Housing is BOOMING! Will it BUST?

the housing market in the united states right now is absolutely booming is it about to bust we set a new record in our group this past week there was a listing in georgia and it had a hundred and eighty showings can you imagine cars lying down the road basically all weekend just trying to get a glimpse of this listed property and it wasn't even listed low in fact the property at 209 was listed high from what we had gathered because if it was all fixed up which would have taken 60 000 it would have only appraised for about 270. it's economics 101 you have record low supply inventory the available houses for sale on the market that you could buy right now we're at a record low there and you add to that we have strong demand people want to buy houses right now and when you bring those two together economics 101 what do you get rising prices this is called a seller's market but this is like a seller's market on steroids because of the record low supply so how does that impact you if you're a real estate investor a creative investor like me that does house flips you do wholesales you get in and you get out quickly this is the best time to have ever been in this business in american history this is the good old days right now it doesn't get any better than this we're cashing in at levels i never imagined this is incredible now you do need to know what you're doing because with the record low supply it's tough to find the deals and you got to structure them right you can still make a lot of mistakes and you can still fail miserably but if you do it right this is as good as it ever gets for a creative real estate investor okay what if you're not an investor what if you're you're just considering buying a home you're renting right now well i would say that you have very limited options on the market right now you if you can be patient you can wait maybe six months better yet a year you're probably going to see some more options available on the market now if something great comes up between now and then you're gonna have to compete against it but you you might be able to get it um again if i'm telling friends and family if they don't find the perfect home the perfect fit to be patient because it's going to take some time before you get that that increased supply on the marketplace where you're able to make a better decision on home buying what if you're looking to sell like i said it's a seller's market let's say you're a rental property owner and you're looking to get out because you want to just retire now's the time to sell like right now there is such little inventory you can sell houses even that need a lot of work and it is so easy to sell so if you are considering selling sell now very good time to do it what if you're a rental investor is this a terrible time to buy well i actually have a video on that called how to buy rental property at the top of the market and i'll say this i'm not saying we're at the top of the market i'm not saying that but that video describes the idea that with rental property since your time horizon is very long in the future and because you're buying for the cash flow that it really matters not what the market's doing but that particular deal now what the market's doing might make it almost impossible to cash flow so you won't buy but that video clarifies that buying rental property is somewhat independent of the current market conditions in some respects because you're ultimately buying for cash flow anyways and so what does it really matter what the market's doing but if the market is is crazy hot then it's hard to get stuff that cash flows okay so again in simple terms record low supply strong demand we have rising prices and because the low that supply is so record low we're getting crazy amounts of showings we're getting multiple offers and it is the greatest sellers market i've ever seen so now that you know what's happening and now you have some ideas based on who you are and where your goals are what you should be doing in the short term let's tackle the most complicated question of this subject matter are we in a bubble and is this about to bust is this about to burst well in order to answer that we need to explain why these two things are happening and then we'll get to that all important question so why is demand strong right now well we have record low interest rates and when interest rates are lower it costs people less in interest to buy a home and so they're more apt to buy one now we've had interest rates in a very low region for a long time but recently they're now at record lows below three percent so that is definitely stimulating demand but there are some factors that keep the demand a little bit at bay so it's not completely out of control the first would be this is interesting did you know if you go back to 2005 statistically people were likely to stay in their home on average five years you fast forward to today it's more than ten years people are staying put longer and you might say oh well that's because of the pandemic phil actually this trend was going in this direction long before the pandemic so people are staying in their homes longer and this may also have something to do with the baby boomer generation they got the homes they wanted to live in their forever home and they're staying in there right so we have people staying put longer but i will agree with you if you would uh mention the pandemic in your mind that it has amplified things people are staying put during this pandemic for the most part another thing of pressure that's keeping that demand at bay is low inventory they've what are the why they're going to sell their house what else are they going to buy right so we have strong demand but not out of control demand and so when you look at a bubble what you often see is a euphoria something that is completely out of control on the side of demand we're not seeing that right now the people who are buying homes right now are they are they speculators that are buying these houses just hoping they'll magically go up in two or three years no these are homeowners these people want to move in sure we have some investors in the mix that are trying to buy fixer-uppers