Transcription
Everyone is watching the Fed and mortgage rates to indicate what's happening in the real estate market, but there's four other uh signals you should be watching that are actually much more informative on how the market is doing and what to expect.
Yeah, there's there's four things I think that all need to line up, right? Like uh that's one of the that's the purpose of this live is is to if you guys focus on these four things then you can eliminate eliminate a lot of the noise I think all right and the first one is about inventory so I went through ' 08 like I saw inventory right and and so there's a lot of stuff going on you know pre-8 obviously and even after 08 and everybody's like we're stabilized we're not stabilized we're crashing we're not crashing all that kind of stuff I went through a serious one personally. So let's talk about inventory first, right?
Yeah. So there is, you know, supply and there is demand and that's what the whole entire housing market runs on, right? So back in 2020, we didn't have any supply and we had a huge demand because interest rates dropped. Right now we have more of a supply than we do of a demand. You know, that's why it is a a buyer market. That's why, you know, there's more inventory sitting is because there's not that many buyers. Now, a lot of people will say we have a pent up demand. Like, we have a demand for buyers. They just can't afford these mortgage rates. But either way, you know, we're not seeing as many home buyers as we are home sellers.
Yeah. And I I think the other thing is you there's some shifts in the you know, how people are buying, why they're not. Obviously, um we'd be remiss in not discussing, you know, there's a millions and millions and millions of people sitting on these low interest rates, right? U they want to, but they're like, you know, right now my rate's low, my home, my mortgage is low. Um I'm just going to stay put. U so that those a lot of those people would normally, you know, be upgrading, be trading, be, you know, let's say moving into something newer. Um and not all of them are relocating across the country or for jobs or anything like that. So there's just this kind of natural attrition that you guys all we all see uh you know when when you've lived in a home uh you know for some period of time. Now don't forget there was a huge piece of the sector that also from a tax standpoint would you know buy a piece of land build it move into it and then there's a certain period of time where they can um uh move move that into I think it was a 20% capital gain and then they would go do that again. uh you know so all that's kind of frozen right now and and and so you know there there there is this pent up uh but there's a we're a long long long way from rates getting low uh compared to where they were right
Yeah, so you have to look at the supply and what I like to do is I like to pull up 2019 versus now because you know that was pre everything getting crazy so it's good to compare the two so right now we have a 4.6 six month supply nationally. In 2019, it was 5.5 month supply.
Let's pull that chart up, Jerry, if you would.
So, you know, you're having a bigger um you know, you're you're you're less of a supply than you were in 2019. However, we are seeing that tick up. So, it could be an indicator that could um you know, lead to more price cuts, etc. So, you do want to keep an eye on it. Yeah, I think it if you look at the very bottom of this, these are some market signal indicators. Um the month supply of course is up there. Now this is nationally. Now we know that this is different for each economy, right? So right now there's a 4.6 month supply nationally. Now just to put that in perspective, in ' 08 it was over 10 months, right?
Yeah. And then now let's go all the way up to the upper right corner.
No, let's not get there yet.
Okay.
Um, but I what I do want to talk about, Jar, if you can pull that down, is that Phoenix though because Phoenix is one of those bubble markets, right? And so, you know, it goes up, it goes down. It's not as steady as when you look at like an all national market. So, Phoenix right now has a 4 and 1/2 month supply, but in 2019 it was 2 and 1/2 month supply. So that's why, you know, in some of these markets, the differences are more stark than maybe the national average. And in in other markets in the Northeast, you know, you'll have a much less supply uh even less than the national supply than you did in 2019. And that's why every market is a little bit different, but generally we're not seeing any indicators in any market that there's this crazy amount of supply.
Yeah. And Jerry, pull that back up if you would. But also, one other thing, um, when uh there's there's 4.6 six months of supply, what what was average in in 2019 was 5.5.
