Hey guys. So it's Ken. And so I'm going to predict five things
that I think are going to happen between now and the end of 2022, and
maybe they'll kick into 20, 23, stick around to the end. So I can tell you what I'm doing
and why I think you should do, because all of these things are going
to create ripple effects and obviously disruption, but there's also going to be a lot of
opportunity as always I'll provide the show notes for this video and the link
below and be sure to like subscribe and sign up for notifications. So you will never miss our
future videos or live streams. So I boiled it down to five predictions
that I think are going to happen starting June of 2021 and are
going to roll all the way through 20, 22 and maybe even beyond.
So let's get right to it. So the very first one for Barron's
I believe is going to end in 2021. We all know that's been
kicked down the road enough, but they're not going to
kick it into 2022, I believe. And why do I think that because all
of the COVID rates are going way down, vaccinations are going up and
people are returning to work. Things are starting to
be way more comfortable. And life is starting
to get back to normal. Even TSA has come out and said that
you might not have to wear a mask after September of 2021. So I don't see any reason why we're
going to kick this forbearance into next year. However, the ripple effect will depend largely on
how behind the homeowners are on their payments and whether the lender is
willing to work with that particular homeowner, either way, a lot of
people are going to have to pay. The second thing of course
is the eviction moratorium. And I also believe that
that's going to end in 2021. We all know that's
been kicked down the road. Now this eviction moratorium is
going to be somewhere between 10 and 15 million people. And the landlords are now going to have
the opportunity to collect that rent. If the renters can pay it. And you're going to see lots and lots
of movement in the rental category when the eviction moratorium, and additionally, the courts are going to be flooded
with evictions in every single state. And it's going to put a massive strain
on our court system. Number three, I believe that whole prices
are going to peak in 2022. I'm going to talk a little bit more
about why a lot of it has to do with the forbearance ending and that new inventory
coming to the market and affordability on the homes that people are living in
today is really, really tough right now. Number four, I believe that we're heading
into a renter's nation and
that the pandemic kicked it into gear later in the video, I'm
going to show you the homeownership rate, just like we saw in 2008 and how people
are falling off the homeownership rates from a peak right now of 68%. The last thing I strongly believe is
that we're going to have higher interest rates. Hopefully you've been paying to this is
an important topic because both Janet Yellen, who was the head of
the treasury and Jerome Powell, who was the head of the fed, have both hinted that we might be seeing
higher interest rates in the economy to tamper down inflation. So those are the five things that
we're going to cover right now. Okay. Item number one for Barron's. So I believe the forbearance is going
to end and what we're going to see right now, 70% of the FHA VA USDA, Freddie Mac, and Fannie Mae loans
are all in forbearance. As you know, and right now we're seeing about two
plus a million people that are going to have to deal with that. Not all of
them are going to happen in 2021. Some are going to trickle into
2022, but here's the truth guys. These are folks that have to
pay, okay, one way or another, these people have to pay. And what they're going to have to do is
they're going to have to show that they have a new sources of income. They have a job because these are loan
modifications, or these are refinances. And the way of course, lenders lend money is based on
people's ability to pay in the future. So this is going to go one of two ways. People are either going to stay in their
homes and work it out with the lender. If the lender allows it based on
their financial condition or two, they're going to have to sell
some of these homes or foreclose. And luckily some of these home prices
have gone up enough where they might have enough money to pay back some of this
money. That's now in forbearance, there'll be able to use the proceeds
from their house to pay that off. One small thing. I know there's
been a lot of press about this, but the foreclosure activity continues to increase despite the
government moratorium. So I know there's a lot of
conflicting information on here. I really think you should dig harder into
this because obviously this is a big, big issue, and we have billions and billions of
dollars of unpaid mortgages here that are going to trickle into the
economy one way or another. The second big prediction is I believe
that the eviction moratorium is going to end, and we're going to have somewhere around
11 million renters that are going to be displaced. So in other
words, when this ends, the landlords are now legally able to
take back possession of their property through the proper eviction process, millions and millions of people are
going to be facing evictions as this moratorium ends. And as the land landlords try to take
back their properties and obviously rent them to people that can pay so
that they can pay their own bills. One more thing to consider
here, these people, they're all going to be
different. Every single state, every single city is going to
be very, very, very different. Eviction rates will be higher in
some states than others. Obviously, for example, one in four renters are behind on their
housing payments in Florida and South Carolina compared with 6% in Maine Tuckey, according to the center on
budget and policy priorities, you go take a look at this. So as can see every city and every state's
going to be a little bit different. So as these things start to roll out, you'll have both demand and supply issues
as these evictions roll through the court system. And as people
move around and by the way, that doesn't always mean that
they're going to move locally. Okay? So here's one that everyone is going to
be controversial on and they're going to attack. But the fact is I really believe that
home prices are going to peak in 2022. And here's a couple of the reasons why
as you take a look at this right now, homeownership rates, they're down
guys. And so take a look at this. If you want to go look at the, the St.