so they can fix them up and resell them sure but we're not seeing the kind of speculation that we saw during that bubble of 2007 2008 when people were buying properties their second third fourth fifth home just so that they could sit on it and then it would hopefully go up in value y'all have probably seen some of the documentaries or other videos and and movies on the subject of that real estate bubble of the mid 2000s this is very different from a demand perspective because demand is actually in my opinion i i call it healthy this is a healthy demand because it's driven primarily by people that want to become homeowners and remember single family homes have a utility value they are shelter they're a place for someone to live and that's what's driving the majority of the purchases right now people need a place to live and they want to be homeowners and remember people are always getting married people are always graduating from college people are always growing up and they want to become a homeowner and so i do not see we're on the demand side we have any sort of bubble that has erupted but there is another side of this equation record low supply what is causing that well we already talked about people staying put longer and that's a trend that have started occurring well before the pandemic but obviously it was amplified by it number two we're in the midst of a foreclosure moratorium which just got extended to june 30th who knows if it's going to extend even longer and so we have a very low amount of foreclosures that are actually hitting the market now foreclosures have always been a small subsect of the overall inventory in a marketplace so it's not that big of a contributor either way but it's certainly not helping the record low supply when you don't even get any foreclosures hitting the market or very few i should say but these two do not explain the huge gap in where the problem with inventory really lies here's where it's coming from perhaps the main reason why we have record low supply right now is something i've talked about before in other videos it's a lack of new builds so i'm going to share with you the four l's of why we have such a problem with new building in america right now the first is legislation over the course of time governments enact more and more and more and more laws more rules more codes more regulations it has made home building more and more difficult it's a lot harder to build a home now than it was in 2005 when that bubble was being created it's a lot more difficult there's more fees there's more committees it is so complicated it's any wonder anything gets built in america anymore and this is why i always tell potential home buyers always buy existing don't buy land and decide you're going to build a new home that is a disaster it is so complicated it takes so long it's more expensive than you thought buy existing and remodel that's what i tell homeowners all the time okay number two the second l is land now some are arguing well currently phil were in kind of a land bubble because all of these people from the inner city that wanted to move out to the country have been buying up land and pushing up prices and what i would say to that is first of all very true right i mean there's it's a lot harder to find a 5 or 10 or 20 acre property the little house on it um and that's because of of the pandemic however i have seen where that is usually 20 acres or less what we call in florida ranchettes a 20-acre ranch at or a 10-acre ranch at home builders typically focus on bigger parts of la parcels of land and they're having trouble not only with finding something that's a decent price but moreover because of the fact that the government moves so slow making sure that it's got those utilities run to that land because it takes so long for construction to occur there's so many delays of funding and this that and the other so they have a lack of land buildable land to do what they need to do all right number three or l number three is labor you you look around at anyone in age 30 or below and our society has just systematically removed people from the building industry they're attracted to tech they're attracted to all kinds of sexier other industries besides the building industry so we do have a lack of of quality intelligent and highly skilled labor so labor costs have gone way up and people complain about uh those from other countries coming in here to do our building well someone's got to build our our buildings right and a lot of americans don't want to do it anymore okay so um the fourth l this one uh you may or may not even know about right now the national association of homebuilders just released a statistic this week that lumber prices have gone up 170 percent in 10 months 170 percent this is killing builders right now killing them some of them that are custom builders they just told their clients i'm not building i can't the contract we signed was when lumber prices were literally um less than half of what they are now in the last two months i've seen where they've gone up almost 100 it's crazy lumber costs just go go call up a lumber yard and ask them how much a four by four uh pressure treated eight footer costs you'll see like what i'm sorry did you say 19 yeah it's nuts so um between these four it's made it very difficult for builders to build the houses they are building are at the higher price point which as we've talked about in many other videos the more affordable the property is the more demand there is and so builders are still building some homes but they're at price points that are so high and especially with lumber costs of what what they've done recently that ultimately uh the majority of buyers are just priced out of these new builds so we go back to lack of new builds this is a huge problem and it's going to continue to be this way i don't see where all of a sudden legislators are going to get become a lot more efficient i don't see how land is going to somehow drastically drop in price i i don't know where a whole bunch of people are going to watch my video and say hey i want to become an electrician i can't wait to become a framer when can i get started as an electrician and then number four uh we we're