House Prices 2021 | Crash Still Coming? (Should You Buy)

what should you expect for real estate and house prices in 2021 now is the crash still coming or should you buy a home right now now in this video i'm going to show you some brand new data that just came out january 2021 to help us understand the market better i'm going to break it all down we're going to look at where homes and house prices have been historically what's wrong with the pricing index that most analysts are using why it's completely wrong what the real drivers are what they're saying to us right now and of course at the end i'm going to give you my advice my opinion for anyone that's considering buying real estate in 2021 so stay tuned all right now welcome back to the channel my name is mark moss now i like to talk about money i like to talk about the reason why it's failing it's creating all types of problems in the world today because i believe that if we can handle our money if we control our money it gives us more options in life if you like these topics want to help me get them to more people take one quick second please help me out click that like button real fast hit the subscribe button and the bell notification if you are not already subscribed now real quick you might have noticed if you if you've been watching my videos for a while that i am leveling up my game and i have a brand new presentation screen courtesy of my good friend ken mcelroy ken mcilroy he is a real estate expert and i like to do real estate videos i've been doing real estate investments for over 25 years 25 million of development i've done a lot but not near as much as ken mcelroy so give him a follow i'm going to link to his channel down below he was nice enough to give me this gift and so i thought shoot in honor of ken mcelroy i am going to do a real estate video for you i try to do one once a month every other month because i am still a real estate investor and i want to keep you up to date and let you know what you should be doing about the real estate so check it out in the description give ken mcelroy a visit and thanks so much ken now let's check it out so will house prices crash in 2021 that's what everybody wants to know i get asked all the time should i buy a house should i wait people say the market's going to crash it's not going to crash and so let's take a look at this but the first thing that i want to point out is that if you're asking the question will house prices keyword house prices keyword will they crash well i like to say this quote from edwards w edwards deming and he said that if you don't know how to ask the right question you will discover nothing so it's all about asking the right question and in my opinion this question right here will house prices crash is the wrong question it's the wrong question you're asking so let me tell you what i am talking about now most people want to start with the prices right you start with the prices and so are will the prices crash well people would say well are the house prices expensive are the house prices cheap and so we'll talk about that but i've made videos about real estate and i've talked about relative to what are they expensive are they cheap relative to what are they relative expensive relative to historical trends are they expensive relative to being priced in dollars or are they expensive relative to the amount of the monthly payment let's take a look at this you might have seen this chart one of my other good buddies george gammon has been pulling this chart up and taking a look at this now one chart that he pulled up i'm going to bring this up for a minute so this is the case shiller index for home prices uh historically so this is a 1900 right here so we start way back here and you can see that this trend line has held pretty strong george gammon made the case point in this but you can see that right about here is where this trend line really started to break at the end of the 1990s all right now so what we're going to do is we're establishing that right about here is the area that we want to look at all right so this this has held this good baseline right here but it's just this area that really seems to be a problem now if we take this now that we can see that we'll just zoom in on a little bit more area so now we'll start right here at that historical trend line and you can see that prices have come up this is 2008 right here so of course we know this was a bubble they've come back down and now we can see that they've come back up back into bubble territory all right now this is inflation adjusted so what that means is um you know obviously we have inflation the the currency is being debased it takes more dollars to buy those homes today so we adjust the home prices for this um and this shows us that we are back into bubble territory where we were in 2008. people have made this argument but let me break this down for you a little bit because i don't necessarily agree with that but the problem is that the gauge the measurement the charts that i just showed you are from case schiller the case shiller index and i believe that there are serious problems with that now first of all it does adjust for inflation so that's good right so home prices obviously are a lot more expensive today but that's because the currency is being debased it takes more dollars to buy those homes today so it does adjust for inflation that's good but here's where the problem lies how does it adjust for inflation where does it get the inflation measurement that is the problem and it gets it from cpi i've done videos breaking this down it's the consumer price index now the consumer price index the measurement is completely wrong i've talked about this i've done a video we'll try and link to it right up here now it's kind of what i call a political tool it's been taken over by the political class in order to manipulate the currency as they say fit so they're constantly changing the way that cpi is measured and so when you're using a political tool a constantly changing cpi measurement that's completely wrong then of course the case-shiller index adjusting for inflation is going to be wrong right you can't start with bad data and end up with good data the reason why the cpi is wrong that all this is based on is because it doesn't count house prices the keyword house prices so home prices gone up now you know i don't know where you live in the country but where i'm at they have gone up like crazy all right but cpi doesn't count the price of the house the house price was 500 000 today it's a million it doesn't count