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please collapse the housing prices are stupid this is a comment on my channel from five months ago and folks some of you might be getting your wish hey everyone meet kevin here it's time to tal folks we've got a lot of updates look back in 2012 and 11 when i was actively selling real estate which i'm not right now other than my own real estate as a real estate broker i always used to tell folks look one of the best ways to build your wealth and quite frankly retire early is real estate it's almost like get rich for sure but hashtag not guaranteed uh and what i used to say is if you just started at 25 years old and bought a house for a hundred thousand dollars and then every seven years bought a house for a hundred thousand dollars more at the end of that 40 years when you're around 65 retirement age you would have almost at 10 million dollars of real estate with a lot of that paid off how many people do you know that have 10 million dollars of real estate let alone a bunch of that paid off like you would never even have to think about index funds or stocks or roth or anything like you could do it all solely with real estate now that's not saying you should okay i'm a big fan of stocks as well but folks buying real estate is a good idea so are we going to have an opportunity to buy some real estate coming up what's happening in the real estate market right now what do i think is going to happen and what can you do to prepare yourself well that is the point of this video this video is of course though brought to you by a sponsor it's featuring over 90 years of combined real estate investing property management and rental renovation knowledge if you don't know anything about real estate and you're intimidated by real estate the best way to start is with the zero to millionaire investing course and then you can always graduate to tart with zero to millionaire you can also bundle these together for the best price just make sure to use the coupon code expiring august 19th linked down below okay folks so here's what's going on after valentine's day of this year about six months ago i made a video explaining that there's a massive risk that mortgage rates will go above five percent by may and real estate prices could start coming down people called me nuts and you know what they were right to call me nuts because i was wrong real estate mortgage rates did not go to five percent by may they actually went to six percent by may which is even worse now currently they're settled right around a five percent but what happens when mortgage rates go up is buyer purchasing power goes down now we have a really handy tool for this and that's that for every one percent that we see mortgage rates go up we tend to see about 10 percent less buyer purchasing power that doesn't mean prices go down by that amount because there are other things involved like inventory right how many homes are available for sale well this would then relate to about a 2.3 percent increase from where we were at the end of last year or about a 23 reduction in buyer purchasing power that's pretty substantial and so we would expect that this has all happened over the last six months to start seeing some signs of these higher mortgage rates actually trickling through the market the problem is back in february you still have real estate agents on tick tock calling everyone stupid for suggesting that prices could soften because there's not enough inventory and it wasn't really until i decided you know i'm gonna sell my real estate because i've got a big series a that we're launching uh you know hopefully within the next 30 to 60 days here and this big series a is going to be like a real estate investing company and a sas company so i thought you know what let me sell my real estate and i'm not recommending that for people but i sold my real estate and i'm doing that because i'm taking that money and preparing it for this new company we're launching so i have a unique situation in that case but i also thought you know if i am selling i'm probably selling at a potential peak but this is where i really started scratching my head see at the time i sold in january february march april there were only like 60 homes on the market in my city and i was adding about 22 to that and i'm like oh my gosh how can just one person single-handedly increase housing inventory by 30 plus percent in one market and that's when i realized wait a minute it's not going to take a lot of kevin's who start thinking yeah maybe maybe we've had a good run in real estate it's it's time to you know pair back a little bit and maybe sell a little bit and then you start seeing inventory skyrocket and unfortunately for the real estate market and its trend of continuing to go up that's exactly what happened nationwide housing inventory exploded in the first six months to now eight months of this year in fact so did the monthly supply of new homes see this is existing homes this is new homes and what's wild about new homes is new homes right now are sitting at about 2007 levels and i'll tell you there's nothing anybody wants to hear in the real who's in real estate that relates to 2007 and 2008.
it's kind of a really scary comparison to make because what happened next was a disaster that is in 2008 what did you end up having well you had a pretty much collapse of real estate prices not only did some commercial real estate drop 45 to 50 percent some condos dropped 50 single-family homes dropped 35 to 45 percent depending on the area you were these are huge massive plummets in real estate prices right it was all followed by increasing inventory which unfortunately is literally what we have now most available units in the pacific northwest since 2019 housing inventory up the most as a percentage basis in the last 12 years housing inventory nationwide rises for the first time in years but in addition you've also got that remember decline in purchasing power from rates going up yeah not only do you have that inventory going up but folks home buyer affordability at a near two decade low which again hate to say it not only are we now below trend on housing affordability but we're also starting to look at the chart again like we did in 2007 and 2008.
