Is The Housing Market About To CRASH? | Housing CRISIS?
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Being said, this is a good study and great food for thought. I thank you Neil for your opinion as I move forward in my practice both personally, and working with clients. Thank you Neil
"Between mid-2006 and early 2009, home prices dropped by 35% in the first nationwide decline since the Great Depression. Home prices historically sat in a range of 3-4 X median incomes, jumping to 5.1 times in December 2005 before collapsing. This ratio is now at 4.4 times, a level that was unprecedented prior to June 2004. Over 2M people have already requested forbearance in April Let me just explain briefly what happened prior to the 2008 crisis, because there's a lot of misinformation around this. The banks were basically gambling with the housing market, then packaging up your mortgage with thousands of others in a bundle called a CDO which stands for ‘Collateralized Debt Obligation’. Then they were using huge insurance companies like AIG to protect that gamble. However, the insurance companies thought there was no way the housing market would ever crash, so they didn't keep the money they needed in reserves in order to payout any claims. The government then stepped in as well as regulators so that this would never happen again and that CDOs would never be created again... But guess what happened in 2015… CDOs came back, the latest name being thrown around is a BTO which stands for ‘Bespoke Tranche (traunch) Opportunity’ Last time around it was the shadow banking sector that caused the crisis, this time around it will be the shadow banking sector again. It’s said that 5 of the top 10 mortgage lenders or 60% of all mortgages are not from Banks! They belong to the shadow banking sector. Here comes the next problem, banks like JP Morgan are requesting a 700 score with a 20% deposit, so anyone that got a variable rate loan in the past few years who is looking to refinance over the coming months - good luck! Because that adjustable rate will be about to boom, and since most families spend 100% of what they earn, this is going to push them into debt. And making the monthly payment at a time when people are losing their jobs is going to be a mortgage apocalypse. Anyone who can't meet the 700 score, means less people are available to purchase houses. This will dramatically affect the supply and demand curve, turning the market from a seller's market to a buyers market and possibly even a finance based market to a cash buyers market, which means lower prices. We also need to take into account the amount of inventory on hand for your area. So we're probably going to see a drop-in available houses on the market because people are either concerned about listing and then not getting a sale or they’re concerned of would be buyers walking around their home and passing on the virus to their family. Lack of supply will hold up prices for a while in those areas. But it’s just kicking the can down the road, eventually they will all crash. They will have to, that is the law of averages. One of the biggest mistakes I think that the governments have made right now is they have allowed people not to pay their mortgage and loan payments, without needing to prove financial hardship. This is a huge mistake, because Human Nature being what it is, people will apply for the payment break because it's like free money even if they're not in financial hardship. This in turn will leave banks running out of money due to forbearance, they simply don’t have the cash reserves. One of the reasons that you've seen the major banks tightening the lending criteria, is because they know that they can't sell the mortgages on to investors because it's too high risk. So they have to increase the criteria in order to sell these loans on. The next thing we need to factor in is inflation vs home prices. So even if we don't see the actual number i.e. the price of a house going down, it will still be going down as a result of inflation going up. I'm expecting at least 5% if not 10% inflation over the next year. Add this to quantitative easing also known as money printing, and we could even see house prices go up. However it's not real, it's an illusion because there is simply more money in circulation. The banks and their insurers will be the first to cause yet another housing crash. They moved away from the safe 20% deposit down, 700 score to the 3% down, below 550 scores where they can make a lot of profit and get insurance against these huge risks. Conclusion My prediction then is as follows: I think the market could correct by as much as 40% downwards in some areas and as little as 15% in others. According to Redfin, house prices have already dropped by an average of $21,000 since mid March, this equates to 7% in just 1 month."