When The Housing Crash Will Happen
Summary
TLDRThis video explores the perplexing state of the U.S. housing market, where home values have skyrocketed despite higher interest rates and a looming recession risk. It delves into the factors driving this counterintuitive trend, such as homeowners reluctant to sell due to low mortgage rates, a shortage of inventory, and an uptick in new construction. The video also examines Warren Buffett's recent move to cash out of homebuilder stocks and speculates on whether he possesses insider knowledge. Ultimately, it provides insights into potential scenarios for the housing market in 2024, offering guidance for buyers, sellers, and investors navigating this complex landscape.
Takeaways
- đ Despite higher interest rates and economic uncertainty, the total value of US homes jumped 5% in the past year, the biggest gain in nearly a year.
- đ Homeowners are reluctant to sell their homes due to low existing mortgage rates, creating a shortage of homes for sale.
- đ Mortgage rates falling to around 5.5% could be enough to push homebuyers into purchasing homes.
- đ Warren Buffett recently cashed out his substantial investment in major US home builders, raising questions about his outlook on the housing market.
- đïž New home construction is helping to fill the void in housing supply, with builders accounting for one-third of total market inventory.
- đ° Homebuilders have a unique advantage in being able to offer incentives and buy down mortgage rates to entice buyers.
- đ Suburban areas have seen the biggest comeback in home price increases, while high-priced cities have fallen out of favor due to remote work and affordability issues.
- đ Experts predict housing prices could rise by up to 5% in 2024 or fall by up to 8% in a worst-case scenario, depending on various economic factors.
- đ Lower mortgage rates could lead to increased competition among buyers, potentially fueling higher prices and multiple offers.
- đïž Multi-family housing like condos and apartments could be a more affordable solution to the housing supply shortage.
Q & A
What is the main topic of the video script?
-The video script discusses the current state of the US housing market, including the recent increase in home values, factors contributing to the rise, and potential future trends and scenarios.
Why did the total value of US homes increase by $2 trillion over the last year?
-The script cites three main reasons: 1) a shortage of homes for sale as homeowners are reluctant to sell due to low mortgage rates, 2) home values hitting a low about a year ago, causing the market to rebound, and 3) an increase in new home construction.
What did Warren Buffett recently do with his investments in homebuilder companies?
-Warren Buffett cashed out his substantial investments in three major US homebuilders (DR Horton, Lennar, and NVR), potentially making a $250 million profit in just 7 months.
What could realistically cause housing prices to fall significantly?
-According to the analysis in the script, for housing prices to fall significantly, there would need to be either a 50% reduction in demand or a doubling of the housing supply, which is considered unlikely in the short term.
How could lower mortgage rates potentially impact the housing market?
-Lower mortgage rates could increase demand by allowing buyers to qualify for larger loans, potentially leading to more competition among offers, reduced contingencies, and higher prices.
What is the script's overall outlook for the housing market in 2024?
-The script presents various forecasts, with some analysts expecting home prices to rise by up to 5% in 2024, while others predict a more modest increase or even a slight decline, depending on economic conditions and mortgage rates.
What solution does the script suggest to address the housing shortage?
-The script suggests that increasing the construction of multifamily housing, such as condos and apartments, could be a reasonable solution to build more affordable housing and meet the demand.
What advice does the script offer for potential homebuyers?
-The script recommends shopping around for the best mortgage rate, avoiding getting attached to one property, locking in a fixed-rate loan, and only buying a home that they plan to live in for at least 7-10 years.
How does the script assess the potential impact of a recession on the housing market?
-The script suggests that a recession alone is unlikely to cause a significant drop in housing prices, as homeowners are unlikely to sell due to low mortgage rates, and a large portion of homeowners do not have mortgages.
What does the script identify as the biggest component of household wealth for middle-income Americans?
-The script states that house prices are the biggest component of household wealth for middle-income Americans, according to the chief economist of Cerica.
Outlines
đĄ The Housing Market's Staggering $2 Trillion Climb
The video script opens by highlighting the shocking $2 trillion increase in the total value of US homes over the past year, as reported by Redfin, despite higher interest rates and a looming recession. This gain is attributed to a shortage of homes for sale, as homeowners are reluctant to list their properties due to their existing low mortgage rates. Additionally, home values hit a low in late 2022, and new construction is helping to fill the void in the market. The script also mentions Warren Buffett's substantial investment and subsequent profit from three major homebuilders, raising questions about his motivations for cashing out.
