As housing prices plummet, most mellenials will be unemployed due to a crippling inflationary depression/monetary crisis. So no. You won't have any money to take advantage of the situation but the big government backed corporations will have the means to buy everything up, so rent will be your only option if you are not already homeless.
Do you have historical data on average monthly *payments* for new mortgages? It would be interesting to see if "payments as a percent of disposable income" or "price to disposable income ratio" is a better predictor of when a market is overvalued or how low it might dip. The recent doubling of interest rates is crippling people's ability to afford payments on new loans.
Oh yeah I'd love that video! Not only are homes selling for an ungodly amount, the interest rates are out of the park, obviously causing massive monthly payments for new home buyers. I'd like a video on the data if we got it!
The other thing is that the size of the average new home is different now than in the 60's, when they built large neighborhoods of post-war small ranch style homes. Now it's mostly mcmansions. Average home is really not equivalent.
When people stop buying the houses at the current price WITH the current interest rate, THEN the housing prices will go down! People need to stop buying right now and let the prices fall...
I always love to see a quantitative analysis of markets, as opposed to pure opinion and speculation. It's rare to see quality content like this. Keep up the good work!
The recent strategy of new home builds doesnt seem to target the avg or even median home buyer. They aren’t 3/2 1500-1800sq fters with stock build options. They are 4/3+ with offices, upgrades, etc, albeit with less land (almost zero lot lines). The price per sq ft would be interesting to add to the mix.
I certainly see the value of your analysis, but you didn’t take into account large scale real estate investment (ex. Blackrock). If you only take into account individual homeowners and families, then yeah looking like a bubble. What I’d like to know is: after considering large investment firms and billionaires, will prices go down or just continue going up, pricing individuals out of the real estate market?
I still don't know how you haven't hit 100K+ views on most videos. Your time is coming brother, this content is so easily digestible. "Don't create presentations that make you look smart, create presentations that make your audience feel smart." Very well done. Can't wait for the next vid
Come this video has holes you can drive bud through. How can he not mention international buyers,, that’s a huge growing segment driving prices up. Nice attempt but rather weak
Great video. The only thing I would be curious to see added would be median income instead of average. I feel as though it would more accurately represent the status of US income.
@@drewbsn I'd disagree. I make 145k a year and am having a hell of a time finding a house. Prices are so obnoxiously high, your only choice is pay a fortune for something that's mediocre at best, or try and wait it out. And if you buy the mediocre place anyway, chances are it will be worth significantly less in 1-2 years time, which makes it doubly stupid to purchase. So at the moment, I have no debt, plenty in the bank, am making a 6 figure salary, and have been literally living on a family member's couch all summer. It's surreal.
I would like to see monthly *housing* payments with at least quartiles broken out. The status of US income has to reflect all of the people who aren't buying homes.
What if a home sold for $1m 12 months ago and is now listed for $3m but hasn't sold yet. Based on your data if it drops 20% is that from $3m or $1m? These inflated prices of 2-3x in 12 months is one of the big problems I see around the country. Most aren't selling at these prices. But a 20% drop from 3x is still way too high. It would need to drop closer to 50%.
It will stay high John sadly. Reason why is sellers simply remove the home from the market limiting supply. Same with auto prices. We have millions of reposed cars sitting in a desert (no not making it up) and they are not auctioning them off because it woudl crash the market and lower car prices. So we have an artificial limiting supply factor thanks to greedy sellers. California got that way by this. When greedy home owners refused to sell duruing the California boom in the 1980s the bubble stayed until the 2020s. The only way housing will come down is if banks foreclose on them by the tens of millions! ... aint happening in 2022 thanks to PMI insurance. So we have a stand off and at the end of the day renters will cave in and buy at inflated prices unless radical changes to the economy 2008 style happen
@@timothygibney159 Happening in FL too. FL overall has a 15% buy-and-leave (where a property is bought but is left empty, no summer home, no short term or long term rental, it just sits there and rots), and Tampa in particular has a 20% rate. A lot of these are by the same companies and people who *do* rent properties out, but figured out that the fewer properties that were available increased the rents and value of their existing stock. If you have 100 properties but only rent out 80 of them, the removal of those extra 20 means the demand for the remaining 80 is that much higher *and* you can sell the other 20 off in an emergency without the complications of having people doing unnecessary things like living in them. And this is *without* taking into account the number of air bnbs that removed long term housing from the market.
Most who bought in past 12 months with 10% down are already underwater. Much more of that coming. And don’t underestimate the psychological effect of being underwater. Add 100% increase in utilities and huge tax increases, and the unemployment to come there are going to be millions in serious trouble. 30% minimum drop within 18 months to two years.
It sure feels like a bubble. When you add this to high CC balances, people working multiple jobs to make ends, boomer selling, rising new and existing inventory, investors bailing out, and much higher mortgage rates, 20% doesn't sound like enough. There are now about 4 to 5 real estate agents per sq. in. where I live.
