Will Home Prices Fall or Rise in 2022?
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- Опубликовано: 3 окт 2024
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Leading indicators for real home appreciation suggest that the real estate market is going to take a large downturn. This video explains the data behind these leading indicators and real home prices.
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I think a housing crash will happen because all those people who bought homes over asking price, although it was at a low interest rate, they are over their heads. They have no equity if the housing prices continue to go down, and if for whatever reason they cannot afford the house anymore and it goes into foreclosure because even if they try to sell, they will not make any money. I think this will happen to a lot of people especially with the massive layoff predicted for the future and the cost of living rising at a high speed.
Can you suggest the investment coach you've been using? It appears you've had success with their guidance.
Also important to keep in mind that real estate markets are hyper-local and very location dependent. For instance, in Seattle it only took our market about 7 years to recover values from their peak losses caused by the 2008 bubble. Our geographical restrictions and strong job market play a factor in that as well.
@No Crisis In Falling Housing Prices Sorry, sounds like you have some unresolved anger that hasn't been dealt with. Maybe you've been wronged in some way by inexperienced agents. Hope you get some help and are able to work it out.
In speaking with developers and builders in the area they all cite local building codes, local regulations, supply chain issues, and labor shortages as being key factors affecting the cost of homes in the area. Could explain why it's more costly to build in a place like Seattle vs. Texas. Also affecting costs are the materials required to build in these different climates. Texas homes are mostly built on slabs, homes in Seattle are mostly built on poured foundation walls with crawlspaces, wildly different costs. Insulation, roofing, etc. Not me saying this...it's the builders. If you have the data to prove your point it would be fascinating to look at! Please provide a link.
@No Crisis In Falling Housing Prices We shall see what the future brings; likely more pain for the next couple of years at least ... In Redmond, most years, besides the negative 15% appreciation between 2017-2018, Redmond sees double digit appreciation no problem ... yes, median sold price peaked in April 2022 at $1,921,000 and dropped roughly 30% to $1,340,000 in July 2022 ... For MTD in Aug 2022 Redmond is currently at an "average" sold price of $1.7M (because we don't have the median data yet, but it should be close to the same) which is still about 13% positive for 2022 ... government manipulation caused prices to soar just over 30% in Redmond from Jan 2022 to April 2022 alone ... and up just over 75% since Jan 2020 ... that gain is unprecedented and unsustainable. Long story short...never buy a home that you can't live in at least 7-10 years. That should protect you from fluctuations in the market and garbage monetary policy. Or just buy a 200 unit apartment building with other people's money and rent yourself one of the units like Grant Cardone. :)
Here is Seattle, Tacoma, Bellevue, Redmond median prices since Jan 2006:
nwmls.stats.showingtime.com/infoserv/s-v1/aSvj-RKq
@@LeamerUnplugged Your link is referencing median Seattle area sales price in nominal terms. The author of this video is claiming housing will be losing in inflation adjusted terms going forward. Your referenced graph would have to subtract a trend line of average local inflation to be a real median home sale price graph. But yeah, the building code restrictions, topology and geographical constraints of the I-5 corridor make the Seattle market wildly different than the Texas one. However both are subject to the same lending underwriting standards, monetary and fiscal policy and general yield seeking behaviors of yield-deprived investors. So some overlap, but not all overlap.
*Only 7 years*🤣🤣🤣
You know in times of high inflation only real estate retains value, it might go down 5 or even 10% because of high interest rates but it's value is protected by cost of renting. So your analysis is totally incorect. BTW you can not compare current market to 2008 because in 2008 prices didn't make sense , that was speculative market, a bubble waiting to blow up
Housing outpacing inflation meant it also outpaced wages. This is only good for people who are already in and gatekeeps wealth opportunities older people had from future generations. Declining housing prices does more good for the economy as it becomes a commodity and not an investment which lets excess wealth which would've been spent on real estate go into the general economy or other investments that don't bar people from an important aspect of life (housing).
Nearly. But our government are housing far too many PoW and terrorists over from around the globe that we also pay millions of them getting housed. this contributes extremely.
@super natural shove your conspiracy tales up your ***.
@@RastjackA POW? You mean refugees. You do know that western countries, such as Canada are compensated by the U.N. to take in refugees. Many are housed in hotels and yes sometimes homes, which often contain multi generations. After WW II Canada took in many refugees, and they helped to build this nation. What's driving up the housing prices are investors - both foreign and domestic.
@@RastjackA There's about 40,000 foreign POWs in the USA and over half a million homeless people. The POWs are not the people taking up all the housing; it's big real estate companies and banks.
It's capitalism but it should even itself out right? People can't afford homes so the investors drop prices? Only thing I fear is that people keep spending outrageous amounts on housing because it's pretty much a necessity and then investors get encouraged
It's fascinating to watch this from Canada, where the RE market seems to be several months ahead of the US. House prices went up an incredible amount over the last 20 years, without a serious correction in 2008. After increasing 40-50% (or more) during 2020 - 2022, prices peaked in February/March and have now already dropped 15% (or more) and are still going down. Unusually, Canada is leading the US in this trend and provides a good preview of what is going to happen in the US in the next few months.
Canada has fewer buyers in the following generation, lower population density, lower incomes. It's not a leading indicator for anything but the Canadian markets.
@@twhite5085 You sound like your in denial. We are in a worldwide housing crash the writing is on the wall you just have to learn how to read it.
@@twhite5085 What!?
Yea money isn't worth anything anymore so prices are going up but the value is going down... Costs more and worth less
Where do you see such indicators?
I honestly have not googled nor YT searched anything related to homes, inflation, or home prices on Google, yet it decided through the power of the algorithm, to show me this video. I am happy that it did, good video.
This was extremely detailed and well done. Thank you for not screaming
"Crash! Sell everything!" like some channels. SUBSCRIBED!
I am glad you're using real home prices rather than nominal. It is much easier to understand how the actual market is going. Even know home prices are getting very expensive it is easy to forget that a lot of it is due to inflation
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Great video! Very educational and insightful. Your basket of indicators really seems to do a great job of predicting the real home appreciation. You make it very easy to understand. Thank you.
