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Understanding Today’s Market and What Comes Next · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
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  invest in real estate? Well, I'm Angel with the
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  Academy Presents Real Estate Investing Rocks,
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  and I'm here to help you if you want to go for
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  your piece of that pie. Are you new? Are you
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  new to this and you just don't know where to
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  start? It's okay. Are you someone that has invested,
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  but you feel stuck, you feel like you've lost
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  momentum, you don't know where to really head
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  from here? Are you a seasoned real estate investor
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  who is doing great but maybe you just want to
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  hone a few skills here and there? This is the
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  place for you. The Academy Presents Real Estate
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  Investing Rocks podcast will connect you with
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  industry experts so that you can save time, avoid
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  costly mistakes, and begin living the life you've
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  dreamed of all through real estate investing.
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  You're already taking the first step. just by
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  joining us here today. We also have to remember
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  that real estate is hyper local. Now here we're
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  just looking reasonably, but whereas you see
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  that we don't have a whole lot of affordability
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  right here. I mean, your median family income
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  and the qualifying income across the United States,
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  I mean, literally your average person cannot
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  qualify for the average home at this point. And
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  that's sad, but there are some bright spots.
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  And what I'm taking out of this is that there
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  are some places like the Midwest, for example,
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  that I do expect to do better. And again, we're
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  taking some very crude, very large scale generalizations
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  here, but I think. at some point we can't all
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  move to the San Francisco Bay area. The affordability
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  is just not there. And so I think you're gonna
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  see people moving into some areas that are maybe
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  desirable in the Midwest, like maybe say Cincinnati,
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  or maybe some parts of the South that are not
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  yet so heavily appreciated. I've been looking
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  a lot at Kentucky and Tennessee, particularly
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  East Tennessee. as places where I think are affordable
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  and could very easily be continuing to attract
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  people and possibly continue to see those rent
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  increases that we've come to expect. I don't
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  have a visual for this, but I saw a recent article
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  that said, apart from Orlando, rents are just
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  dropping just about everywhere else in the country.
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  And a little bit of hyperbole there in the headline,
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  but the idea I think is right. A lot of places
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  we're seeing rents soften or level off. And there
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  are some areas like, I mean, Florida is just
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  attracting people like nuts. And there are certainly
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  other markets that are seeing some rent increases,
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  but I think we really need to start to focus
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  on affordability. Now, through all this, I would
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  say that wage growth has been pretty healthy
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  by historical norms, but again, not even keeping
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  up with the official inflation statistics. Now,
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  meanwhile, you might wonder like, oh, are people
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  losing their houses? Or maybe I'll just wait
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  for that foreclosure crisis. When that next foreclosure
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  crisis comes, you know, the price of real estate
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  is going to drop and maybe even multifamily real
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  estate will drop in a significant way. Well,
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  I don't really think that's the case because
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  if you look what's happened, everything from
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  the credit profile of borrowers to the fact that
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  it just really hasn't made any sense to get an
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  arm in, I would say, maybe almost 10 years, right?
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  I mean, if you have a very slight spread between
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  the arm and the fixed, why would you go for the
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  arm? It doesn't really make a whole lot of sense
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  unless you have very strong knowledge. that you're
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  going to only be in a particular place for a
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  long time. If you think that you're going to
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  be there for a few years, doesn't make any sense.
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  So the product risk has declined precipitously.
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  And meanwhile, the borrow risk has declined as
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  well. So I don't really see a whole lot of room
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  for another foreclosure crisis. Now, I think
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  it does behoove one to be very careful. And I
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  would say cash reserves mean a lot right now
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  because we don't know what's going to happen.
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  But If you're on the sidelines thinking, oh yeah,
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  apartments are gonna be on sale in a big way
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  in the next one to two years, I'm not seeing
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  it. I would say be careful out there, but I'm
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  just not seeing blood in the streets. Now let's
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  take a look at foreclosure starts. And I think
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  this is a great example. This is a great example
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  of the sort of scare headlines, like, oh, foreclosures
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  are up. I don't know, two X, four X, three X.
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  Yeah, sure. But they're down from historic lows.
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  We had a moratorium. We're not even back to normal
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  levels before the global financial crisis. These
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  are extraordinarily low levels. So are foreclosures
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  up? Absolutely. Would you expect them to be?
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  Sure. But are we going to see a crisis? I don't
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  think so. And home prices were already turning
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  around by 2011 and you can see the foreclosure
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  level there. So if we're not seeing, again, I'm
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  not seeing it in the numbers and I could be wrong.
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  Now here, let's take a look at homeowners equity.
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  That's another really important thing to look
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  at. And you'll see that the equity levels are
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  relatively... high, at least by recent standards.
