S2E28 – The Housing Crash Is OVER

The Housing Crashed ENDED Before It Ever Started as Housing Prices stabilized in 2023. The Crash Bros have been calling for a housing crash for the last 10 years and for 10 years, they’ve been wrong on so many levels. In today’s episodes we discuss their arguments for a Housing Collapse and give you the reality of what’s likely to happen with employment, mortgage rates, house prices along with the coming recession as we help you become The Educated HomeBuyer.

✅ – Want to get connected with us or to a local expert in your market, please reach out at http://www.theeducatedhomebuyer.com/expert

Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith

Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: josh@buywisemortgage.com ➡I N S T A G R A M ➳ https://www.instagram.com/borrowsmartjosh ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart

📩 – info@theeducatedhomebuyer.com

For Show Notes, See Below 👇

[00:00:00]  Jeb Smith, Huntington Beach Realtor: Today we’re gonna have the discussion that you guys have been asking for quite some time. We’re gonna be debunking the idea of a coming housing crash. Now, if you’re listening to this going, Jeb, we know there’s not a housing crash coming. Why are we having this conversation? Because there’s a lot of people out there still believing the idea that employment is going to get worse, people are gonna get laid off.

All of these different. Things that we’re going to address today that are going to ultimately lead to a housing crash. And over the last couple of years, we’ve debunked some of these things, the forbearance idea, the foreclosure idea. But in today’s episode, we’re gonna go deep into each one of the things that come up with the crash bros, and talk about ’em in detail.

What they’re saying versus what you and I believe the reality to be. And I think that’s a really good place to kick it off in talking about what we believe reality is versus what others are believing at the moment. 

[00:01:14] Josh Lewis, Expert Mortgage Broker: Jeb, selfishly, I want to record this episode because I want to just be able to put the link in every time we get someone write a novel in the comments that says the same things that have been said 18 different ways… recited, regurgitated back to us without really any of the underlying knowledge or understanding.

And what I wanna say and make sure everyone’s totally clear on, yes, I make money doing mortgages. Yes, Jeb makes money selling houses, but the reality is in a terrible market, we’re gonna have 4 million homes sold. In a good market that approaches 6 million.

So that range means I go from a good income to a ridiculously good income and poor lifestyle because we’re working too much. So in the interim, what am I doing? I’m analyzing, researching, going through the data so we can advise current customers, past clients who for the last 27 years have depended on us to give them the accurate information and going back to 2005, a financial advisor that I was on his radio show at that time, we wrote a warning, a big warning of all of the things that were coming. 

Not because we were geniuses, but because people whose lives and livelihoods depended on it were doing the research and could look around and see that we absolutely had a recipe for a massive turnaround in home prices. And I will tell you, I got that one wrong. Jeb. We were projecting a 20% downturn in prices and in most parts of the country we saw much more than that. Yep. In the worst markets, 40 and 50% declines in home values. 

We absolutely don’t have a recipe for that. So what we’re gonna do today is we’re gonna go one by one through the things that you are hearing from people who are telling you there is going to be a crash. And we’re gonna explain to you why the theory may make sense. But the reality of what’s happening in the world and where we’re at today [00:03:00] makes it highly unlikely.

Nothing is ever impossible. If we were to see a housing crash, our economy, the jobs market would be 10 times worse than anyone is thinking or imagining right now. So let’s just jump in and go through the data, Jeb. 

[00:03:14] Jeb Smith, Huntington Beach Realtor: Yeah, a couple of days ago you sent me an article and asked me to read it. And within the first two minutes of reading the article I basically messaged you back and I go, dude, I can’t read the article because They’re leaving out essentially one leg of the stool when it comes to the idea that home prices have to crash because home prices are at or near record levels and that they have to revert to the mean, and it has to happen in a sudden, quick fashion.

And the reason I was like, Josh, this makes absolutely no sense, is because the main component, in my opinion of that stool, was missing. And so I think that’s a good place to start. Let’s talk about the idea right now that home prices are at or near all time highs in most markets out there. Housing affordability is a problem.