I agree with this analysis. Right now is NOT the time to buy a house. Soon the prices will be coming down. Patience is a virtue :)
I think you are correct in certain areas. The problem is as grown up in a builders family I can tell you our money is becoming less valuable thus leading to higher prices of materials. The cost to build a 2400sq ft two story today is approximately 755,000 with mid grade finishings. When the builder cuts back supply does price go up or down as populations continues to increase? There’s a case on both sides.
It’s a self correction homie. Nobody can afford building homes . So current inventories sell off (there’s a lot) so no one buys building supplies which in turn drop building costs. Builders re enter the market at the low
A bigger concern for your point is fuel costs. All of these industries require fuel and that, thanks to the green new deal, is going no where. Don’t listen to those saying Russia Ukraine, shit was high before then
You and Patrick Boyle are my favorite financial analysis guys on RUclips. I'm stunned this level of research and information is free.
Excellent video. A big caveat, the inflation rate is determined by CPI which is calculated by the government. CPI has been changed over multiple times during the years, and additionally, there is a massive conflict of interest by the government to make the CPI look lower than maybe actually is. E.g: The current CPI is about 10 percent but if you use the 1970's CPI method then current inflation is about 20 percent.
I heard one reason they changed it to underestimate is because they wanted to avoid a positive feedback of rising prices. If people saw a certain CPI then they would ask for that as a raise and then the prices would increase to meet that rise in wages, which would then raise the CPI again, so and so forth. This is somewhat logical, however for fixed income people receiving financial assistance due to disability or old age this is not sufficient. They should be on a different number. Also, the disability financial support was half privatized under ERISA and ERISA doesn't have to pay CPI increases at all and employees are not informed of this when receiving disability policies as employers don't have to have insurance licenses and the government doesn't explain how this works. It would be like employers giving free parachute rides as part of the remuneration and being exempt from parachute instructor license because they aren't charging for the parachute rides. The system is deeply corrupt.
You did a great job of presenting this with strong evidence that shows high validity and used multiple indicators, it is like a meta analysis in a 10 minute video. Probably the best analytical video on this subject online. And to achieve 1.3m views in 5 weeks will do a lot for growing your channel. Well done!
i wouldl take whatever this smuck says with a grain of salt...
@@xposed11 and why is that…
xposed must be a disgruntled realtor
The evidence is actually really skewed to support his idea. When he is saying that last year the prices are rising constantly and showing a graph where actually over 45% of the graph the price is falling at 2:20 I wouldn't call it a valid and strong evidence.
@@Alialun2 not sure if you linked the wrong graph, but that one shows home price “growth”. Home prices have done nothing but rise during that period.
And this correlates perfectly with the fact that the FED is refusing to sell off its MBS holdings like they were supposed to. Propping up the housing market…
Those MFrs have their personal balance sheets to worry about. They can't get wealthy on their government stipend.
they actually added 8b in mbs over last month instead of selling the 17.5b they planned
@@momo777777777777777 unreal
They want housing to crash - magically. Without killing jobs. Can’t do it. So now. Do you want to kill economy near wartime? Uh no. People are buying everything. Just not homes. Well but they are buying homes.
Fed will have to reverse.
I heard that they tried to sell, but there were no buyers. They asked for bids and received none! It was a dead market.
Great presentation. One relevant thing that was not mentioned though is that right now, in 2022, we are coming out of a period where for several years money has been historically cheap to borrow. The result of that is that a huge portion of homeowners refinanced into these cheap loans and are staying put, which will on its own keep prices high, especially in desirable areas. As it seems that monetary policy is always one step behind the curve anyway its impossible to predict to what level inflation will be influencing actual value going forward, but I do belive most homeowners understand that mortgages are a hedge against inflation anyway....and now they have cheap money. Behavior is easier to predict. Supply will remain tight.
Exactly what I've been telling people in Kansas.
Supply and demand, we know what we have in kansas, and we can afford it.
In 2008 they were approving cocktail waitresses for homes.
This bear market is much different, I forsee Kansas looking like Idaho soon, where they are building massive developments to meet the demand.
I refinance my home to a 15 year fixed at 2.75%. No need to shop for the next 20 years 😄
It’s really unpredictable many companies are starting to cut employees 10-15% if economy keeps slowing you’ll see more jobs lost in other sectors which will lead to people selling homes and increasing inventory of rates stay high you’ll have strong supply and lower demand which will force prices down .. that being said prices down doesn’t make it cheaper 400k house at 2.5 % and same house at 300k at 6% doesn’t help anybody out except people with cash
The waitress buying a house is just as scary as corporations owing 1/8 homes in America and deciding to dump them or being forced to dump them flooding the market similar to stocks
Time will tell for the average I wouldn’t buy anything right now but alternatively if I’m a homeowner I’m not selling either it’s gonna get weird
@@doct101 housing in Kansas is undervalued to the market. I bought my house last year for 120k. Would of been worth 8x as much in cali.. alot of companies are also in need of employees. Our society has a ton more equities. Including an entirely new Market that burns and moves money out of the USA.
BTC was intended to prevent another 2008, I have been studying how she is currently doing that. I day trade about 18 hours a week and research more then that.
Half of wall street is already priced in. The worst to come is whiplash from correction. Not a compete crash. Sorry.
Also still not seeing for sell signs in my city. Usually properties get sold the minute they go up because again our state is a hedge for real estate
You're right but missing the point. Yes many people are currently comfortably refinanced at extremely low rates but new buyers simply cannot afford to borrow enough principal anymore.
If you, for some reason, have to sell, you can only sell for what new lendees can borrow. You could lose your job in a recession, your could get divorced, your cost of living might explode due to inflation, your other debts (like personal or car loans) might explode with higher rates. If you live in an area where people HAVE to sell for whatever the house brings that will also bring down your home value.
The danger isnt like 2008 where people massively cant afford their mortgages anymore, its that nobody can afford enough mortgages to maintain current price levels.
Houses will come down hard. They are inflated assets like anything else
I'm hanging in there. Still renting, still saving, until housing prices fall to something I can afford. Thank you for the update!
@@firstescape3523 Nice assumption. I'm holding gold and silver, not cash.
@@davidpate6095 You'll do well to stick with your plan. We just sold, moving to an area where prices are already being cut 5-15%. Renting now and may look to buy again at the seasonal low. Doubt it'll be the cyclical low, but renting kinda sucks long term
@@fluteloop6737 Yeah, thanks Flute! Sounds like you have a great plan too.
