The 2021 Housing Crash | The Eviction & Mortgage Crisis.

now i know there's been some pain in the market lately well how about i'll butter you up and swing your day with 38 off my stock program on how not to be a paper hander and show you how daddy takes on the real bacon check out the link below and use coupon code hotel and yes take advantage of that coupon code before it expires but now let's talk about a potential mortgage and housing crisis because many people have been asking me for an update on this because well that's what i do half of my net worth is in real estate i got my start as a real estate agent then real estate investor then real estate broker and then real estate investor it has been a blast i'll tell you there's nothing as simple as swiping up on robinhood or maybe weeble and making some trades but real estate has always been a big part of building wealth for me and a big suggestion for you to build wealth with because after all if your net worth is under 500 000 you can generally make some big big big returns in real estate taking advantage of the amazing institutions that exist in america but we got plenty of videos on that right now we got to focus on is there going to be a housing crisis and a mortgage crisis coming up first after all we know that tenants have not been able to be evicted for over a year now and biden has extended mortgage forbearance and these eviction protections through june of 2021. at the same time mortgage rates have been ticking up slowly but they've been at record lows and so together we've seen fewer sales hitting the market and lower interest rates which basically has been leading to a frenzy in the real estate market in december 2019 to december 2020 we've seen real estate prices skyrocket 13 which for those of us in stocks it's like 13 but remember that is a highly leveraged 13 usually in real estate so you can see some real outsized gains in real estate but again this video is about the market and not on the fundamentals or the principles of real estate unfortunately things have been changing a little bit lately we have seen the 10-year treasury yields go up and guess what happens to track the 10-year treasury yields very closely mortgage rates and guess what also happens when the the 10-year treasury spikes and we get a rapid acceleration in the 10-year treasury yields well tech stocks sell-off and so what does that mean for kevin well that means higher mortgage rates and all of a stock sell off because they're all freaking tech most of them aren't but yeah i mean these are real issues right when rates go up real estate becomes more expensive and in the short term stocks can sell off but not only are we potentially concerned about rates going up but we're also thinking hey as the markets open back up again more housing inventory should hit the market because people won't be as fearful of covid hey come on in my house look at my house let's have an open house again whatever and maybe we'll see more properties hitting the market as our economy reopens at the same time as maybe rates will be higher at the same time as eviction protections will expire the same time as mortgage forbearance expires we line it up like that it sounds like we could have a pretty damn nasty tar near mortgage crisis and real estate meltdown i mean think about it more inventory hitting the market because of the opening higher potential interest rates means borrowing costs go up which means prices go down and if prices go down at the same time as there's more inventory on the market which accelerates the decline in prices at the same time as eviction protections expire which might mean more landlords end up putting those properties on the market for sale some of them obviously will rent some of them will decide to sell those properties which means even more inventory and mortgage forbearance ends which means people who don't comply could potentially get foreclosed on because now foreclosure has become an option again for banks we could see one heck of a brewski storm in the real estate market so let's try to break this apart a little bit and understand okay what kind of resilience do we have what are the real risk factors here and what do we think is actually going to happen all right so to quantify this the first thing we need to do is we need to understand the classic rule that i regularly teach in all my programs i'm building your wealth which yes that coupon code does expire so take a look at that i linked it down below but the programs generally teach and i teach this on the channel too this portion this matters when interest rates go up one percent real estate purchasing power goes down 10 percent so you have what i call the rule of 10x a half percent increase in mortgage rate a 5 decline in real estate prices and it's almost instantaneous so lately a lot of people have been wondering hey kevin why is real estate gotten so expensive well because interest rates have fallen like 1.3 1.4 percent ah imagine that real estate prices went up 13 over the year it almost always lines up to what's going on with the interest rates now sometimes we do have an acceleration of appreciation above and beyond what the actual interest rates are but right now housing prices seem largely driven by low interest rates which is obviously leading to a lack of inventory as sellers adjust to those higher prices because the prices are like it takes a while for the market to realize oh we can get that oh we could get that and it's usually because home prices aren't actually dictated by the free market which would be whatever somebody's willing to pay in and while it seems like they would be kind of are but they're also restricted they're