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SHOW NOTES FOR EPISODE 536: HAS THE HOUSING CRASH ALREADY STARTED
There are some very disturbing trends occurring in the housing market that could be precursors to a more significant economic shift in the U.S. and global economy. In this episode, Bill explores a few key economic trends that are not too dissimilar from trends that occurred back in 2007.
Tip of the Week: Don’t Forget About Asset Protection
You spent all those hours studying, reading books, attending boot camps, sifting through countless numbers of potential sellers and inspecting every type of house imaginable. Through your own persistence, you’ve put deal upon deal together and build a substantial portfolio of properties, not to mention a sizable bank account, only to have some person sue you for something stupid and take it all away from you. You should learn from asset protection. Just as diligently as you lean about learn.
You should learn about asset protection as diligently as you learn about real estate investing. You must not hold any assets in your name, whether it be real estate bank accounts, automobiles boats businesses. This should be your goal. If an attorney does an asset search with your name in it, he should come away thinking, you’re a deadbeat. lol
Each of your properties should be purchased in a trust or corporation. Your bank accounts should also be in trust. Your home, automobile, and boats should all be hidden in asset protection devices. Speak with an asset protection attorney to find out which asset protection vehicles you should be in. You’ve worked too hard for yourself and your family to have someone come along to remove every dime out of your pockets.
Here are some good podcasts on asset protection:
- 011: Protecting Your Real Estate Assets
- 395: New Asset Protection Options and Strategies
- 495: What is a Land Trust and How Can It Protect My Properties?
Has the Housing Crash Already Started?
How can I even suggest a housing crash when you’re still seeing:
- Bidding wars?
- Huge cash offers over asking price?
Yes, that is still happening and you will probably continue that with really nice properties in good locations
However, as a real estate investor, we should be prudent and follow and monitor what is going on in our ecomy nonetheless.
We’re seeing a softening of the housing market
- Existing home sales down 4 months in a row
- Active listings up 4 months in a row
- Days on the market are going up
- Price cuts up 4 months in a row
Three Important Indicators
-
Mortgage purchase applications
- Have dropped to 2019 levels
- Data collected by the Mortgage Bankers Association (Mortgage Purchase Index) shows that mortgage applications for new home purchases are down 25% from February to June. This means that way fewer putting are in the market for a home now compared to four months ago. In fact, the mortgage purchase application figure is now back at mid-2019 levels.
- Post covid we had a surge of wealthier buyers that brought the numbers up
- But now buying will have to come of middle to low income buyers
-
New Home Construction Surging
- New home construction (over the last 12 months) I at 15 year highs
- We’ve been hearing of the shortage of housing inventory for quite some time
- Well, builders have jumped on that and now there there’s building going on at 15 year highs
- This flies in the face of what you are hearing in the news
- Home builders are building a lot just as the demand for homes is declining
- That’s a nasty combination
- This is occurring just as home builders are beginning construction on a record amount of new homes. Over the past 12 months over 1.55 million new housing starts have occurred according to data from the Office of Housing and Urban Development and the US Census Bureau.
- That’s a 17% increase
- This means that the United States will have significantly more new home inventory hitting the market in late 2021 and early 2022.
-
Lumber Prices Peaking and Now Declining
- Which have been surging, are now declining rapidly
- This shows huge instability in the market
- On top of all this the cost of lumber, which was soaring for many months, has also started to crash.
- It started at $478 for 1,000 board feet in October 2020, up to a peak of $1,678 in May 2121
- It’s down 30% from its early May peak.
- Lower lumber prices mean that builders won’t have to charge as much to cover costs of new homes.
- That also means that the narrative surrounding the housing market could shift into negative territory in coming months.
Sure signs are:
- When home prices increase faster than wages and income. They will, at some point, have to come back down to meet wages and income
- Eviction and moratoriums coming off
Expect to see:
- Inventories (total homes on the market) to go up
- Watch for price declines maybe in 6 months (end of 2021), in a meaningful way
Other Considerations
- Remember, forbearance will be starting to run out starting July and the eviction moratorium will end as well. The extra unemployment money will end in September.
- Maybe all that will help cool the market and hopefully cause a crash. The house prices now are unprecedented and not good for anyone or anything long term.
Price Changes
- Usually this time of year, in summer, prices decline because people want to sell the homes before the school year
- Instead, they are 20% higher than 2018 and 2019 and GOING UP NOT DOWN
- Yet, you have the same number of new listings hitting the market
- HOWEVER, buyers are saying ENOUGH IS ENOUGH and there’s a marked decline
- When this happens there is a stagnation in the market and inventory starts increasing
- If the trends continue and it declines below 2018 and 2019 prices, that means we’ll stop seeing prices increase and they will stabilize or continue declining
- The more homes on the market, the more prices will go down
In Conclusion
- Remember, when we talked about emerging markets and you look at a bell curve, you don’t want to buy as prices are going down, you want to buy after they reach bottom and THEN start to go up.
- Ideally, you want to time the market where prices have gone done but interest rates have not gone up yet.
- The place to watch is the 10 year treasury rate. Recently it has been trending down, which is good for mortgage rates. This could create a less competitive market
- A little patience can go a long way here!
- Maybe they’ll be some great opportunities at the end of this year or the end of next.
How you can track these key areas on your own, week by week:
- Mortgage Purchase Apps: https://www.investing.com/economic-ca…
- Housing Starts: https://fred.stlouisfed.org/series/HOUST
- Lumber Prices: https://www.nasdaq.com/market-activit…
Well that’s it for today!
References:
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