Housing prices here in Asheville North Carolina are ridiculously expensive. I make the second highest income in my family as a 23 year old and its still not enough. Edit: my credit score is 672 and I make 20.95 an hour and I Manage my money wisely. Right now I could make a 20% down payment on a 200,000 dollar house the problem? *There are no houses for 200,000 just meth lab single wides.* I've worked hard *just* to get 20 dollars an hour I stated my job 3 years ago starting at 14.95(pre covid inflation).
Seriously though man I feel you. I’m 26 make $100k+, 800 score, and $200k saved for down and still can’t afford to buy comfortably in the town I grew up in. The town my parents paid $135k for their home in back in 2012 lol.
I have a housing related question, how long does a typically house in US last? After WWII, there is a huge housing boom, so there is a huge amount of housing in US that is built in the 1950s. Those houses are 70 years old right now. In theory, baby boomers will start to die off around 2025 since the average life span is 78 years and baby boomers start in 1946ish. The question is whether or not their 70-75 year old houses can still function well. If they can, there will be a supply shock and prices might fall further. If not, we are just building homes to replace those obsolete houses.
My grandmother's and Aunt's houses in Richland Center Wisconsin were built in 1900's and still standing strong today. My Mom's house was built in 1960 in Fountain Valley, CA and it is still as good as new. Houses in the United States have been built very well since the beginning of time. The problem is when they were built in a flood plain or some natural disaster destroys them like an earthquake, hurricane, etc. Of course most of them have had new roofs installed, maybe a water line or sewer line refitted but everything else is strong. Many people in Anerica never stop updating their houses. There is alot of waste as you can imagine.
Just about anything can be renovated without completely tearing down the place. Superficial stuff is easy to fix. Roofs need to be redone every do often. After enough time, the framing and structure may need to be replaced. But it is even doable to replace the skeleton structure of a house without completely rebuilding it. There are many situations where this could be cheaper. Demoing an entire house is a lot of work, and disposing of all that waste isn't cheap. As opposed to a targeted and precise demo, only replacing what's absolutely necessary. - I'm a carpenter.
It’s the houses built recently you need to worry about, they used to build with old growth lumber, today they use wet, soggy lumber from young trees that don’t even measure close to a 2x4
I like your analysis… I do however disagree with 8% P-E being fair market value for US homes, some of the most cheaply made in the world. A 5% P-E and it’s still asking too much unless the land is a pretty good size
Great video, I love that you keep it real and clear that these are estimates and that much can still happen, but we try to make the best projection and provide some other possible scenarios and the effect of those!
In a new short you say to pay attention to volume not sales price as volume is a leading indicator vs sales price which is a lagging indicator Could we ask for a video on volume indicators soon to compliment this one?
Brilliant as always Eric. Somehow, your videos keep getting better. You have such a comprehensive and detailed process that shines through in every sentence you say. Keep up the great work and thank you for the highest quality free research on the internet.
Quick Question: Do you think the California housing market is a highly overvalued speculative market? And if so what is your opinion on the percentage it is overvalued by?
You've made an error, after the housing bubble many countries added incentives etc for big hedgefunds and companies to buy up homes, apartments etc. Essentially people are being priced out and normally that would mean if people can't buy the price will start to go down...but it won't, its not a bubble. The prices won't go down because when people can't buy the big corpos etc will step in. This hasn't really happened at a large scale before. I hope I am wrong.
Disposable income per capita (I assume on average) is not most precise, as the real estate market is also affected by the increasing rich poor gap, this is another factor that got continuously worse over the recent decades.
I am wondering...do you have any opinions on how the effect of investors buying up houses to rent out in markets like Miami might have on this? I know for a fact it's happening like crazy here and a lot of people are being boxed out. It seems to me ordinary people who need mortgages to buy housing just can't compete.
Yes, this is a huge cause of housing/rent price increases. Huge firms and funds can buy up large amounts of local property markets. Happens in both urban and rural areas. Less Supply, Same Demand, Profit. It should be illegal. Bordering on feudalism at this point.
My only tip. I think most people think of disposable income as money left over after paying bill, rent or mortgage. MEAN disposable is income after taxes. I would just say income after taxes or most people may be confused. Great content!
I love it. Data driven. Although averaging across the nation can muddy the waters. Do you have regional data that you could present in the future? Hey just came here but like you're approach overall.
Interesting, but not sure what are source of those numbers. Google gave $45,464 for disposable income and $348,000 average new home sales.Which gives 7.69 ratio
I was born and raised in the Boise area and was saving since I was 10 to buy a house when I grew up. At first I was doing ok, then home prices were skyrocketing beyond the rate I could save money. Boise is the most overvalued housing market in the US because our incomes are so low relative to the price of the home. We have a 7.25 minimum wage despite being the biggest boom area in the country. I need the housing market to crash. If it continues like this, I will never be able to get a home. My parents got their house new in 1995 for 75,000. It is now worth 380,000. It's baffling and frustrating.