So that's important. So So we're not even at what 2019 was. And by the way, guys, there's nobody on this live that would say we were in a crash or some kind of a crisis in 2019. No one. So So we're not even back to there. But in the upper right hand corner, I want to bring up something that we identified as we were going through this. Um, that's the current builder supply. Now, this I think is something to watch. Um, so what you have is you have a healthy market. You have the 2019 supply, which is what we're looking at, uh, which was about 5.5, and then you have the 2008 crash. But what we have is we have builder supply at 9 and a half months. And so we've we've been talking about this. So this is almost this is over double than you know the normal housing market. And so this is a big indicator and you're starting to see this. you're starting to see these rate buy downs and these big uh builder concessions and you're starting to see all this stuff package up and and this is precisely why Warren Buffett just made some huge huge investments into these single family home markets because clearly when you have supply like this you're not getting the profits um you're not getting the margins that you were the the other thing that this does is it actually pulls back supply. So if if you have this kind of supply on the market, let's say, and of course this is nationally, then what you have is you have builders that are not going to continue to be building because when you you know, when you're discounting homes and you're you're doing these big big rate buy downs and you have these big marketing costs and all these things are happening, the last thing you're doing is pulling the trigger and starting to add more supply. So that's that's why I think this is a really important.
Yep. And so the second thing that you want to look at are days on market. Um, you know when you have a higher supply obviously the days on the market are going to go up because people have more choices. So right now nationally it's 47 days on the market and in 2019 it was 34.
So it's higher. So, it's higher and and I actually have some um reasons for that, right? Because I think that the sellers today, most of them do not have to sell their home. So, they're letting it sit longer. So, in 2019, um you know, people wanted to get their home sold. So, what are you going to do? You're going to lower the price. You're going to take lower offers. Sellers today are stubborn because they don't a lot of them don't have to sell.
Yeah. And I think that's this is a national number. I mean, you start to look locally like uh like where we live in Phoenix, it's 57, right?
And it was 68 in 2019. So, you're you're generally seeing like in Phoenix, the days on market is less than it was in in 2019.
Right. Right. Right. So, so this is the second indicator. Obviously, the first one being inventory, but days on market are just what I would call an early indicator. So right now, as Denil pointed out, in many, many, many areas, it actually still is a bit of a buyer market, right?
Yeah.
Oddly enough, like even with all this stuff, so you can't have a crash in a buyer market. Well, I guess you can sell. Are you You're going backwards there. You can have a crash in a buyer market.
Well, I just Yeah. What I'm saying is is that we're not at the YouTube videos right now, a lot of them online are Crash Bro, Crash Pro, Crash Pro, Crash Pro. And what I'm what I'm the point I'm trying to make here is that we're not even close. Um these these are normal numbers.
We aren't close, but it is going up. So, there is something to say for that because, you know, your days on market were a lot more different. We're going to get into that later in the video. You know, even in April of 2025 than it is now. So, if we see the trends continue to go up, you could get in crash territory. But the question is, is it going to continue to go up, but we're certainly not there now, to your point?
Yeah. All I think that's happened is we went from a very severe sellers market to now we're getting back to what is considered normal or average. And people are just freaking out because it's so much different than
Well, I do want to go under the data though because you're just saying that, but we're going to be going over the data later in the video. So, My my data is that Phoenix is 57 and in 2019 it was 68. That's the data I'm using for days on market. And you know, if you look at at 20 in 2019, we we were not in any sort of a crash. Not even close. And we're not even out those numbers right now.
Well, we'll get to that. But as you can see, the the data keeps going up. So, if it continues to go up, we're going to have a problem. Yeah, you you realtors, you hang on these little these little increases like like there there you just you got to back up from the big picture here. Like nationally it's 47 and it was 34. So yes, that obviously something but like in Phoenix it's 57 and it was 68. So we're not even close. And by the way, if you go back to 2010 2009 it's off the hook, right? Uh we're not even close. We're not even
Well, you're just you're just jumping a lot ahead. So let's keep going.
All right. So the the third factor you guys have to look at is the list price and the sold differential. So basically what homes are listed for versus what they're actually selling for. And it's hard to see this without a realer um because on Zillow they don't show any um you know any discounts that they got uh off of the home that weren't affected into the price. Right? So, like any kind of concessions that were there are only showed to a realer on the back end of the MLS, which is kind of BS because you can't really see it. And most homes that I'm seeing do have 1 to 3% concessions, but that doesn't really count in the sales price. Um, but the sales to price ratio right now is 99%, meaning that houses are selling 1% below their list price.