anchored by appraisals when appraisals come in low people can't actually get loans and use those mortgage rates so oftentimes you actually need appraisers to be comfortable with the fact that prices are going up to start appraising properties higher to actually allow prices to rise so sometimes real estate prices going up can be a little slower whereas ironically and classically when prices are going down appraisers are more than willing to appraise you for less it's funny how it works and that's not a slam on appraisers it's it's a slam on risk right it makes sense you want to be more risk adverse when prices are going up and you want to be more conservative potentially if real estate prices are falling anyway so we know that home prices have gone up 13 year over year and we know that home purchasing power is highly highly correlated with interest rates and we've got some really bad potential things coming where we could see a lot more inventory and a lot more pain coming to the real estate market all right so how resilient are we well i'd like to refer first to our first piece of evidence okay this here is from the wall street journal borrowers cash out on homes when i first read this i got a little nervous because as they say in the article from the wall street journal cash out refinances got a bad rap after they exploded in the run-up to the 2008 financial crisis borrowers tapped their homes like they were atms when home prices plunged they were left owning more than their homes were worth now in 2021 many economists expect home prices to keep growing okay now that's not exactly the line that i was expecting but wait a minute this is interesting this article is actually also saying that u.s homeowners cashed out 152.7 billion dollars in home equity last year a 42 increase from 2019. wait a minute so you've got economists saying okay maybe home prices will keep going up and interest rates are at record lows and people refinanced 42 more in aggregate than in 2019 that's a lot of refinancing and that's the same kind of refinancing boom that happened before the 2000 uh a real estate crisis i mean many would argue real estate induced great recession that's scary in fact they say here lenders churned out more mortgages than ever in 2020 fueled by about 2.8 trillion in refinances according to data from the firm black knight some borrowers viewed cash out refinances as a way to cushion themselves against an uncertain economy last year yeah i did do that others wanted to build and redecorate oh big mistake big big big big no no but anyway this this sounds a little concerning especially since they say low rates the average rate on the 30-year fixed rate mortgage being below three percent led more people to refinance so look i'm all for people lowering their payment when you refinance but the danger is when people basically break the piggy bank of their properties as prices keep going up and they take more and more cash out of their properties and basically what they're doing is they're creating more and more debt they're ballooning their liability and in the event that prices fall we have an oopsy doopsy poop c scoops d dd and that would be really bad so how do we put this together like how could we quantify like how bad could the crisis get if people are pulling out debt like crazy and then we've got all these catalysts for potentially more inventory and more listings coming up on the market at the same time as maybe we'll see higher rates well take a look at this corelogic put together this awesome report which they do monthly and this is called their ltv and homeowner equity report and so loan to value is what ltv stands for and it basically says hey how much equity do people have in their homes in other words how much net worth is in their homes if you have a hundred thousand dollar house and you've got seventy thousand dollars of debt you have thirty percent equity and you have a loan to value of 70 70 debt 30 equity so the higher number the more risky obviously and if we look at the chart here in q4 2020 this is going to be kind of the green chart here i'm going to hide myself for a second you're going to see that there are actually some people who are underwater they owe over 125 percent of what their property's worth it's a little less in fact all of these green bars are a little bit less than the gray bars which does mean that people have become less underwater as time is going on which is normal when prices are increasing it's obviously bad when prices are decreasing but if we just grab all of these right here people who are basically over 90 percent leveraged we get about eight percent of all homeowners that are this leveraged that's because this line here is about one percent and you can add up the math if we go out to about 20 we'll be able to add these two new bars right here which is going to give us somewhere around six percent more people that means a 14 uh would be underwater if prices fell for uh 20 excuse me and if we go out to 30 so if prices fell 30 we'd be able to grab these bars over here as well we'd be adding about seven percent and let's round up and say six percent here so another 13 that would mean 27 percent of people would be underwater so this chart is basically telling us that if prices fall 10 so a decrease of 10 in prices we'd have about eight percent of people under water and that includes the people who are already underwater uh then we would have about if if prices fell 20 we'd have about 14 percent of people underwater and if prices fell 30 we'd have about 27 of all homeowners underwater so this actually now sets up a very interesting scenario because if mortgage rates go from three percent to what they were