Is This What Will Crash The Real Estate Market?
On this video, we’re going to ask the question, is this the thing that is going to make this market? Real Estate Market specifically crash? Make sure check it out.
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All right. So dude, when you talk about like, potentially what could actually make this economy pop and I mean specifically when you’re saying like, what in this housing market is going to be the thing that makes it pop? So here’s what I would tell you is I actually think my crystal ball is broken. And I say that because I actually think what was supposed to make the real estate market pop was COVID. Right? And so COVID came COVID went COVID still here, but we’re, you know, almost a year and a half, maybe a little less than that. But a year and four months into COVID, in the real estate market is doing nothing but appreciating. So the question, I usually will ask myself, why is that still going? Because in any normal scenario, you would have thought that this was going to pop, right, I think almost anyone that has had experience in real estate, and those that didn’t just have some common sense would have said, this thing is over the run is over? Well, I can tell you here as we’re sitting in my office right now, like our market over the last 12 months, and I would argue it’s going to happen for another 12 months, has appreciated by 25%. That was just in 2020. Right? So just in 2020, we had a 25% appreciation, I actually believe in 2021, when we were able to analyze the data, it’s going to be the same. And here’s two key factors of why I think that’s gonna be happening. First is the obvious, right, like interest rates, like quite literally, I just went and applied for a loan today. As a matter of fact, it’s funny that we’re having this discussion
in my interest rate that I got approved for was 2.99%. Today, right now, as we are having discussion, I sent the realtor my underwriting approval and is a 2.9% 30 year fixed. So here’s the deal, I have a 30 year loan at 3%, just under 3%. That’s incredibly cheap money. So there’s a lot of people in the market right now that are going after trying to find loans that they can afford the payment on, right. And so this is part of my challenge. And I would tell anyone out there that has not yet seen my YouTube channel, or watched a YouTube video, when I talked about this, I talk about it a lot like people shouldn’t necessarily be buying a home today, unless they can afford the home people buy on payments, right. So what they’re doing right now is they’re going out there and they’re just qualifying for a loan at a low interest rate for home they can’t really actually afford, because it’s a low interest rate so they can afford the payment. Now my opinion, don’t buy a home unless you can actually afford the home because there’s a lot of maintenance costs, obviously each and every year, I would say there’s anywhere from one to 3% of the value of your home. So if I’m buying a million dollar home, I’m figuring every year I’m gonna have roughly $10,000 or so of maintenance. Now, it may not be every year is that high, but then we’ll come to yours. Well, I need to do a roof I need to redo the pool, I need to do an air conditioning excetera. And it really over time really rounds out statistically between one to 3% of the purchase price of your home is really what you’re going to be spending on maintenance. So I would tell anybody right now, yes? Is it a good time to buy because the interest rates are low, but don’t buy because you can afford the payment because you not only have your maintenance, you also have your taxes, you have your insurance, and there’s just other costs that go into a home. Right? And so I would tell anyone, just make sure you can actually afford to own the home that you’re buying. But here’s the other thing. There’s no inventory, right? It’s it’s simple economics, supply and demand. And again, I’ve gone over this on several of my YouTube videos, but you know, there’s still no inventory out there. Now this may be changing. So you’re asking me specifically is this, you know, foreclosure moratorium ending exactly to create this massive flood of inventory? The answer is potentially but I would also tell you that the reality is the banks and government are not going to just go a evict a bunch of people that have not been paying their mortgage, and the banks aren’t going to take back four or 5 million properties onto their books and become a sales person or a seller of real estate. They don’t want to do that. We’ve already seen what happens back in the recession of Oh 809. Right. So I don’t believe the moratorium lift will actually help here. I actually think there’s several other things that are you know, going to be playing into this right.
