Today we're going to talk
about my two year real estate prediction. So first,
we're going to start with somebody that I admire
that's now passed away since 1983. Buckminster Fuller. And he used to talk about
generalized principles or universal laws, things that you cannot refute. Like there is dark, there is light,
there is on, there is off, there is hot,
there is cold, universal loss. And two of those are precession and lag. And we're going to talk about precession
and lag as it relates to real estate. So the first universal law
is around precession. And while I'm going to simplify it here, basically if you drop a pebble in a pond,
it has rings. So in other words, this could be a choice
to make something that happens like an event and it has ripple effects
as it moves through a pond or in this case, the economy. Lag, of course, is the difference between here and here and here
and here and here and here and that is the time frame
between one event and another event. In other words, when something has dropped
in upon, when is that first circle? The second circle, as you guys know,
as it gets further and further out, they get longer and longer. So with regarding lag, what's happened,
as we all know, the Federal Reserve raise rates five times so far
and they're now going to be meeting again two more times this year for a potential
rate increases of seven times. Now, let's tie all this together
and I'll show you some of my prediction as it results to perception and lag with regards to the interest rate
increases that we've recently had. So let's first
take a look at precession and lag. So we know perception are the rings. So in this case,
the dark rings are the federal funds rate hikes since March,
May, June, July and September, and of course, November, December,
based on my two predictions and the dotted lines are, of course,
what I think is going to happen for the Federal Funds Rate increases
between now and the end of the year. The green here
represents the actual inflation rate, which of course is the reason for this
federal funds rate increases. What the Federal Reserve is trying to do,
of course, and one of their charters is to keep inflation low. And as you can see,
it hasn't really worked yet, even though we've had five increases
and we have potentially two more. What that means is the Federal Reserve
could wait to see if there's a better lag effect. It might take a little bit longer
or they might raise rates again in 2023. It's anyone's
guess as to what's going to happen. But I'm going to guess
that they're going to raise rates two more times before the end of the year
because as you can see, with five rate increases, inflation
really hasn't changed. And lastly, let's not forget
that the target inflation rate for the Federal Reserve
is 2% as admitted on their own website. So the real question is, on October 12,
where will the inflation rate be and will the Federal Reserve increase
more rates at the end of this year and into next year? And what will that do to the economy
as a whole? So in this chart,
I summarize all five of those increases and potentially the other two right here
in this purple dot in the center. And that's now my new perceptual fact
for 2022 federal funds increases. The real question
is, as we start in Q1 2023, what is that now
going to do from a lag standpoint in the economy and what is happening today
for many of you? They're paying attention. You realize that
these signs are already here today. So I believe we're going to have
two more federal funds increases and we're going to have interest rates
around 7%, possibly even eight, and Q1 of 2023. That's going to continue
to send consumption down. And people are going to buy less
because the cost of money is up. That means less automobiles,
less TVs, less homes, all of the things that people finance,
which is right now the majority of things people do in a video earlier this year,
I said we're moving to a renter nation. I really believe that these numbers
are interesting for you to watch. And right now, the renter percentage
is trending somewhere between 35 and 36%. And of course, on the other side of that
is the homeownership rate, which is what everybody's watching, which is right now
somewhere between 65 and 66%. I do believe that there's a lag
in having the inflation come down. And I do believe
that the next two increases, because the consumption
is going to come down, that we will start to see inflation potentially
trend down below 7%. However, let's don't forget that it's still five percentage points off
or what the Fed want. Real estate
listings are going to continue to go up. Real estate prices will continue to go
down as there's more and more supply. And unemployment
as of right now is around 3.7. And I believe that's going to stay pretty
steady through these midterm elections. I do believe in the first quarter of 2023,
you might see this tick up a little bit. But now, of course,
we're going to go to Q1 of 2024. The one thing I want to point out here,
while you think that might be so far away, it's only 14 to 15 months from today. This is not that far away. So the first thing that I believe is
I believe that we're going to be in a recession
sometime in 2023 and we're going to
still be in one and Q1 of 2024. So the one thing I do
believe is consumption is going to continue to go down
because of the lag effect. Remember,
this is only 14, 15 months later. And of course, because of lag
and inflation, rates are already at 8.3, I just don't believe that they're going
to be anywhere near their target of 2%. And so therefore,
I think that actually interest rates are going to continue to go up through
the remaining 2023 and possibly into 2024. There could be even higher than we saw
one year ago in 2023. What that's going to do,
of course, is reduce consumption, reduce homeownership, increase renters, and it's also going to temper inflation. I hope. Remember, inflation started at 8.3,
just 14 or 15 months ago. And I'm hoping that inflation
will be down in the five or 6% range. I'll tell you why. I don't think it's going to be more
