THIS Could CRUSH Housing Prices...

home prices have been shooting up like this thanks to the help of cheap mortgage rates but now because interest rates are starting to rise people are starting to worry about a potential housing market crash and in this video i'm going to be talking about what could potentially cause a housing market crash so make sure you watch this video until the end what's up everybody i am just playing singh from the minoritymindset.com where money minds really think rich a housing market crash is one of the scariest things that can happen to an economy because we saw what happened back in 2008 when the housing market crashed our entire economic and financial system was on the verge of collapse the thing that makes real estate so unique is how big and how kind of interconnected it is with so many different industries because not only do you have homes which for many americans is the biggest purchase that you will ever make but now you have the entire banking industry because the banking industry kind of banks off of people taking out mortgages to buy our homes and then you have the insurance industry and so you have this major kind of system that is built around the entire real estate industry and so if real estate prices come down or if real estate prices crash then the whole industry goes down with it and that's why you can see kind of the whole financial system suffer if housing prices or real estate prices crash the thing that you have to understand about real estate and every asset class for that matter is that real estate moves in cycles there's times where home prices are booming and then you'll see times where home prices are cooling down the 2008 real estate meltdown was an outlier because that wasn't just a crash i mean that was an all-out real estate collapse but at the same time you really want to understand what's going on in the real estate and holistic market right now because we are in a very strange housing market and so you want to make sure you're protected and you want to make sure you really understand what's going on that way you can make the best decisions with your money and that's what i'm going to be talking about in this video but before i do that i need you to do me a quick favor and smash the thumbs up button below if you really want to understand what factors could cause a housing market crash there's three things that you need to understand first you got to understand where we were because that's going to help you understand how we got to where we are and that's going to help you understand number two where we are today you need to understand where we are in the housing market and the real estate market and that's going to help you understand number three where we are going so let's start with number one let's talk about what happened to get us where we are today so like i said just a second ago real estate is cyclical and after 2008 it wasn't just a normal cycle like this during the 2008 crash we really saw real estate just collapsed like we have never seen happen before and so here was 2008 and in 2012 so we'll call this 2012 that was when real estate prices really bottomed so the 2008 crash started in 2008 and real estate prices bottomed out in 2012 and then from 2012 onwards between 2012 and 2019 we saw the real estate market start to improve we saw jobs start to come back the economy grew as more people got their jobs back more people had incomes to go out and buy homes so home ownership started to grow we saw lending restrictions start to relax and so more people were able to go out and get a loan so they could go out and buy a home and so we started to see home ownership rise we started to see more people buy homes and we saw home prices start to really go up then in 2019 something really interesting happened 2019 was supposedly one of the strongest economies that the united states has ever seen but at the same time the federal bank in 2019 they came out and they started cutting interest rates now typically the federal reserve bank only cuts interest rates when you are in a recession in a slowing economy because when you cut interest rates it makes borrowing money cheaper and when borrowing money becomes cheaper more people go out and borrow money so they have more money to spend so cutting interest rates is a way for you to stimulate the economy and so it was kind of strange that in 2019 we started to see interest rates cut and the reason behind that was the government and the federal reserve bank was kind of concerned about the economy because it was growing but they were concerned that it wasn't growing as fast as they would have liked so they started cutting interest rates to kind of get that economy moving faster and so in 2019 we started to see mortgage rates fall which naturally made more people want to be homeowners so in 2019 we kind of saw this kind of dip and then jump back up because now mortgage rates started to be cut and so these lower interest rates made more people want to be homeowners and now we go into 2020 and as we all know in 2020 that's when the pandemic hit and the recession hit and for a little bit of time everything shut down people stopped buying real estate people stopped selling real estate everything was shut down but then a month after the pandemic came in that's when the federal reserve bank came in and they slashed interest rates to near zero and as soon as that happened so this is like mid-2020 now home ownership started booming because you had this kind of the early adopters they saw this and they were like wow you're telling me that i can go and get a 30-year mortgage for three percent interest and so all these people started to go out and they started to buy homes and at the same time you didn't have a lot of homes available for sale i mean some people just didn't feel comfortable selling their homes because we were in the middle of a pandemic and they