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oh man the entire real estate Market's demise could end up being an anchor for the stock market for over another year there's a new report just out that is absolutely devastating on inflationary induced aspects from Real Estate and we're going to talk about that in this video and it's a disaster I'm going to start with some initial data and just to catch you up to speed first of all I'm a big Fanboy of real estate and buying and holding real estate long term but this January I made the decision to sell all of my rental properties and I'm not a landlord right now because I wanted to sell my property so what I thought would be the top of the market so far that has proven to be true and I've started a company called House hack which is now accepting a money from accredited investors we've got a deadline of October 31st coming up by the way that's a big deadline for free call options that you get other warrants technically but read the PPM on the website for more details and we expect to go bottom feeding for Real Estate what's the market actually continues to fall but the data that we have now suggests it could take even longer than previously expected for the market to bottom which is actually bad for the stock market not only because interest rates are skyrocketing just look at the basics of the 10-year treasury yield which we've talked about for years on this channel that mortgage rates follow roughly the 10-year treasure yield and we thought the highs of this summer were bad which were right over here around three and a half percent now we're sitting at 4.1 for the 10-year and some folks are saying this is going higher potentially to five percent this is leading mortgage rates to absolutely Skyrocket now remember for a moment the rule of 10x when interest rates go up one percent home purchasing power goes down by 10 that's because the amount of money people have to pay on a monthly basis skyrockets when interest rates Skyrocket logical sense and since most home buyers use leverage whether they're investors or not whether they use cash initially and then refinance or not they end up using leverage and real estate to increase their returns higher interest rates are a big problem for the real estate market we know that in fact mortgage rates were sitting around two and a half percent in December of 2021 where do they sit now well for a 740 credit score you're sitting somewhere around 7.28 percent way higher I mean we are talking about five percentage points higher that's a 50 decline in buyer purchasing power that's way worse than we even expected the beginning of the year I thought rates might go to you know five and a half to six percent now they're at seven and a quarter percent absolutely insane on top of that we see that cancellations have skyrocketed we have had 60 000 home purchase agreements cancel in a single month per Redfin that is the highest on record when you take out March and April of 2020 when everything came to a sudden stance that's scary highest amount of Home cancellations on record and we're not just talking about new construction Builders because we already know they have a disaster going on days on the market is now averaging 50 versus 31 in May that's almost double and that's per the St Louis Federal Reserve that's scary as well Supply 27 greater Supply it's even gotten to where buyers are now asking for more repairs because they have more power more leverage over sellers there's a prop Tech inspection and repair company called punch list USA they work in like 14 different cities the average work order last year was 2537 now it's three thousand eight hundred thirty one dollars that is an average of a 37 percent increase way higher than the increase in inflation because we're seeing buyers asking and demanding for more from sellers personally I don't even think they should be buying I mean they better be getting a smoking hot deal if they're buying right now but whatever now we're also or have already seen prices come off tops right we've seen prices come down about six and a half percent we've already seen that happen but interestingly we've kind of seen that decline stabilize over here in the last few weeks right but what I want you to see is go to Price drops because price drops tells you what's going to happen with prices before you actually see the change in prices go to Price drops what did you have happen here price drops skyrocketed the entire beginning of the year then they plateaued because interest rates plateaued for a moment look at it okay jump on over to this particular chart right here in this purple box you could actually see that interest rates came down for a moment see that we kind of peaked in the summer and then they kind of came down that lead price drops to level off see that leveling off right there okay now go back over here to median sales price you see prices came down when rates went up leveled off what do you think is next the next dog like down and price is going down then once we get to uh the peak so about uh you know in this case you've got a Redfin national average Peak the peak was different in different areas you've had Peaks somewhere in February for some markets June for some markets April for others but Nationwide the peak was somewhere around May May year over year when we get to March April and May of 2023 we're going to look back at these high numbers and go oh wow prices are down like 10 or 15 from a year ago how much fear is that going to cause in sellers leading potentially more sellers to sell now of course we have this bias that oh well people are going to be stuck because why would you sell if you have to go buy a new property fine but it's not just people who have to buy a new property who sell divorce says deaths foreclosures although we expected the Foreclosure part to be nominal uh people who have rental properties who are just dumping Pension funds and institutions who are dumping to prevent margin calls on let's say their bond portfolios a lot of things that could go on over here that could really lead to a lot more inventory beginning next year especially when we start getting that fear but what is the big new report that is now suggesting we can have massive Mega pain for the stock market for longer because of inflation lasting longer well folks it's out from Goldman Sachs and I hate to bring