You look at the market, home prices really high. So the saying is that everything that goes up must come down. So with that said, home prices have gone up 20, 30, 40% in a two year period of time, and now people think it’s gotta revert back to that mean.

So what does that mean? Josh, 65 years we’ve seen appreciation 4.6% or so nationwide. Here in California, it’s more like 7%, but nationwide, 4.6%. So a two year period, we should have roughly seen 10% appreciation. Instead, we saw 40%. So what they’re saying is that we need a 30% drop in prices to get back to that trend line and that it needs to happen all of a sudden for this to make sense.

[00:04:50] Josh Lewis, Expert Mortgage Broker: The shortcut, Jeb, for someone to tell you that they’re not a serious analyst of the housing market is someone to tell you these prices are insane. We’re above the peak in 2008, and they’ll either leave it implied or state that in 2008 prices got to this point and they crashed and we’re here again.

They leave out a couple things. There we are 15 years further down the line. At 3% appreciation, you would expect prices to be 50 to 60% higher for any good or service versus that time. So even if the market had corrected, we would have an expectation that would go much higher. The more important thing that you are talking about is you can’t talk about home prices as a multiple of incomes without accounting for interest rates.

Part of the reason, Why we saw appreciation so hot and heavy through 2020, 2021 was because interest rates were at record lows. People are most concerned with the multiple of their income that they spend for their housing payment. So household income to total housing payments. When rates were really low, pretty logical that home prices were gonna go up at a higher than trend rate.

And we saw that [00:06:00] Jeb, we were what, 15 to 25% up year over year, both of those years in most markets when the historical norm is four to seven in hot cyclical markets like Southern California. So is there a reasonable expectation that you would have mean reversion over time? Yes. Does mean reversion mean a crash?

Absolutely not. There’s a million different ways that we can revert to the mean, and you have to look at all three of those legs of the stool. So a crash says home prices come down. So affordability comes in the line regardless of what happens with incomes and interest rates, cuz home prices crash. Okay.

It’s a blunt instrument. It could happen. It has happened. The last time around that was what happened. Economy went into a deep recession, actually, they called it the Great Recession. Housing suffered to the tune of 25 to 50% depending on what market you were in. That is largely because that recession was caused by the housing market.

Yep. By terrible decisions that were made on Wall Street, made on Main Street by realtors, brokers, buyers. Primarily the responsibility lies with the buyers who were willing to say, I make $25,000 a month when they make $5,000 a month. But those products were available because the government had left open major loopholes and Wall Street figured out how to exploit them, and there were salespeople making commissions all the way through the chain doing that. 

So we do not have that. So where are we at right now? You can also mean revert by interest rates coming down. So affordability is at all time lows right now. So this isn’t an argument of saying, Hey, home prices aren’t excessively high because affordability is okay.

Affordability, the important measure. Is also at an all time low, at or near an all time low. So if you’re serious and you wanna make this argument, you would talk about affordability. So we ask ourselves the question, Jeb, why do the crash people not talk about affordability? There’s two easy ways for affordability to improve without home prices crashing, that’s interest rates moderating, normalizing. Is that number 4%? Is that number five and a quarter percent? Is it five and a half? It doesn’t matter. It’s much, much better than it is today. That improves affordability. It increases able demand, more buyers are able to buy, which is supportive of prices, even at elevated levels.

So that is very likely to happen for a number of reasons. Is the 10 year treasury likely to come down? Is the spread between mortgages and treasuries likely to decrease? Both of those are likely to occur. The other thing is the obvious and clear thing that over time wages increase three to 4% a year.

So we pay for things today that would’ve been absurd to our parents and in incredibly absurd to our grandparents. If I go to McDonald’s, My breakfast is $11. When my dad went to McDonald’s for breakfast, it was $2.99, if that. So there, there’s a reasonable expectation that things are being more expensive over time and it’s affordability, not the absolute prices of homes that we should be looking at when measuring that.

