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hey everyone me kevin here i've noticed dozens of videos lately referring to an impending housing market crash a lot of these videos sound a lot like this the federal reserve is backing and buying more mortgage-backed securities and treasury bonds than ever before prices are at all-time highs for houses and people are fleeing new york and los angeles more people are missing their payments and oh my gosh the question is not whether we are in a bubble but it's instead when you will by the link down below both of which you can do in as little as five minutes so does this mean we're actually in a housing market when people make youtube videos and stitch together all of these data points and say see in my opinion there's no way we're not going to have a massive housing crash within the next two years it all lines up when people puzzle this together are they doing that to make content or are they actually seeing something that we're not seeing well that's the point of this video in this video i'm going to break everything down so we understand why it is that individuals refer to certain data sets why those data sets are wrong and instead what we should actually be paying attention to so that we can know when a housing market crash is coming before it actually happens and i'm going to do that to by avoiding any kind of sensationalized fear-mongering instead i'm just going to teach you what to look for so that you could protect yourself an so let's have a real conversation starting right now yes it is true that over seven million people are in mortgage forbearance but we don't know how many of these are what are known as optional forbearance plans aka people who don't really need mortgage forbearance but they're taking it because it's free money it's like free real estate the reality is a lot of people are likely taking mortgage forbearance because it's free stimulus money if you can avoid paying 12 months of your house payments and just pay them back in 10 to 15 or 15 to 30 years whatever depending on the length of your loan that's left it's basically free money as long as you invest what you've saved and remember if you have an fha loan or conventional loan you could just raise your hand and ask for mortgage forbearance no paperwork no documentation required you just ask some other federally backed loans can do that as well this means there's a very good chance that a substantial number of mortgage forbearance cases may just be in existence because hey people initially had uncertainty but now they're continuing mortgage forbearance by choice because again it's basically free money in fact that's what i've recommended on this channel i have a video you can see by going to medkevin.com forbearance you'll see exactly how i recommend step by step applying for forbearance and taking that stimulus money so it's very difficult to cite mortgage forbearance cases spiking as the sole reason for why the market will crash it's not really a good indicator but instead i'll explain some other reasons we can identify why and how a crash will happen i'll explain in just a moment but what about people putting up these charts of the federal reserve buying way more mortgage-backed securities and printing funny money and buying way more treasury bonds than usual the easiest way to explain this is by thinking about strawberries yes strawberries let's say that you are a buyer at a strawberry stand the stand right here represents the american economy and you are right here this smiling blue face because ideally everything's good and you are interested in buying strawberries strawberries represent mortgage-backed securities and treasury bonds when times are good keep that in mind when times are good not saying now times are good i'm just saying when times are good you like to go buy strawberries and by doing that you get juicy sweet strawberries that give you money and everybody's happy that's a good thing so you blue face here walk away with these smiling strawberries and that's great and then when times get even better kind of like what we saw in 2018 and 2019 the fed decides to open its own strawberry stand and they start selling you strawberries as well because why not everyone's selling strawberries everyone's happy this is called the fed offloading their balance sheet this is what they did in 2018 and 2019 that's why you kind of see a decline on the charts where it's like they're getting rid of mortgage-backed securities and treasury bonds the problem is what happens when the market turns sour and then you decide you know what i'm just not feeling buying strawberries anymore as an investor and in reality these are like institutional investors we don't really buy treasury bonds usually in mortgage-backed securities but you could but anyway let's keep going with the analogy let's say the market goes sour you say you know what i don't want these strawberries because there's a chance that they're going to rot and i don't want that and now the fed's not selling them either because nobody really wants to buy them that's not very good for the economy because now all of a sudden all these strawberries are rotting so the fed instead of introducing more strawberries to the market says you know what give me your strawberries i'll prevent them from rotting i'll buy them and that's what we saw the the initial example is what we saw in 2018 2019 and what we just saw this last part i just explained is what we saw when covet hit when covet hit we turned sad we stopped buying strawberries and all of a sudden the fed's like don't worry about it we'll buy it and we'll do that to make sure the