Hey great video. A (maybe) more useful number to look at (outside of average home price) is mortgage price per month paid, which combines interest rate and home price.
Great video as far as format and quality goes. My only complaint is this data focuses specifically on new construction, which in 2022 is estimated to be 1.6 million homes. Out of the roughly 140 million homes in the US, this is only 1.1%. I feel a much more representative picture of the current state of housing affordability (for most Americans) would be to look at existing home prices vs median income.
Median income instead of disposable income per capita, I agree. Disposable income is already a somewhat abstract measure of the US homebuyer, not to mention the fact that "per capita" is completely misleading because disposable income isn't evenly distributed among the average consumer (or even close). Other than that, agreed, great vid!
With how different home investment is nowadays with private equity investment companies scooping up nearly a quarter of the market, I really don't see it falling that much, maybe 10%.
Yeah, I was thinking about this too. Wasn't taken into account in the video, but I'm guessing that will make a huge impact on the market in years to come.
The biggest declines will be in areas with a lot of new building. New builders will continue to discount to sell their inventory, which will bring comps down, which will lower values - regardless of if existing home owners sell or keep homes. Easily 30% declines in these areas from pandemic highs
Interesting take but you only examine the relationship of price to income. Why no analysis of supply? Real estate isn’t a liquid asset so what if people just decide just to stay put and not sell?
A 13% overvaluation doesn't exceed an OECD national tax base of up to 30% indicating that a sales tax (Canada sales tax 13%, France is similar along with other nations) would cover that shortfall, so that not implementing a sales tax would cause limited deflation (which lowers prices of consumer staples to offset the sales tax).
I love how he’s telling me this 2 months before I need to move out of mommas house, WONDERFUL (I already knew prices have risen since 2020) but it’s peaking right now, i can’t rent anywhere
Can we get a more pessimistic (realistic) scenario? We both know the absolute carnage that's about to fully grip the housing market, economy, and stock market right?
20 seconds in and there’s a massive flaw. Per capita income isn’t apples to apples across that entire chart because a large percentage of people switched to dual income households. Use average household income to home price and it’s more useful. Then add a candle stick every x years to show how regional differences explain the rest.
Could you do a Video about where and how you get the raw data and how you Analyse it ? I d love to redo your analysis vor smaller specific European market
So I have noticed in my career no company gives true cost of living raises, they always give below in the 1.5-2.5 range. Some even didn’t give raises last two years and tried to compensate with a “bonus” that was far lower than the raise I described above. So I would assume the average you describe is from people changing jobs to get those increases. With regard to home prices, the freak of nature appreciation the last two years from the pandemic and supply issues with demand has never happened before. So how can you compare that to the past with regard to pricing?
What about 2 factors not mentioned that weren't present during previous bubbles, that's the sky rocketing prices of building materials in the last few years (wood/metal) as well as the presence of Airbnb that data has shown has clearly raised prices of normal homes. Maybe 8.1 times income isn't the new normal because of Airbnb alone.
Your channel is such a gem. I happen to know a thing or two about analytics. Your analysis is so high quality. I enjoy every second of your video. Amazing work!
The graphics are nice - the data is garabage. As you know, anything can be graphed to fit your narrative. This is a prime example of rudimentary information being spit out to a conclusion he has already reached
Very good, but what is the average turn around time? Just because one’s house is overvalued does not imply it will be sold. Unless forced would people tend to hold on to their house? By holding on, incomes would generally rise to meet the new level. So although very true that the bubble will burst, it does not necessarily speak to the rationality of buying or selling one’s house now or in the future, especially given that one’s can also rent the house out and collect a yield. Like bonds, the yield is inverse to the price, so you really need to consider yields to give this analysis more actionable meaning I think.
Except you need to take into account that the supply of homes continues to drop as less people sell from the higher rates and less homes are built due to lack of supplies.
This research does have some points about price/income. Housing price should be in correction. But the research did not consider the currently supply vs household formation. In 2008, we had 1 million oversupplied houses, but in 2022, we has supply shortages, that also reflected in rental rate increase. This would provide some support to the current housing correction
Very easy to understand and follow along for a novice like myself. It would be interesting to hear counter points to your predictions and your explanation of why you think they are inaccurate.
Like you said it's regional. In my area which is rural north NSW (Australia) some of the house and land prices have already been cut 50% because of the market drop (no buyers)
I don't understand how you are saying it won't overcorrect when historically it almost always overcorrects during tough economic periods, especially considering the mortgage rates, new construction supply, and 25-65 trend. That average you are citing is achieved by the market behaving similar to a sine wave, you don't ever bet that eventually a sine function will rest at 0. You bet that it is eventually going to do the complete opposite of what it is doing currently.