before the pandemic around four percent or the high threes and remember lately we've also been able to get rates in the low twos which has created some of this pricing pressure because people have been getting rates so cheaply if we see rates go from three to four percent that's a one percent increase and what does a one percent increase correspond to boom ten percent decrease in property values so simply by interest rates going from three to four percent we could see eight percent of houses underwater in total that would be a problem uh you know and that's from where we are now where uh i would say under let's see that's two percent plus a fraction under like two and a half percent of people are underwater so we could see like a three x'ing of the people underwater just from interest rates going from three to four percent and then seeing prices come down by the way quick note i know that the real estate market is super competitive right now and one of the things that i'm doing to find listings off market is i'm sending and i know that sounds old-school but postcards so with deal machine go to medkevin.com deals and check out deal machine it's a pretty amazing way where i can just go on my phone and click on all the multi-family buildings or vacant buildings in my area and actually reach out to them before they potentially hit the market and that's what i want to do so check out metcalvin.com deals but here's a little problem that we have to talk about if interest rates go from three to four percent and prices fall 10 but inventory is still too low to support demand then the prices will actually be propped up by the lack of inventory and maybe we actually don't see prices fall maybe prices won't go up 13 again but maybe it just offsets the fact that property values would be falling because there's so little inventory and that props up demand even as interest rates go up and properties get more expensive something to consider now let's go back here to the chart because we've got some potential issues here so in addition to interest rates going up what if biden lets the eviction moratorium lapse and the foreclosure moratorium lapse and we get a hot summer selling season where we got a lot of sellers starting to dump properties what happens if those three things mix together well then it wouldn't shock me for us first of all to eliminate the inventory shortage which means we'll actually realize that ten percent decline but then we could potentially also start that slippery slope of prices declining more and it's entirely possible that if we saw at the same time as a foreclosure crisis which we don't expect there to be a massive foreclosure crisis especially since mortgage forbearance programs are really designed to keep people in their homes we're not expecting there to be a lot of foreclosures but there will be some in addition to evictions we could start trending up to that 20 decline region or or 20 decline in property values region that would put about 14 percent of people underwater but this cohort right here wouldn't be heavily underwater sure if you consider selling costs yeah they'd be underwater but they might not be forced to sell so this is where let's take a step back from this crazy chart that we've drawn and let's let's put some thoughts together here let's jump on over so what do we got so far we have a concern we have a few concerns the first concern we have is interest rates going up it's a problem it could create issues the second compounding concern that really needs to happen to see a mortgage crash or a real estate crash or a mortgage crisis is seeing inventory go up if we see those two things happen at the same time an inventory go to the point of saturation to where there aren't enough buyers to absorb all that because interest rates are going off up at the same time right those two interplay if we see that yeah it wouldn't surprise me that at the bare minimum prices will stabilize and we won't see the increase so bare minimum prices stabilize if we see rates go to four percent price is stabilized the next scenario so let's call that the base case scenario is interest rates go to four percent prices stabilize if interest rates stabilize and inventory floods the market a la evictions foreclosures or summer and people want to sell and covet's over and people are dumping their homes because they want to move now we could get to that territory of that 10 to 20 percent decline and that could potentially self-fulfill a little bit this would create a little bit of an issue and now we want to figure out okay how insecure are people who are actually doing the refinances and the purchases right now because that's going to help us understand if if we have a 10 to 20 percent shock how resilient are the people who are doing the refinances how resilient are the people who are buying homes right now and this is where we can actually go back to that original wall street article because this is pretty fascinating i'm going to ask you what you think the conclusion is here but there's a chart on here and it says mortgage originations by credit score quarterly and what i want you to guess is which credit score you think had the most refinances or mortgage originations we'll lump both of them together which credit score had the most in 2020. so uh and we'll have this charted so we'll get to see the difference between prior years and 2020. so do you think that people with under a 620 score uh under a 620 credit score had the most originations uh or did they have the biggest spike do we think that people between 620 and 659 had the biggest spike how about 660 to 719 720 to 759 or the people over six or 760. which group do you think had the