That's not a crash. Not even close. Here's the thing. The cure for high prices is high prices. period. So, so what happens when homes are high highly priced and then there's stress and whatever a seller thinks is stress in this case apparently it's 57 days on the market. Uh well then they start to lower they start to discount what 1% that's not even close that's nothing well they're they're discounting more than 1% but the home what the home is selling for is 1%. So if somebody lists their home for 500,000 and then they they lower it to 58 or 480,
then it's selling for 1% below that.
1% below that. Right. So So when you price some something high based on yesterday's news, which is what you do, which is what you realtors do to try to get listings, you basically tell us what you think they can sell for, and then they get discounted later by the market. But you're, you know, so there's, let's don't forget about the, you know, the, the realtor, uh, the, you know, the, the realtor, um, you know, what, what do you call it? Fuzzy math, where they they're just trying to get listings and and essentially, um, not everyone's like that, but what's happening is that these sellers are, you know, they're, you're looking at comps from two a year ago and you're saying, "Oh, yeah, yeah, we can get a list, we can list your house for that." And then you do it and they don't and all of a sudden what do you blame? blame the market, which is the market was already priced in, but you can't get a listing that way because the seller is going to go with the person that's going to give them the highest listing amount. So, so that's all that's happening right now is there's an adjustment going on between, you know, uh, people trying to get listings. And by the way, uh,
and I, well, I would disagree with you there because it's typically not the realer that's giving you a high number. It's usually the customer that wants the high number. And a good realer is going to bring you down to earth with things that have sold in the last three to six months. But to your point, if a realtor is just trying to get a listing, they'll agree with you.
Agree with that. I think that there's it's a fine line. And I've been in this business a long time. It's a fine line. I see it in the commercial business as well. Uh we get a when we get broker's opinion, val value, we get high, middle, and low. Um and uh that's probably the right way to do it. the sellers are largely unsophisticated and they're going on Zillow. Um, and uh, you know, obvious so you you bring a good point here. I I mean, a good realtor is going to call it the way they see it. Uh, but at the end of the day, um, this is and you you know, the realtors are, you know, they've gotten their they've gotten whacked because there there's not a lot of sales. There's a lot, you know, all this stuff's happened as a result of high prices uh, high interest rates. Sorry. So when you have high prices and high interest rates, there's an adjustment. That's what's happening right now is there's an adjustment except in the ultra luxury market where people are still paying all cash. There are markets in Scottsdale, Paradise Valley where you know this does not people just buy what they want to buy. um you know based on lifestyle and where they want to be. Um, you know, but the the normal markets I think are just going through a price correction as a result of this lag in higher interest rates and and I disagree with you. I think the realtors um they're you know if if you haven't gotten a listing, you haven't gotten a sale uh and and you know your your your production is is 20% or of what it was in the last couple years, you're going to do anything and everything you can to try to get a listing. And that's not always um yeah, obviously there's a stretch number and so you know that's that's usually typically what the proposal is.
Maybe I don't know. I feel like as a realtor, you have to pay to do a listing because you have to pay for photos. So, I wouldn't want to take a listing if I didn't think it was going to sell for whatever.
Look at what's happening even here. Yeah, it's getting listed and then you go to the seller and you go, you know, we haven't had any showings. Maybe we should consider a price reduction. That's all that's happening. And that that is so far from a from a crash market. that is just uh that again I have no problem with with people looking in the rearview mirror with comps and all that stuff and saying this is what the market has been but that's not where we're headed uh these these higher interest rates and and and and also we haven't even gotten into the financial capabilities of of of some of the folks that are trying to get into these houses. Um and and you know, we're not seeing huge reductions in in home prices by the way.
No, we're not. And people that want to point out that one listing that they found that had a huge reduction, they just listed it too high. And we're seeing that, too. So,
so I I I think we're just heading back to
what I I could you irrational exuberance is what I would call it with the seller.
So, you know, the the seller had an expectation and they're having a tough time adjusting to the current market. And that's that's what's happening. We're we're we're reverting back to the mean, which is exactly what is normal. But there's in no way is this a crash.