Yes. If you look at historical mortgage interest rates going back to 1971 (St. Louis Fed), the 1979-1985 dip was the only other correction (until 2022) that involved a spike in rates, and thus higher payments. The other dips all had *declining* mortgage interest rates. This current one will be a doozy . . . unless the powers-that-be prop up the market with cheap loans to their cronies while keeping rates high for the rest of us.
You shouldn't just subtract taxes, but all kinds of necessary costs of living, including insurance (if you're in US or the developing world). Also, regarding housing price projection, I believe it is well known that the main driver on price increases is mainly investment in the housing market, both from local and foreign sources. I'm just an amateur though, so take my words with a grain of salt.
0:44 "The two biggest trends that determine real estate prices are demographics and income" I think this is incorrect, I would say that interest rates are a bigger factor than demographics.
You're not taking into account the percentage of RE that's owned by boomers who enjoyed an entire generation of prosperity and who's wealth skyrocketed during the last decade. They can ride out the recession and just simply hold out on price drops. Which is why the market hasn't seen any significant reduction in prices.
Can someone summarize what is advised for our portfolio to do decently okay with the oncoming recession/depression? I just see all these alarms on this channel but no suggestions. Advice is welcome and yes I will do my own research before making any major changes to my portfolio. So kindly suggest what assets to hold and in what fractions?
So the ration between the average home price and disposable income has been cyclic, but how can we be sure that will continue into the future? Is disposable income the primary driver of home prices, or are there other factors?
Many people are looking for 2008 like crash, but in reality, the situation is quite different. I think home price should calm down and your analysis is very reasonable
As you said, your analysis was based upon no recession. Your assumptions seem reasonable with states like California potentially seeing the higher home price drop of 20% or so. Thank you, good show.
Millennials: “so you’re saying there’s a chance?”
😂 basically
Fingers crossed lol
No chance. You need to learn how to build things yourself. 😊
As housing prices plummet, most mellenials will be unemployed due to a crippling inflationary depression/monetary crisis. So no. You won't have any money to take advantage of the situation but the big government backed corporations will have the means to buy everything up, so rent will be your only option if you are not already homeless.
@@David_Brinkerhoff93 yup, this is going to make the 08 "great recession" (stupid name), look like a joke
Do you have historical data on average monthly *payments* for new mortgages? It would be interesting to see if "payments as a percent of disposable income" or "price to disposable income ratio" is a better predictor of when a market is overvalued or how low it might dip. The recent doubling of interest rates is crippling people's ability to afford payments on new loans.
Oh yeah I'd love that video! Not only are homes selling for an ungodly amount, the interest rates are out of the park, obviously causing massive monthly payments for new home buyers. I'd like a video on the data if we got it!
It’ll crash as soon as folks can’t pay the loan note….just like china
The other thing is that the size of the average new home is different now than in the 60's, when they built large neighborhoods of post-war small ranch style homes. Now it's mostly mcmansions. Average home is really not equivalent.
When people stop buying the houses at the current price WITH the current interest rate, THEN the housing prices will go down! People need to stop buying right now and let the prices fall...
If people stop buying, companies will just buy it all and rent it out
I always love to see a quantitative analysis of markets, as opposed to pure opinion and speculation. It's rare to see quality content like this. Keep up the good work!
The recent strategy of new home builds doesnt seem to target the avg or even median home buyer. They aren’t 3/2 1500-1800sq fters with stock build options. They are 4/3+ with offices, upgrades, etc, albeit with less land (almost zero lot lines).
The price per sq ft would be interesting to add to the mix.
The production quality of this channel is top notch! Keep up the great work!
I certainly see the value of your analysis, but you didn’t take into account large scale real estate investment (ex. Blackrock). If you only take into account individual homeowners and families, then yeah looking like a bubble.
What I’d like to know is: after considering large investment firms and billionaires, will prices go down or just continue going up, pricing individuals out of the real estate market?
I still don't know how you haven't hit 100K+ views on most videos. Your time is coming brother, this content is so easily digestible. "Don't create presentations that make you look smart, create presentations that make your audience feel smart." Very well done. Can't wait for the next vid
Maybe one day!
agree. its a matter of time. hope he keeps at it
Come this video has holes you can drive bud through.
How can he not mention international buyers,, that’s a huge growing segment driving prices up.
Nice attempt but rather weak
There's something just wrong with an average home price of 563K.
Great video. The only thing I would be curious to see added would be median income instead of average. I feel as though it would more accurately represent the status of US income.
bingo, these current prices feel twice as bad if you are middle or lower income brackets, and half as bad if you are high
@@drewbsn I'd disagree. I make 145k a year and am having a hell of a time finding a house. Prices are so obnoxiously high, your only choice is pay a fortune for something that's mediocre at best, or try and wait it out. And if you buy the mediocre place anyway, chances are it will be worth significantly less in 1-2 years time, which makes it doubly stupid to purchase.