largest spike in mortgage originations and this is very important because remember a higher credit score implies more financial stability not always but remember credit score is a measure of risk for banks they use your income they use how quickly you pay off your loans how much other debt you have outstanding relative to your income these are your history of paying later on time these are all tools to determine risk so the higher your score the less risky of a borrower you are and presumably the more resilient you are so in other words worst worst case scenario the people doing the refinances are people like what we saw in 2008. where everybody was taking cash out somewhere in 2008 the people like anybody doing refinances in 2006 7 90 of those people were taking cash out of their homes to to like use their homes as a piggy bank and people were using arm adjustable rate mortgages to basically expose themselves to variable interest rates rather than fixed interest rates and at the same time people were getting loans that they actually had no ability to repay right things were pretty dang nasty in 2005 to 2008 with the people who could get loans not very quality loans right lower credit scores some cases no jobs the ninja loans no income no job no assets if we saw that again we would expect that people with probably what six twenty six forty six sixty 60 680 we would expect those groups to be skyrocketing in mortgage originations because hey why not everybody's getting rich off real estate so why not plow in money's cheap it must be easy to get a home loan and keep in mind when we look at this chart too it also lets us know how uh how tough lenders are like if one group let's say like the 620 group is skyrocketing and everybody else is just growing at an average pace that's a sign that lenders are loosening their criteria right that lenders are being looser and they're like we just want to lend like let us just give you money please we want to make more money and fees let's just get more people in even if they're low quality and i'm not saying low quality people i mean lower quality in terms of higher risk lower quality loans is the proper way to say it i'm not i'm not judging people's character it's lower quality loans versus higher quality loans so so again if we see a spike in that 600 range that's a concern because then we have a potential for a perfect storm we have lower quality loans going into a potential higher interest rate environment which will drive prices down by the rule of 10x which could compound with the end of the foreclosure moratorium the eviction moratorium and the fact that covet is opening up or like the economy is opening up again people want to put their homes on the market then you got some real poopy doopy happening that would not be good i could see a 10 to 20 decline compounding pretty quickly in that kind of event but what if the opposite were true what if the people getting loans were actually the most highly qualified individuals well then even if prices fell 10 or even 20 those individuals might not be forced into a situation where they have to sell because all of a sudden their interest rate went up maybe they still have equity or some equity or they have no motivation to sell because they make enough money at their jobs to support uh their bills which probably means they have a higher credit score so higher credit score individuals probably going to be more likely to maintain their property and this is all probability right we're not we're not trying to say somebody with like a 620 is guaranteed to go into foreclosure where somebody with an 800 is not but generally when we look at risk scores this is a tool we like to compare okay well let's get the actual facts so we've got a lot of insight so far so a lot of detail in this video let's take a pause here take a quick little breather take advantage of the fact that you can get 38 off of that coupon code or via that coupon code for those courses down below including my course on do-it-yourself property management rental renovations real estate investing making youtube videos stocks in the psychology of money take a little swig of some toppo chico [Music] let's hit the numbers this wall street journal article tells us that the borrowers who cash out refinanced in 2008 made up 90 of borrowers so remember 90 of people in 2008 were taking cash out today or in 2020 one third of refinancers chose the cash out option one-third so around 33 that's actually a really good sign so it means people who are refinancing aren't necessarily taking a ton of cash out of their homes like a piggy bank they're actually just lowering their monthly payment and well that's a good thing because that creates less risk okay so that's good all right well what about what kind of loans they're getting well it says here that the average loan that people are getting is a loan at a cost of under three percent fixed for 30 years and that's in contrast to 2008 when people were getting variable rate loans which were potentially doing payable in two years or the interest rate was going to go up after six months because they had these introductory six-month teaser rates that stuff doesn't exist anymore it's totally illegal like people have to prove they have the ability to repay and you can't have these crazy adjustments in payments those six month peter rates are gone in other words okay that's good what about the credit score the median credit score of new refi's last year approached 800 near the top of the scoring range according to the federal reserve bank of new york that includes refinances in which the borrower didn't even take cash out well that's a good thing so what do we have all right