đ Factors Influencing the Housing Market's Future
This paragraph delves into the unique advantage homebuilders have over individual homeowners in terms of offering incentives to entice buyers. It also explores the potential reasons behind Warren Buffett's decision to cash out his investment in homebuilding stocks, speculating on whether he has insider knowledge about the housing market's future. The script then presents different perspectives and analyses from experts and financial institutions on the potential trajectories of housing prices, considering factors such as recession risks, interest rate fluctuations, and supply-demand dynamics.
đź Forecasts and Scenarios for Housing Prices in 2024
This section examines various forecasts and scenarios for housing prices in 2024. It presents the bull case from Morgan Stanley, which predicts a 5% increase in housing prices, as well as their more realistic expectation of a 3% decline. The script also discusses the S&P Case-Shiller index's finding of record-high housing prices in December 2023 and its forecast of a 5% increase in 2024. Additionally, it explores the potential impact of lower interest rates on housing affordability and demand, as well as the need for increased multifamily housing construction to meet the existing supply gap.
đ° Strategies for Homebuyers and Sellers in the Current Market
In the final paragraph, the script offers practical strategies for homebuyers and sellers navigating the current housing market. It emphasizes the importance of shopping around for the best mortgage rates, being flexible with property choices, locking in fixed-rate loans, and considering the long-term perspective when purchasing a home. The script also suggests taking advantage of free stock offers through affiliate links as a way to potentially offset housing costs. Overall, it provides insights and recommendations for navigating the complex and ever-changing housing market landscape.
Mindmap
Keywords
đĄHousing Market
đĄInterest Rates
đĄAffordability
đĄRecession
đĄHome Values
đĄInventory
đĄMortgage Rates
đĄNew Construction
đĄHomebuilders
đĄMultifamily Housing
Highlights
Despite higher interest rates and record low affordability, the total value of US homes jumped 5% in the past year, the biggest gain in nearly a year, leaving many people to wonder how much higher prices could go.
Warren Buffett recently cashed out his substantial investment in three major US home builders, making a $250 million profit in just 7 months, leading to speculation about his outlook on the housing market.
Homeowners are reluctant to list their homes for sale because the vast majority of them have an ultra-low mortgage rate, making it financially unwise to sell and lose that low rate.
Home values hit a low about a year ago, but as sellers were locked into their existing homes and few were listing, the market had nowhere else to go but up.
Suburbs made the biggest comeback while high-priced cities fell out of favor due to remote work and lack of affordability.
More homes are being built, with new constructions making up one-third of the total market inventory, helping to fill the housing shortage.
For housing prices to fall, there either must be a reduction in demand by 50% or the housing supply must double, both of which are unlikely scenarios.
Morgan Stanley's bull case predicts housing prices will rise another 5% in 2024, while their more realistic forecast is a 3% decline, and their worst-case scenario is an 8% drop.
According to the Case-Shiller index, housing prices hit a new record high in December 2023, with all 20 major markets posting year-over-year gains.
Lower interest rates in the future could fuel more competition among homebuyers, potentially leading to multiple offers, reduced contingencies, and higher prices.
To close the existing 7.2 million home gap, the rate of single-family home construction would need to triple, and it would still take 4-5 years to meet demand.
Multi-family housing like condos and apartments, which accounted for 35% of housing starts in 2022, could be a way to build more affordable housing.
Recommendations for homebuyers include shopping around for the best mortgage rate, avoiding getting attached to one property, locking in a fixed-rate loan, and only buying a home they plan to live in for at least 7-10 years.
Rents are relatively inexpensive compared to buying, so it will take about 7-10 years for buying to break even, making it important to hold onto a home for that long.
The video provides an affiliate link for viewers to get free stocks as a thank you for watching.