So at the moment, I have no debt, plenty in the bank, am making a 6 figure salary, and have been literally living on a family member's couch all summer. It's surreal.
I would like to see monthly *housing* payments with at least quartiles broken out. The status of US income has to reflect all of the people who aren't buying homes.
@@hlf_coder6272 now imagine trying to support a family with a lower wage in this economy
Exactly. Seems deceptive to me for it to be average when the average can be so heavily skewed by extremely high earning people
What if a home sold for $1m 12 months ago and is now listed for $3m but hasn't sold yet. Based on your data if it drops 20% is that from $3m or $1m? These inflated prices of 2-3x in 12 months is one of the big problems I see around the country. Most aren't selling at these prices. But a 20% drop from 3x is still way too high. It would need to drop closer to 50%.
It will stay high John sadly. Reason why is sellers simply remove the home from the market limiting supply. Same with auto prices. We have millions of reposed cars sitting in a desert (no not making it up) and they are not auctioning them off because it woudl crash the market and lower car prices. So we have an artificial limiting supply factor thanks to greedy sellers. California got that way by this. When greedy home owners refused to sell duruing the California boom in the 1980s the bubble stayed until the 2020s. The only way housing will come down is if banks foreclose on them by the tens of millions! ... aint happening in 2022 thanks to PMI insurance. So we have a stand off and at the end of the day renters will cave in and buy at inflated prices unless radical changes to the economy 2008 style happen
@@timothygibney159 Happening in FL too. FL overall has a 15% buy-and-leave (where a property is bought but is left empty, no summer home, no short term or long term rental, it just sits there and rots), and Tampa in particular has a 20% rate. A lot of these are by the same companies and people who *do* rent properties out, but figured out that the fewer properties that were available increased the rents and value of their existing stock. If you have 100 properties but only rent out 80 of them, the removal of those extra 20 means the demand for the remaining 80 is that much higher *and* you can sell the other 20 off in an emergency without the complications of having people doing unnecessary things like living in them.
And this is *without* taking into account the number of air bnbs that removed long term housing from the market.
Now everytime I read somebody commenting about how "home prices are not overpriced if you adjust for inflation" Im just gonna link this video instead.
These are the best videos on the interwebs. I wish everyone would watch them.
Most who bought in past 12 months with 10% down are already underwater. Much more of that coming. And don’t underestimate the psychological effect of being underwater. Add 100% increase in utilities and huge tax increases, and the unemployment to come there are going to be millions in serious trouble. 30% minimum drop within 18 months to two years.
Doubt it.
@JCS It will
Wrong
@@frank8348 FOFL.
I bought 6 months ago, house value went up 10k and rates doubled
Simply excellent. You’re spot on that real estate is local. Some overvalued markets could see declines of 20% and more.
you have a way of explaining things that makes it feel really simple, that's great
The guy is our dude. Protect him at all cost 💪
yo Jeff this guy is Bonkers
My name is Jeff
@@AnonYmous-vm5ls ayeee what’s up buddy
My name is not Jeff.
It sure feels like a bubble. When you add this to high CC balances, people working multiple jobs to make ends, boomer selling, rising new and existing inventory, investors bailing out, and much higher mortgage rates, 20% doesn't sound like enough. There are now about 4 to 5 real estate agents per sq. in. where I live.
Very well said!
4 to 5 agents Per Square inch 😂
@@pratik7260 he meant square mm 😉
Each bullish cycle lasts about a decade. We're at the end of the decade currently for this cycle. Saving up my nuts for winter 🤣
Same. In the last 3 years I've had at least 4 family or friends become real estate agents. And where I live developments are going up so fast.
Housing prices here in Asheville North Carolina are ridiculously expensive. I make the second highest income in my family as a 23 year old and its still not enough.
Edit: my credit score is 672 and I make 20.95 an hour and I Manage my money wisely. Right now I could make a 20% down payment on a 200,000 dollar house the problem? *There are no houses for 200,000 just meth lab single wides.* I've worked hard *just* to get 20 dollars an hour I stated my job 3 years ago starting at 14.95(pre covid inflation).
“You just need to pull yourself up by your bootstraps, snowflake!” - boomers everywhere
Seriously though man I feel you. I’m 26 make $100k+, 800 score, and $200k saved for down and still can’t afford to buy comfortably in the town I grew up in. The town my parents paid $135k for their home in back in 2012 lol.
You're 23 years old. Try again at 30.
@@HotelBravo556 Me too.
What job do you have?