[00:08:48] Jeb Smith, Huntington Beach Realtor: One thing you didn’t mention there, Josh, and people are gonna bring up in the comments, is that prices improve affordability as well, right? Along with interest rates and along with wages. So if wages essentially [00:09:00] stay the same or continue to grow moderately, but interest rates stay where they are, a crash in prices would improve affordability. So what are your thoughts on that? 

[00:09:08] Josh Lewis, Expert Mortgage Broker: The crash bros want to tell you this is the only way. It has to crash because affordability is low. It doesn’t have to crash, and it can be a combination of all three. We could have a five, 6% dip in home prices. Interest rates drop to four and a half percent, and in five years, wages are 20% higher than they are right now. 

Affordability is massively different at all of those. So any and all of those are a possibility. The least likely, but the most Required condition for that crash is rates stay higher, more likely, go higher. Wages remain stagnant, if not decreased, because unemployment goes up, economy goes into a terrible spiral. 

Now, the only way this corrects is through a crash. Is it possible? Yeah, it is highly unlikely. Highly unlikely that rates remain elevated, highly unlikely that incomes don’t increase. If we hit a recession, we’re still likely to see increases in wages, maybe instead of the three to four to 5%, and we’ve seen over the last couple year, six and 7% annual wage increases.

Yeah, that maybe you’re seeing zero one 2%. We are highly unlikely to see year over year decreases in, in average hourly wages, average weekly wages. Those are two different things in the way they’re measured. But again, If the person that you are listening to and is telling you the housing crash is coming isn’t seriously talking about all of these things and just saying, A recession’s coming, everyone loses their job and wages go down and it has to crash. It’s not a serious discussion. 

[00:10:26] Jeb Smith, Huntington Beach Realtor: No, and we’re gonna talk about that in more detail, but you mentioned a moment ago, you mentioned, rising interest rates, right? That is another myth out there, in my opinion. Myth in the sense that rates are going to continue to go higher on top of inflation going higher, that we’re gonna have this idea of stagflation and that is going to be a potential leg that is going to crash the housing market. So let’s start by talking about inflation, where inflation is, where it’s likely to go, and what that means for rates. 

[00:10:58] Josh Lewis, Expert Mortgage Broker: So inflation is almost impossible to measure. Doesn’t mean the government hasn’t tried. They’ve tried it for a long time. And we hear things like, Hey, inflation’s at the highest level since 40 years.

Anyone who seriously follows inflation measures knows that inflation from 40 years ago as measured today is a vastly different thing. The weighting of the basket of goods and services changes inside of there. They are almost all squishy numbers. They are hard to measure. So I’m not saying we ignore inflation, but look at it year over year, over the last three to five years.

But if we compare it back 40 years, that measure. CPI, PCE, Core CPI, Core PCE, the way it’s been measured is changed so much and every time it does, people accuse the government of manipulating it to show inflation lower than it actually is. But inflation as of today, is much higher by whichever measure you use at the core level, then, The Federal Reserve the federal government is comfortable with for a number of reasons.

One of those is that we owe $32 [00:12:00] trillion, and when rates are 4% on treasuries instead of one and a half percent, that’s a problem. The United States Credit Card just had its interest rate triple so to the extent that they can manipulate and keep interest rates low, the government has massive incentives to keep interest rates low.

But when we’re looking at inflation and interest rates, the interest rate charged in the market either for treasuries or for mortgage rates is what is the rate of inflation and what is the real return above and beyond that I require on my money. Right now in terms of mortgage rates, there’s duration risk, there’s massive implied volatility, so we’re looking at the biggest spreads in basically in all of our lives between treasuries and mortgages.

When this settles out. Which is likely to settle out at lower rates of inflation. We have a 40 year downturn in inflation, 40 year bull market in interest rates, and nothing changed other than we had covid and during covid supply chains got constrained. There’s been a reassessment of, we also had 40 years of globalization and a lot of companies are looking at home shoring, nearshoring things versus in the eighties and nineties it was offshoring, send everything to China, send it to Vietnam, send it to India.