in the very next slide. But one thing is for sure,
real estate prices are going to continue to go down
because they're going to be more listings. And I believe that the Fed is prepared to drive up unemployment, which is also
not going to be good for a lot. So now let's look at the individual components over here
as I think it's going to be as a lot of people think it's going to be
in just 14 or 15 months from now. So let's first start with recession. There are a lot of people
that believe we're in one today and there's a lot of people that believe the Federal Reserve
is going to push us into one tomorrow. The bigger issue, in my opinion,
is that there's a lot of people believe that there's a 98%
chance of a global recession if you just take a look at what's
going on in other countries as well. So I believe that what's happening domestically
and what's happening internationally, it's all going to point to a recession
that's going to hit the United States. So that's why I said that there is going
to be a recession in 2023 and in 2024. The second one is consumption. And as you all know, we've
all changed our consumption behaviors as a result of this high inflation. People are cutting back on gas,
food, rent, cars, consumption
of all kinds of things right now. And as you guys know, I'm still projecting
a pretty high inflation rate into 2024. And so I still believe, as do many people,
that a lot of shoppers are going to continue to cut back
and change their purchasing priorities going on into
what is just 14 or 15 months from now. The next one is interest rates. Now, I do believe that interest rates
are going to go up even higher in 2023 and potentially into 2024
as they continue to tamper down inflation and bring it down to that 2% level,
which there's no possible way that they're going to be able to do it
in just a 14 or 15 month period. And let me show you why. And so for all you naysayers that believe
that inflation is going to come down rapidly,
I went back to the early 1900s to see how fast has the government
actually done this in 100 years? Well, it's very unfortunate,
as you can see, there's really only one time
and that was from 2008 to 2010 that we actually saw a big reduction
in inflation in a 24 month period. That's the only time in this entire chart
the Federal Reserve has certainly adjusted the number
from month to month and from year to year. But the biggest decrease
has to be from 2008 to 2009. We had a massive economic contraction
during that time and I'm hoping we don't have that again
to get this kind of adjustment. So as you can see from just 14
or 15 months later that we're at 8.3 now, getting to five or 6%,
inflation is pretty reasonable and possibly even aggressive
based on all of this history. So obviously, higher interest rates
are going to create more renters, lower homeowners, hopefully inflation,
it gets tempered a little bit. But the and the real estate prices
are definitely going to go down. But the biggest concern I have is by far
the unemployment rate. This is what I actually believe
is going to be the biggest shock to this economy
in the next 14 to 15 months. Take a look at some headlines
that are recent. This is just a week old.
The Fed's tightening. I guess inflation could cost the US
1.2 million jobs. That's why I picked 4.4
from 3.7 in the slide prior. What's even more alarming
is actually the fine print here and potentially,
if unemployment goes as high as 5.5% at the high end of the Fed's range,
that 5%, that would be 2.2 million more people unemployed. This would be disastrous for everything
in this category right here. It would most certainly push more people
out of homeownership into rentals, and it would put even more pressure
on rental housing. This is not a good scenario,
and the Fed themselves have said that they're going to keep
the interest rate above 4% beyond 2023. That means
this is from the Financial Times. That means that the cost of money for
everything is going to continue to go up. So now, of course,
let's go out to Q1 of 2025 and the math of course,
gets a little bit more fuzzy. But like you guys, I'm trying
to make some good assumptions for my own purchasing and for my real estate
portfolio that I own. So once again, we have another lag effect. And of course, the first 14 or 15 months
might correct a lot of these thing, but if they don't,
then of course, we're still in a middle of a recession
potentially a global recession. I believe that real estate prices
are going to continue to go down. And this is actually when you're going
to start to see bank owned properties and people losing their real estate
investments, those kinds of things. Hopefully the Federal Reserve
has raised interest rates high enough to where they're actually coming back down
potentially in the 7 to 8%. At least that's my wish. Of course I want inflation low,
but I just don't think that they're going to get there in a 27 month
period as evidenced by history. I think that we could still be in the four
or 5% inflation time frame, and I still don't think
that the Federal Reserve will be done by that point. And the unfortunate thing around
all of this, there's high unemployment, there's high inflation,
and these higher interest rates are that more and more people get pushed
out of homeownership and into rentals. And as you can see, we're trending
even more toward higher renters at 38%. And homeownership at 62%, which is what we saw
right before the last financial crisis. As you all know, I did a prediction video
and there's many economists that believe for the first time
in the US housing history that we actually might see
homeownership below 60% for the very first time as a result of all of this
collateral damage. So hopefully you guys understand
the difference between perception and the lag. And of course, if this is a scenario here,
then I do believe that in 2025, in 2026, you're going to have
massive buying opportunities. Again, as bad as I believe
that this is actually going to be, this is part of a real estate cycle.