I have a housing related question, how long does a typically house in US last? After WWII, there is a huge housing boom, so there is a huge amount of housing in US that is built in the 1950s. Those houses are 70 years old right now. In theory, baby boomers will start to die off around 2025 since the average life span is 78 years and baby boomers start in 1946ish. The question is whether or not their 70-75 year old houses can still function well. If they can, there will be a supply shock and prices might fall further. If not, we are just building homes to replace those obsolete houses.
My grandmother's and Aunt's houses in Richland Center Wisconsin were built in 1900's and still standing strong today. My Mom's house was built in 1960 in Fountain Valley, CA and it is still as good as new. Houses in the United States have been built very well since the beginning of time. The problem is when they were built in a flood plain or some natural disaster destroys them like an earthquake, hurricane, etc. Of course most of them have had new roofs installed, maybe a water line or sewer line refitted but everything else is strong. Many people in Anerica never stop updating their houses. There is alot of waste as you can imagine.
Just about anything can be renovated without completely tearing down the place. Superficial stuff is easy to fix. Roofs need to be redone every do often. After enough time, the framing and structure may need to be replaced. But it is even doable to replace the skeleton structure of a house without completely rebuilding it. There are many situations where this could be cheaper. Demoing an entire house is a lot of work, and disposing of all that waste isn't cheap. As opposed to a targeted and precise demo, only replacing what's absolutely necessary.
- I'm a carpenter.
It’s the houses built recently you need to worry about, they used to build with old growth lumber, today they use wet, soggy lumber from young trees that don’t even measure close to a 2x4
Seems like everything has skyrocketed in price except my income.
Brilliant! This is exactly data what I've been wondering about but couldn't find good data to crunch! Thank you!
Hard to imagine this level of quality content is free.
Fantastic channel with excellent presentations
I like your analysis… I do however disagree with 8% P-E being fair market value for US homes, some of the most cheaply made in the world. A 5% P-E and it’s still asking too much unless the land is a pretty good size
Great video, I love that you keep it real and clear that these are estimates and that much can still happen, but we try to make the best projection and provide some other possible scenarios and the effect of those!
In a new short you say to pay attention to volume not sales price as volume is a leading indicator vs sales price which is a lagging indicator
Could we ask for a video on volume indicators soon to compliment this one?
Outstanding presentation! Thank You!!!
Brilliant as always Eric. Somehow, your videos keep getting better. You have such a comprehensive and detailed process that shines through in every sentence you say. Keep up the great work and thank you for the highest quality free research on the internet.
Quick Question: Do you think the California housing market is a highly overvalued speculative market? And if so what is your opinion on the percentage it is overvalued by?
You've made an error, after the housing bubble many countries added incentives etc for big hedgefunds and companies to buy up homes, apartments etc. Essentially people are being priced out and normally that would mean if people can't buy the price will start to go down...but it won't, its not a bubble. The prices won't go down because when people can't buy the big corpos etc will step in. This hasn't really happened at a large scale before.
I hope I am wrong.
Disposable income per capita (I assume on average) is not most precise, as the real estate market is also affected by the increasing rich poor gap, this is another factor that got continuously worse over the recent decades.
This; it's about it the pool of buyers that are able to afford; as income per capita goes down; it's possible there are more people who can buy
I am wondering...do you have any opinions on how the effect of investors buying up houses to rent out in markets like Miami might have on this? I know for a fact it's happening like crazy here and a lot of people are being boxed out. It seems to me ordinary people who need mortgages to buy housing just can't compete.
Yes, this is a huge cause of housing/rent price increases.
Huge firms and funds can buy up large amounts of local property markets. Happens in both urban and rural areas.
Less Supply, Same Demand, Profit.
It should be illegal. Bordering on feudalism at this point.
It happens in Boise too. Less investing firms and more of every home owner also owning 3 rental properties so that none of them are on the market
My only tip. I think most people think of disposable income as money left over after paying bill, rent or mortgage. MEAN disposable is income after taxes. I would just say income after taxes or most people may be confused. Great content!
Really enjoying this channel. I would love to see a regional analysis. Especially New England.
I love it. Data driven. Although averaging across the nation can muddy the waters. Do you have regional data that you could present in the future? Hey just came here but like you're approach overall.
Yeah you really can't go by national averages in the US. It's a completely specific market nationwide, and different locales are wildly different.
Interesting, but not sure what are source of those numbers. Google gave $45,464 for disposable income and $348,000 average new home sales.Which gives 7.69 ratio
Mesg me.
I was born and raised in the Boise area and was saving since I was 10 to buy a house when I grew up. At first I was doing ok, then home prices were skyrocketing beyond the rate I could save money. Boise is the most overvalued housing market in the US because our incomes are so low relative to the price of the home. We have a 7.25 minimum wage despite being the biggest boom area in the country. I need the housing market to crash. If it continues like this, I will never be able to get a home. My parents got their house new in 1995 for 75,000. It is now worth 380,000. It's baffling and frustrating.