Well, we're going to get more into the data. So, anyways, the fourth indicator that you need to look at is the foreclosure indicator. And that's a really, really important indicator. And people can say foreclosures are doubling and we're seeing a lot of foreclosures. And we are seeing many more especially in the FHA market than we were seeing, you know, previously. However, they're 20 they're down 25% since 2019. So the foreclosure indicator is one of the indicators you definitely want to be following. But like I said, they're down 25% since even 2019. So that really shouldn't be at this point something that, you know, worries anybody at this time.
Yeah. This is just one more reason. Uh, you know, in ' 08, um, the defaults and foreclosures was off the charts, right? And we're not even close. Um, the difference this time around is people have a lot of equity in their homes. That's a huge difference. You know, when you when you have one, two, three, four, $500,000 of actual equity based on what the market gave you and you go from 300,000 back to two or 300,000 to 250, you're still in really, really good shape. Um, and so there's, you know, if if you have that much, if you have that much equity in your home, you are not going to let that home foreclose. Now, let's go back to 2008, 2009, which I went through. What happened was people got mortgages and then the home prices went down below the mortgages. That's a very different scenario. If you're sitting in a home and you have negative equity and you all and the repercussions are you walk away, but now um you you don't you move away from that negative equity. And now, by the way, there were tax consequences and all these things that followed those people that actually uh for were foreclosed and defaulted. But um the the point is it's a very different scenario. You you have less foreclosures. you're going to have u you might have some technical defaults, you might have some mispayments, you might have all that stuff, you might have a restructuring, but when a bank sees that you have 200, $250,000, $300,000 of equity sitting in your home, you are in a much better position than if you have none or it's negative. U and that's the big difference and we're not even close to that. And that that's why I just don't think that, you know, between inventory, days on market, list price, um, and the discounts, and this increase in foreclosure, those are four big reasons why this market is still healthy.
But let's look into 2008 now and look at these indicators in 2008 because you just kind of went through what we're going through now, which is a slowdown. And then, but a slowdown, you know, can turn into a crash. Like, we don't think it's going to, but it can. So, these are the indicators you're going to want to look at. So the crash signals that we're in, you know, 2008, we're a massive over supply from builders. So right now we have a 9 and a half month supply. In 2008, we had a 13mon supply from home builders.
Something to watch, right? We already went over this. So yeah, absolutely. You know, but on the other side of that, um you don't have this over supply of single family houses. You actually it's sitting in the builder category. So, um, you know, and so, yes, we could see massive discounts to move some of that inventory, but it's not going to hit the per the common person. The common person is going to actually be the benefit of that. Um, what it's going to hit is the shareholder price for, you know, these these Py Lar homes. That's who it's going to hit. It's going to hit corporations. And I don't think anybody's crying over that. So, you know, you know, when the two when both are up, uh, when supply is up on the, you know, on the, you know, right now it's at 4.6 and it's up on the home builder, then I think you got a point, but right now it's just up on the home builder.
So, that's my next point. So, you need a triggering factor, right? So, the triggering factor because you need, you know, people aren't just going to sell their home in a bad time to sell just because they decided they just want to move and upgrade down the street, right? So, you need a triggering factor. So the triggering factor in 2008 was obviously the subprime mortgages. So there needs to be a triggering factor here that would make all of these other people, not the builders, list their home in a bad time to sell. And that could be some kind of massive job loss. Like that's really the only thing because they're mostly all in low rates and they can afford their payments without an issue, especially if they bought before 2021. So the big issue would be if something were to happen with the economy that would really affect the jobs and the government did not step in to help.
You mean like the lockdown?
Yeah, like the lockdown.
I mean it's not
Well, but not even cuz the government stepped in to help.