I think interest rates raising will play into a slowing down of demand, right because
someone like myself can have four to spend more
than 3% interest, right? Like if it came back at three and a half, I would still be able to buy a home, if it came back a four, I’d still be able to buy a home. But I’m not your normal person, right? There’s a lot of people who are employees, they’re very static income and the income may be less than 100,000, or well, less than 100,000. So when interest rates start to go up, then you start having challenges with people being able to even afford it, even though they can afford the interest rate and the payment, their dti is going to really be affected right debt to income. So they’re gonna still have really high price because there’s not a lot of inventory yet. But the interest rates are going up. And ultimately, I actually think this could be the number one thing that will affect the Buying Criteria, which will help lowering the pricing of the market. Now that helps everybody. The interesting thing right now is the Fed essentially has interest rates at roughly zero, right. And so banks are able to lend out at, you know, under 3%, as I was just telling you, and so
the combination of that I actually think interest rates raising will help out the real estate economy more than anything, obviously, it’s going to create somewhat of a balancing act, because literally, I’m in the process of trying to buy homes, I’m getting beat now on almost all my offers. And by the way, I’m paying their asking price. That’s the craziest part, I’m actually giving them the price they’re asking for, and I get beat out. And someone like myself being as experienced as I’m not willing to be stupid. And just because there’s competition, I’m more apt to be patient and really find the home in a situation that best fits me, then just rushing in way overpay, because the price that they are actually listing at is inflated anyways, sometimes north of like 25%, inflated based around the comps. Right all the comps that we teach as real estate investors. Like that is a you know, not a thing because people are saying, well, there’s nothing to buy, so they have to buy this well then comes appraisals is the home going to appraise and one of the things that I’m going through right now with these agents is, you know, listen, I’m happy to make this, but I’m not going to pay $1 above appraised price, and it’s actually making me not the highest qualified buyer towards the agent, because I’m smart enough to know that even though I’m gonna pay a number, that’s not reasonable, let’s just say based on comps, I’m also smart enough to know I’m also not gonna pay $1 above appraisal. And if they’re inflated by 10 1520 25%, then it comes back, you know, let’s just say offer 1,000,003. And it comes back in 1,000,001. Because that’s really what the marking market value is. I’m not paying $1 above 1,000,001. And agents don’t like that, right? Because they think there’s just dumb money out there. And there is there’s a lot of people with a lot of cash, and they’re just dumping it in. So I actually think, you know, interest rates could be the biggest precipice to where it could correct the market. To some extent, I don’t think it will crumble it. Now listen, if the interest rates go up to, you know, 6% that was the interest rate I bought at when I bought my very first loan 6% my first home I bought, it went up to that. I think it would be I think the market would have a pretty large substantial correction. I don’t think they would do that. I actually think there is no discussion about what’s going to make the market crash. I actually will tell you right now, I don’t think in 2021, the market is going to crash at all. Could there be some small slowdowns here or there. We saw that a little bit back in May, I believe it was when they raised the interest rates a little bit, there was some slowdown, but I think 2021 is going to continue to appreciate in terms of values. And I think the interest rates are going to stay incredibly low.
But you know, again, to be aware of interest rates, dti, debt to income ratio, appraisals that are going to be coming in, right? That there still has to be an actual appraisal in all these homes. So it doesn’t matter if they want to sell it at 1.3. If the cop says 1.1 the appraisal is not going to give them 1.3. All that will get incorrect some. And then when people are getting corrections on their price, they are likely now thinking, you know, should we be selling now? Is it that time to sell? And my answer would be yes. Everyone should be putting their home on the market that also would give some level of correction is if the people that wanted to sell start selling. But listen, at the end of the day, you know, there’s also this idea that everyone has so much equity, they’re doing reifies, right, they may have a 4% loan or a 3.5% loan, they get a refi for under three then they get to cash out and then they get to remodel their home. That is keeping people in their homes longer because there’s such cheap money out there. Now again, if the interest rates do go up, are people going to refi out and do a cash out refi? Probably not. Right so my my own opinion on this and I’m glad you asked is just I genuinely think the interest rate raising will be a bigger impact than actually the moratorium foreclosure. However, you know
Listen, at the end of the day, who knows anymore? That’s kind of my ultimate answer. I think we need to be careful of it. I think if you’re trying to buy a home right now be patient don’t overpay right. Even like someone like myself, I got a 2.99 interest rate, but I’m still not gonna overpay just because I can afford to, right. I just want to be patient. And that’s the best case scenario because at some level, somewhere down the road, and I believe it will be somewhere in 2022, there will be a correction, there’ll be more opportunity, and I’ll get to be able to buy a better deal if you will, rather than paying top dollar. So that’s my answer there. Alright, everybody, that is the idea of what I believe could be happening within this real estate market. As always, make sure you are subscribed to my channel. If you liked this video, make sure you smash the like button and turn on those notifications. If you do have any interest in me holding your hand walking you through how to start and scale a real estate investing company. Make sure to go to the science of flipping.com fill out a very quick and easy form. Some of my top advisors will talk to you about whether I’m the right fit for you. And we’ll take it from there. See you guys on the next video. Peace.