hoping lumber prices will go down i think they will i think they'll normalize but for the time being this is kind of a bubble right here the cost of lumber so this is the pressure that's keeping the the supply or the inventory so low which brings us to this big question what could change what could unravel this equation and if it was unraveled then if we all of a sudden had more supply we had a drop in demand would we either stop the rising prices would we actually have prices drop in value let's dive into that starting with demand let's ask ourselves the question what could change to drastically reduce demand in the say let's say the next six months to a year which obviously would be necessary for us to see a bust well the thing that i look at here of the reasons why demand is strong that could change would be interest rates if interest rates increase dramatically that would definitely slow down demand do you think interest rates are going to drastically increase feel free to make a comment about this down below as well love to hear your thoughts i'm not great at predicting the future but over the past decade or so interest rates have remained very low and that's a bit surprising because once we came out of that recession you would have thought interest rates would have increased but they didn't i think some of the interest rate pressure has to do with political reasons and the politicians always wanting to look good so if you want my opinion and again you may be a bigger expert on on what's going to happen with interest rates than i ever could be i think that this is the new normal i think interest rates are going to stay low for a very long time i think our society's gotten used to it i think our politicians have gotten used to it and i think everybody's basically scratching their head going why increase the interest rate just leave it low let's just keep things the way they are so while it could go up a little bit i don't think it's going to increase so much that it's going to drastically wipe out demand now obviously inventories could go up which we'll talk about just a moment but i think demand is going to stay relatively strong consistent and if it slows down it slows down a little bit due to a slight increase in interest rates but otherwise i don't see this having any impact on a bust so now the moment you've probably been waiting for if demand would not trigger a bust could supply could there be a massive increase in supply and a ton of new inventory hit the market and completely bust what's going on right now well let's dissect how that could happen and then you can decide whether or not you think it's gonna happen so the first would be we talk about people staying put and how that's been amplified by the pandemic if there was this definitive day or to use a world war ii analogy a d-day an ending to the pandemic this specific moment on the calendar would that all of a sudden trigger a whole bunch of people to say this is great let's sell our house buy an rv and just rv the entire country i don't see that happening unfortunately this pandemic has been a lot more complicated than we ever wanted it to be and it looks like it is gradual in nature we have new strains coming we're trying to get the vaccine out we've got all kinds of challenges with the weather and delays and so ultimately there probably isn't going to be a d day and it's going to be a gradual slow improvement and furthermore i don't see where people are just going to throw caution to the wind they're all going to sell their houses and buy rvs so i don't think that's going to add to the supply could an increase of supply come from a whole lot of new builds as you've already heard me talking about i don't know that that's going to happen either even if lumber prices get back down to where they should be i think builders have such a headwind and it's such a slow process to build but i don't see that happening either oh but there's one more isn't there and i've been saving the best for last low foreclosures what happens when they lift the foreclosure moratorium when the moratorium is lifted is that going to create a surge in new supply that's going to unravel this whole thing well let's unpack this first we have to look at how many people are past due and what we're being told is that 12 are in some form of delinquency on their home mortgage by comparison average is about 4.5 percent so it's way more than double almost triple and does that mean that as soon as everybody is now no longer under the protection of a moratorium that all of a sudden we're going to have a gajillion houses hit the market well let's think about this for a moment everybody out there that is past due on their mortgage everyone has equity and this was not the case in 2009 in 2010 this was a this is a very different situation people have equity we also have to remember that lenders make a lot more money when they keep a loan in play versus having it paid off i'm not going to have time to explain the economics on that you're gonna take my word for it lenders make more money by keeping the loan rolling so one thing that i think we're gonna see in a major way maybe an unprecedented way i think we're gonna see a lot of lenders willing to do a permanent loan modification where they take the past due amount and stick it on the back of the loan and uh these numbers are getting big by the way i mean some people haven't made a payment since last february so these pay i mean the past due amounts are really collecting 15 20 25 000 or more in past due and that's so big that they can't do one of those loan modifications where if you're one or two payments past due they say okay we're going to add an extra 500. to your payment for the next three months and catch you up no no this is this is a big number they're so far past due it's tough to catch back up and that's where i think lenders because of the level of equity and because they make more money they're going to want to put on the back of the loan now we also have to look at who's behind on payments have you ever knocked on the doors of people in pre-foreclosure and if you don't don't take any ideas right now not a good time to knock on doors because they weren't a moratorium