Meanwhile, saving in a bank just lets them use your money for free to keep inflating prices. A bank run is needed because Glass Steagall act was removed again
Spot on
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Perfectly put. Vehicles repossessions on every type of vehicle are happening in greater quantities than at any time in history and homes are up 300% in 11 years, up 100% since 2007 at the top of the greatest housing market bubble in history. Again, a home at the top of the bubble in 2007 that was $250,000 is $475,000 today, while the average income went from $55,000 to $63,000 in that same time period. Cash is the only asset to hold for the next 2-3 years. 2023-2025 will be a worse recession and a sharper home price decline than 2008-2011.
I'd bet serious money you are wrong. The housing market crashed in 2008 due to foreclosures due to under qualified buyers being approved with no proof of income and adjustable rate mortgages. The buyers of today have real money down, not a 80-10-10 with a second mortgage and a declared income that was far from actual ability to repay the loan. Homes will continue to increase, just not at 25% per year like we experience in 2021-2022.
"Cash is the only asset to hold on to?" 🤣 Bruh, your cash will be worth 25% less in 3 years. You have no business giving investment advise if you think cash is a good investment in a recession and hyper inflation climate. Are you trolling?
@@allaboutroofing2 I believe everything he says is correct. Only a moron would put their money in cryptos and stocks or even the housing market at this point.. Cash and gold is where the wealthy are leaning towards. Cash is king.. 🤴 always will be.
@@allaboutroofing2 the average down payment in the last five years is over 2 percentage points lower than the average down payment during the five year period between 2002-2007.
@@allaboutroofing2 where are you investing your money?
Which came first....the chicken or the egg. Did other factors cause previous declines....or did other factors reflect the decline when it happened? The problem with percentages is that they can be VERY misleading. The graph at 4:49 that showed the DRAMATIC increase in inventory......wow! We went from .75 months of inventory to 1.75 months of inventory...a shocking 233% increase. But it's still waaaaay below norms. We're 4 million homes short due to the last decade of construction shortages. And that doesn't get a mention? Not a major factor? In 2008-2010 we had the opposite situation of too many homes on the market. We also had "Fog a Miirror" loan approvals. Neither of those situations exist. Not worth a mention? Today, we have the largest generation (population wise) in history: millennials. We didn't have that in 2008 to 2010. Not worth a mention? The cities mentioned in the video having the most depreciation.....yeah, they also had the highest appreciation. Not a factor worth at least mentioning? The SUPLY AND DEMAND ECONOMICS that existed in 2008 to 2010 are significantly different than they are today. The coming recession is certainly a factor because it will take some potential homebuyers out of the market, but unless we have a pretty significant recession those numbers won't be enough to drag the real estate market in strong markets by the 20% numbers indicated in this presentation.
Good points. We would’ve had a mayor crash by now according to the video, but so long it’s been a slow decline and a stop to the boom during the pandemic. I wonder what will happen in the next few months
@@djdoktor8748 I can't speak nationally, but I think what's happening in Atlanta is maybe slightly better than the overall market in terms of home appreciation. Some markets in CA, FL and TX, where they had the highest appreciation may seem some pricing declines......but I don't think that's the case for Atlanta. In a video I posted on RUclips last winter I predicted a slight decrease in home prices in the first half of the year, followed by a slight increase in the second half. That is based, in part, on my belief that interest rates will start to decline in the second half. Actually, they went down a little yesterday on the Feds short term Fed Funds interest rate hike of .25%. IF tomorrow's labor report comes out weaker than expected we may see another small decline in rates. And if we get favorable inflation news next Wednesday....then we have a new trend. If rates start with a 5 I think we'll see a lot of people back in the market, but we'll still have limited inventory. Fannie Mae just revised their interest rate forecast for 2023. They just lowered it from 6.5% to 5.75%. Last October I forecasted rates in the mid 5's by the end of the year. I think that will depend, in part, on the strength of the labor market. The weaker the market, the lower the rates. And that's my short version.
I won’t get my hopes up for a massive crash but just fundamentally, you cannot have houses double or triple in value when wages stay the same. I don’t care about “muh inventory “ there’s no way it’s sustainable no matter how many houses are available. People will literally live in their cars before paying these prices
That’s what happened in Canada and there hasn’t been a crash
@@smilinggorilla1140 I live in Canada, Toronto to be exact, and plz believe the crash is very much coming
Investors and people who can afford the prices will keep buying and you will just stay a renter.
Wow, this is the most in depth-video i have ever seen on this topic. All available thumbs up!
If you buy a home with a 5% APR, and it appreciates at 10%, and inflation is 10%, you still broke even.
Now factor in maintenance and repair costs. You lost money. Oh, and property taxes.
Mortgages are basically volatile savings accounts where you pay a high annual fee to make deposits, with no guarantee of even breaking even.
Long term, if you manage to pay off your home, you can come out ahead, as even the worst property taxes don't compare to a rent or mortgage. The faster you can pay it off, the faster you can start coming out ahead.
Obviously being able to do that is a luxury not everyone can afford. Housing in it's current form is essentially a scam.
In hawaii (maui) the year 2020 average cost in a neighborhood I looked at was $750,000. It is 2022 and the same average of a house in that certain neighborhood (hundreds of houses) costs $1.4million. some places doubled in 2 years.
@@HB-oh5uo Right. An unprecedented economic condition combined with the exploitation of the housing market by corporate investment caused many markets to double.
That's not going to last.
I'm so thankful that my landlords are renting me a place to live in at a reasonable rate . Inflation is uncomfortable but i'm thankful that my job pays for my life.
How can the typical family with average income afford a higher rate+ more expensive home? in my area multi generational home is becoming the norm . Don’t forget to add the inflation which just this week was 9.1 on the CPI , producers index 11.3, it’s going to be a rough ride for sure.
@@wiebeplatt4749 Time will tell how this period will treat people that never save, invest, lived beyond means, paycheck to paycheck, too many kids, too big of home, keeping up with the joneses with FOMO,YOLO, paying alimony, child support, etc
@@Natalieneptune469 I raised all my rents at least 30% in the past year. You better hope your landlord doesn't catch on to reality.
Can’t wait. Sitting on $300k and waiting my turn. The question will be buy a place for my family in cash, or buy two with 50% down and rent one out.
why buy just two houses? buy 4 with 25% down each, rent 3 out.
You got 300k? I barely have enough for a 10% down payment on a home lol.