that how can that be that's something big right so in 1983 they changed the way cpi calculates this and this is a big reason why cpi is wrong now there's lots of other examples but of course home prices are a big piece of that and in 1983 they changed this to where the it instead of counting the price of the home going from 500 000 to a million instead what they do now is they look at the owner's equivalent rent of residents so what that means is the home price at 500 000 may be rented for 3 000 a month now it went up to a million dollars but the rent maybe only went up to five thousand dollars a month you see so now we have from three thousand to five thousand so this is the this is the change that cpi tracks not the double the five hundred thousand to a million dollars so that is faulty off right off the bat the other thing is that it only tracks 20 markets now if you've been watching any of the other videos i've done on real estate you can see here's the 20 markets that they represent now these are major markets but if you've been watching any of the other videos that i've done on real estate you know i've said over and over and over that if people ask will the real estate market crash again that's a wrong question to ask because there's no such thing as the real estate market instead there's thousands of market submarkets broken down by state by area by location by property type by income level all these different things thousands of sub-markets and so when you're only going to be looking at 20 markets you're never going to get a good idea right so again the data is faulty because again there's hundreds there's thousands of submarkets the other thing is that with markets we have two different types of markets we have one that's called silicon and a cyclical and we have one that's called linear so cyclical means they go up and they come down and they go up and they come down boom and bust boom and bust linear means they just kind of keep tracking along and so there's different types of markets so some areas depending on where you live in the country you see that home prices haven't gotten that crazy but they just seem to be plugging along whereas other places you've seen you know the the boom bubble areas specifically around you know san francisco southern california austin texas things like that they go way up and then they come way down right so that's the difference so this case-shiller index doesn't account for any of this so we have faulty data so let's look at some better data that we can get to now what i want to do is i want to break down the prices again right it's not about the prices it's not about the the house the cost of the house prices are really determined by two things one affordability all right the ho the price of the home whether it's 500 000 or a million dollars is it depends on the affordability which the affordability is really the amount of income that i'm making what's the average income for the area divided by the monthly payment that is the key piece that a lot of analysts seem to be missing out so the affordability is the income how much i'm making or what the average income is for my area divided by the monthly payment and then the other factor is of course we always talk about supply and demand so all the economics doesn't matter if we're talking about bitcoin we're talking about stocks we're talking about real estate it doesn't matter all pricing is always going to be broken down to the most basic which is supply and demand of course real estate follows that same thing now if i want to keep breaking this down the reason why this is important is because per the national association of realtors they say that 87 of home buyers finance their home purchases so the real question isn't have home prices gone up are home prices too high historically that's not the right question our home price is going to crash down the real question isn't where are home prices historically the real question is how affordable are home prices and that is the key metric and as we can see from this chart on the screen home prices have been going down now if we go back to this chart that we've looked here the case shiller index this is the price of the home from 500 000 to a million and as we've already already pointed out we are back to bubble territory meaning from here you know home prices were let's say in my area they were a million dollars they dropped down to 500 000 today they're back up to a million dollars so that's bubble territory in the price but when it comes to the affordability which again is more about the monthly payment of the home we can see that since the peak here in about 0.506 the home prices have actually gone down gone down quite a bit from seven all the way down to about three and a half right here so their homes are actually much more affordable than they were so now when you look at the bubble you see it in a completely different light all right now the reason why is because of the interest rates the the monthly payment comes down to the monthly interest rate and the home prices are set based off of the payment so you work a job you make a certain amount of income you make 100 000 a year you go you want to buy a house you go to your mortgage broker you go to your bank and you go how much house can i afford i'm making ten thousand dollars a month i wanna spend forty percent of that on a home that's four thousand dollars a month how much does four thousand dollars a month get me well that is how you look at it so it's not about the price of the home it's about the monthly payment now we can see in this chart right here let me blow it up here on the screen we can see that per this chart this is the 30-year fixed mortgage rate the interest rate so we can see back here uh i mean we had crazy high interest rates back here in the 80s i mean we were at 18 19 imagine paying 18 or 19 for a mortgage it would have been insane but look what's happened it has just gone consistently down down down down down which is why the home prices have been going up and up and up and up because it's not about the home price it's about the monthly payment now back to where we are historically back to the 2008 peak we can see we were right here interest rates were about 6.5 back in 2008 today they are about 2.6 2.7 percent so they've got the interest rates today are about 40 percent of what they were at the peak back when they were expensive and remember going back to this chart we really just have to look from here this is really where home prices took off even though right around here is where the interest