it up but we have to bring it up right after I again remind you that if you are an accredited investor please check out househack.com learn about how we are starting a startup that we will use to bottom feed in the real estate market and diversify our allocation of real estate whether it's single family multi-family short-term rental long-term rental you name it and make sure we get wedge deals buying deals below market value in whatever markets we're participating in so that way not only are we trying to time buying a lot of real estate towards a bottom it doesn't have to be right at the bottom but once we start troughing right that's when we want to go shopping we'll buy cash and then we'll refinance when rates come down a few years later we'll take our time with it we'll manage these properties in-house and we'll have an opportunity for people to have a diversive way away from the stock market essentially by investing in real estate now if you're not an accredited investor yet don't worry we expect to have a non-accredited investors eligible to invest as soon as January maybe February of 2023 so stay tuned for that if you're not accredited if you are accredited you can go to how househack.investready.com click the link in the description get your accredited investor letter submit it to househack.com and you can contribute to people who have all the already wired us over 20 million dollars of funds for this startup that gives us over 60 million dollars of buying power for Real Estate that could be a hundred twenty five hundred thousand dollar homes saying we're going to be growing if you want to get in with founder shares Now's the Time to get in but folks what is this report that we need to talk about all right so this report out from Goldman is the following when we look at the measure of rent how rents are going up because rent is a big part of inflationary datum we can see that current asking price-based rent is actually sitting at a year over year rate of 9.4 percent but we expect that to actually already have peaked if not start trending down problem with that is that even though rents went up hit a peak and are now trending down CPI measures rinse differently and we actually think that CPI right now is measuring at about 6.8 percent shelter inflation but it should be peaking at 10.3 percent now why is that bad why is it bad that the chart looks like this that actual rents are starting to Trend down that we have an inflection point to the downside in actual rent but we have an uptrend over here in CPI rent why are we seeing this right here well it's because inflation data measured by CPI uses uses something known as the owner's equivalent rents and the problem with that is they try to measure hey what are current rents for people who currently have leases and what are new rents the problem with that is you're actually measuring rent for people who've already locked in their rent for a year term and when rents that are locked in renew landlords don't always give them the full market value rent bump because the tenant might move leading to turnover which is a headache and potentially leading to repairs sometimes you have landlords who never raise the rent which that's stupid you should raise the rent all like every time you can you should raise the rent because otherwise you lag behind now that might not sound so PC but the reality is usually what happens is tenants who stay longer have lower rents than Market rents over the long term let me give you an example a property renting for three thousand dollars a month might now be renting for four thousand dollars a month but a tenant might only get a hundred dollar or two hundred dollar rent hike that might seem like a lot but they're still getting an 800 discount to Market rents even at that 200 rent hike but you can't give them the full thousand dollar bump because again they'd move you might have to deal with repairs or you're limited by rent control limitations which limit how high you can actually raise rent even for example California Statewide limits that say you can't raise the rent more than ten percent well that would only let you go to 3 300 even though the rent has gone up so much more in some markets as much as 30 percent to give you that example of going from three thousand to four thousand or thirty nine hundred right so the problem is when CPI measures existing rents going up existing rents go up way slower for existing leases than they do for new leases and so when we look at data from asking uh uh rents from all of these companies that actually track what's actually happening in the world what do we find well we find that according to co-star and apartment list and rentpath and Yardie and Zillow and whatever and CoreLogic that rents have peaked and that they're trending down but the CPI does not see that Peak at the CPI still sees rent increasing and this is a big problem because owners rents and shelters inflate and shelter inflation makes up a huge portion of our CPI this is really bad because look at this Cleveland fed CPI uh the average shelter inflation has made up 50 percent of the entire CPI measure core CPI is somewhere around the high 30s percent of the weight that it's had over the last 10 years in measuring inflation look at core pce it's lower somewhere around 18 but it's still a large chunk you look at headline inflation it's around headline CPI it's around 32 percent the point is these Antiquated measures of of rent are going to make inflation look like it's higher for longer they're not catching the peak and so this is what the projection is from Goldman Sachs charted they believe that inflation has already peaked in fact you could see that Peak right here right inflation has already peaked right at the middle of we're towards the end of 2022.
we're right here every single measure that Goldman is looking at has seen rents come down every single Mission yeah look at that CPI is still Rising see that rise right there and not only that it's expected to rise into 2023 and then actually out Pace all of the other measures of rental inflation because it's so slow to actually come down this is leading to a dirty prediction from Goldman's ax Goldman Sachs is predicting the following they're predicting a peak of seven and a half percent shelter inflation by next spring and that it is only likely to decelerate to six percent by the end of 2023.