While you did mention housing supply as a key factor, you did not mention how the last 2009 Great Recession wiped-out the home construction industry that never recovered from the 2009 peak. I would argue the new home index is a leading indicator for nominal home price direction. I think this factor goes a long way in explaining the current U-shaped recovery pattern since 2012. After 2009, there were still lots of home builders who were pushing supply into a market that saw accelerating foreclosures. This wiped-out home builders that have yet to recover and home prices shot through the roof in the latest economic expansion.
One follow up question to this would be: how does a home’s performance against inflation compare to other asset’s performance against inflation? I think the opportunity cost between owning a home and a portfolio of stocks, in comparison to inflation, could potentially still be a winning proposition (look at stocks as inflation has spiked in comparison to home values).
Great point! Future video topic could be stocks vs. real estate during periods of high inflation.
Well as a real estate investor EPB has enlightened me to the multifamily lending bubble. I think the conclusion this time would be a toss up/ depends on location. Because of our demographics as pointed out by Eric home demand will continue to fall. Considering this though men working in construction is dwindling, so as more houses become obsolete there will be fewer men to fix them. Therefore in certain areas with high demand, I would expect home prices/rents to do better than the market. In the 70s rents did WAY better than the market, yet we are not dealing with the same demographics so it'd have to be location specific.
Real estate isn't a function of inflation, it's a function of wages X leverage.
The leverage component can be affected by inflation though. As a whole, I wouldn't consider real estate a good inflation hedge because it doesn't cash flow.
The video left out one big factor. Actual supply vs demand. We are 4 million single family homes short on the supply side based homes built pre and post 2008 housing bubble. US population has grown by 20 million since 2008. Today, builders in most places have sold all of the homes that they can for the next 12 month period, yet those homes have not been built. Pushing up interest rates may have slowed demand by buyers, but then rent rates are increasing as potential buyers keep renting. I cannot predict home prices, but the home shortage will be with us for at least 3 years.
@@SmashBrosBrawl most hedging investments in general don't cash flow.
The data coming from a macro perspective is very insightful. Thank you.
Thank you Eric. Pure quality. So clear and logical.
I think anyone who is not investing now is missing a tremendous opportunity..
@@kateosteen5499 That's true , but most people today have been having a lot of failure most especially in Stocks and crypto trading sector because of poor orientation and bad experts
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Very good clear explanation of where we're at now.
Housing is already crashing its just not at full throttle yet,the year over year data doesn't lie. People in my area of Nevada are already underwater an 2 couples I know of bought homes in the last 6 months a one couples home has already lost 120,000 dollars in value. So don't even think about buying right now you will regret it.
When do you think will be the right time?
I want to move to Nevada one day… which towns do you recommend?
@@amyx231 Eastern Sparks Nevada an South Meadows in Reno are really good area's, Las Vegas is to hot an way to crowded. An the crime in Vegas is getting to be like LA.
Lost 120k? Yeesh. What I’m seeing is people that could afford to buy a home this past year or even two are in a rather equitable position because in order to win they had to show up with a ton of cash and are locked in a low rate. The price reductions I’ve seen this past month are more so realtors and sellers who valued based on the upward trend of the Covid market leading to reductions in the $5-$15k range.
But inventory has nearly doubled in 2 months… so I can’t disagree the market is going to continue to fall a bit.
But nonetheless, that low rate and equity, even if it gets eaten up in the next few years, if a homeowner stays in ownership for 5 to 10 years they should be able to ride back out of it.
Next year the costs for owning a home increases but your salary won't.
There’s was a report yesterday that home prices are still increasing, just mildly compared to the last 2 years.
yep I am waiting for the crash lol!!!
Not sure what "mildly" means because since the spring of 2020 prices have gone up 30-60% and in some areas have doubled. The question is where do they go now? Those who trivialize the analysis above and are complacent about only perhaps modest declines in home prices are essentially just hoping that the extraordinary, Fed-aided home price explosion will continue. Well, folks, the Fed has spoken. It started quantitative tightening yesterday and stopped buying mortgage-backed securities. Institutional home buyers have announced that they will no longer buy houses. Once your neighbor's house stays on the market without a significant reduction in the listing price for a few weeks FOMO will start and more homes in the neighborhood will be on the market. The lack of supply that has been headline news for years will give way to a lack of demand and prices will decline. As bad as the 30% decline after the 2008-2012 disaster? Perhaps not, but when you think that the $400,000 house in January 2020 is deemed to be $600,000 or more based on listings a 20% decline will only bring it down to$480,000, still well above Jan 2020's level. Get real about home prices.
Theres still feverish demand. Everyone waiting for a crash will prevent a crash. Unless rent is brought down, the demand to own will remain high.
@@andrewparrillo7475
If everybody stays put and just lives through it where they are, prices won't fall. And possibly people will extend their homes and not need to move. This happened in the UK 2008 + Prices fell initially, nobody sold and improved their homes, no stock on the market, prices rose and higher because a large % were now bigger and better than before.
Unemployment is the only things to bring prices down considerably.
Canada is a great example of how long an overpriced real estate market can last
Canadians are insane about housing, can't wait until they get crushed.
How long?
@@pretzelezgamingz7764 long enough to say it’s still way over priced and the first home buyer has been priced out for too long. That or the demographic of somebody who can afford a first home has changed from blue collar to a doctor and lawyer dual income, affording a meager rambler.
Canadian and Australian Real estate markets stinks like a skunk
@@draspotnuk Thanks for the rich immigrants who flipped and jacked up the home prices.
However, rent is still rising higher than a mortgage-at an all time high. Thanks for the advice, but I’ll buy any day.
You have amazing videos Erick. Thanks!
If you aren't going to be moving anytime soon and your job is stable, then buy a house. Just don't buy a house in Florida, Texas, Louisiana, California, Colorado Arizona, or anywhere that is becoming increasingly unlivable because of climate change. All the houses in those states are already worth the most they'll ever be worth.
Solid video! Good talking points, I hope there is a follow up with more solid data pointing to the overall impact this could have on the economy, or more market specific data. Especially what markets appear to have the most room to fall and how long is this downturn expected to last? Thank you again for a solid video!!
Gee, the M2 also spiked in 2009, but average home prices didn't start rising til 2012-13. What kind of leading indicator was that?