rates started dropping down uh and so interest rates started dropping here so home prices did come up a little bit a little bit of a correction and then they just took off again right here and again this is another good chart now this is this is again going back to the case shiller which is not my favorite chart but what i like about this is this is an overlay all right so this blue line right here is the cash price so if you're a cash price but if you're a cash buyer and you're going to pay cash for the 500 000 of the million dollar house you can see that if you're paying cash it's actually gone up right it's gone up now when i adjust it for inflation which is the chart we looked at before you can see that we're just back to where we were in 2008 in the bubble however i'm making the claim that it's not about the price of the home it's about the monthly payment and when we look at monthly payment we can see that we are still much lower than we were at the peak and so that's when i say is it expensive well expensive relative to what and that's the key piece that we need to look at all right so now the question is will the rates hold will this continue now i hear everybody you're probably already leaving comments mark you're an idiot you don't get it there's unemployment there's forbearances there's inventory that's going to come on the market the economy is wrecked and all those things and we're going to jump into all that but right now i still just want to establish the fact that it is the monthly payment that's been driving the market and the monthly payment is derived from the interest rates now let me just give you just a quick example again you know i said that i've been in real estate investing for over 25 years in from 1995 until about 2007 i had an amazing run and things were going great in about 2005 i built a custom home for myself and my family a lot of you may know my story how that worked out for me but sick home about 5 000 square feet six car garage white water views i had an elevator in the house it was amazing all right i had about a 1.5 million dollar loan on the house at the time back in 2007 my interest rate was about 6.5 percent so my monthly payment was about 10 500 for that house for 1.5 million dollars in 2007. i sold that house got out of that one okay took some money off the table today the same payment the ten thousand dollar payment so in in 2007 i was paying about 10.5 all right and that was for 1.5 million today in 2021 for uh for the same payment the same 10.5 payment i can go up to about 2.5 million so home prices went from one five to two five but my payment stayed exactly the same it's back to the affordability so the question is will rates continue to hold if rates are driving this affordability will they continue to hold so obviously i've already showed you that the rates have been falling we looked at that chart historically um since the 80s they've come from about 18 all the way down to about 2.6 so the rates have been falling but the reason why is because they're completely controlled by the fed this is not a free market so the federal reserve has been us buying mortgage-backed securities they've been artificially suppressing the price of those mortgages making it cheaper and cheaper and cheaper easier and easier for people to buy the homes but will those low rates continue that's the question now we don't have a crystal ball but let's take a look at a couple of things now first of all we know first of all we know that the debt the u.s national debt has exploded we've talked about this since 1971 and you can see how crazy this amount of debt has become today there's 27 28 trillion dollars of debt so can they raise the interest rate imagine when you raise the interest rate even a half a point or one point on 28 trillion dollars of debt imagine what that does so my guess is rates are going to have to stay low for a really really long time now we can also see um this is a this is a bloomberg news headline here we can see that the fed is seen holding rates at zero for five more years so we they're already telling us that they're going to hold rates at least at zero for five more years they've said that they're not even thinking about thinking about raising rates they're not even thinking about thinking about it they said that at least for five years this was in 2020 last year for at least five years they're going to hold them at zero and we know they can't raise them because of that debt we can look at this as a percentage federal debt by gdp so it's the debt to gdp ratio if you watch that video i talked about the keynesian multiplier and what happens when debt to gdp gets over 90 if you want to go watch that video i'm going to link to it right up here but we can see that the amount of debt to gdp is absolutely exploding so again they are forced to keep that interest rate down they can't raise it and of course we can look at this chart this is another good one this is the deficit the surplus or the deficit so this is each year does the government have more money than they spent or do they have less money than they spent and of course as you might imagine it's pretty much always spending more than they have this is a 1920. this is the great depression that's just a little blip you don't even see it that was the great depression then we have world war ii and you can see that a little bit of a blip right there of course right here is where the wheels really started to come off and look at our deficit spending right now we're spending trillions of dollars per year more than what we're bringing in and that is not going to change anytime soon so again back to the question we're trying to figure out will interest rates stay down and based off of this data it looks like they're going to have to now the other thing that drives this again is back to supply and demand of course like everything now we know that we have historically low supply of real estate today okay across the country historically low as a matter of fact they say it's the lowest since 2012. and we can see in this chart right here we can see that it has just been continuing to trend all the way down there's about 300 000 units for sale in the entire country in the united states there's 330 million people and there's about 300 000 units for sale so again historically low and again supply and demand if there's not a lot of supply and interest rates are cheap and people want to lock that in what happens prices keep going up now another interesting factor on supply and demand is that because of the interest rates going down so low