The FED Just RESET The Housing Market

what's up Graham it's guys here and you're not going to believe this in the middle of a real estate slowdown a possible 30 hit to home prices and seven percent mortgage rates a brand new policy was just released that would loosen credit score requirements and make it easier for a buyer to get approved for a loan that's right after 20 years relying on FICO scores starting soon they're going to be a prehistoric thing in the past and even though this would allow many more people to qualify for a home some analysts worry that this comes at a time where deals are being canceled inventory is building and a new buyer might not be fully aware of what's about to come so let's talk about these new confirmed changes that are about to go into effect how this is going to impact the overall housing market and whether or not home prices could see their second worst crash since World War II on this episode of Millennials are still spending too much money although before we start as usual if you appreciate information like this it would sincerely mean a lot to me if you hit the like button or subscribed if you haven't done that already it's totally free takes you just a split second and as a thank you I will do my best to respond to as many Thomas as I can so thank you guys so much and also big thank you to Republic for sponsoring this video but more on that later all right now in terms of where this starts as most of you know your credit score is the single most influential deciding factor for all things personal finance Building Wealth and buying real estate but now that's sufficiently coming to an end that's because a new report just revealed that 53 of Americans are getting turned down due to bad credit leading both Congress and big Banks to take matters into their own hands to develop an entirely new credit scoring algorithm that would replace the current system as we know it allow people to get a loan without having a traditional credit score and take brand new items into consideration that can either help or hurt you depending on the situation now in terms of how this applies to the housing market here's where things get really interesting even though the typical mortgage borrower has a credit score of 725 35 of Americans have a score below 680 so by expanding credit worthiness across a larger pool of buyers housing accessibility is about to get a lot easier and cheaper for those you know to look out for even more important is that this isn't just speculation or a proposal from a senator you've never heard from this is actually going into effect so it's crucial to understand exactly what's going on how this is about to impact you and the steps that you could take ahead of time to put yourself in the best position possible to use this to your advantage all of this begins with what's known as an alternative credit score see as it is right now borrowers have five main categories if they want the highest chances of getting approved at the lowest rate the first and largest factor is based on your on-time payment history which makes up 35 of your score this means you always pay your bills on time as agreed without ever missing a payment or being late and the longer the history you have making those payments on time the better your score is going to be the second largest impact is what's known as your utilization rate that makes up thirty percent of your score this calculates how much credit you have available versus how much of it you use and the lower the ratio is the higher the chances of getting improved third we have the average age of your credit which makes up fifteen percent of your score overall lenders see that the longer you've had your accounts open for and in good standing the higher the chances that you'll be a responsible experienced borrower and fourth we have the types of credit that you have and that makes up another 10 of your score for instance it helps to have the experience of paying off multiple credit cards auto loans personal loans and mortgages and various amounts to show lenders that you have experience handling multiple types of debt and finally we have the remaining 10 percent of your score which is calculated based on the number of credit inquiries that you have see anytime you apply for a new line of credit it shows as a hard inquiry in your report and generally speaking the more inquiries you have the lower your score is going to be because you tend to be a riskier borrower the more you seek out active lines of credit now even though this has been the tried and true method of building credit for the last 20 years lenders realize that this might exclude great well-paying responsible people who should be getting a loan but can't because they don't have the knowledge means or the need to go and borrow money to build their credit score so they came up with a brand new Solution that's about to come to the markets known as FICO 10t and the Vantage score now first it's important to mention that FICO scoring methods are constantly updated every few years to account for new data Trends and spending habits for instance they made changes with FICO 8 that would ignore small unpaid balances of less than a hundred dollars they then began accounting for buy now pay later balances that were previously invisible and FICO 10 had the ability to see if your spending habits were increasing over time but like I mentioned earlier there were some major flaws in the system most notably that 45 million Americans didn't even have a credit score 40 have no idea how their score is determined and 53 percent of them get