We lived in the L.A. area and in 2005 prices were crazy. I sold our home that we bought in 1988, in October of 2005. We then rented until 2014 when we moved to Texas and bought our house. It was a fixer in a good area and 1/4 of the price of the house we sold in L.A. It’s more then doubled in price but we won’t sell until we have to move to retirement type home.
and?
Smart man 🧠
lol! I sold my home of 13 years and outright bought my new house with no mortgage and did so literally a month before housing prices started to fall. I gamed the game and I won!
Great video but I'm very confused by the title. So why haven't home prices crashed yet? You explain why you think home prices SHOULD go down in the future, but -- unless I missed it -- I don't see any discussion at all as to WHY they haven't crashed YET????
Thanks.
The leading indicators have not bottomed yet. And real home prices lag behind the indicators.
All good but doesn't make allowance for leverage which is common amongst homeowners probably for the sake of simplicity. Because of leverage the real rate of appreciation can still be negative while homeowners become relatively better off at least as far as net worth/equity is concerned. This allows for more leeway while nominal prices are rising but of course exacerbates the negative wealth effect of real home depreciation once the threshold for negative returns is reached.
So awesome to get all of your great work in these concise and visually effective videos. Great job! Keep em comin!
I'm curious if by "real home prices" you mean "home prices adjusted for inflation." We can clearly see growth in prices leveling off and inflation rising, but unless we see large increases in mortgage interest rates and/or increased foreclosures, I doubt we'll see large reductions in home sales prices from current levels.
Yes, he is only considering ‘real’ increases, prices are still going up when inflation averages 5% for the next 3-4 years….
High quality analysis; just like nick’s channel. Keep going. Help us and be patient, your channel will grow
What’s Nicks channel?
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I had my house built in 2014 @ 150K. Now homes in my neighborhood are listing at 325k to 380k. I think it is ridiculous.
Eric, love your videos… BUT, you didn’t discuss leverage in the context of negative real growth.
Plenty of investors out there, including myself, anticipate negative real returns on real estate AND making a profit on the asset class through the debt.
Assume government reported inflation is 10% and actual inflation is 15%, your interest rate is 3% and prices are going up by 7% (declining by 8% in real terms).
The guy who thinks he’s smart buying all cash is losing 8% in wealth.
Guy who borrows it all at 3% is still gaining 4% wealth (7% appreciation minus 3% after tax cost of debt).
During periods of inflation… it is the DEBT that makes you the wealth… even with declining real values. I think you should clarify this especially since most buyers are borrowing heavily at negative real rates right now and especially over last several years.
Agree with the general thrust but it's wage inflation that you need to erode the debt. Goods inflation will just make you poorer.
All these numbers look great until they don’t and anyone on 3 percent rate is stuck for 10 or 15 years, don’t lose your money people
Why does no one make an analysis of home cost/mo compared to median monthly income over time? Seems like that’d be more helpful for understanding affordability and sustainability
This might put it into perspective. My local housing market is currently averaging $230 per square foot. This year I built a 12x16 shed in the backyard using the same lumber and materials for houses to meet code with a mix of DIY and hiring out the concrete, electrical, and plumbing was around $8500 all said and done.
If this 12x16 shed was a house at $230 per square foot, it would be worth $44,160. Let that marinate
Well it's the land that is appreciating (mostly), not the structure/improvement
your tiny shed adds very little, if any value to your home's worth. you're shed is not a house. your logic has no foundation... pun intended lol
@@jamms2966 You're a certified moron. The point is, land prices PVP are a scam. As in the banks are scamming you.
@@scottiebumich Land doesnt appreciate. its an imagined number based on what people are willing to take on via debt.
@@jamms2966 hey now the shed is just the right size, until I can't fit anything in it anymore lol
Smooth video exit - delicate and strong like the hit of an espresso.
The only thing I would add to this video is refinancing… pretty much everyone who bought a house in the last 12+ years refinanced, sometimes multiple times.. but a lot of people refied into an NEW 30 after having already paid 10+ years on their original mortgage. People are effectively taking out 40 and 50 mortgages. This all stops with rates going up.
Holy moly... Can you imagine spending the first 10 years paying interest only - then starting with interest only AGAIN for the next 10 years. This has to be much worse than a 40 or 50 year mortgage!
@@danherrick5785 Depends. If you refi'd a 6.7% mortgage from 2007 down to a 2.6% in Dec 2020, your monthly probably plummeted and you'd lock in a best-ever rate for the life of that new mortgage. Makes sense to me.
@@dylanmcdowell3894 Your still paying 20 years of usary! Imagine 20 years of treading water. If you did the amortization math for the whole senerio term, and calculated the internal rate of return, I bet you would be screwed. The monthly payments might improve - but your still screwing yourself... I would also depend on what year you are in your current term. There probably is a break even year. The later in your current term, the worse it would be...
The only thing I feel is missing is a regional heat-map of real home prices vs. the other composite indicator. I do not see home prices declining or inventory levels changing much in the South Carolina markets that I closely monitor. (Only a very, very slight uptick in inventory.)
@@katylee1914 I am meaning foremost the midstate, which doesn't have the same kind of population growth as GSP or the CHS region.
California people are moving to the Midwest buying our homes
The biggest reason Im not worried about my home value (Bought in February) is inflation doesnt make my loan bigger and I'm not paying rent. In theory after a year or two I could sell at purchase price and break even. Inflation makes my loan effectively smaller even if the house is worth less
Exactly, and just like with stocks, it doesn't matter what the day to day value is. It will go up and down, it only matters when you need to sell it-- and you have control over when that is.
Your house value is about to collapse by 60%
@@mikehawk4856 Why?
Unfortunately you won’t be able to sell your house until at least a decade until the market pick up again after the current crash bottom down . I hope you don’t get forced to sell . Otherwise you will lose at least 60% . If you try to sell your house right now it will sit on the market forever . Good luck
@@jolarry7854 feel free to point out the last time national real estate prices in nominal value dropped 60%. I’ll wait.
Great quality video & analysis.
Loved the video. However, I think opportunity cost should have been mentioned. As a long time renter, I got fed up over constantly rising rates - so in 2020 I bought a house where I lived, that was larger than my rental house for less than I rented. Speaking with the current tenants, my rent would be 220$ more a month than my PITI. Extrapolate this forward 10-15 years - regardless of my home appreciation, which I hope for but don’t count on, my home is a massive inflation hedge. My housing costs are mostly locked in relative to renters. This is a huge advantage, something more important to me than home appreciation. the question is, even with home prices decreases on the horizon, what is one to do than buy? Until rents stabilize, buying seems to be the better proposition all around.