it's changed the dynamic of the market and what we're seeing now is the that investors are back into the market this is a percentage of investor sales to total sales so what this means is let's say that you bought your home in 2010 2011 interest rates have been going down down down down down you've gained equity in your home because interest rates are so low today you could refinance your house and buy a second house for the same monthly payment as you were already paying so you refinance and you buy a second one and you're paying the same thing that you were back in 2010 2011. and so we can see this new york is the highest here 32 percent we go all the way down here to minneapolis it's pretty low but of course new york phoenix tampa houston southern california texas texas is a lot of these right here and so this is the percent of investors now the reason why this is important is back to supply and demand investors are buying more homes so we have 330 million people trying to buy 300 000 homes but a lot of the people are buying more than one home because of that all right so as this investor growth it continues to put pressure on that supply and demand metric all right now here is the question where everybody wants to know mark you're an idiot you don't realize that people don't have any money right supposedly so um what about the income okay well unemployment it's high we know that right before the pandemic in early 2020 unemployment was at a historical low level about three percent today unemployment's high even worse it looks like we might have a slow recovery i mean things are happening and the vaccine's here and states are opening back up but it's definitely happening much slower than happening the cbo the congressional budget office it's the government that sets the budget the cbo they see rapid growth recovery in the labor returning to pre-pandemic levels by 2022. so will this hold i don't know these are just things that we have to look at um but they're saying that they could return to pre-pandemic levels which remember was historically low about three percent by 2022 by next year so can we get through from here to next year that's the question now one thing to keep in mind is that most of the unemployment right here i should say actually has been in the service sector so if you work in hotels travel a lot of restaurants bars things like that that's where most of those have been really contained most other businesses are back up and running all right now what about the hidden supply supply and demand right so again mark what about all the supply what about the forbearances are at record highs right we can see this chart right here forbearance is an all-time high so the forbearance was in the under the cares act in march of 2020 basically they said hey you don't have to make your payment we're going to cover it for you we'll start putting those payments onto the back and you can pay it later and we can see from this chart that we have up on the screen right here that in march of 2020 the amount of forbearances went sky high and they've been coming down but we can see that they've come down and now here they've sort of leveled off and so we still have about the same amount of forbearances here the good news is we're not getting more all right so we're staying pretty steady that's a good thing all right but when we really look at this number if we dig into it ask yourself the question we just got just in 2021 we've got a 900 billion dollar stimulus there's a 1.9 trillion that's already been approved that's ready to come through the pipe they're already talking about the next round of stimulus so do you think that we'll have more assistance this year do you think that they're just going to say uh you know what all you guys are cut we're taking all your houses are they going to say that or do you think they're willing to continue the assistance now in my opinion based off of their willingness to act based off of the fact that they're already another 1.9 joined based on the fact they're already talking about doing more i believe there's going to be more assistance and they are not going to be forcing these people to take their home but even if they did even if they did there is a ton of equity in these homes because of course home prices have gone up so much because of the payment and all those things so there's a lot of equity so if anybody was forced with this problem with a forbearance and let's say the government decided not to help them anymore they have equity in their home they can just sell the home they could refinance it they could pull money out so there's a lot of options so it doesn't necessarily mean that this is all going to go right onto the market in addition a lot of people if they were given the choice to not make a payment for a year they would take it so it doesn't mean they can't make their payment they've just opted to not make their payment for whatever reason now the other thing that we have to keep in mind this is the wild card that i'm throwing in here remember everything is based off supply and demand that's one and two remember that there's no such thing as the market instead there's thousands of sub-markets broken down all across across the country now i've been talking about quite a bit the great migration all right now this means that there's already before the pandemic the great migration was beginning we have the baby boomer generation the largest segment of the population they're all retiring they want to sell their mcmansions in the cold winters and they want to move somewhere where it's cheaper and where it's warmer and they can play golf and tennis 365 days a year so there's already this great migration that was going on the pandemic has only accelerated people were moving for weather people were leaving high state taxes to go to low state taxes florida texas uh people were going where they're more affordable they're leaving their 500 000 large mansions in florida in texas you can still buy a 200 000 home um obviously the pandemic really sped that up people wanted to flee the cities they didn't want to live in this high density now a lot of people like the city because of all the amenities that you have but when all that's taken away why do you stay and then of course the work from home you know all of silicon valley apple google facebook they all said you don't have to come back to work you can just work online remotely forever lots of my friends that run big companies um they're not working in the office anymore they're all going back to work from home now this is a chart