well we have a need for some more data and then we're gonna draw some conclusions i'm telling you this is a data rich video and it's very very important folks what's actually happening in the market right now let's take a look let's jump on over to the ipad here see exactly what's going on this is redfin's chart of inventory available through december of 2020 through december of 2020 we are at the lowest levels of inventory we've pretty much ever been in in the last decade so we have ample capacity for inventory to go up and we'll still not even be at the levels where we previously were on top of that since that chart ends in december redfin is so generous to provide weekly inventory data for us and they do indicate a nice increase in inventory here from january going into february this is good however comparing this january and february to 2020s january and february inventory this year is still down about 20 percent so the new listings hitting the market right now at least are still 20 fewer than they were last year so how do we put this data together because this is a crap ton of data well here's the way to look at it right now the real estate market seems insanely resilient the people who are buying homes have equity the people who have homes are not taking cash out at 2008 levels and they're getting quality loans and they're reducing their monthly payment burden when interest rates fall and they're getting 30-year fixed rate loans on top of that while we expect there would be risks if interest rates go up and we have low quality borrowers or low quality loans which we don't have sure interest rates going up is still going to be a potential risk but it only gets compounded it only becomes a problem when inventory starts skyrocketing and so far year over year inventory is still declining relative to last year and on top of that just look at the magnitude of the chart the people who are doing all the mortgages right now are the really really well qualified people the ones with the highest credit scores the top tier borrowers are the ones getting loans lauren had this to say refinancing is a good financial decision and certainly was a good financial decision in 2020 and people with great credit scores tend to make good financial decisions so this totally makes sense these align and lauren's not wrong i'm talking about lauren my wife not any other lord so when it comes to assessing will there be a 2021 mortgage crisis or housing crisis we have to look at the data yeah there are anecdotes like me saying oh my gosh what if the mortgage crisis you know what if the mortgage forbearance programs end what if foreclosures come what if evictions come there there are these anecdotes that people are refinancing like crazy all of these things and we hear these anecdotes that inflation is coming and that rates are going up sooner than we expect when we put these anecdotes together guess what we get a really good market crash video on that's it real estate's going down but when we actually peel back the layer and we're like wait a minute are we actually going to have inflation well i've got dozens of videos on this in fact if you want to watch my most recent one on this type into youtube meet kevin the coming great depression verse roaring twenties talk all about it there so we might not see inflation coming we certainly aren't seeing low quality borrowers we're seeing the most able to afford borrowers get loans we're not even seeing them cash out refinance as much as they were in 2008 instead they're just lowering their payments and they're taking 30-year fixed-rate loans and on top of that biden's in office who's probably just going to wave his pen and go yo mortgage crisis hell no not on my watch and he's just gonna extend the mortgage of forbearance programs if necessary this isn't even to mention to the fact that over the last two stimulus packages we've gotten over 50 billion dollars in rental aid for people who are back on rent payments back on utility payments back on housing payments if they're landlords you can apply for homeowner assistance utility assistance rental assistance like right now looking at the real estate market and the actual data especially with inventory numbers still falling it seems incredibly robust now that does not mean immune what would it actually take to crash the real estate market honestly probably a two plus percent increase in interest rates i don't see that even remotely happening until 2024 or 2025. and then then we'll have to have a conversation and i'm sure we'll have another conversation between now and then but uh just what we're seeing right now a lot of it is just anecdotes and the more you peel back the layers the more you're like now i don't see a real estate crash coming here anytime soon anyway folks if there was a real estate market crash we all know we would buy the dip because you're part of the amazing courses which you can get via the link down below and get 30 38 off on using that coupon code anyway folks thank you very much for watching if you found this helpful consider sharing the video and folks we'll see in the next one [Music] you

Channel: Meet Kevin

Views: 377,146

Keywords: house or duplex, real estate, housing, real estate investing, investing in a duplex, investing in a house, multifamily, investing, beginners, stocks vs real estate, multifamily vs duplex, housing crash, market crash, market fall, market decline, interest rates, federal reserve, fed, rates, mortgage rates, mortgage, buying real estate, investing in real estate, capital gains, foreclosure crash, mortgage crisis, eviction crisis, eviction crash

Id: OlZYyBslssI

Length: 29min 30sec (1770 seconds)

Published: Mon Mar 15 2021