Could there be a change there that would lead to longer term higher inflation? Yes. But the underlying demographics globally, the only area of the globe that is growing population wise is Africa. Africa for the most part, is not in industrialized and is not participating in the world economy the way North America does, Canada, US, Mexico, all of Europe. All of Asia. 

We have places, everywhere in Asia you’ve bought something and you see it it’s manufactured there. That will likely come to Africa. But that’s the only place where population is growing. So when we have populations stagnant or lots of parts through Europe actually shrinking, you are looking at decreased productivity. Decreased growth and therefore decreased inflation. 

It may not be deflation. Where economies are actually shrinking. It’s disinflation. It’s not nearly growing at the pace that it was in the past and therefore you don’t have the issue with inflation. So this whole argument of stagflation, we had it at exactly one point in time.

That was a very different time than where we are today. Is it a possibility? It is absolutely a possibility. Is it a probability or even a likelihood? I don’t think so. There’s a 10% chance of it happening. 

[00:14:32] Jeb Smith, Huntington Beach Realtor: I think there’s two, ideas that are wrong, in my opinion when it comes to inflation and rates. One around inflation. Inflation is price momentum, right? So everybody believes that because prices are high and they’re not going back to where they were a year ago or two years ago, that inflation is still a problem with that good or service when in all reality, inflation could be flat in that good or service. And inflation is actually the measure is actually coming down [00:15:00] because you don’t have the momentum in prices going up.

And so people are looking at things right now. Going housing is still really expensive. Gas is still really expensive. I’m still paying a lot in the grocery store. I’m still paying a lot for all of these goods and services. Therefore, inflation is still here. It hasn’t gone away. I don’t care what the government is saying. It’s wrong, right? It’s about price, momentum. 

The other thing is our government I think the number is somewhere around $33-34 trillion in debt is where we’re going to be and moving higher obviously every single day. our government can’t even afford the interest on our own debt.

So every minute, that number is continuing to grow. The higher interest rates are, the more we’re paying to service our own debt. I read a stat the other day that soon we’re gonna be paying a trillion dollars, $1 trillion in interest alone on the debt that we have.

We’re about to surpass the national defense budget with the debt. We’re about to pass Social Security within the next three to five years. That’s a problem, and if our government can’t pay it now, they need lower rates in order to help the government continue to move along.

And so the government doesn’t want higher rates as many people out there believe that, hey, look, the government wants higher rates. They’re trying to essentially crash everything. No, they’re trying to bring. Inflation down. And this year might be a little bit different.

 It’s an election year And, there’s a lot of balance in, in all of that, which we’re not really gonna talk in today, but, Just, understand, some of these things, it’s good to listen to both sides of it. But in all reality, our government heavily relies on lower interest rates in order to keep the economy moving along. And so the higher rates are, the harder it is for them to do that. 

[00:16:47] Josh Lewis, Expert Mortgage Broker: To close the loop on that, you said something important. Historically, meaning in the eighties and early nineties, most of the academic research had this theory that government debt was inflationary. The reality, what they’ve shown over time is that excessive government debt takes money away from productive purposes that will grow the economy and pulls it into debt service.

So you have lower growth and lower inflation. It’s actually disinflationary, if not outright deflationary over time. That doesn’t make it a good thing. It means that it is harder to engineer inflation. Most people forget. Most people are not nerds like you and I that are tied to the economy for our businesses and are not doing this research.

But prior to COVID, the government’s biggest concern was how they were gonna get inflation consistently up above 2%. Now we’re to a situation where we think everything is structurally changed, and getting it back to 2% will be impossible. I don’t think it’s going to be easy. I don’t think it’s gonna happen immediately. I think it’ll be easier than most people think and will happen in the relatively near future. 

[00:17:44] Jeb Smith, Huntington Beach Realtor: No good. Circle back there to to bring that in now, Josh, let’s take a break here from what we’re talking about and just say, why haven’t we seen a crash in prices at the moment?