Transcripts
what's up you guys it's Graham here and
if you thought the housing market was
expensive it got worse despite higher
interest rates record low affordability
in a 60% chance of recession the housing
market is now $2 trillion more expensive
that's right redin recently reported
that the total value of US homes jumped
5% the biggest gain in nearly a year
leading a lot of people to wonder how
much higher could prices go which areas
are seeing the biggest gains and why did
Warren Buffett just completely cash out
of the housing market does he know
something the rest of us don't so with
2024 shaping up to be one of the most
pivotal years for the housing market
let's break down exactly what's
happening what this means for you the
outlook for the rest of the year and
then finally what you could do about
this whether you're a buyer a seller or
just sitting on the sidelines watching
Everybody lose their mind although
before we start as usual if you
appreciate videos like this all I ask
for in return is that you hit the like
button or subscribe if you haven't done
that already doing that helps out the
entire Channel tremendously and is a
thank you for doing that all I'll do my
best to respond to as many of your
comments as possible so thanks so much
and now let's begin all right so before
we talk about the potential pitfalls to
watch out for in 2024 it's first
important to understand the current
state of the housing market because this
is going to lay the foundation for what
we're about to see and as of today it's
pretty shocking that's because like I
mentioned earlier over the last year
redin found that the total value of the
housing market increased by $2 trillion
and over the last two years it increased
by a whopping 13
.3% so why is this happening you might
ask well as they point out we have three
different aspects all forming together
into the perfect storm with the first
being a shortage of homes for sale as
they explained homeowners are reluctant
to list their homes for sale because the
vast majority of them have an ultra low
mortgage rate and selling would mean
giving that up like just for some
context Goldman Sachs reported that 99%
of homeowners have an interest rate
below what's currently being offered on
the market 85% of those rates are well
below 5% and 63% or between 2 and 1 half
to 4% in addition to that redin
previously found that in areas like
Chicago Atlanta Los Angeles and
Washington DC homeowners with a mortet
rate below 3.5% were 7.6% less likely to
put their homes up for sale than
homeowners with their rate above 35% to
put that into perspective if a homeowner
has an interest rate of 3% prices would
have to drop by 36% for that identical
home to have the same monthly payment at
today's interest rates of 7% so in many
is it just doesn't make Financial sense
to sell in terms of what that'll take to
change research suggests that the
30-year mortgage rate falling to 55% is
the magic mortgage rate that would be
enough to push home buyers to purchase
homes but only time will tell if and
when that eventually happens second home
values hit a low about a year ago as you
can see home prices almost lowed to a
complete standstill at the end of 2022
over the fear of higher interest rates
which is also in part why we saw such a
dramatic increase over the following
year simply put sellers were locked into
their existing home the market stalled
because so few people were listing their
homes for sale and as a result the
market had nowhere else to go but up now
in terms of which areas saw the biggest
price increases suburbs made the biggest
comeback while high price cities fell
out of favor due to a shift in remote
work and the lack of affordability even
today this is still found to be the case
as work from home isn't going anywhere
according to company managers and
finally third more homes are being built
after all if you build it they will buy
okay in all seriousness with a rather
drastic housing shortage Builders are
now the ones filling the void with new
constructions making up onethird of the
total Market inventory compared to just
133% in the years from 2000 to 2019 in
fact this is giving the entire
construction industry a reason to pick
up the pace with new buildings seeing a
21.7% increase from a year ago however
in terms of what's Happening Now the
future looks a bit more unclear because
when it comes to the housing market
Warren Buffett looks to have just cashed
out at the peak so does he know
something the rest of us don't well
here's where things get really
interesting back in August of 2023
Warren Buffett announced that he made a
substantial investment in three major US
home builders DR Horton lenar and NVR
all three specialize in building single
family homes throughout the United
States and together this amounts to
Nearly 170,000 New constructions a year
now at the time those shares were worth
approximately $800 million and prior to
his acquisition Home Building stocks had
already done pretty well outperforming
the S&P 500 by a fairly wide margin with
Dr Horton leading the list but today
however those numbers look very
different in a good way since Warren
Buffett's purchase DR Horton increased
by 35% lenar is up by 30% and NVR is up
20% all in just 7 months this means that
Warren Buffett was able to cash out a
$250 million profit from one stock alone
in 7 months how well home builders have
a very unique advantage that homeowners
don't have and that would be term since
Mass Builders usually have a fairly
stable profit margin on every single
sale they're able to offer incentives to
entice buyers to make a purchase this
includes buying down mortgage rates
money back and close additional upgrades
for free and price reductions if closed
by a certain date for example DR Horton
said that her most successful initiative
has been interest rate buy Downs we're
generally offering a point below Market
on 30-year fixed rate mortgages for the
life of the loan or in other words if
mortgage rates are at 62% they could buy
down your loan Lo to 52% saving you a
pretty substantial amount to make
matters even better for construction
companies during the housing shortage