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  Now, one of the things that pushed them down,
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  and I think I have another slide for this, is
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  that prices did decline. But you'll notice that
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  people saw a decline in their equity even before
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  the prices declined. And so why is that? People
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  were using their homes as ATMs. And when you
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  saw rates go down, in a very long -term sense
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  or years and years, I mean, literally, since
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  the Volcker era, I mean, why would you worry
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  so much, right? I mean, you have more equity
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  than ever. And just look, I mean, well, we could
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  probably refi again if we have to. I'll probably
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  take money out in another six months. Well, that
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  didn't turn out very well. But this time, I think
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  a lot of people once bitten twice shy, or as
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  some say, he who gets burned on soup blows even
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  on his yogurt. So we're not seeing people do
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  that this time. We have very high homeowners'
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  equity. So this is another reason why we're not
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  going to have an issue. So people are not moving,
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  but even people who might want to refi, cash
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  out, et cetera. those increases in rates are
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  surely gonna put a damper on that. All right,
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  yeah, I think we can go through prior housing
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  recessions. Looks like we have a little ways
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  to go. I guess I'll call for some questions soon.
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  I know Angel, especially when it comes to economics,
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  has some great questions. I don't know if you
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  can see the dual screen, but I can see you're
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  smiling and I like that. Okay, let's compare
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  it to the Great Recession. We had a huge oversupply
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  in 2008. Now we have a significant under supply.
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  Home equity as we saw on the last slide was low
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  and now it is quite high. We just don't see people
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  underwater. So I mean, at this point, we don't
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  have the issue of that the bank is just gonna
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  come in and foreclose. I mean, people... People
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  can maintain. We have people working, et cetera.
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  Increase in money supply was significant this
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  time. And that's driving a lot of inflation and
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  probably a lot of the silliness that we're seeing
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  in the macroeconomic space. I mean, we haven't
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  seen the recession yet, but then again, should
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  we expect it to come yet? I mean, at least we're
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  judging that a recession involves loss of unemployment.
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  Maybe not. I mean, there's a lot of monkey business
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  going on. Mortgage rates dropped. during the
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  Great Recession as you'd expect. That's what
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  happens. I mean, the Fed lowers rates and that's
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  going to impact everything. This time again,
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  and I've left that top line number of 7 .08 there
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  because I just want people to get an idea. I
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  mean, this is the sort of thing that we've been
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  up against. This is what really took us down
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  from those all -time highs. And we saw a 26 %
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  price drop. And this is from Case Schiller. So
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  again, you'll notice that's a little different
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  than the CoreLogic number. So we don't know what's
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  going to happen this time. But again, we're already
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  seeing only a 2 .5 % drop. And the rate of decline
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  is less each month, month over month. And I believe
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  the latest statistic that was available as of
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  mid -February is December. And hardly declined
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  at all. I mean, it's really leveling off. So
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  if those rates slide sideways, Who knows, we
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  might even see an increase in home prices by
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  the end of the year. Wouldn't be surprising to
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  me. Now, this is from Lawrence Yoon. He's got
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  some additional info here. I'd like to focus
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  on subprime loans. We saw that a few slides back.
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  Virtually none. Credit profile has greatly improved.
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  And we also see we have very little inventory
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  on the market. Why? As I showed you, we don't
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  have homes being built and those currently existing
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  homes, people just don't want to get out of the
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  current mortgage. Makes sense. Mortgage delinquency
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  is relatively low and our homes in foreclosure,
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  very, very low. So does this look like the great
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  recession? Not to me. So here is what actually
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  happened. We saw interest rates decline 3 .5
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  % rather than 4 .5 % increase like we've seen
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  and a major, major home price decline. So those
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  interest rates declining was not enough to pick
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  things back up. Fed did everything they could
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  to ease the situation and it was just literally
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  beyond the issue of interest rates. This time
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  it's interest rates all day long. 1990 housing
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  recession, as I promised, we showed further statistics.
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  We were sort of balanced going to 1990. But again,
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  we have a huge under supply here. I'll focus
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  on 1990 since you've seen the right column already.
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  Home equity was high again, maybe one of the
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  reasons that things were mitigated, also the
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  balanced housing supply. And we didn't really
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  monkey too much with the money supply. Mortgage
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  rates went down slightly as you'd expect. because
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  it was a mild recession, and we saw a mild price
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  drop. And here's just to see the tail of the
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  tape in terms of charts. Let's see, I think this
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  is just a basically just a wrap up here. We have
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  huge differences between this and the last crisis.
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  So am I predicting that we're not going to see
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  any further issues? Not necessarily. If we see
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  a further price decline, I wouldn't be surprised.
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  I will be shocked if we see major price declines
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  like we've seen in Canada, Australia, or in China.
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  But I do believe that it's probably going to
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  be a good while before we see things pick up
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  again. And who knows, again, maybe by the end
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  of the year when those statistics come in, I
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  would be surprised if we are in a very different
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  situation. And now it looks like I've saved quite
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  a bit of time here for Angel. Angel knows all
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  about my presentation. She's seen it before.