don't want people walking through their properties and so you had a small inventory homes available for sale and you had a lot of people that wanted to buy homes and take advantage of these low interest rates so now the whole market started to boom then as housing prices started to go up people were saying wow i don't want to miss out on this trend and some more and more people started buying homes you started to see some more people start to sell their homes but even through 2020 and 2021 we had a very small supply of homeless available for sale while we had a whole kind of tidal wave of people that wanted to be homeowners because people wanted to take advantage of these low interest rates i mean even at the time we were recording this video interest rates were dirt cheap and so going from 2020 to 2021 we saw the housing market essentially just shoot up from 2012 to 2021 it was a very great time for homeowners i mean if you bought a home around here you saw home prices shoot up straight so between 2012 and 2021 home prices just shot up thanks to the help of loosened lending restrictions so it became easier to go and get a mortgage and thanks to the help of cheaper mortgages because the federal reserve bank started cutting interest rates in 2019 and then we saw in 2020 get slashed even more to historic lows and so we are seeing some of the lowest interest rates ever which made it very enticing for people to go out and buy a home so from 2012 2021 we saw a booming housing market this brings us to where we are today right now at the time we're recording this video we are in the midst of a real estate boom so we're still in a seller's market where we have a lot of people that want to buy homes but not a lot of people selling homes and so home prices are shooting up but you really got to understand these five things if you want to be able to understand really where we are right now in the housing market because that's going to lay the foundation to understand where we're going in this housing market starting with interest rates the thing you have to understand about interest rates is interest rates determine how expensive your mortgage is going to be and so this housing market has been driven primarily or at least in big part because of low interest rates people have been trying to take advantage of these cheap mortgages and right now mortgage rates have come up a little bit but they're still historically very low so interest rates have come up a little bit off of their lows they're still nowhere near as high as they used to be so interest rates are still very low but people are concerned here because if interest rates keep going up then people are worried that it's going to become very expensive for someone to buy a home because we've seen home prices boom and so we have home prices way up here but people are still able to afford homes because interest rates and mortgage rates are so cheap but if mortgage rates come up and home prices are so expensive then people will not be able to afford homes so that's the concern but now the counterpoint is the federal reserve bank has come out time and time again and they said that they're going to keep interest rates low for as long as possible now what's as long as possible i don't know i mean some people say that they're going to keep it low through the end of 2021. some people say through the end of 2022. some people are saying into 2023. so it really just depends on how fast the economy is growing because it's really hard to predict what the federal reserve bank is going to do all we know is they do want to keep interest rates low for now and we don't know how long these low interest rates are going to stay but as long as interest rates are low you can kind of predict that people are going to want to take advantage of these low interest rates to go out and buy a home and to refinance on their mortgage because they want to take advantage of this cheap debt the thing that everybody's worried about here with interest rates is what is the breaking point and this is what the fed is trying to test and so as you see them kind of slowly raise interest rates what they want to see is where is that kind of breaking point where now interest rates have gone up to the point where people don't want to go out and buy a home or people don't want to go out and refinance their mortgages where is that point i don't know where that is and i don't think the federal reserve bank does either they're trying to just kind of figure this out because if they start to see the housing market try to slow down or if they start to see the economy slow down because interest rates have gone up so much well that could be a problem and we're in an economy where right now the economy still is relying on cheap debt and free money in order to keep pumping and surviving and so interest rates are going to play a major factor in the housing market and so this is something you definitely want to pay attention to with interest rates and where they're going but this is something to understand that right now interest rates yes they've gone up a little bit but they're still at historic lows this is where you're kind of seeing almost like a perfect storm in the housing market because not only do you have super cheap interest rates we also have a very low supply of homes available for sale and so when you go out and you want to go find a home you want to live in you might find a beautiful property and you go look at it the same day this property was listed well if you go back and you talk to your spouse about buying this home and the next day you put an offer you might find out that there's already 15 offers on this property and now if you want to buy it you have to bid up the property you might be overpaying for this property so if this property's on sale for 300 000 you might be making an offer for 320 that we have a chance to compete and so this is what