Well, we we looked Yeah, I looked into this before because obviously uh to your point um you know Chris Fos would call it a black swan or something like that. I I think you know when you have what was the number 750,000 people that are going to be affected by the way these are homeowners these are renters you know who knows what'll happen um you know there could be some kind of you know COVID p uh you know STEMI money thing for this right to fix this I think this is going to be temporary but who knows right it seems like both both sides have their feet dug in on this issue but regard Regardless, when you have 750,000 people that are in jeopardy of not being paid, it's a it's a huge issue. Uh it'll ripple through the economy. Um, you know, and we're not going to go down the AI route here, but uh that is another one. So So to your point, um if I was a bet person and I and I was to say what could potentially flip the script on all this, it could be job loss. uh because it's already ticking up a little bit. Um, you know the AI thing is a bit of a question mark. You you know you read stuff on both sides of the equation. Um, it's not going to affect anybody and it is going to affect everybody. Um, you know, I'm personally hearing a lot of, you know, from coders to parallegals to, uh, graphics people to content writing, you know, marketing, like I'm I'm hearing, uh, jobs being replaced in that area and they're not necessarily getting fired, but um, they're not replacing them. So, so, you know, so I think I think to your point, that could be something as as people go through these lifestyle adjustments. um you know, they're going to have to adjust and and take a look at whether they can afford whatever's next.
But you have to remember too, so the thing that happened in 2008 is people were putting zero down on a mortgage. And right now, you can still do that on a VA loan, but it's really the only loan you can do that. So, I was just talking to a woman uh the other day that they actually are going to be walking away from their home because it's less it's worth like $20,000 less than they bought it for, right? and she has a VA loan and she didn't put any money down and it's going to hurt her credit for seven years and she's just going to walk away from it because her husband got transferred. However, most people have money down and that's the difference in 08. A lot of people had zero down. So, it's very easy to walk away from a home that's worth $20,000 less and you're starting to have financial issues to just be done with it, right? However, when people have 10 or 20% down on a four, five, $600,000 home, that's real money and that's a lot of money. And it makes people think, should I walk away from it? Should I figure it out? Because you're walking away from all of that money. You don't get any of it back. So, that is a huge distinction right now, too, that you can't ignore because it's going to really keep people in their home unless they absolutely, no matter what they do, can't afford it.
That's a good point. So, after this commercial break for our monetary medals, which by the way, gold's almost at $4,000 an ounce. It's insane. Uh we're going we're going to talk about uh where does affordability come into play. So, just after this, it's near all-time highs. But appreciation isn't the only way to benefit monetary metals. You could potentially earn a yield on your gold paid in physical gold without selling it. Here's how it works. When you lease your gold through their platform, pre-qualified companies pay to use it under strict guidelines like renting out real estate but with gold. Instead of paying to store your metal, you may earn up to 4% annually in gold. You stay in control and you can choose which leases to participate in. Monetary Metals handles the due diligence, lease terms, and all the administration. Thousands of investors use this approach to grow their gold, not just sit on it. Visit monetary-medals.com/ken to learn more. Leasing gold involves risk and returns are not guaranteed. This is not an offer to buy or sell securities. Please review all risk disclosures at monetary-metals.com. Visit monetary-metals.com to learn more. So, so let's jump into these National Association of Realtors affordability index because that is another thing that we can look at.
So, it's at a multi-deade low, right? So, things are much less affordable than they were in 2019 um significantly. So, you do have to, you know, put that into play. And I think that's why obviously we don't have a lot of buyers because they can't really afford it. But what but that's why we talk about what Trump or the administration might want to do to try to make it more affordable. And we've talked about 40-year mortgages, which gets everyone riled up, but it does lower the monthly payment. And we've also talked about um you know different kind of incentives to buy a home and lower interest rates because all of that is going to make home prices more affordable.
Right. Right. And I think you know it's interesting because we try to watch all kinds of indicators, not just real estate. Uh, another one to watch right now it's starting to pop up is um the used car market, right? And the new car market. So, while it's not exactly the same, it's an interesting comparison when you start to look at used cars or or existing homes and new cars or new homes, let's say. Well, what what we're starting to see is people are bumping up on these $700 a month car payments, right? and there's so there's a to this affordability index is important because the the mortgages as you guys know there's we're at a um I can't remember it's like a 25-y year high of the difference between the mortgage payment and rent. So right now in most markets it makes um complete sense to rent um because the mortgage payment is so much higher. that's at today's rates, at today's prices. Um, and so, you know, and so now we have to turn to, you know, as these things start to pop up. Um, and people start getting priced out of these monthly payments. Um, I mean, even my son came to me what the last last month and he's like, you know, I have I actually have the down payment is what he said to me, but what I'm struggling with is the monthly.