turned down due to bad credit that means that a significant portion of the population does not have access to Affordable financing the ability to buy a house or the chance to leverage their money and that is something the big Banks and Congress are beginning to change under this new program Banks would be allowed to think other aspects of a person's finances into consideration like their average account balance over time and whether or not they've ever overdrafted in terms of the impact Vantage score estimated that this would allow credit access to 72 000 more households every single year opening the door for so many more people to get access to financing second the government housing agency's Fannie Mae and Freddie Mac have approved FICO 10t and Vantage scores to be used for home financing as MarketWatch explains both FICO 10teen bantage scores will look at a broader range of payment history data for borrowers from cell phone bills to utility and Rental payments to determine credit worthiness or basically in other words their Studies have found that if you pay your rent utilities and phone payment on time then most likely you're also going to pay your mortgage on time even if you don't have a traditional credit score although in terms of how this is going to impact you along with the effect it's going to have on the real estate market here's what you need to know although before we go into that even though we usually talk about publicly available Investments like stocks and real estate most people are not aware that it's entirely possible to invest in privately held companies pre-ipo and it's not difficult because today sponsor Republic changes that Republic is a global private investment platform that makes it possible for anyone to invest in private companies from startups real estate music crypto projects art and more more the platform has more than one and a half million users and has raised over a billion dollars for 600 plus companies across its ecosystem including 29 unicorns that have been on the platform Republic operates with a team of investment professionals who work to curate private investment opportunities with high growth potential often backed by notable VCS for less than five percent the companies are accepted to raise on the platform this allows users to diversify their investment Holdings from pre-seed 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about housing prices because there is a lot of new information that is worth discussing first a recent report found that home prices are still more expensive today than they were a year ago but gains are shrinking at the fastest paced on record since they started reporting in 1987. as they say this data clearly shows that the growth rate of housing peaked in the spring of 2022 and has been declining ever since now in terms of which city saw the largest price drops the award right now goes to San Francisco down 4.3 percent Seattle down 3.9 percent and San Diego down 2.8 percent but I have to say when it comes to real estate no one seems to be quite as pessimistic as the finance Professor Jeremy Siegel with mortgage applications at the lowest level since 1997 he believes that housing prices will decline 10 to 15 percent over the next 12 months and the second biggest housing decline since post-world War II mark seconds is saying that most declines will happen sooner rather than later and that housing prices will fall 20 percent if there's a typical recession now in terms of the data though Redfin found that in September 60 000 real estate deals were canceled in less than half of all offers faced any competition unlike a year ago where the majority of homes went into a bidding war as far as how long this might last they believe that the housing market is not going to recover until the Federal Reserve begins lowering their interest rates which they predict will happen around mid-2023. however what's really unique about this Market is that housing prices are beginning to fall despite record low inventory in the market see historically low inventory would translate to higher housing prices because buyers would have less to choose from but in this case even though we're above the February 2022 lows we're still significantly under pre-pandemic levels suggesting that sellers don't want to give up a low interest fixed-rate mortgage and buyers can't afford to pay seven percent but for anyone who's looking to buy today if the current rates the median U.S household would spend nearly 42 percent of its gross monthly income and mortgage payments a huge figure that shattered the previous record of 40 percent in 2006 just before the housing market collapsed now in terms of how this new credit scoring model will affect the housing market it's important to discuss both the good and the bad and to start off on a positive note one FICO scores are not an accurate representation of How likely someone is to pay back a loan the fact is a credit score is only one small component of a person's Financial stability other factors should include an average bank account balance whether they spend more money than they make whether or not they've ever overdrafted or bounced a check if they pay the rent on time and if they get all the way up to a hundred dollars when they stand up for ftxus Down Below in the description with the code Graham second this allows far more people access to Affordable credits that could save the money as it is right now if you have a lower than average credit score you'll have no other choice other than to pay a higher interest rate or get flat out denied as a result those people are