we're seeing happen right now we have a very low supply of homes available for sale and so when people want to buy it because we have such a high demand people are having to fight against each other through money by throwing more money at the property and so people are bidding against each other to buy properties because we have such a low supply and we have such a high demand to buy a home if you bought a home recently or you're looking to buy a home or you did any renovations at your home recently then you've seen this in effect because right now not only do we have low supply and high demand but we also have a real kind of large labor shortage and a very expensive cost of materials right now which is causing this kind of low supply and high demand to be even more exacerbated because right now if you want to go and get work done in your property it is very expensive because everybody is trying to renovate their homes and everybody's trying to build a home to make up for this high demand and there's not that many people out there that are working and so in order to compensate for that all the construction workers all the laborers are demanding more money and so this is causing the price of real estate to go up even more in addition to the high demand and low supply and on top of that we also have a kind of a material shortage which is causing the price of things like lumber to go through the roof this pandemic really backed up a lot of industries and so now although yeah we have low supply and high demand it's also very hard for builders to build homes quickly because we have this material shortage and this high construction cost because the people want more money in order to do the work and so now you really have this perfect storm because we have low interest rates we have a small supply of homes available for sale we have all these people that want to buy a home and take advantage of these low interest rates and at the same time now if you want to build a home it's taking very long to do that which is keeping the supply of homes small and if you want to make renovations on your home you want to flip a home so there's more homes available for sale it's very hard to do that because it's very expensive to do these renovations and so that is also pushing the price of real estate up because now if you buy a home and you want to do these renovations now you have to pay more money to do that just because of this kind of perfect real estate store that we're in and that doesn't even include the fact that it's very easy to do renovations right now because everybody's working from home and so the issue before if you were in the office and you wanted to redo your kitchen was well somebody has to be home to let the people in or to be there and kind of just coordinate this whole kitchen renovation but now if you're working from home you can just work in the living room or the den and you can have people working in the kitchen and so people are home which makes it easier to do these renovations couple that with stimulus checks and so people have some extra money to do renovations and now you have all these people that want to get work done but there's a material shortage there is a labor shortage as to everybody wants a home everybody wants renovations there's a low supply of homes and people want to buy homes because of low interest rates this is creating a real perfect storm and i'm going to top it off with the refinance boom because people are refinancing their homes cashing out with some money and they're using this money to renovate their homes but i'm gonna get to that in just a second so we're really kind of seeing a shift in the housing market because right now we're seeing a lot of people move from the big cities into suburbs because you can work from home and so this is causing a shift from kind of just the urban renting life to now home ownership life and we're seeing this kind of suburban sprawl in a way that we haven't seen happen since the 1950s which if you remember was after world war ii when the first kind of major suburban sprawl happened now we're seeing all these people move into the separate parts of cities because people are realizing well why do i have to pay 3 000 a month to rent a tiny apartment in a big city when i could pay a fraction of that and own my own home and have an office in my home and own a yard and still keep more money in my pocket all of these factors coming together have really caused home prices to shoot up faster than ever the concerning thing now is that home prices have been rising way faster than wages now any kind of a theoretical utopia market you would want home prices to rise with wages so as people make more money home prices rise with that what we're seeing happen right now is very different we're seeing home prices go like this and we're seeing wages for some people go down here while for other people they're going up like this but in general home prices are rising way faster than wages because we're still in a recession we have a lot of people that are still out of a job but at the same time home prices are rising faster than ever and so anytime you see home prices rise so fast you have to be worried about kind of like a home price correction because if home prices rise way faster than wages then eventually these home prices are going to out price buyers because people just won't be able to afford homes because homes are so expensive and they cannot afford to own a home with the salary that they're making and so people can't afford to own homes then home prices would eventually have to correct that way people can afford to own a home again the thing that makes this so interesting and so tricky is that we are not in a theoretical market we're in a market that is heavily influenced by external factors like the government through things like this forbearance program and this eviction moratorium and a potential