economy doesn't seize up and freeze see here's something that actually happens when the fed stops buying treasury bonds and mortgage-backed securities it relies on the market buying them but when the economy goes into a panic like we saw in march and april well then the fed becomes basically the buyer of last resort and they do that they go to buy the strawberries the mortgage-backed securities and treasury bus to prevent a health crisis from turning into a banking crisis because if nobody buys those strawberries and the economy seizes up then banks start saying we're not going to do loans in this economy and everything comes to a grinding halt that's very very bad so this fed reversal is very normal and because it's normal it doesn't actually indicate a crash because see the fed can blow up its balance sheet and then once times get more stabilized and better the theory is they can pay that down but looking at their balance sheet isn't a good indicator for determining that a crash is going to come now i'm not endorsing this and i'm not saying it's good that the fed prints funny money but we're going to look at some better and more reliable indicators instead what about this comment that we keep seeing about people fleeing los angeles and fleeing new york well folks the reality is that's been happening for years new york prices haven't just been falling because of covid it's been people have been moving and commuting and working from home this is called the flight to the suburbs this has been happening for years and it's only been accelerated because of the pandemic people say we've taken 10 years of migration and condensed it into one year of migration that leaving of the big cities so let's be real we can't really look at new york and say prices are falling in new york that therefore the entire u.s housing market is going to collapse just because new york and san francisco maybe you're doing poorly well what should we look at then if i'm dismantling these silly arguments that because those things can be stitched together and somehow suggest that the housing market is going to crash what should we really be paying attention to am i just here to make a video to tell you just go buy real estate because oh i'm a real estate agent and you should go buy real estate no that that would not be correct and that's not what i'm going to do instead i'm going to give you the real indicators to watch number one and i'm going to tell you the impact of all of these so there are three big indicators the first is the least severe and then i'll get to the most severe at the end but all of these three are important and you'll see why all three of these are important the first indicator we should be looking at are evictions and foreclosures when prices are increasing though you're actually giving existing homeowners more equity and when you're giving people more equity who already own real estate even if their tenants aren't paying rent guess what happens the risk level for those homeowners goes down they have more of a cushion because once they evict a tenant they don't necessarily have to go into foreclosure because even though they didn't have a non-pay or even though they had a non-paying tenant their equity may have gone up now this isn't to say that's sustainable i'm not saying you could prevent all evictions in all foreclosures because people's you know prices are going up in people's equities going up but you're going to have way less foreclosures and you'll still have a similar amount of evictions but you'll have less evictions turning into foreclosures as prices are going up the only risk really becomes homeowners refinancing all of their real estate like crazy to buy boats and rvs and to do silly things to basically finance a lifestyle but that's also very hard to do if you have tenants in an eviction because you can't qualify the rent for the property so as prices rise generally you're not going to see as much of a foreclosure catalyst you generally only see foreclosures once prices begin to pull back so why then am i lumping and viewing evictions and foreclosures together well because the rental eviction ban ends december 31st and if congress does not pass a bill with rental assistance before then we will likely see a wave of evictions in my prior real estate videos i've estimated that we may see as many as 12 million eviction filings as many as four million actual evictions taking place that number is different because not all filings turn into real evictions and if just a third of actual evictions end up coming on the market then we might see housing inventories increase throughout the country by as much as 20 percent and here's what that's going to do it's not going to cause a foreclosure crisis after prices have gone up substantially because of again that equity cushion instead think about it like you're driving on the highway going 80 miles an hour and then there's some traffic ahead of you you step on the brakes and you go down to 60 65 miles an hour you're gonna slow the growth in housing prices look it it doesn't make sense that housing prices go up ten percent year over year over year it's not sustainable right it's like tesla going 10 10 10 it's not sustainable it's going to be a correction and that's that same feeling that we have for the housing market but right now housing inventory is so low and there's such a lack of inventory the odds are a 20 increase in housing inventory would actually be welcomed by buyers yeah we'll see some more traffic on that highway so to speak and we'll see prices grow less quickly but we probably won't see an actual housing market crisis from simply an eviction crisis