Louis fed, I think this is fascinating. This is the homeownership rate
for the United States as a whole. So this starts in 19
70, 80, 90 2000. Okay. You can see that we got
really, really high up in 2005. That's actually what created
the housing crash in 2007, 2008, 2009, as you started to see it took its way
down and then they kept going down, down, down, down. Now this bodes very
good for renters right here. That's what that does. When there's
people falling out of houses, then obviously they're going
into rentals generally. So the housing rate went down from two, almost 63% from about 69%. And we're going to get back
to that in a little bit, but that's a massive difference
guys. That's millions of people. Every 1% is millions of
people. So from 69 to 63%. So right now we're looking at the same
thing where it obviously peaked in 2020 during the pandemic, which is crazy. It got up to basically 68%
home ownership rate this here. That's a fall. Now let's take a
look at this little area right here. Okay. So now we're just going to
take a look at the very small area of 2018 to 2021. Okay. So what we saw is in 2018, the home ownership rate
was just under 65%. And it went all the way up to 68% guys. This is like 3 million
people basically went in to home ownership during this time. And what happens when it reverses is they
go back into rentals and that's where we're going to head in a
minute. So as you can see, this all fell here and
here's where we are now. So the home ownership rate is
down to about 65% from 68%, while that might not
seem like a lot. Guys, that's millions and millions of people
that are coming out of home ownership into rentals. The second thing,
interest rates, they're going up. Let me show you guys. It's all over
the news. If you haven't read this, the treasury secretary Yellen says that
rates may have to rise somewhat to keep the economy from overheating.
Things are overheating right now, prices are going crazy guys. And the fed uses the
interest rate as a barometer, as a gas pedal and a brake, to be able
to put the brakes on a call enemy. What that's going to do though, is not good things because it's
going to slow things down right now. And the last thing is construction costs. So those of you who have
been under a rock, you know, that construction costs are
really, really high right now. That's creating affordability issues. As you guys can see the co
from construction costs, home builders and buyers face high
prices due to construction costs that are going up. In fact, the national
association of home builders right here, check this out. They've added $35,872 for one house. And so what we're seeing is there's no
way the builder absorbs that there's no way the contractor absorbs that these
costs get passed right through to the homeowner. And it creates more
and more affordability issues. And that's going to be bad because
interest rates are already so low and we can't really lower the mortgage
payment much more than it really is. So the next prediction is a renter nation. Now nobody's really talking about
this, but guys, this happened in 2008. I went through it personally
when homeownership got up
to 69% and went all the way down to 62%, it put
massive pressure on rentals. That's what spurred all of this investor
housing stuff, because without renters, you don't have investor housing. So
this is about ready to happen again, even though prices are crazy right now,
because of all this pent up supply, I'm telling you right now, we're
heading into a renter nation in here. And here's a great study for you to look
at this great report by Freddie Mac, which you guys hopefully, you know, Freddie Mac and Fannie Mae is one of
the most important challenges of our industry will face the significant
shortage of starter homes. And the reason guys is because what
we already talked about with these construction costs, construction
costs are crazy. Take a look at this. This is out of that report. And this is really what I want you to
take a look at before the COVID pandemic and the current recession, the housing market was facing a
substantial supply shortage right here. And that deficit has grown in 2018. They estimated there was a housing
supply shortage of 2.5 million units already in 2018 before the pandemic, meaning that the U S economy was about
2.5 million below what was needed to match the longterm demand,
using the same methodology, which is really important. The
government rarely does this. We estimate that the housing
shortage increased to 3.8 million units by the end of 2020. That's not good. That means it's going the other way. That means that we actually are
going to have a supply issue. There's not going to be enough supply
and the band's going to be there and it's going to drive all these
rents up. I believe so, as you guys can see typically in a
recession housing demand, declines, typically that does not appear to
be the case here because of multiple things. As a result of COVID for people
not putting their houses on the market, people not be able to trade up because
now they're trading into something that's lesser. And also because of the
forbearance and all these eviction issues, we're not going to have a
decline in housing demand. So for more of this on the Freddie Mac, you can go on their website and look
at the entire report and you can follow this for yourself. The next thing that's
going to happen is the millennials. They were born between 1981
and 1994. As you can see here, what's crazy is that these millennials
and everybody has been picking on are now turning 30 at the rate of 4.8 million a year. So that's a lot of folks turning 30 and
what's happening is they're going to come into this housing market too. And what they're going to experience
guys is not being able to afford a home because of these rising prices. So we're going to have
some affordability issues, and that's going to shove
people into rental housing. The cool part about it as a landlord. And hopefully you guys are
investors and landlords too. You're going to find that these
folks, they have cash. They have jobs, they have careers. They've now
been in the workforce for awhile. They're actually going to be forced, which is not necessarily good into
rental housing until they can afford something. The next thing, which is rather obvious as what we already