held even further behind and wind up paying more money for the exact same service even if they've never paid late in their entire life a new scoring model would help bridge that Gap and give more people affordable options that had the ability to repay and third by taking more data into consideration in theory your credit score should be a lot more accurate of course you would hope that this would boost your score and work in your favor if you've been an upstanding credit citizen but the reality is you'll qualify more appropriately for whatever it is that you want but on the downside one critics argue that the new score would make millions of Americans appear safer than they actually are diluting the value of the credit report and score like right now the effectiveness of credit scores is entirely dependent with airing on the side of caution and if too many people suddenly get a boosted credit score without a proven track record that could undermine the calculation while companies are on the hook paying for defaults two according to TransUnion consumers with thin credit files are more likely to default on their loans even though many of them do perform well on top of that FICO estimates that almost a third of people with no credit score have had a major negative impact on their credit history like a bankruptcy which means they tend to be riskier borrowers but not always three there's always the possibility the banks and lenders simply want to issue more loans out there and they're looking for an easier way to do that this would open up more than 45 million more Americans who could borrow money and take out a loan and that could be big business depending on the situation now obviously this business is entirely dependent on those customers actually paying them back but opening up new credit options could be coming from a good place although it's too early to tell I mean if we see 45 million people rushing into the housing market all at once it could be a disaster but most likely the people who are barely on the edge of getting approved will have an easier time getting a loan and to a small degree it could lead to a slight increase in sales but realistically it's probably not going to have that big of an effect in the market since they're already going to have to come up with the down payment have sufficient employment history and have the income to get approved for the loan in the first place so credit will get you through the door but it's not enough on its own to get you approved now in terms of my own thoughts when it comes to credit I am a fan of anything that promotes more accuracy and I think it's a move in the right direction after all traditional system of getting a credit card putting charges on it and then paying it off in full for the sake of building credit is pretty ridiculous and there's no reason why phone utility and Rental payment shouldn't be used in conjunction with everything else however there's certainly the suspicion that banks are pushing for Less restrictions so that they can issue and sell more loans but in the big picture I don't expect this to have a major influence on the market and if anything it's going to take lenders some time to adjust to so we're unlikely to see anything happening in the short term although as far as housing prices are concerned I tend to agree with the analysts that housing prices have to come down because current levels cannot be sustained when mortgage rates just Rose as much and as fast as they did even for investment properties it makes no sense to buy a building in a four percent return When treasuries are paying a risk free four and a half percent and in normal Market properties like that have to pay a risk premium of two to three percent for all the work that goes into managing it so at today's rates that property would have to sell for seven percent to even make it worth buying that leads me to believe that the market will continue to cool down depending on the area and as long as the Federal Reserve is increasing rates we're likely to see some downward pressure plus real estate is cyclical and with the market having already increased so much over these last two years it makes sense that we're about to see a decline Plus at least on the bright side one analyst says the fed's flushing of inflation and dumping the punch bowl should lead to a new bull market for stocks bonds and other risk assets with a fresh start beginning in 2024 so don't despair that's less than 15 months away so with that City guys thank you so much for watching as always feel free to add me on Instagram and don't forget that you could get all the way up to ten thousand dollars when you set up a public.com slash Graham using a link Down Below in the description depending on how much you transfer from another brokerage as well as all the way up to a hundred dollars of free crypto when you sign up for FTX us also Down Below in the description with the code Graham enjoy thank you so much for watching and until next time

Channel: Graham Stephan

Views: 310,010

Keywords: investing, investing for beginners, investing in your 20s, how to invest, how to invest in real estate, how to invest in stocks, stock market investing, stock market investing for beginners, stock options, robinhood, robinhood app, best stock trading app, how to be a millionaire, how to be a millionaire in 3 years, credit score, credit score explained, credit card, credit cards for beginners, passive income, how to build wealth, how to build wealth in your 20s, real estate 101

Id: xBh1Y0_ajoM

Length: 13min 47sec (827 seconds)

Published: Fri Oct 28 2022