many buyers had nowhere else to turn
besides home builders and that meant
that there was a lot of demand to push
up their profits which in turn helped
the stock price so that of course brings
us to the question why would Warren
Buffett suddenly cash out of a stock
that he usually holds for a very long
time with a lot of media Outlets citing
this phrase that if you aren't willing
to hold on to a stock for 10 years don't
even think about owning it for 10
minutes well the truth is as of right
now we have absolutely no idea some
people have made the argument that
homebuilder stocks have rallied way
faster than expected so it makes sense
that he cashed out and locked in his
profits but other people think that he's
now changed his mind that is bearish on
the housing market and that's a red flag
worth considering now personally I do
think it's worth considering that
according to Newsweek he told investors
that Berkshire hathway is no longer
likely to achieve the skyrocketing
performance it has been known for in the
past anything beyond slightly better is
wishful thinking now even though this
might not be a great thing for the
future of the housing market and for
home builders it is worth noting that
currently Berkshire hathway is sitting
on $168 billion worth of cash so their
entire homebuilding investment is worth
at Best
0.6% of that total amount just for
context that would be the equivalent of
someone investing $700 who has $100,000
in savings so I don't think that's
enough to justify anything Sinister
going on or or is there okay so when it
comes to this a wealth of Common Sense
blog posted a fantastic analysis on what
he calls the bare case for housing
prices and for anyone who wants to
follow along I'll link to his blog Down
Below in the description I'd highly
recommend checking it out for anyone who
wants to learn more about the markets
but in terms of what he found you're
going to want to hear this he starts off
by reiterating that so far nothing has
negatively impacted housing to the
downside not Rising interest rates not
Rising prices and not the economy
instead people are living in their homes
for longer 40% of baby boomers have
lived in their homes for more than 20
years and the vast majority of them plan
to stay in their home well into old age
there's also the concern that for people
who have lived in their home for decades
capital gains could take up a
significant portion of those proceeds
leaving them with a lot less than
expected so of course they're choosing
to stay that's why all of this begs the
question what would it realistically
take for the housing market to fall well
it's Ben Carlson points out if there's a
recession people are unlikely to sell
because they've already locked in a low
mortgage rate on top of that 40% of
homeowners don't even have a mortgage to
begin with so it's unlikely that there
would be a whole bunch of panicked
sellers trying to sell their homes at
the exact same time of course there
could always be some random Black Swan
event but if that were the case it would
be impossible to predict to me I think
one of the best analysis was posted back
in 2023 by Mark Woodworth who noted that
for housing prices to fall there either
must be a reduction in demand or a
surplus of inventory and in terms of how
much it would take demand would have to
fall by 50% for housing to be in line
with historic averages although he says
this is unlikely given how transaction
volume hasn't fallen below 2 million
since the early 1980s alternatively the
housing Supply could also double which
could theoretically happen at some point
in the future but it'll take time for
instance in terms of how this could
happen Mark points out that a large
portion of homes were bought by
individual investors and as the market
price increases relative to what they're
getting in rents it could be a
profitable time to sell this could also
extend to those who bought airbm bees
dumb money who purchase property because
markets goes up or anyone else who HED
to speculate on real estate values with
more rental units being built and more
people renting out their homes instead
of selling market returns might go down
but that's all speculation and the
market could very well just continue
going higher which is exactly what
Morgan Stanley believes for their bull
case according to them their bull case
is that housing prices rise another 5%
saying that with so many housing
statistics at levels we have rarely seen
over the past several decades it isn't
to Envision housing activity in home
prices evolving differently from what
we've laid out above which for anybody
wondering is that they expect the US
economy to avoid a recession next year
and the housing market to pick up his
incomes rise and mortgage rates continue
to fall slightly in addition to that as
rates eventually decrease a consumer
that has recently seen mortgage rates
above 8% might jump at the chance to
lock in 6 and 1 half or 7% mortgages in
far greater numbers than we're expecting
of course keep in mind that this is
their best case scenario and in a more
realistic outcome they're a bit more
pessimist istic believing that home
prices will actually fall 3% by the end
of 2024 and then in the absolute worst
case scenario they think that housing
prices Could Fall by as much as 8% if
absolutely everything goes wrong for
this to happen morgage rates would need
to remain elevated the economy slips
into a recession and demand for housing
continues to soften but even they admit
that this would be an extreme and
realistically there's not much that
would bring housing prices down a
meaningful amount after all a few days
ago the K Schiller index found that
housing prices hit a brand new record
high in December and that's during a
time when seasonally adjusted prices
tend to be their lowest what's even more
remarkable is that all 20 major markets
posted a year-over-year gain in 2023
with the lowest Portland coming in with
a 0.3% increase because of that they're
forecasting a 5% increase in housing
prices in 2024 far more optimistic than
the 1.8% consensus all thanks to sellers
being locked in as mortgage rates move
higher even though this isn't
necessarily good news for buyers