Um, and you know, it's a it's a fair thing to bring up, right? And so I think a lot of people are in this scenario
is they might have the savings but they they don't necessarily have the the the money coming in to cover the monthly. Um so so now let's jump into these uh what you call the Trump rate cuts.
The Trump rate cuts. So, you know, so if mortgage rates do fall from where they are now, which is about 6.3% as of today, if they go below 5.5, you know, you're going to see, you know, days on market shrink, sale to list ratio tighten, fewer price cuts, and medium prices stabilize, uh, or maybe even have an increase because that's what lowering interest rates does.
So, I'm going to go out on a limb here. We got two more Fed meetings between now and the end of the month. We got one this month and one I think it's the very first week of December if I'm correct. They are going to lower rates in both of those meetings. And so so if that's the case, I think you're going to go into 2026 um with three rate cuts of at least 75 to to 1%. Right. And then that could get us down into the fives.
Yep. Right. So, we could be sitting into the beginning of the year into the fives. Um, and there's a bunch of reasons for that because for sure they're looking and by the way, you you know, whether you like it or not, um, you know, these these um these big corporations, these big homebuilders, um, they're financed by banks. um you know when when you have all this excess um home building inventory um you you know trust me the people are taking notice because you need homes to close. You need the cycle. You need lenders to lend. You need mortgage um you know mortgage uh uh tit and title companies. They get paid commissions. Realtors get paid commissions. All that stuff. uh you right now the the economy is is a is is a little bit of a of a standstill from that regard and and and I think that if we roll into next year with these rates in in the mid-5s you're going to start to see in the in Q1 u refinances you're going to start to see some of this inventory move um and again it's the beginning of what potentially could be a bubble too so you got to be careful um so that would be that would mean that there would be a window So, um, you know, so perhaps it would be a good time to buy a builder, a new construction home from a builder at a deep discount, um, and then go into a refinance period of next year.
Yeah, I mean, if you're, you know, we're going to be talking this about this on our podcast on Thursday, but, you know, the Fed's going to have less data to look at because of these government shutdowns, and so it'll be interesting what they decide to do based on other data that they have. Um, but to Ken's point, you know, you have to look at the UK and other places that have lowered interest rates a year ago, right? They've done what we're doing a year ago. So, that's really good data to have. And in the UK, their housing market is pretty busy again, right? It's busier than it has been since 2021. It took a year. It takes time, but you haven't you also haven't seen huge price increases, which is interesting, but that could point more towards less demand than they thought, but still a stabilization in prices. So their prices aren't going down, they're just not going up like they thought, but inventory is moving.
Well, we were we were in the UK in May and I I'll tell you, so again, what happens is when rates go down, things move slow and then uh you know, it takes a while to close a house. It takes a while for the money to move through the economy. Of course, a lot of people are going to uh look at rates continuing to go down into 2026. Um, which is going to be extremely interesting because Pal's out of there in May. Um, and I think it looks like Trump's going to try to stack the deck over there. I don't know if that's going to work, but uh, we will see. But the reality is is just like in the UK or in Canada or some of the other markets where their central banks lowered their rates way before us. um it it takes a good year plus to for that lag. Um there's a lag and that's the lag in my opinion. That's the time frame when you want to buy. You want to buy when there's distress. And if if the market is signaling where you're going to start to see these interest rates um potentially go down, then what you do is exactly what Ross and I did because Ross and I did this. We we actually owned a bunch of real estate and we financed it at one number by the by back then by the way was five six 7%. Um and then we actually took advantage of the cash out refies. It kept the properties by the way. Um um you as the rates continued to go down that period of time and you know Trump's still got what three years?
Yeah.
So you know he's going to keep beating on this drum. Um, and whether you like the guy or not, um, all you got to do is go back to his past behavior when he was president already. Um, and he's a real estate guy. He comes from real estate family. And so all of that, um, I think is is going to benefit anybody who's in the real estate space. Now, that could change again, uh, obviously when, um, there's a new administration, but um, uh, you've got this little window here, and that's that's all I'm trying to say.
Yep. So, we will see. But check out our podcast on Thursday. We're going to be going over um you know, what to expect with this government shutdown and how it's going to impact real estate. See you guys then. Okay, guys. See you.