so freaking dangerous. Okay, so now that's Open door. What else is going on in the real estate world? Oh right, Redemptions are getting Frozen Yes Baron suggests and Barons just reported that Star Wars Star Wood Property Group Starwood Real Estate Income Trust is curbing redemptions after withdrawal requests exceeded the monthly limit in November Starwood Capital is the sort of the umbrella company of the Starwood Real Estate Income Trust. The Real Estate Income Trust has about 14.6 billion dollars of assets under management.

They are halting withdrawals. The total Starwood group has about 125 billion dollars of assets under management. So this is slightly more than 10 percent of the Starwood group is halting withdrawals and they are now the second largest non-traded Reit after Blackstone's Real Estate Income Trust, which has 69 billion dollars of assets under management, moved to also limit withdrawals. Both of them allow about two percent of monthly withdrawals of net asset value or five percent of quarterly withdrawals and so far Starwood has fulfilled 63 percent of investor Redemption requests.

the rest will rule over to next month. Yikes. Yikes. So this is a way of saying that there is such a liquidity crunch right now.

There's such a dash for cash that people are trying to claw their money out of anything they can. They're selling their crypto, They're selling their stocks. They're selling their real estate they're dumping out of REITs They're trying to get cash. This is what happens in a recession.

This is why in January I said the most powerful asset you could have this year is cash. And the reason is not because inflation is high, but because the stuff you're going to buy is probably going to go down in value. Assets, real estate, boats, planes, cars, stocks, whatever it is that floats your boat so to speak. it's going down.

It's all going down. It sucks anyway. Oh, Bloomberg is also now reporting that on a 75 city-wide average that used to rank better Nationwide for home affordability is now worse than the average cities like Tampa Florida Boise Idaho Glenwood Springs Colorado Exceeding 50 percent of people's median income to be able to afford a home in those areas median home price to income ratios over a hundred percent in areas like Key West Florida We're also now, according to Redfin facing record: D listings, two percent of homes for sale were delisted without being sold each week during the three months ended November 20th comparing to 1.6 percent a year earlier. This is leading Bloomberg to cite that the Boom is over.

Now we're seeing a complete reversal in real estate, and although costs have recently cooled with some reduction in interest rates, many buyers are sidelined because guess what Now the fear of a recession is out some of the towns seeing the worst hits are the Sun Belt areas and areas like Seattle Phoenix Denver Sacramento and Austin New home prices have to fall about 34 for payment to income ratios. To go back in line with historical averages, this is, according to Bloomberg intelligence, a 15 decline Nationwide Looks very likely assuming rates are stabilize at about five and a half percent. Right now, they are at about six and a half percent, so you still have some rotation downward to go. Newer smaller homes are more likely to be resilient with the upper end suffering worse.

Fortune Does a breakdown of Moody's Analytics report on real Estate suggesting that real estate could fall as much as 15 to 25 percent? Assuming no recession. In the event of a recession, those real estate prices could fall even more The case: Shiller Index also fell one percent in September although the Fhfa measure actually increased 0.1 percent in September. The reason for this could be that Fhfa has most of its market share focused on the lower and middle end. This suggests that it's the top and higher end that's actually getting crushed much more than the lower end.

Now this is right now with rates hovering around six and a half percent. The Wall Street Journal is also now reporting that more renters are starting to renovate places like their own. They say that nesting renters are a sign that the housing market is at Peak at least. this is per the FAU economics professor they interviewed.

Wayfarer Seeing bookings for doorknobs and drawer pulls and wallpaper way up. doorknobs and drawer pulls tripled from last year. and after all, it makes no Financial sense to invest in a place that you're just renting. But a potential reason could be it's more expensive to move than to just stay put and make the place look the way you want it to look while you're there.

This is all bad news for Real Estate especially if real estate prices could fall even more if we enter a recession, which more and more seems more likely. and it seems like the FED is going to have to massively u-term to bail this Market out of the pain that we're about to experience. In addition to that, interest rates following the 10-year yield curve have calmed substantially in the last six weeks. If we pull up the 10-year treasury curve, we could see that right here.

we can see the 10-year treasury curve is nicely down from nearly four and a quarter percent about a month and a half ago six weeks ago down to about 3.59 right now, which is roughly in line of with where we were in mid-september This does lead mortgage rates to cool if we just Google mortgage rates and then I always like to throw in the 740 credit score. That is generally your your best rate. You're sitting at about 6.6 percent for the 30-year fixed down off of some of the over seven to seven and a half percent rates we saw at the beginning of October However Unfortunately, still similar to those mid-september levels where we've also been seeing some serious pain in the real estate market. So unfortunately more pain is likely ahead for the real estate market.

And most unfortunately, it doesn't look like Open Door is going to be open much longer. No guarantees. So far this is just a rumor and there's also the rumor that they're shutting their mortgage division, but we'll see. So far though, their balance sheet doesn't look good.

Thanks for watching folks and we'll see the next one. Goodbye.