You are right. I locked 0.8% fixed interest rates for 25 years in 2021. If inflation goes up i m more than happy, and i don't need "real" house price appreciation at all.
Most of us can't afford to get "locked in" at $2200 month for a mortgage on a tiny condo. Duh!
In 2010, I bought a Fannie Mae foreclosure for $50K, $326/mo PITI.
The former owner paid $250K in 2006.
Was $500K, has dropped and dropping, now $420K,
I see $325K mid 2024.
The stat no one talks about is Muti-generational households.
The Largest transfer of wealth is adult children living in retired parents' homes.
The demand gets crushed with a change in mindset.
I currently rent so the major incentive for me would be to buy a home so that my month to month doesn't rise with inflation. I'm wondering if this video is more targeted to investment purchases and not rental to housing purchases.
Very much appreciated 🙏 👍
Speaking facts. I love it!!! No BS. Straight facts & common sense.
I'm glad I watched this, I'm holding onto my savings for a home and I was losing hope of a drop in prices to at least compensate for the high mortgage rates
no inventory of affordable housing especially out here in California prices might drop 20 percent but it won't crash
High value content as always! I appreciate your analysis very much! Please keep doing it and thank you!
Good video. I liked your style. Precise and no fluff /drama. Would be nice to know how low they need to go to revert to long term averages
Its really important to also talk about real mortgage debt, which drops precipitously during periods of high inflation. As a result, my real equity can increase even when my real housing price is falling. It happens because mortgage debt is obviously nominal.
Yeah, lots of mortgages were paid off over the last 15 years of growth, equity at an all time high… anyone that expects a complete retracement of 2007 doesn’t know how politicians solve problems.. they are going to print like they’ve never printed before… just waiting for a reason to
Great point! Price inflation has a favorable effect on one’s existing debt, which is pegged to yesterday’s dollars, so long as the rate is fixed.
Equity goes up 2% a yr.. inflation is stopping even that..
This tutorial is a Master Class!!! Great Work!!!
Its interesting watching these types of videos, they always have excellent points. But they all have one drawback and that is comparing to past cycles. That may or may not be the case this time around considering there are many more factors in todays landscape, we dont know how much weight they have toward what the outcome will be.
Bayes' theorem
If buying a house now may sense to You (generally speaking) then buy it. Only your own opinions matters. Interest is NOT HIGH, it's normal. Everyone is just spoiled because of about 1-2 years ago when it was around 1-.3%.
VERY TRUE.
In 2003 the bush admin took away the 20% down payment and converted to credit scoring models . That was the bulk of the cause of the crash. So, you are right. Each cycle is different than the others.
@@finerbiner wow I didn’t know.. that’s a very interesting fact
There needs to be a distinction between 'Existing home sale prices' vs 'New Homes'. The people who made a ton of money in this last housing boom were the people who sold their existing homes because there were new homes. 'Existing home prices' are being hit right now because the market finally woke up to how ridiculous it is to buy old homes for several hundred thousands of dollars over their real value.
A very different story in Ireland where there is a huge shortage of housing supply, not enough homes produced yearly and the price of materials such as timbers has exploded during COVID and more recently with the war. The solution here I believe would be to renovate derelict houses (200K of them). Homelessness is becoming a very concerning issue
I see an opportunity here. Find the derelict homes and flip them. It would also require some neighborhood changes
@@MrGrenade121 Definitely but surprisingly most people ignore them. The government is even giving grants to renovate them
@@CheesyLittleMouse If only I was a Irishman...
Same thing in the USA right now
I don't see anyone discussing what happens if you sell your house because you think the market will crash, but if it only drops 10-15% yet you now have to borrow at double the interest rate you had, now your new mortgage payment is more than if you had held.
I don't think that the intention of the video was to suggest that anyone should sell their home or to suggest that owning a home right now is a bad thing - perhaps you inferred that more so from the comment section. I think he suggested that home owners may experience a negative wealth effects and that consumption may fall as a result.
Great analysis! ...however think there’s a LOT of unseen cash still left on hand in savings as people KNOW this is coming & sand bagging cash for the crash.
I am!
I follow a local blog that analyzes very similar factors. Your chart with prices and inverted months of inventory is his favorite metric. Great analysis, new sub 👍
I never realized it was common for people to take the equity out there home without selling it. That really does explain a lot of the high amount of spending though
Yeah incomes don’t rise that fast. It’s a debt spending
Something in 45 years of ownership i never did. Paid the mortgage of quick as possible to secure my future and pay as little interest in my life as possible, as interest keeps you poor and the lender richer.
@@adolfshitler not during inflation
@@jhutfre4855
So, during this round of inflation, are you saying people are better off?
@@adolfshitler yep, those that bough before before covid with long fixed rate mortgage
There is one more indicator to mention and that is the accumulation of listing contributing to growing home inventory. As time on market increases, then more listing accumulate. If the rate of home sales (to use simple math) is 10 homes listed per month, and only 1 home per month sells, then in 3 months the inventory is 27 homes. Lower demand and higher inventory, all without building a single house. The last two months, rate of sales are decreasing and time on market is increasing. As a result, a large amount of inventory is increasing.
Good examples - I would disagree on the mortgage spread as a leading indicator though - its gone both ways (spread high in 00's and 20's but no downturn rhp) It's not a false signal just because it disagrees with your intended usage... its a valid signal that is counters the viability of the metric for this usage (on its own) :)
This is really well explained. The only part that (to me) that makes "real" home values a tad skewed is the fact that the dollar value of your loan also decreases with inflation even as your house adjusts, which if your income follows means that your loan only gets cheaper with time. If "real" home values remained level during inflation, you still made money. This doesn't contradict anything fundamental but its worth noting and is probably the reason you see the wealth effect more with homes than stocks. Volitility aside, stocks are bought outright and homes are leveraged with a fixed dollar amount the value of which takes a lot of risk out of your home value underpacing inflation as long as inflation continues to happen.