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  So if you want to go into details, Angel, or
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  if you want to start asking questions or I can
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  go anywhere from here. OK, so I was just going
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  to talk a little bit about where we're at and
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  why the lack of supply is having such upward
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  pressure on price. And part of that is because
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  these graphs are looking at specific moments
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  in time. And so today housing supply is XYZ level.
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  So the you're moving along the curve as to what
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  the quantity demanded is going to be. Right.
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  So you can't scoot the curve until there's more
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  supply. I think I think like a trash bin. And
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  so when I explain to my students, I'm like, OK,
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  you got a trash bin. And if it's not very full,
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  a lot of times that little little sag down. Right.
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  So as we gain supply and more supply goes into
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  the trash bin it's going to pop the lid and that's
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  what's going to actually increase supply because
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  an increase in supply is going to increase the
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  entire curve and so that will have that increase
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  in supply so long as demand isn't actually moving
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  will have a decreased effect on the price because
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  it's you're giving more people the option. So
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  there'll be more houses out there. Now, other
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  tons of other things play into that. What's the
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  interest rate? What kind of disposable income
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  do people have? What kind of savings do people
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  have? A lot of things play into that. But all
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  of that is kind of encompassed in where the demand
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  is sitting. So you just have to think about like
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  until more supply is created. You don't have
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  a lot of movement in the prices based strictly
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  on supply. Now, when you add in the other stuff,
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  you're looking at the rate, you're looking at
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  those, that can affect. But so long as we're
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  only talking about supply, so that single variable
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  supply, there's not a whole lot that can happen
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  until we have more supply. So absolutely. Oh,
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  go ahead. Sorry. No, no, no. I was just saying,
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  I know people, we tend to think of all these
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  variables and it's really difficult to consider
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  each variable and its effect. you want to kind
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  of look at each one individually, and then you
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  get a better idea of what's going on, and then
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  you can make some combinations. But when you're
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  talking about it, you really want to be thinking
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  about one variable, because when you start combining
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  them in, it gets super complicated, and you won't
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  actually know what variable on its own, like
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  that isolated variable, what that variable is
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  having the effect. You know, you won't be able
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  to pick it out. So absolutely, yeah, economics,
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  what a complex science. so many moving parts
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  and it occurs to me one of the things that I
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  didn't mention is that we really need to see
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  that we're going to see a pretty large gap between
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  the decline in interest rates which you'll notice
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  I flagged here as happening in it was the end
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  of October and then I think it was early November
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  again and when home prices can pick up. So since
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  I want to say it was, and let me just see if
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  I can go a little further. I've got one that
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  does map this out a little better. But yeah,
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  I mean, since mid November, we have, oh, did
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  I stop my screen share? Yes. Darn it. You know
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  what happened is when I closed it, I had to start
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  all over here. because I didn't have my two screens
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  going, something like that. All right, yeah,
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  let's do it again. No, that's not the right screen,
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  is it? Ta -da. Yeah, it's taking a moment. But
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  what I wanna tell you, and regardless of whether
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  we get the visuals back up or not, is that since
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  maybe mid -November, we've had rates in the mid
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  -sixes. And you have to expect that that's going
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  to take a little time to show up. Right? We're
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  going to have to go. Here we go. You know, it
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  might take another couple of months before what
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  shows up in the statistics that we actually have
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  leveled off. But again, you see rates declining
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  almost up to the very presence. So it will take
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  at least, say, 45 to 60 days from today, again,
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  middle of February, before we're going to see
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  the impact. of what you can see on this very
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  chart in terms of rates. So this is very much
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  something which is in flux. Prices are very much
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  in play, and we're going to have to simply wait
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  a while for the numbers to start to reflect our
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  current situation. When I heard, I guess it was
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  about maybe a week ago now, that it's looking
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  like we're going to have two more interest rate
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  hikes, I was just like, Oh, great. So it hasn't
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  worked yet, but we're still going to continue
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  down this road because I feel like inflation
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  kind of will kind of fix itself. It just takes
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  longer. And so the government gets involved to
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  try and speed it along. But I'm concerned that,
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  like other times, it's an overcorrect. And so
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  what's that going to do to us? Is it going to,
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  like, grind us down to a halt? I was really scared
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  of stagflation for a while there. I don't know
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  if I'm still afraid of it. I'm more concerned
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  about the fact that I saw that we're trying to
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  keep inflation at two percent and jobs at like
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  three and a half percent. I'm like, those aren't
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  even the natural rates. And we call it we have
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  natural rates because that's what the economy
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  gravitates toward. Like there's that everybody
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  knows how much the dollar lose per year, three
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  percent. We all know that because that's historically
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  the way it's been. So to think that we can get
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  it below three percent, it isn't even logical.
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  or to be below the five, five and a half percent
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  of the natural unemployment rate. Like that,
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  that isn't even logical to me. And I don't understand
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  why we would be pushing. It's almost like, like
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  overheating. It'd be like, it'd be like all the
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  cashiers actually being at their cash register
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  at Walmart. Even though you think that would
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  be great, it actually wouldn't be.