but you go back to when i first got started and i was homeless living out of my truck i knocked on plenty of pre-foreclosure doors and one thing i learned was this almost no one wants to sell their home just because they're past due doesn't mean they want to sell so i see that not only will the lenders be open to doing a permanent loan modification but the homeowners are going to jump on it i've also seen already uh people that i know and friends of friends that have ring that have refinanced even with bad credit into lower interest rate loan right now and paid off their past due amount we're going to see some a lot of refinancing as well so i don't see that from from my experience in real estate that just because 12 of people of of of home mortgages are past due that 12 of them are going to sell i i just that just doesn't happen but there's even more to this subject so yes some of the people that are past due are not owner occupants they're landlords they're collecting rent right now they're not paying their mortgage and they're collecting a a large past due balance yes it's hurting their credit but they're doing it anyways and so those would be somewhat open to selling sure so i can definitely see we're gonna get some new supply on the market when the moratorium is lifted but when recall that foreclosures take a long time to foreclose certain states like new york it seems like forever so we're gonna still just like the pandemic's not gonna have a d day even if the moratorium is lifted it's still not a d day because it's gonna be a slow process but are some people going to sell i think so we have to remember too that if we go back to my example at the beginning the video of 180 showings there is pent up demand there's a bunch of demand that hasn't bought yet because of low inventory so as soon as some new supply it might get gobbled right back up and i want to give another example of of how difficult it can be to predict these situations when we were in about 2011 what was making uh massive headlines was this idea that there was a lot of shadow inventory that banks had a lot of foreclosures in 2011 that they hadn't listed that it was on their books but they i hadn't put it up for sale and so we were hearing these phrases double dip uh in the in the reduction of property values that we're about to go down it's about to be worse than ever the world's gonna end and for the first time in history no one saw it coming a bunch of wall street hedge funds bought tens of thousands of houses tens of thousands and all the sudden all that shadow inventory was gone and we never had a double dip and so some have looked at this and said well maybe maybe some of these big hedge funds want to sell right now it's the perfect time to sell well that's what i was thinking but you know what they're doing those make those major homeowners the ones that own 50 100 000 homes in america they're holding on to those things because they're cash flowing so well their returns are so good they don't want to sell them much like a bank doesn't want to have their loan paid off they want to keep the interest coming in so interestingly enough if we do have a surge in supply from either some of the homeowners that don't want to do a loan mod or the loan mods don't actually come to fruition or or there's a bunch of landlords mixed in we have the pent up demand that's going to gobble some of it up we may have some of these hedge funds gobble it up too because they're looking for houses right now in fact they're they have builders building new subdivisions just for them so when i look at this potential as as derailing this whole thing what i see happening is that ultimately this is going to bring new supply which is going to mellow this craziness out and so if you're looking to buy a home you may want to wait about a year wait till we get some inventory from this foreclosure moratorium being lifted and and so that you've got something to uh to look at to work with as a real estate investor i get excited about this because i'm excited to get some new inventory we can have some more deals to do but i'm not worried about it i'm not i'm not running for the hills i'm i'm i'm also thinking that it's not going to be nearly as intense as people think it's going to be because i think a lot of lone months are going to get rolled out and i've always thought that even from the very beginning all right well i i'm sure you've got other comments you want to make i want to hear about them i also want to hear about your local area because you see i've done everything in a generalized fashion here tell us what's going on in your area do you have record low supply or are you maybe in an area where you have plenty of supply do you have low demand or strong demand and and we'd love to hear your additional thoughts on this and if you want to tell me that i'm a complete fool and i'm out of my mind that's okay too i'd love to hear it well i'm phil pustievski with freedommentor.com i'm a real estate investor but i'm also a coach and mentor i love teaching people and turning them in to incredibly successful real estate investors in fact i wrote a book how to be a real estate investor that's been a bestseller every year i give it away for free on these videos so make sure you download a copy of that book if you haven't already and if you want to work directly with me and my team if you want to become world class if you want to be incredibly successful dominating your local area in real estate investing consider my apprentice program where my team and i we work with you and we we turn you into the best of the best and also if you haven't already check out that video on buying rentals at the top of the market because it explains how you could buy rentals right now and still do incredibly well long term all right y'all well thanks so much for watching look forward to see your comments see you soon

Channel: Phil Pustejovsky

Views: 46,052

Keywords: Phil Pustejovsky, Freedom Mentor, Real Estate Bubble, Housing Boom, Real Estate Bust, Housing Bust, Housing Market, Real Estate Investing, Homebuying, Real Estate Economics, Housing Supply and Demand

Id: qOOr0n6XAec

Length: 25min 52sec (1552 seconds)

Published: Fri Feb 19 2021