Hey great video. A (maybe) more useful number to look at (outside of average home price) is mortgage price per month paid, which combines interest rate and home price.
Love this channel, learning a lot. Can anyone recommend anyone doing similar content but with more focus on the UK economy?
One big point missing.. cost of material to build homes.
Thank you for realistic analysis
Great video as far as format and quality goes. My only complaint is this data focuses specifically on new construction, which in 2022 is estimated to be 1.6 million homes. Out of the roughly 140 million homes in the US, this is only 1.1%. I feel a much more representative picture of the current state of housing affordability (for most Americans) would be to look at existing home prices vs median income.
Median income instead of disposable income per capita, I agree. Disposable income is already a somewhat abstract measure of the US homebuyer, not to mention the fact that "per capita" is completely misleading because disposable income isn't evenly distributed among the average consumer (or even close). Other than that, agreed, great vid!
With how different home investment is nowadays with private equity investment companies scooping up nearly a quarter of the market, I really don't see it falling that much, maybe 10%.
Yeah, I was thinking about this too. Wasn't taken into account in the video, but I'm guessing that will make a huge impact on the market in years to come.
Love the data driven approach, very well presented
The biggest declines will be in areas with a lot of new building. New builders will continue to discount to sell their inventory, which will bring comps down, which will lower values - regardless of if existing home owners sell or keep homes.
Easily 30% declines in these areas from pandemic highs
Interesting take but you only examine the relationship of price to income. Why no analysis of supply? Real estate isn’t a liquid asset so what if people just decide just to stay put and not sell?
Marvelous statistics that helps us with a very plausible outlook. Thank you!
A 13% overvaluation doesn't exceed an OECD national tax base of up to 30% indicating that a sales tax (Canada sales tax 13%, France is similar along with other nations) would cover that shortfall, so that not implementing a sales tax would cause limited deflation (which lowers prices of consumer staples to offset the sales tax).
House price versus income becomes irrelevant on those markets where the majority of purchases are made my corporate landlords or investment funds
I need a Miami south Florida data driven housing video please
Regulations have a huge effect on housing as well. They have been getting worse and worse.
Rules and guidelines too....
I need more information like this, digging this channel!
I love how he’s telling me this 2 months before I need to move out of mommas house, WONDERFUL (I already knew prices have risen since 2020) but it’s peaking right now, i can’t rent anywhere
I kick back and listen to these like a relaxing piece of music 😂😂😂
Amazing video as always!
Can we get a more pessimistic (realistic) scenario? We both know the absolute carnage that's about to fully grip the housing market, economy, and stock market right?
Yeah, he's being cautious.
@@elizabethblane201 fortune favors the brave. Put your best for forward and say what you mean. Otherwise what's the point?
@@MarketFund2k People don't want to risk looking bad, so they play it safe. It's cowardly, in actuality.
At least he's not a denier. There are plenty of those as well. I think he suggested his predictions are conservative/optimistic.
Plenty of youtube channels for that
20 seconds in and there’s a massive flaw. Per capita income isn’t apples to apples across that entire chart because a large percentage of people switched to dual income households. Use average household income to home price and it’s more useful. Then add a candle stick every x years to show how regional differences explain the rest.
I don’t think we should be seriously worried, as a society, about housing or stock market prices, as long as they are above 2019 levels.
the average disposable income is also highly skewed by the wealth gap isn't it?
Your use of data is very well understood and I've learned so much. I hope in the future you will put up videos of homes being under valued.
Could you do a Video about where and how you get the raw data and how you Analyse it ? I d love to redo your analysis vor smaller specific European market
I don't know where you get 7x average annual income for evaluations. When I was doing that in 2004-2008 the HIGHEST in the country was like 4.5x
So I have noticed in my career no company gives true cost of living raises, they always give below in the 1.5-2.5 range.
Some even didn’t give raises last two years and tried to compensate with a “bonus” that was far lower than the raise I described above. So I would assume the average you describe is from people changing jobs to get those increases.
With regard to home prices, the freak of nature appreciation the last two years from the pandemic and supply issues with demand has never happened before. So how can you compare that to the past with regard to pricing?
Really, really good analysis! Thank you!
What about 2 factors not mentioned that weren't present during previous bubbles, that's the sky rocketing prices of building materials in the last few years (wood/metal) as well as the presence of Airbnb that data has shown has clearly raised prices of normal homes. Maybe 8.1 times income isn't the new normal because of Airbnb alone.
These videos are so packed with info - but still manage to be understandable to an economics neophyte like me. Keep up the good work!
Glad you like them!
Interest rates have only increased yet home values haven't declined
Yes, but there is way more demand for housing than availability.... that isn't going to change anytime soon. Lack of supply keeps the prices up...
Thanks Eric, compelling data as always
Your channel is such a gem.
