When The Housing Crash Will Happen

Summary

This 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

• 📈 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.
• 🏠 Homeowners are reluctant to sell their homes due to low existing mortgage rates, creating a shortage of homes for sale.
• 🔑 Mortgage rates falling to around 5.5% could be enough to push homebuyers into purchasing homes.
• 📉 Warren Buffett recently cashed out his substantial investment in major US home builders, raising questions about his outlook on the housing market.
• 🏗️ New home construction is helping to fill the void in housing supply, with builders accounting for one-third of total market inventory.
• 💰 Homebuilders have a unique advantage in being able to offer incentives and buy down mortgage rates to entice buyers.
• 🌐 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.
• 📊 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.
• 🔑 Lower mortgage rates could lead to increased competition among buyers, potentially fueling higher prices and multiple offers.
• 🏘️ 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

00:00

🏡 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.

05:00

📊 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.

10:00

🔮 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.

15:02

💰 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.

Keywords

💡Housing Market

The housing market refers to the economic sector involving the buying, selling, and renting of residential properties. In the video, the housing market's high prices, low affordability, and potential risks in 2024 are discussed extensively. Despite higher interest rates aimed at cooling demand, the total value of U.S. homes jumped by 5%, making the market $2 trillion more expensive.

💡Interest Rates

Interest rates refer to the cost of borrowing money, usually expressed as an annual percentage. In the context of the housing market, interest rates significantly impact affordability, as higher rates increase monthly mortgage payments. The video highlights how record-low interest rates previously fueled housing demand, and explores the potential effects of rate fluctuations on buyers and sellers in 2024.

💡Affordability

Affordability refers to the ability of individuals or households to comfortably meet the costs associated with purchasing or renting a property. The video emphasizes the record-low affordability levels in the housing market, driven by rising prices and higher interest rates, making homeownership increasingly challenging for many potential buyers.

💡Recession

A recession is a period of significant economic decline, characterized by factors such as falling GDP, rising unemployment, and diminished consumer spending. The video mentions the 60% chance of a recession occurring, which could potentially impact the housing market by reducing demand and altering price dynamics.

💡Home Values

Home values refer to the estimated worth or market price of residential properties. The video discusses how home values hit a low in 2022 due to fears of higher interest rates, but subsequently rebounded sharply, with some areas experiencing significant price increases as demand outpaced supply.

💡Inventory

Inventory refers to the number of homes currently listed for sale on the market. The video highlights the shortage of homes for sale as a key factor driving up prices, as homeowners are reluctant to list their properties due to low existing mortgage rates and potential capital gains tax implications.

💡Mortgage Rates

Mortgage rates are the interest rates charged by lenders on home loans. The video emphasizes the importance of securing low mortgage rates, as even small differences can significantly impact monthly payments and overall affordability. It also discusses strategies for buyers, such as shopping around for the best rates and locking in fixed-rate loans.

💡New Construction

New construction refers to the building of new residential properties, often by homebuilders or developers. The video notes that new construction is helping to alleviate the housing shortage, with builders accounting for one-third of the total market inventory compared to previous years.

💡Homebuilders

Homebuilders are companies that specialize in constructing new residential properties, often focusing on single-family homes. The video discusses Warren Buffett's investment in major U.S. homebuilders and his subsequent decision to cash out, raising questions about his outlook on the housing market.

💡Multifamily Housing

Multifamily housing refers to residential properties that consist of multiple units, such as apartments or condominiums. The video suggests that multifamily housing could be a solution to address affordability issues, as these properties are often more cost-effective to build and purchase compared to single-family homes.

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