apparently it's good news for the
economy at least according to the chief
Economist of cerica as he explains house
prices are the biggest component of
household wealth for middle- inome
Americans their stabilization and then
increase in 2023 helped Americans feel
better about their household financial
situation and boosted consumer
confidence in terms of where they think
the Market's going to go their
expectation is that home prices will
increase 2.3% in 2024 Rising a bit
slower than average hourly earnings as
more newly built housing Supply comes to
Market and more homeowners who have been
waiting to move or downsides start to
take the plunge so what's going to
happen then when rates eventually do
drop well in terms of when this is going
to happen as realtor.com pointed out a
week ago we look for the average 30-year
mortgage rate to fall to 6% by the end
of 2024 and 5.75% by the end of 2025
this means that practically lower
interest rates will allow buyers to
qualify for a larger loan and that in
turn makes housing more affordable if
values don't continue going higher for
example just consider that a buyer would
be able to afford 177% more home if
interest rates move from 7% to 5 1.2% so
that could put even more pressure on
prices realtor.com even acknowledged
this by saying that lower interest rates
will Fu more competition among offers
and will likely boost Demand by pulling
affordability crunched buyers off the
sidelines and if you want the scary
statistics it's even said that for every
1% drop in mortgage rates there are 5
million more households that qualify for
home ownership this could lead to
multiple offers reduced inspection and
Appraisal contingencies and a lot more
patience required to eventually land a
deal or really at the end of the day you
just need to pick your poison as a buyer
would you rather have higher interest
rates or higher competition in prices
basically the entire housing market is
in a heads ey win tailes you lose
scenario for buyers and that's why you
need to be incredibly careful about what
you purchase all of this means that the
housing market still is a very long way
to go to eventually return back to
normal and according to realtor.com to
close the existing 7.2 million home Gap
the rate of single family home
construction would need to triple and it
would still take 4 to 5 years to meet
demand the way I see it the only
reasonable solution at this point is
simple multif family housing like condos
and apartments in fact it was found that
these properties accounted for 35% of
housing starts in 2022 as climbing
mortgage rates and prices dampened to
demand for single family homes or guess
in other words single family homes are
costing too much to build and too much
for buyers to for so multif family homes
could be a way to build a cost and then
pass those savings on to buyers now
personally though as far as what I think
someone has worked full-time in real
estate since 2008 I tend to agree that
outside of a Black Swan event there's
probably not much out there that's going
to force prices down to a meaningful
amount sure there's always the chance
that interest rates decline sellers
choose to sell their homes because they
want to finally move somewhere else and
interest rates don't hinder them from
doing so and then prices fall but the
way things are looking right now rates
are unlike to drop that fast and even if
they did it's unclear how many sideline
buyers out there are ready to make
offers that's why I think if you're
looking to buy a home in the next few
years keep this in mind if you want to
come out ahead first shop around your
mortgage rate even though rates have
gone up significantly it doesn't mean
you can't get a better deal with
somebody else so it doesn't hurt to ask
all you need to do is get a pre-approval
letter take that to another bank and ask
them to beat it then take that rate to
another bank and ask them to beat that
and then repeat the process all over
again with the first first bank until
eventually you get the lowest price if
you don't believe me it's found that
buyers who shop around the rate save an
average of
$84,000 over the lifetime of the loan so
there you go it's like I just saved you
$84,000 that's worth subscribing for and
hitting the like button second don't get
attached to one property chances are
eventually something else will come up
if that's just as nice so don't be
afraid to negotiate and walk away if it
doesn't make sense third lck in a fixed
rate loan I know there's a lot of
excitement about being able to log in a
variable interest rate 5year loan
because rates are so much cheaper with
that and eventually interest rates are
going to come back down so you could
refinance but unless you're planning to
flip the property there is a lot less
risk in locking in your rate long term
so that that way no matter what happens
your payment will stay the exact same
plus you could always refinance in the
future if rates do come back down to a
point that it makes sense and finally
fourth only buy a home that you plan on
living in for at least 7 to 10 years
this way you'll be able to write out any
short-term fluctuations in the market
until eventually it hopefully recovers
not to mention with rents as inexpensive
as they are right now when compared to
buying it'll take about 7 to 10 years to
break even between the two so that's why
you should make sure to hold as long as
possible and no matter what get some
free stocks Down Below in the
description because I've got an
affiliate link down there where you can
get some free stocks with all the way up
to a few thousand so I'll get a
commission on that but you also get some
free stocks thank you guys so much hope
you enjoyed the video let me know what
you think Down Below in the comments and
until next time
Voir Plus de Vidéos Connexes
More Sellers, Fewer Buyers
Global Stock Market Crash Coming? Trump's Scary Prediction Goes Viral | Impact on India
Housing Market 2.0: How Lower Interest Rates Will Change The Market
The Fed Just Ignited The Housing MarketâHereâs Whatâs Happening
Realtor.com: New Trends Emerge (Nerd Alert!)
Urgent Warning for Adelaide Property Market
5.0 / 5 (0 votes)