there just aren't as many as we need to actually cause a tumbling foreclosure crisis out of evictions the numbers aren't there there's too much demand for real estate and there's too much equity so even if an eviction crisis actually happening at the start of 2021 assuming congress does nothing and just forsakes all tenants there probably won't be a housing market crash instead we'll just see a slowing in the acceleration of prices instead to see another catalyst for prices coming down we need to think of the eviction crisis as just part number one let's talk about the second issue going into many prior real estate crisises we usually see lending standards dramatically weaken that means banks say hey we'll do your loan even if you have high debt bad credit or you don't really qualify however today we're actually seeing the opposite see because interest rates are so low there's so much demand for loans that lenders are essentially cherry-picking the most qualified borrowers this is really weird if you think about it because we're seeing home prices go up but we're seeing home prices go up at the same time as home affordability for the average person goes down both of those are red flags but the reality is all we're doing is separating poorer people into people who can't qualify anymore and richer people into people who can qualify and can afford to pay more who are able to take advantage of lower interest rates so the reality is the people with means are getting into real estate and everyone else is being left behind in other words simply put lenders are saying hey blue collar workers with high debt and college debt or student loan debt or whatever sorry you ain't getting in we're lending to these tech engineers making 200 to 300 000 a year in los angeles and then yeah guess what you're gonna see you're gonna see poor people leave los angeles to consolidate in other areas you're going to see prices keep going up in areas like los angeles which you are seeing because people are having bidding wars in los angeles because they are making more money you're creating this segregation of wealth you're widening the wealth gap with loan standards today so when we zoom out and we think wait home prices are going up home affordability is going down that's bad yeah that is bad those two things happening are bad but when you zoom in what you actually see is no it's poor people are being left behind and richer people are getting richer and i'm not saying that's good but that also gives you home buyers and homeowners who are less likely to go into foreclosure if there's an eviction crisis because they have more income because they're more qualified because they're sort of cherry-picked the cream of the crops getting taken out right they're the ones getting the loans so when we start zooming into some of this data we start realizing all of the things that are actually happening right now are really just screwing people who are not investing in stocks or investing in real estate and people who are making money are just making even more money it's messed up i'm not endorsing it i'm just calling what i'm seeing and the reality is banks have so much loan demand right now that banks like chase are saying you know what we're just not going to do loans for anybody other than people with 20 down oh and credit score need to have at least a 720.
that's like a total reversal from back in the day when you could get an fha loan three and a half percent down with a 600 credit score but even fha has increased their credit scores or requirements over the last six months so again what's really happening here when we zoom in is yeah zoomed out things look bad zoomed in ah crap it's not a housing crisis problem it's a wealth inequality problem that's happening that's why we see prices go up and affordability go down so this doesn't really affect the real estate crisis but there is something when it comes to lending that can see right now when cream of the crop buyers are getting qualified all that's happening is we're seeing more prices go up it's kind of like putting the foot on the gas because there's so much demand for loans right now but there is a way to see an inflection point here if lenders begin loosening their credit standards and opening up loans to the subprime borrowers people with higher debt lower credit scores well then you're probably going to see real estate prices accelerate even more because more buyers will now enter the market at even higher prices and that's when things are going to get very dangerous and very scary but we're not there yes prices went up but again they went up to qualified people taking advantage of substantially lower rates which we'll talk about rates in just a moment it's when we get this up and then on top of that up banks start going uh we're not doing the numbers anymore it's like we already gave all the rich people loans okay all right uh 500 credit score who wants a home loan kind of like what we saw in like 2005 2006 dead person you want a home loan that's when we see that's when the bubbling happens we're not there we're not seeing that happening all right that doesn't say that doesn't mean we're not going to see it happen just saying watch for that and you'll see this transition here's the third and big issue though inflation and rates this is the elephant in the room here's the thing if you're not familiar yet you've got to be familiar with this rule in real estate it will make things make so much more sense and i've talked about this many times so if you've heard this before i will promise to keep this very short but it is one of the most important rules in real estate folks one equals 10.