fifteen thousand dollar home buying credit and through things like easy lending and so i'm going to talk about this number three but what you have to understand is yes home prices are rising way faster than wages which is very concerning but the question is how far can it go and i'm going to talk about that in just a second but if you look at this right the refinance boom what you've been seeing happen is home prices have been booming and so if you bought a home two years ago three years ago you might have seen a 20 jump in your equity in your property just because you own a home and so if you bought a home a few years ago for 330 000 now your home might be worth 360 000 and so now all of a sudden you have 30 000 of new wealth or equity at least on paper in your property and what you've been seeing happen is people have been capitalizing on this new wealth this newfound equity in this property by just refinancing doing a cash at refinance because if you have a property that you bought for 330 000 and now this property is worth 360 000 it really doesn't mean anything to you unless you sell your property because that money is just sitting in your home but now if you do a cash out refinance now you can have this money in your hand at a super low interest rate and people have been using some of this money to refinance on their homes but what you've seen happen is people have been doing these cash out refinances which is why you've been seeing this refinance boom now look ask somebody who's a money nerd and ask somebody who loves talking about financial education which is why if you haven't subscribed to our channel yet make sure you do that i do want to talk about this just very briefly because yes this is still one of the best times in history to refinance your mortgage because if you own a home and interest rates have come down now you can save a ton of money on your mortgage just by refinancing to a new cheaper loan but if you are refinancing or if you're thinking about refinancing just make sure you do it the smart way because if you're pulling new cash out of your home and then using this cash to go out on a vacation and you're using this cash to go and buy a bunch of nice things like nice clothes and nice cars you got to understand you're going gonna have to pay this money back plus interest i want you to use what's going on as an opportunity to build wealth for you not to make your bank richer by staying in debt for the rest of your life so if you're gonna go down this refinance route just make sure you're financing the right way that means pull out whatever cash you need to pay off your old lender and now use this new opportunity with these low interest rates to save money on your mortgage every single month not just to take out a whole bunch of new cash that way you can have more money to go out and buy a whole bunch of nice things okay so if you are doing refinancing just make sure you're doing it the right way in a way that's going to build you wealth not in a way that's going to make your bank wealthy and when you are looking for refinance rates or if you're looking to buy a home just make sure you please shop around because some lenders are going to charge you a whole lot less in fees and interest than other lenders so just spend a few minutes to shop around and the following is an advertisement from our sponsor credible who operates a mortgage comparison website with credible you can check pre-qualified mortgage and refinance rates and no charge for you they have multiple lenders competing on their marketplace so you can compare great rates and pick the best option that's best for you the process is simple all you have to do is go on to credible's website and enter in a few pieces of information which just takes a few minutes and then credit will present you with actual pre-qualified rates from different lenders that way you can compare credible's pre-qualification process is easy to use and only takes a few minutes and checking pre-qualified rates does not affect your credit score so if you want to learn more and see what mortgage or refinance rates you might qualify for i got the link to where you can do that with credible in the description below credible does say minority minus an advertising fee when you submit a pre-qualification request and credible operations inc nmls number 1681276 is not available in all states so if you want to learn more and see what mortgage or refinance rates you might qualify for i got the link to where you can do that with credible in the description below and this brings us to number three where are we going so home prices have been shortened up and many people are worried about a potential housing market crash or a housing market slow down or what's going to happen in the future well the thing that i need you to pay attention to is this one word right here equity because this one factor is going to determine really kind of how risky our housing market is because if people have equity in their homes and housing prices come down would be okay but if people do not have equity in their homes and home prices start to go down that's where we're going to run into a big issue and the thing that you have to understand about equity that there's more to equity than just how much money you're putting down in your property back before the 2008 real estate crash happened what you saw happened was a lot of banks were offering these low teaser rates for people to get a mortgage through a variable interest rate loan the whole idea was you can come in and get this variable interest rate loan with us and you have to put down very little equity into this property if any at all but you're going to get a super low interest rate today and then over time in the next couple years your interest rate is going to change depending on what interest rates are if interest rates go up your mortgage rate would go up and if interest