Your comment is on point. This might come off as sleazy but there is a cheat code wealthy people know about. It is investing money they don't have. I know tons of people that own and rent a bunch of houses that down make much of a profit on initially (or just break even). Year by year that loan turns to almost nothing. The best time to buy a house is yesterday..
What a clearly explained video of a complex process. I think the follow-up question is when will first time home buyers be able to get in and purchase?
The price of homes has already decreased almost everywhere West of the Mississippi moving from West to East. In months, it will occur in the South East, a few months after that it will occur in the NE and Midwest. The answer to your question is probably 2 years after the price decreases began. In this random anonymous internet trolls opinion, so in 18 months in Spokane, in 24 months in Texas, and 27 months in Raleigh, but the Midwest and North east will be less effected in markets that have not zoomed in price.
If home prices have gone up 40% over the last five years, expect to lose 30% of peak value.
basically, when the price falls back to 10 to 15% higher than the 2017 price, the market should settle.
So, sale price 2017 = $200,000
Today = $280,000
Fall to $225,000 sale price and the market has settled.
This is assuming a banking and financial crises does not occur but just a fall in home values. Then again, many metrics make what is coming seem worse than 2007, but inflation should hide much of that.
Wonderful explanation thank you for taking the time to create this video!!
Thank you for putting words to something that we’re all feeling. My dad and I are trying to flip a house and he’s still stuck in the 20/21 mindset, thinking we’re going to get top dollar for the property. It would be interesting if you made a video with projections of how the prices will look given the drop in real value but rising inflation?
Right now is the absolute worse time to flip houses. Homes are piling up right now. When the damn breaks the prices will plummet. IMO it will be about 40%.
It's now a buyer's market.
@@mileshall9235 There will be better prices in months to come more than likely. With high inflation and rising mortgage rates prices more people out of the market. Unless you have a big down payment it's not a buyers' market yet but looking better.
We used to flip houses a few years ago. The problem in Florida right now is that there is no inventory. Prices are still crazy high and it’s so hard to find workers and material. It used to be so easy compared to now.
@@bretfeeney1072 It's region by region. In my area houses were going for 20k over asking within 2 weeks on the market, with multiple offers. Now it's like 60k under asking price and buyers with more options than sellers. Not a TOTAL buyers market right now (maybe check back in 6 months to 2 years) but WAY more than a few months back.
Thank you for this video. There are alot of youtube real estate experts spewing economic bs with zero understanding of macro-economics.
Thanks for this analysis which would work in most markets but you are forgetting that 6 trillion dollars (actually more) were printed during covid and in addition other liquidity was generated by government and non government agencies which amounts to many more trillions which brings the base of wealth much higher than in any other period in history All the liquidity was and is sloshing through the system but make no mistake that this money is a basis for the prices that we see today and was not fabricated from thin air like in 2003-2007 and this goes for other asset classes as well and there inflationary trends. One possibility for a considerable decrease in home prices would be to have all the institutional buying pull out of this asset class to move to a more profitable one. It is said they account for one out of every three homes purchased now. During the heart of the pandemic I would say possibly one out of every two homes. They could flood the market but I doubt this will happen.
So have you shorted the housing market yet? If not, how do we know what you're saying is reliable information?
interesting vid, thank you. although I am UK based, the data widely advertised is based upon completions (completions being the point at which the deal in finalised and the buyer get the keys/ draws the mortgage to pay for 'complete' on the house - in the UK completion timescales from offer to completion are normally 3-6months although delays and CV have bumped this up somewhat so in some cases it's 6-9months from offer accepted to completion). imo, the news stories in the UK about 'record prices' is generally driven from completions data that is clearly months out of date for anybody looking to buy today as in some cases stock levels are up 40-70% since the spring, price reductions are coming thick and fast and sales numbers are down. I appreciate other countries have different sales processes and timescales but when you refer to a 'value' of property, is this driven by actually value (completion) or marketing value (which is entirely meaningless most of the time)? I said months ago a decline has started and I think once the legacy valuations given in the hot market work their way through the system, sellers are going to find themselves chasing the market down. the decline will continue owing to remortgages needed in coming months and years where borrowers were seduced by cheap 1 or 2% rates on 2 or 3 yr fixed. the CV movers will find these are now 3-4%, soon to be 5-6% and therefore added to cost of living, energy prices, stalling economy, falling pound, general lack of confidence in markets, ppl will have to sell out of necessity, even at substantial loss. the biggest problem is that people don't generally think that far ahead and have no idea what awaits them...
So does this mean nominal house prices are going to go down and make a house affordable for my children or is it just that inflation will exceedingly outpace current (largely unattainable) nominal house prices?
This is a really interesting video, well described and clearly displayed, good work!
Would you be able to do one about the UK economy and the UK housing market as well?
But if you already have a home you are both buying and selling so when is the ideal time in that scenario? You can wait for lower prices but you will get less for your current home.
At 9:10 you discuss how the stock market does not induce the wealth effect the same way a housing bubble does. While this is true, both you and Schiller fail to address explicitly why this is. Most ordinary people have little to no money - outside their IRAs - in the stock market. The vast majority of ordinary people have all their stock holdings held within their tax deferred and Roth IRAs. Since they are still working (and not in retirement) and cannot withdraw this money without significant penalties, the money is effectively off limits in practical terms.
In contrast, if their home values are skyrocketing during a housing bubble, and also mortgage rates are lower than when they initially financed their homes? Then it's a 2-fer in favor of gaining access to liquidity via a home equity loan AND spending that newfound "free" money. THAT is what induces the "wealth effect" during a housing bubble.
But rest assured, although ordinary people rarely pull from their IRAs prematurely during stock bubbles, a ballooning IRA which occurs simultaneously with a housing bubble, psychologically loosens the purse strings on the spending boom that is fueled by home equity loans procured during housing bubbles - which in the mid-2000s and very early 2020s - coincided perfectly! THAT is the whole story behind the wealth effect that Schiller and you in this video are not fully articulating.
Well put
Wow. This was really well made. Thanks!
@EPB Macro Research; The last indicator (M2 growth) showed that home values went up sharply after a delay in a an M2 growth spike. Currently, the M2 Growth is on the way down, but if the pattern continued then the price of homes would first peak in 2023/2024 and then drastically fall.