that's it one equals 10. when interest rates move 1 housing prices move 10 it's the rule of 10x so that means if you have a half percent change you see a five percent change so again if interest rates go up one percent prices go up ten percent almost immediately so that's exactly what we saw over the last seven months interest rates fell a percent housing prices went up 10 it's literally what we saw it's very very simple when interest rates went up one percent in the summer of 2018 housing prices immediately came down 10 now over time any kind of short-term decline like that can sort of wear itself off and that's why between 2018 and 2019 it still looks like we had a slight growth in real estate prices but we did have a block here when the fed decided to jack up rates all of a sudden and so this rule works and this rule happens the reality is right now we don't need to so much look at 2018 or prior times we've got to look forward okay so let's look forward right now the pedal is to the metal because rates keep falling like they fell a percent and they keep trending down as more rates trend down more of these higher qualified borrowers are coming out and taking more loans and this as prices go up again insulates people against evictions and foreclosures even more because their equity keeps going up and yeah again that sounds bubbly but not when you zoom in you go it's not not quite because again it's the wealthier more qualified getting all the loans and that is working out because the loan standards are extremely tight high credit scores a low debt to income requirements very strict lending criteria slow loans those are all the things we're still seeing right now so you can kind of see this cycle it's still rich people getting richer so what do we pay attention to well right now the expectation is that we won't see inflation and this relates to interest rates we won't actually see inflation increase until well into 2024 or 2025.
that means the federal reserve is unlikely to raise interest rates until 2024 at the earliest now once we see interest rates go up then we're going to see a very quick and painful adjustment in real estate prices thanks to the rule of 10x and if we want to track inflation and the inflation that the federal reserve watches you could google the pce rate that's the personal consumption expenditures rate that's how the fed measures inflation now there are many that say hey just go to the stores and look at food prices and look at all the inflation that's happening in certain areas and yeah there are supply chain disruptions that are causing inflation in certain areas it's totally true but what we're worried about when we're talking about inflation is how inflation is going to affect what the fed does so watch the pce rate pce then let's be vigilant on that rate because here's how and when the next housing crisis will happen i'm going to tie these together and explain how this all works but first the truth is price is falling in new york doesn't mean anything for the rest of the united states people leaving los angeles just means that wealth is consolidating more wealth is consolidating in los angeles and other people are leaving los angeles this is why the poverty rate is falling this is why prices are going up this is why the population is going down you see all those things happening that's how you know what's happening the truth is prices going up is also normal when interest rates fall and the truth is also the pandemic ruined our summer sales market and housing inventory is way lower than it used to be and the truth also is the fed is buying strawberries they're stepping in to make sure we don't have a financial crisis and the further truth is evictions and foreclosures are unlikely in an environment where equity is so high so what's more concerning how do we tie all of this together the three catalysts that i mentioned well here's how and when you have your next housing crisis first you look for inflation to kick in earlier than expected at the same time as inflation kicks in you look for an eviction crisis remember inflation kicks in that's like pushing the brakes because rates are going to go up that's sometimes like hitting the brakes an eviction crisis that's hitting the brakes borrower standards declining is kind of like having your foot on the gas and the brake at the same time because you're stepping on the gas while you're on the brake and the housing market is becoming less stable and it's setting yourself up for more of a fail and then the nail in the coffin is when rates finally shoot up if those things happen at the same time that's when we'll have a mega real estate crisis and so that way we can work backwards through this video and say okay so until we start seeing lending standards decline until we start seeing inflation we won't see rates go up and until we start seeing an eviction crisis we're not going to tap the brakes and congress could come in and swoop in and bail out tenants who are behind on rent there's so many things that can happen and all of these things need to come together in a negative way for us to really start to see a housing market crash and crisis so if you're wondering when track changes in the catalyst that i just mentioned inflation loan standards evictions otherwise what we're seeing is nothing more than a widening of the wealth gap the rich getting richer and the poor being left behi my course on real estate investing by the link down below you could use that coupon code that expires on tuesday and folks we'll see you next time you
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