saw when I showed you earlier is how rental rates zoomed from about 2010, till about 2019 was rental rates are
definitely going to go up over the next 10 years. And the reason of course, guys all boils down to supply
as a landlord or a developer. We are definitely not going to see the
supply of rental housing to meet this demand. And what will happen is we will definitely
see individual rental increases in all these individual
markets based of course, on the supply and demand
for that individual market. So pick your market selectively. So the last thing which hopefully you
guys are watching the news higher interest rates are definitely going to be a thing
as the federal reserve starts to put a governor on this economy. As you can see, a lot of these investors are already
backing off with the view that the federal reserve couldn't raise rates in 2022. So this is a thing Janet Yellen came
out recently and said that in her last statement, it didn't mean that
they were going to raise rates, but you can see that she hinted
it in her last statement. So why do I think there'll
be higher interest rates? Because the federal reserve has a policy
that if inflation is very, very high, that they actually raise rates to try
to maintain inflation to a reasonable level. What that's going to
do unfortunately, is going to, it's going to create affordability
issues in the form of rent. It's going to create affordability
issues in the form of mortgages and car payments and all the Colts kinds of
things. Cause people finance things. And as those rates go
up, their payments go up. And if they're not having
that kind of wage growth, then it puts a squeeze primarily
on that middle class and the poor. Then we're going to have
this affordability squeeze. And I think this is going to be your
biggest issue for the next 10 years. The last thing, and I keep pounding away on you guys
is a fixed versus a variable loan. If the federal reserve is saying that
they're going to increase rates, gosh, guys, fix the rate, fix
her rate, fix the rate. You want less than a 3% rate fixed. You want to know that your rates going
to be 2.8 or 2.5% in 10 years for now, when they're increasing rates, you
don't ever want to get rid of that loan. Make sure you fix this rate. So if you guys like what you've
seen so far hit like subscribe, hit the notification bell, because now we're going to talk about
the opportunities and the things that you can do on the five predictions
that I just went over. Okay. So now where are the opportunities
with all this crazy stuff going on for forbearance sending evictions, the
houses of peaking. When do I buy? Where are rents going? All that kind of
stuff. Well, I just went over all that. Those are things guys that are
definitely going to happen. We just don't know exactly when, because of course the government can throw
more money at the saying and they can kick the can down the road. Even more. There are basically four opportunities
that you can do just like I'm doing, I'm doing these right now. The first one is the cost of
build versus the cost to buy. So what do I mean by that? So let
me give you an example right now, we're in the process of buying
a property in Katy, Texas, and in Katy, Texas, we're buying
an entire apartment complex, actually two of them for 648 units. And we're paying about $73
million for both projects. And that's under 130,000 a unit
roughly in there which equates to about 120 to $130 a foot. So I'm buying a property at well
below what it costs to build. If I was to build a property
right next door to that property, it would be well over $200 a foot. So
just to buy the property I'm buying, it's call it a 60 to $70,000
per unit discount than it would be if I was to build. And if the cost of build is
significantly more than the cost to buy, then you might want to
buy instead of build. And that's all I'm saying in Phoenix, that exact same property
that we're buying in Katy, Texas would cost a little over
200,000 a unit. And so of course, we went down to Katy, Texas, because
what's the other factor, the rent, okay. The rents are not that much difference
because the property in Katy is right across the street from the Texas medical
center. So we're buying at 130,000, a unit. And our average rents
are about 12 or $1,300 a month. That math works all day
long, but in Phoenix, that exact same apartment building
well over $200,000 to buy it. And the rates would not
be that much difference. So the math doesn't make sense
to buy in Phoenix right now. And it makes all the sense
to buy in Katy, Texas. And that's what I mean by the cost
of build versus the cost to buy. The second one is the supply and demand
for the rental rates. Okay? So again, guys is just math. You want to
take a look at what's the supply, where are people going?
So what's the occupancy. If occupancy is really high in an
area or about ready to be high, because an area is growing, then that means that your rental
demand is going to be there. And you're going to see this nice little
rec role. Like we just saw from Austin, Texas, let's say over the last 10 years, which is an area that we invest in right
now. The third one is obvious, okay, follow the people. So people, what they do is they vote with
their pocketbook and their feet. They're the rider trucks,
the U hauls Alice van lines. We've talked all about this, go where the
people are going guys, Florida, Texas, Arizona. Those aren't the only three, but those are really good
markets right now because very, very hard to buy properties in many, many areas because people
are moving there right now. And you're going to see these rental
rates go as well because people are buying them as investment and renting them for
the longterm. And the last thing guys, as we've talked about time and
time and time and time again, please do not buy things
for capital gains, which means I'm going to buy a house
for 300 and flip it or 400 that's is not the time. Guys. You want to make it cash
flow. You want to use the rental rates. You want to use the rental income and
you want to use a strong renters nation that's calming. So whatever you buy over the long-term
is going to put cash in your pocket. And you're building passive
income primarily tax-free
for the rest of your life. So you can get financially
free. So again, guys, thanks for watching the five
predictions invest well.