rates go down your mortgage rate will go down the whole idea was if interest rates did go up you wouldn't have to worry too much about it because then you could just refinance your mortgage and get a fixed rate loan the problem was that when interest rates started to go up home prices started to go down and when home prices started to go down now people had no equity in their homes they were actually underwater on their properties so somebody bought a home for three hundred thousand dollars they had zero equity and then when it came time for them to refinance on their mortgage they owed two hundred and eighty thousand but the home was only worth two hundred and sixty thousand so now they couldn't sell their home they couldn't refinance on their mortgage because they didn't have enough equity in the property and so now you were stuck with this super expensive mortgage and you had no way to make your monthly payments and so people were just walking away from their homes because they had nothing to lose but if you have equity in your home you're not just going to walk away if things go wrong then you can just sell your home or you can refinance because now you have equity and so if people have equity in their homes you're not going to see a major housing market crash but if you start to see this equity fade away that's when you need to start getting worried right now at the time i'm recording this video you can buy a home with as little as three or three and a half percent down depending on what kind of mortgage you're getting and if you're going va usda sure you can get a zero percent mortgage but for kind of the general population a conventional mortgage is going to require a minimum of three to five percent down and the fha mortgage is going to require three and a half percent down the things that you want to pay attention to is if the housing market starts to cool down what do banks do are banks going to lower their down payment requirement if you see that happen that's going to be a red flag because that would mean that instead of having three percent down which is still already very low but they're gonna say you know what you can come and buy this home for one percent down or two percent down or even zero percent down and so if we start to see that happen then you're going to start to see people buy homes with less equity now it's going to be good for a short period of time because you're going to see more people able to buy a home but over the long term that's very concerning because people are not going to have that much skin in the game the second thing you have to pay attention to is if the housing market starts to correct a little bit and you see home prices come down by five percent or 1000 percent then the people who bought it home with three percent down or three and a half percent down are now going to be underwater on their mortgages and that could be a problem but it's not going to be like 2008 because right now a lot of people are not getting variable interest rate mortgages because thankfully we are already at historic lows and so i think a lot of people understand that if you get a variable interest rate mortgage then as interest rates start to go up then your variable interest rate mortgage is going to go up too the thing that i'm concerned about here is as interest rates start to go up people might get attracted by the idea of a low teaser right now because if interest rates go up a little bit then you're going to think man i wish i would have gotten a mortgage six months ago or a year ago and that's when the banker might say yeah but you know what we can extend an even lower interest rate right now if you accept this variable interest rate mortgage with a t as a rate now i don't know if this is going to happen this is just me speculating but if you start to see that happen there's another red flag because when you are at rock bottom lows for interest rates the only way the interest rates can move is up i mean even if you go out and you buy a 300 000 home right now and you only put down three or three and a half percent equity and home prices drop 10 you should still in theory be okay because if you bought this home with a fixed rate mortgage the amount of money you have to pay every month is not going to change and so this is kind of different than 2008 because in 2008 the amount of money you'd be paying every month would be going up while the value of your home was going down now even if home prices go down the amount of money you have to pay every month assuming you have a fixed rate mortgage is going to stay the same so that's going to play a big part but when people don't have equity in their homes or people are underwater in their homes then it's easier for someone to walk away because they just don't have the same skin in the game at the same time another thing that you want to pay attention to here is the refinancing side of the equation because as people are doing this cash out refinance you also want to pay attention to how much money are people pulling out of their homes because if you bought a home for 300 000 and you only owe 200 000 on it and now this home was worth 350 000 and now this person goes out and they pull out 320 000 out of their home so you have a whole lot of cash in your hand and now you owe 320 000 under 350 000 home well if home prices do go down and everybody's doing this cash at refinance where they're pulling all the equity out of their home and now home prices go down and you're going to see a whole new wave of people that are underwater on their homes now again this is just speculation but this is something you want to pay attention to if a lot of people which they are a lot of people are doing this cash out refinance where they're pulling all the extra equity out of the homes because they want to take advantage of this newfound wealth or at least wealth on paper the next thing that you want to