now that's a disaster because even if rents were flat we would still see CPI shelter inflation at five percent but if rents are the way we expect them to be they could be at between six to seven percent by the end of 2023 which means we're likely to see inflation be much more sticky and above Target for all of next year even if rent growth was Zero because of the crappy way they measure rent-based inflation so what does that mean well what it means is a more aggressive fed for longer a more aggressive fed for longer means again higher treasury yields for longer the more the markets prepare to to realize or do realize that treasury yields are going to be higher for longer the less inclined they are to buy treasuries today why would you buy a four percent tenure treasury today if you could get a five percent treasury in a month you wouldn't he would just wait well less buying pressure on these means lower prices and higher yields and you actually self-fulfill higher yields and now we go full circle folks higher yields on the 10-year treasury lead to what higher mortgage rates higher mortgage rates lead to more pain for the real estate market more paying for the real estate market means what more paying for companies like Generac and face Home Depot Lowe's and anyone related to the Home Improvement sector this morning we went through generac's earnings and they the preliminary earnings they were complete disaster now the last time we went through their earnings call Generac was talking about and bragging about all this demand they still had but I said no I will not invest in Generac because they're exposed to real estate and I think when you're exposed to real estate and homeowners start realizing their prices are going down homeowner prices are going down like prices of homes are going down they're not going to spend money investing in their homes Home Depot tells us in their own reports Home Depot says homeowners consider spending on their home on investment when prices are going up and an expense when prices are going down well prices are going down so now you have expenses so what did Generac report this morning they reported that their growth is no longer 40 percent it's now 15 uh oh now they are blaming delays in installations but folks those installation delays were also a problem earlier this year they had supply chain issues as well so what's happening is less residential customers are pre-ordering these systems which Generac recognizes revenues as they're making these sales and ship them out so they're still shipping these things they're just not getting installed Generac still recognizing the revenue so the point is Generac clearly is getting smashed by declining homeowner demand that means homeowners are finally spending less money on their homes that's why endphase is finally coming off its high horse which it deserves to it needs to plummet now I'll buy a ton of enface in the future when real estate prices actually come down that's when you want to buy those real estate companies when they're like loans okay so big bottom line here stickier inflation for longer that means stay away from YOLO bats okay I'm like so tempted I'm like treasure Eagles have to come down let's YOLO TMF triple leverage treasury let's buy the bottom buy the dip and it's gonna go to the Moon maybe if inflation comes down and treasury's come down maybe but not if CPI inflation keeps it up CPI inflation keeps everything up because of shelter inflation built into CPI and rates and yields stay up and they stay up longer and if anything they get worse then mortgage rates go up then the real estate market Falls even more and then earnings for companies get even worse it's just bad I think with the data that we're seeing now not only are we going to see a 15 to 20 drop in prices for Real Estate but we'll probably see a 20 to 30 decline prices which is really going to be a big opportunity for house hack because we expect to buy below market value deals at already discounted prices in fact sellers are already dumping real estate that is home builders at bulk prices like 20 off to companies like mine now we're not buying yet because we think the market will fall 20 and then we'll get another 20 off like sorry now some people in the comments say oh Kevin you just think it's so bad because because you were trying to massage the real estate market down so you guys could go buy more this is all just an ad for housing no this is just convenient for house hack like I'm trying to just give you the facts I mean you do what you want with the facts you saw the reports you see what's going on with mortgage yields you've seen what I've been saying since before house hack was an issue like wasn't an issue but before house I existed because I've been talking about this in January I've been warning about this since January Hey where's probably gonna come down be prepared sell now if you need to like if you're about to retire and you're like I can't wait hold another cycle sell no obviously I can't keep you Financial advice can't tell you what to do but I sold now I got a lot of hate for that but oh well hate is ain't starting house hack haters didn't just raise basically a million bucks a day for a startup haters don't read data hate is just gonna hate that's all right everybody's gonna have some of them you know so anyway look how do you actually prepare well again and I just want to reiterate this every day increase your income decrease your debt don't go YOLO when you see a couple rallies in the stock market don't get overly excited don't go YOLO this could all last a lot longer than we expect now maybe it won't maybe inflation will surprise to the downside everything will fall and uh and and we'll have a a glorious rally and we'll all go to the Moon fine and we'll start buying homes earlier like we're flexible we could start buying homes tomorrow if we needed to but we're like we're not because everything's still trending down so you'll see when we obviously switch and start buying homes um but that ain't now good luck my friends
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