I happen to know a thing or two about analytics. Your analysis is so high quality. I enjoy every second of your video. Amazing work!
The graphics are nice - the data is garabage. As you know, anything can be graphed to fit your narrative. This is a prime example of rudimentary information being spit out to a conclusion he has already reached
Today I heard Lacy Hunt interviewed by Danielle DiMartino Booth praising your work and I thought WOWWWW. Great Video as always
Great content and graphics. Really enjoy your videos!
Much appreciated!
It would be nice you plot the mortgage rate along with house prices
Mesg me.
Very good, but what is the average turn around time? Just because one’s house is overvalued does not imply it will be sold. Unless forced would people tend to hold on to their house? By holding on, incomes would generally rise to meet the new level. So although very true that the bubble will burst, it does not necessarily speak to the rationality of buying or selling one’s house now or in the future, especially given that one’s can also rent the house out and collect a yield. Like bonds, the yield is inverse to the price, so you really need to consider yields to give this analysis more actionable meaning I think.
Except you need to take into account that the supply of homes continues to drop as less people sell from the higher rates and less homes are built due to lack of supplies.
Another fantastic video!
Glad you enjoyed it!
Lots of us need the housing market to crash so we can finally buy a home with the inheritance we got when are grandparentss died from covid.
Hi. Can you please do a video on the Housing Market in New Zealand. Thanks.
This research does have some points about price/income. Housing price should be in correction. But the research did not consider the currently supply vs household formation. In 2008, we had 1 million oversupplied houses, but in 2022, we has supply shortages, that also reflected in rental rate increase. This would provide some support to the current housing correction
Thats the counter argument for london property right now. Most people cannot afford to buy in london
Very easy to understand and follow along for a novice like myself. It would be interesting to hear counter points to your predictions and your explanation of why you think they are inaccurate.
Like you said it's regional. In my area which is rural north NSW (Australia) some of the house and land prices have already been cut 50% because of the market drop (no buyers)
I don't understand how you are saying it won't overcorrect when historically it almost always overcorrects during tough economic periods, especially considering the mortgage rates, new construction supply, and 25-65 trend. That average you are citing is achieved by the market behaving similar to a sine wave, you don't ever bet that eventually a sine function will rest at 0. You bet that it is eventually going to do the complete opposite of what it is doing currently.
Using a multiplier of 8.1 on disposable income doesn't really factor in much higher rates.
Yes. If you look at historical mortgage interest rates going back to 1971 (St. Louis Fed), the 1979-1985 dip was the only other correction (until 2022) that involved a spike in rates, and thus higher payments. The other dips all had *declining* mortgage interest rates. This current one will be a doozy . . . unless the powers-that-be prop up the market with cheap loans to their cronies while keeping rates high for the rest of us.
is the average person buying the average house? or are there just less people buying fewer more expensive houses i.e. supply is much lower
Good point. As statistics on average age that children leave parents keeps increasing i'm curious if this is the whole picture.
You shouldn't just subtract taxes, but all kinds of necessary costs of living, including insurance (if you're in US or the developing world). Also, regarding housing price projection, I believe it is well known that the main driver on price increases is mainly investment in the housing market, both from local and foreign sources. I'm just an amateur though, so take my words with a grain of salt.
This is fantastic. Would you be willing to do a tutorial on your data analysis and visualization techniques?
chart box vanishing at 6:13
would be interested in seeing what kinda of influence the 30 year fix interest rate had on the average home price over the years.
So if home prices go down will rent finally go down?!?
0:44 "The two biggest trends that determine real estate prices are demographics and income"
I think this is incorrect, I would say that interest rates are a bigger factor than demographics.
prayers to those who live in florida...looks like it will be a tough recovery ahead for the coastal areas....
You're not taking into account the percentage of RE that's owned by boomers who enjoyed an entire generation of prosperity and who's wealth skyrocketed during the last decade. They can ride out the recession and just simply hold out on price drops. Which is why the market hasn't seen any significant reduction in prices.
Mesg me.
good explanation thank you
Wow this was a very informative video, actually based on data!
Doesn’t seem to apply to the Bay Area and DC area
Great analysis. Well done.
Can someone summarize what is advised for our portfolio to do decently okay with the oncoming recession/depression? I just see all these alarms on this channel but no suggestions. Advice is welcome and yes I will do my own research before making any major changes to my portfolio. So kindly suggest what assets to hold and in what fractions?
So the ration between the average home price and disposable income has been cyclic, but how can we be sure that will continue into the future? Is disposable income the primary driver of home prices, or are there other factors?
Many people are looking for 2008 like crash, but in reality, the situation is quite different. I think home price should calm down and your analysis is very reasonable
As you said, your analysis was based upon no recession. Your assumptions seem reasonable with states like California potentially seeing the higher home price drop of 20% or so. Thank you, good show.
Keep an eye out on the fed pivot