pay attention to is the shift in supply and demand because right now we have a lot of homes under construction and i think we have a lot of people that are kind of getting excited about this new kind of home boom and more people are starting to sell their homes especially as we get into the summer and so chances are we are going to see a bigger supply of homes available for sale now people have been building homes very slowly because of the material shortage and the labor shortage that i just talked about but over time you're probably going to see the supply of homes start to go up now at the same time as home prices keep going up and as mortgage rates start to go up you have to think that the demand to buy a home will kind of go down a little bit now this is where things are really kind of tricky it's like an onion with a whole lot of layers to it because the government doesn't want to see people stop buying homes and banks do not want to see this demand go away and so this is where we are talking about a lot of regulation changes to kind of keep boosting this demand because right now the main people that are buying homes are people that have benefited because of this pandemic so people that didn't lose their jobs people that might have gotten bonuses or pay raises because of this pandemic but at the same time we have a whole kind of group of people that were really hurt by this pandemic and they weren't able to capitalize on this housing market or these low interest rates and buy a home because they were hurt by that pandemic and so this is where the government's coming in and they're trying to do things like pass a free 15 000 home buyer credit for first time home buyers where if you want to buy a home and you can't afford the down payment well the government is going to give you 15 000 for free as a tax credit that way you can go out and buy a home at the same time you might see other kind of incentives created by banks maybe lower down payment requirements or other things like that that was easier for you to buy a home and so yeah in theory if nothing else were to happen chances are you're going to see the demand to buy a home start to drop because as home prices go up and mortgage rates go up you're going to see less people naturally want to go out and buy a home but now to combat that you might see other kind of regulations changed which would increase the demand and as the economy opens back up and as more people get jobs and make more money that could also boost up the demand so in general we will probably see an increase in the supply what's going to happen to the demand well it's a big question mark in theory if nothing else were to change demand would go down but the government and wall street do not want to see that demand drop because it would affect our economy in a very bad way and the last thing that i want to mention here is that there's a difference between a home price low down and a home price correction because the home price slowdown is we see home prices go like this and then home prices kind of start to grow slowly and so in a home price slow down home prices are still going up but they're just not going up as fast as they were a home price correction is when you see home prices go like this and then they start to go down so i want you to keep that in mind because chances are you're going to see a lot of emotional headlines come out where you're going to start hearing about a home price slow down because just it's just natural that home prices cannot just go shooting up forever and so naturally we are probably going to see a home price slow down in the near future does that mean that we're going to see home price correction well personally i don't think we're going to see this correction at least not in the near future at least not in 2021 because we have so many factors that are boosting this housing market and so i still think that we're going to continue to see this kind of record home price growth but it just may not be as fast as it was now this is again where it goes back to what government factors are we're going to see what bank factors are we're going to see change how good is our economy doing how many people have a job how much money are people making all these things are going to affect the housing market but one thing that i want you to pay attention to and understand is that even if home prices are slowing down that doesn't mean the home prices are going down home price slow downs mean that home prices are going up just not as fast as they were home prices going down means the home prices are going down so just keep that distinction in mind because you're going to see a lot of emotional headlines come out over the next year and two years because this housing market is going to continue to be very strange and i'll try to keep you updated on a youtube channel but this is where you just want to understand what's really going on in the housing market and what's not happening if you enjoyed this video here's the video on passive income that i think you love and while you edit download a free pdf of money management and investing and as always keep hustling the thing about real estate investing i'll tell you from personal experience is in the beginning it is not going to be passive you have this kind of like hurdle that you have to jump over to understand how real estate investing works but once you get over the hurdle

Channel: Minority Mindset

Views: 252,468

Keywords: minoritymindset, minority mindset, minority123, jaspreet singh, rethink rich, financial education, financial literacy, housing market, homes, real estate, housing bubble, housing crash 2021, real estate investing, buy a home, how to buy a home, mortgage, home mortgage, get a mortgage, buy a home 2021, real estate market crash, housing boom, home prices, real estate 101

Id: 2FVKUUBjjvA

Length: 28min 27sec (1707 seconds)

Published: Mon May 17 2021