not only are we looking at the chart like it's 2007 or 8 again but that leads to a lot of nerves and anxiety especially with home builders starting to panic like lennar who's quickly increasing incentives to home buyers to try to still prop up home prices but you know behind the scenes pass them a little bit of cash to go buy down their loan or to do some upgrades that they really wanted to do you know this is sort of a way of artificially keeping prices up a little longer and this is directly from their earnings call okay they've got uh some markets which are seeing significant market softening and a correction leading to more incentives but of course all of this just in aligns really with what we're hearing which is what wall street is suggesting and that is that in short we can expect valuations for home building companies to even come under pressure as the real estate market begins to crack but i mean maybe things are different this time around right credit scores are higher people are more qualified people have more equity in their homes that means the extra value of cash they have in their homes is higher than it ever has been before foreclosures are still lower than any year prior to the pandemic and the job market is holding up meaning we're not really seeing that crazy joblessness that would generally precede a real estate crash and this is leading a lot of folks to say well kevin this time is different we don't have to see real estate prices come down and this might be true but what's also true is that the most dangerous words in investing are this time is different now before i show you what's happening to prices my sponsor agent says he's gonna fire me if i don't play this next sponsor which i'm happy to bring you here it is but thank you to today's sponsor keeps did y'all know that two out of three guys will experience hair loss by the time they're 35 well thankfully today's sponsor keeps offers clinically proven research-based treatments to stop hair 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meet kevin with that said let's get back to the video and unfortunately the price declines have already begun this is the chart of average new home prices which have come off substantially off of this insane peak of about 400 i'm sorry 570 000 all the way now down to about 468 000 for new homes but it's not just new homes that are starting to see a compression of prices it's all homes in fact this is the redfin data center and you can see the median price of homes actually closing is starting to trend down which is not a seasonal experience that we tend to have it is just happening because mortgage rates have skyrocketed inventory is skyrocketing and we're seeing more price drops which all corresponds to home prices starting to fall and that's just what we're seeing home prices are officially starting to fall now real estate tends to be pretty slow see even during the 2007 to 2009 real estate crash the largest single month slowdown in real estate prices was about 1.19 percentage points per month so if we ended up dropping 40 in some markets it took somewhere around 35 months to actually get to your real estate low it's because i i see real estate is like this giant snowball and when you get it up a hill it like slowly starts accelerating like it really takes time to crest around that and as you get to sort of a trough it really takes time for it to actually slow down even when it gets to the flat part or even starts hitting some resistance it's still got a lot of momentum behind it so in other words it takes an extra long time for the real estate market to react to some of the conditions that we're seeing right now and this is leading to this really interesting thesis and this is speculative but i do want to get into what i think is actually going to happen and what you should do to prepare yourself but this little speculative argument is kind of neat some folks are saying hey kevin and i believe this we might see a stock market bottom this red line and then the stock market run again towards the end of year end of the year and beginning of next year while at the same time real estate really only starts its decline as the stock market bottoms and real estate prices are at their lowest potentially when stock prices are at their highest sometime at the beginning of 2023 maybe later in 2023 maybe even at the beginning or sort of the the end i should say of 2022.
so some things to pay attention to so what should we do to prepare because if the real estate market is going to see a compression or sort of at least a reversal of coveted trends which that's a lot of what we're hearing right now is a reversal of the covet effect especially in what are called zoom towns in areas like arizona or boise where we're really starting to see some massive changes in the real estate environment even austin texas right like places people flock to because of uh well the pandemic and low world taxes and politics and everything but anyway what should we do to prepare ourselves well in my opinion i would make a list of these things and i would write these down because i would want you to remember these first thing i would hope that you can do is share the video because i think the advice is invaluable no matter you know personally i believe we're probably going to see real estate prices go back to the trend that we saw in 2018 and 19 which means prices probably should come down somewhere between 10 to 25 percent maybe somewhere closer to 20 if i had to like pinpoint it but anyway write these tips down so the first thing that you should absolutely do is get educated like start getting yourself educated on real estate whether that means watching youtube videos uh getting courses that could be mine it could be somebody else's just stay away from flipping okay you don't want to be flipping in a market where prices are going down you want to get educated on buy and hold real estate or at least longer term real estate where you're looking at longer term capital gains and you're being smart with how you're renting the tenants because you don't want to get uh you know in a situation where you're dealing with evictions and you generally want to start with your own home that eventually you could turn into a rental it takes a lot of the pain away and it's a much better deal anyway number one get educated number two do whatever you can right now to see if you get that higher paying job can you lateral into a higher paying job can you ask for a raise can you work a side hustle so you're bringing in more taxable income you want to be able to show lenders and banks my income's going up not down baby we'll make more money let's go that's what you want to be able to show right now and the next thing that you really want to do is make sure that you're minimizing your debts lower your expenses have less debts pass on the new car pass on financing that furniture right now it's not worth it save the money instead pay down debt save the money and get your debt to income ratio low you want less monthly payments because every single dollar of monthly payments that you have costs you 200 or 2.31 cents of less purchasing power that means if you have a hundred dollar credit card bill every month that comes in pay that off and you'll be able to afford or be able to buy a home qualified to finance a home for 231 dollars in monthly payments more per month that's a lot there's a huge multiplier there in debt so you want to be out of debt and you want to master your credit here now you don't need a perfect credit score you can buy a home with easily a 640 or above it's just gonna be a little bit more expensive and if you could change your behavior now in six months when it's time for you to buy your credit score could be higher make multiple payments per month don't wait until your statement is due lower the amount that you're outstanding and putting on these credit cards in the first place and stop financing new things and getting credit inquiries next talk to a lender now this might sound ironic because i'm like stop getting credit inquiries on a bunch of different stuff i know this sounds ironic but when you talk to a lender and you find a good lender they're going to want to run your credit let them otherwise they're going to think you're not serious and they're not going to be interested in helping you so let them run your credit let them then coach you through how we can increase our credit and be most prepared whether that means paying something off or saving more money or which loan program would qualify for let them guide you so get educated save money build up your credit get rid of debt talk to a lender and then number six start trolling open houses like go to open houses and tell them i'm gonna be looking to buy you know maybe a fixer-upper in six months or whatever i watch me kevin he talks about buying wedge deals how can i buy a wedge deal how can i get a deal below market value and how do things change if prices are trending down do i need more of a wedge what can i do to protect myself these are all the things that you should be thinking of and folks i really encourage you share the video and get ready because so far everything that we've been saying at the beginning of the market is likely to happen in real estate has been happening so buckle up for the next phase
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