Please reply
Wouldn't it be surprising if this time prices don't fall by a lot. What if prices remain higher but just enough for people to be foreclosed on and companies like Blackrock come in and buy these units. Then rent them back to people as everyone does need a places to live and then completes the "you wont own anything and you'll be happy" video thanks to the WEF guidelines otherwise known as the great reset.
I've also heard that the banks ae considering lending on "inheritable" mortgages meaning that they can be passed down from generation to generation. In order for this to happen prices as well need to remain high.
In the end I have no crystal ball and going back in history it does seem to repeat itself....but these last few years are by far the strangest ones I've lived in. From lockdowns, so called mandatory injections from a shot that has a hidden trial and no proven history of legitimate trials to now having bugs being eaten pushed upon us.....
All Im saying is do not be surprised at anything and in my opinion only if you want to change this you better learn to get along with other people and start making investments together just like other cultures do who have taken over much of business and industries.
Never forget strength is in numbers and it is something the powers at be try very hard to discourage people from doing. Look at all the ramping up of divide and conquer they have been doing the last while. Antifa, BLM, the Trans movement.
Don't fall for it. You have a lot more strength that you realize if we stand together and invest together. They wont expect it and if we all could do this we may actually save ourselves from a horrible controlled future that involves permissions to do damn near everything.
Housing is a bit different because 1. you live in the house which offsets the rent you would otherwise pay, 2. yields(rent) move in the opposite direction so if you don't own the cost of rent is higher than you thought. Secondly, I'd argue that the real prices (i.e. price adjusted by CPI) is not accurate as the definition of CPI has changed over such a long period. Better to divide by GDP.
I bought my last property in November, it wasn’t affordable, however it is a perfect investment. It’s quite fascinating how an RA’ can also guide you to lucrative investments in the real estates markets, I put about $170k in February and this far I’ve gotten over 700% of what I put in, now I’m moving profits from stock investment to my real estate portfolio….
Indeed the real estates market is a money faucet,
Can I do the same with $100k?
I’ve always thought the stocks market was the most profitable, well my perception has totally changed ever since I began working with ‘Jack Ronald Joyce’ an experienced property manager who helped me with a platform that set up real estates investments for me, I’m now able to x3 what I initially invested in a short while, pretty lucrative ain’t it
@@knockoutlightz I wouldn’t say it was all easy but indeed professional guidance does bring about remunerative results, then again the firm he manages my investments on are duly licensed and accredited, besides he’s been consistent 7months now…
You can look up his names
Jack Ronald Joyce,
His bio and appropriate means of getting to him is all online……
Wow these aren’t bots at all! Please tell me more
thanks for the lesson....I certainly understand the topic a lot more.
A home crisis is coming and I hate it for all of the new home buyers . I've been through it before and it sucks . Good Luck to all
This is why economics is hard. He is only looking at the supply side of things. Historically, demand stays the same. But in this case, demand is falling with supply, creating equilibrium. Hence prices are not falling. However, supply and demand can’t stay suppressed forever. One or the other will likely rise first and that will dictate whether prices will rise or fall. OR we could have demand and supply rise in tandem, creating a perfect scenario where prices stay the same. Economics is hard.
The biggest factor that I always feel is missing in videos like this is acknowledgement of supply vs demand. The pandemic, and shift to work from home, added a lot of unique factors to the equation that have never been seen before. Also, the war in Ukraine. So while there might be a downturn, I don't think historic leading indicators can really be relied on.
1. So many home owners purchased during the record low interest rates which will make them much more hesitant to sell in the future. This will further stretch supply
2. There is also the belief that homes are flooding the market right now because sellers are realizing they may have waited too long to sell and are still pricing homes at the peak value, which they will no longer get. So while it's easy to point to decreasing home prices as a sign of a downturn, it could also be overpriced homes that are being reduced to where they should have been priced in the first place.
3. Supply vs demand. With the shift to remote work and builders slowing the rate at which they build, after the 2008 crash, demand has continued to outpace supply to a very large degree. While there will likely be some markets that see a home price decline, there are some that will continue growing.
4. An entire generation (millennials) is just now reaching home buying age. This is going to further increase demand and stretch supply
interesting thoughts, i agree with most of what youve written
Regards to #4, there are record numbers of boomers moving on to the other side free-ing up inventory also. And Blackrock has swooped-in like vultures and bought up covid homes in '21 paying 10-20% over market to turn them into rentals undercutting/manipulating what would be normal public inventory keeping values up last year w false tight inventory. Hopefully Blackrocks Congress hearings will halt/regulate them.
And the largest population of millennials will be turning 35 in the next 5 years
Might see a dip but if you owned you’re home for a couple years i wouldn’t sweat it
WAR in ukraine nothing to do with this. as you k now, world war 1 and 2 both were stopped whejn both sides quit because they knew it was an unwinable war. so 100 million people died in 2 wars that could never be won. so you keep being fooled by what you think is war
Until a recession actually hits and people cannot afford their mortgage because they became overstretched and are now without a job (ergo income). The supply vs demand analysis stipulated here assumes a person's capacity or ability to participate in the market. Because Americans live paycheck-to-paycheck, it is only a matter of time before we see another housing crash due to the bubble created by too much liquidity as provided by an unchecked and unaccountable Fed bank. Due to easy money policies and stimulus, people are lured into a trance that bad times cannot come hard or fast enough. This would be a mistake.
It would be really telling to have a follow-up video addressing the predictions stated in this video.
A follow-up would NOT be a negative or positive report but an example of how difficult it is to predict what is actually happening in our economy.
Where I live housing prices are stable and in the higher income housing areas prices are still going up.
FOLLOW-UP video please.
Nice video. Right now, it looks like many sellers are holding the price up. Even in those areas that are coming down like Boise, they are still over priced quite a bit. I think when we see unemployment start to increase, then we will see a larger drop in the real estate prices.
You popped up on my feeds..thank you do much for this information. Thank you.
Based on the previous declines, it looks like the lag time between the leading indicators and actual decline is relatively short. Would you project to be in serious decline by EOY given the previous declines?
This time europe will not be able to recover. In last 12 years, Big tech companies and international students helped economy of europe to recover 2009 crisis. But This time europe has no way to bring real money to europe.
learning so much from these videos
Depends on location. Here in CT, home prices are just now back to the the 2007 peak and are still lower than the surrounding states. There’s little vacant land and building costs are high. I think prices will be flat for the next few years, but when the Fed starts cutting rates, people will dump stocks and buy houses.