right here we can see all right now in this chart we can see this is a very good metric so anyone who's looking to buy a home and you're trying to figure out the supply and demand for your area this is a great metric you look at the moving data all right now we can see that um to move out of california is very expensive but yet to move out of texas is very cheap so for example to move from san francisco and rent a truck it's 1 500 dollars fifteen hundred dollars to rent a truck from from california to texas but if i wanna rent a truck from texas to go back to california it's half the price the reason why is they're trying to incentivize people to go their supply and demand in moving trucks we can see chicago we can see new york jacksonville so the green areas are where it's cheaper to move out of which means those are the areas that people are going to the red areas are the places that people are leaving and so depending on where you're at hey should i buy a home in chicago should i buy a home in portland or washington or san francisco look at this moving data and see what the prices are and this will tell you where people are moving i i think this is pretty obvious to most people put the big winners florida is the biggest state that's getting the most people moving in followed by texas so texas and florida are the two places where people are going the most but even within florida or even within texas there's supply and demand in those own areas right so it doesn't doesn't just mean just anywhere in the states so a good example would be new york we saw in new york city property values were down about 50 percent but in buffalo new york they're up about 105 so even within the same state the supply and demand was working people were leaving the city going to more rural areas of course i have another chart here but this is uh kind of the same thing this is florida and new york comparing them so you can see florida's been gaining people while new york's been losing people and this has been happening for a really long time so what do i expect what do i think what's my opinion on this so i think that when i look forward into the future at least for the next couple of years i see massive money printing i mean there's just no way the debt is sky high the um the economy's still in trouble the amount of assistance that people need are going to continue the new administration that we have is shown their willingness to forgive debt and increase benefits and all these things we have entitlements social security all these things there's no way around it massive money printing on top of that i believe that the interest rates are going to be continued to be controlled going down if not continue to go down at least leveling off they have to be you cannot raise rates when you have that much money they've already said they're not going to raise them for five years so again i take them at their word i believe that mortgage assistance will continue so we have all these people in forbearance and more people might be needing assistance and i believe that we're going to see that assistance continued look i mean the fed has already gone above and beyond they've said they're going to do whatever it takes janet yellen said they need to quote unquote act big and so if people are going to lose their homes they could just come in and say you're all paid off you're not going to lose your home so i believe we'll see more assistance and i believe that we'll continue to see prices growing maybe slowing because interest rates don't have as far to fall anymore so from 2008 to today they've dropped by four points but they don't have four more points to drop so maybe it slows down a little bit that is my guess so back to the final question should i buy should i buy should i buy a home now should i buy a home i'm breaking this down separately i'm talking about home i'm not talking about investment properties should i buy a home so if i'm buying a home for me for my family a home that i want to live in and i have a chance to lock in these historically low interest rates two and a half percent it's like free money with inflation going up more than than the interest rate it's basically giving you free money so i have a chance to lock in historic rates i want to live in this home forever i don't care um the payment works for me the the rate is so low remember it's about the monthly payment the payment works for me and even if the value of the home drops i don't care because it's the home i want to live in and it's the payment that i can afford i'm happy with that payment then i would say buy it right if you want to live in that home forever the payment works for you and you don't care if the value drops then i would say buy the home if you can't say no to these if you want to live there for two years maybe maybe you don't want to buy maybe you want to hold off now should i buy real estate as an investment now this is a completely different question and i am not gonna get into this i've already gone way too long there's countless real estate investing strategies um am i gonna develop am i gonna build from the ground up am i gonna fix and flip properties um is it houses is it apartments am i you know there's there's a million ways to do investing and so another thing that i've learned in my career in real estate investing is that there's no such thing as good and bad timing there's good and bad strategies so there's always investment opportunities and again it depends on what that strategy is i'm not going to break it down if you want a video on real estate investing leave me a comment and let me know if you want me to do that we can dig into it but that's what i got for real estate hopefully that answers your question should you buy a house at least for now what's going to happen in 2021 and why everybody's looking at the wrong data give me a thumbs up on this video if you like it if you don't like the video i don't know why i worked hard for you but give me a thumbs down either way that's okay but leave me a comment down below let me know why all right now i am gonna be doing a live one hour training next week there's a link in the description so come check that out if you want to dig in deeper with me and that's what i got for you today all right to your success i'm out [Music]

Channel: Mark Moss

Views: 72,254

Rating: 4.932888 out of 5

Keywords: Central Banks, Real Estate, Debt To GDP, Housing Market, Invest, Home Owners, Crash, Recession, Mark Moss, Taxes, Inflation, CPI

Id: Fenl5fgrFDM

Length: 31min 56sec (1916 seconds)

Published: Tue Feb 16 2021