[00:17:55] Josh Lewis, Expert Mortgage Broker: Supply and demand imbalance. 

[00:17:56] Jeb Smith, Huntington Beach Realtor: Supply and demand imbalance, right? So one of the arguments out there at the [00:18:00] moment is that we’re going to see a massive supply come to the market, whether it be through foreclosures, whether it be through shadow inventory, whether it be through people being laid off because the coming recession, they’re going to lose their jobs, not gonna be able to afford their homes.

Their homes are gonna hit the market, and somehow it’s gonna be a distressed situation, which we’ll talk about here in just a minute. And that in and of itself is what’s going to create the next leg down. Now you notice how I’ve said that with each one of these things, each one of these legs is going to bring the housing market down. And it’s because they’re drawing it straws with this whole thing, right?

it’s, Hey, if it’s not this, it’s going to be this. And if it’s not this, it’s gonna be that. And the reality is it’s probably not going to be any of these things, but I think it’s good to talk about them, talk them through, and then let you guys take the information, do what you want to with it and make your own decisions from it.

Josh, supply, where are we currently with supply? And we don’t need actual numbers, but historically speaking and how do you debunk the idea of additional supply coming? 

[00:19:04] Josh Lewis, Expert Mortgage Broker: Let’s look at why have home prices remained stable? It’s because we have a balance between supply and demand. We have decreased demand because rates are much higher, home prices are much higher, so there are less people who are willing to buy a home and able to qualify to do it. So reduced demand. 

We also have reduced supply because many of those buyers, at any given time, 60 to 70% of the market is a move up buyer. They’re not a first time buyer, so they have to sell to become a buyer. And they’re saying I have my $700,000 house. I would love a million dollar house, but my $700,000 house, I owe 300 grand at 2.75%.

To buy that million dollar house I’m gonna owe $600,000 at six and 5%. No, thank you. There’s no, no market forces causing them to have to sell. There’s no desire or interest to take on that additional debt. So as long as we have a balance between buyers and sellers, you are unlikely to see prices move much at all.

And that’s what we’ve seen in the last 12 months. Jeb, we’ve had a couple negative monthly prints. Yep. We’ve had several positive monthly prints after that. For the most part, for the last year, since about last summer through now the market has gone sideways. Your market might be slightly up. It might be slightly down, but it is trended sideways because we have a balance of willing and able buyers and willing and able sellers.

So until we have supply come to market that is not met with equal demand, you will not have home prices drop. So everything that we’re gonna talk here is, hey, here is where forced supply is going to come from, and the number one thing that everyone wants to go to is we’re gonna have a recession.

Recession leads to higher unemployment. There’s higher unemployment. People without their jobs are going to lose their homes. And there’s so many parts of that are crazy. And almost all of the people, Jeb, that I talked to in this scenario they’re young, they’re 30, 35, 40. So what is their frame of reference?

Their frame of reference [00:21:00] is 2008. So in 2008, we had really high unemployment and it led to a lot of foreclosures. The unemployment came because of the issues we had in housing, kind of drug everything down. But what you have to look at is, How would we ever get to a 12% unemployment rate? I think we were higher than that 12 and average 13% post 2008. 

Right now we’re at three point. Is it 3.6? 3.7 Jeb? It’s well under 4%. So let’s just look at a couple of projections here. Most of these big investment houses who make projections, who analyze the market for investors, institutions so B of A. Thinks that we’re gonna have a recession, and in 2024 we’re gonna shoot up to 4.7% unemployment.

And I say that shoot up, and I’m not saying it, facetiously 4.7 is below what was historically considered full employment. Yeah. When I was growing up in the late eighties, early nineties, early two thousands, the belief was that. 95% employment. 5% unemployment was full employment. The people that were not employed either, didn’t want a job, couldn’t hold a job, or hardcore unemployables.

So they’re saying we will go up 50% in the unemployment rate and we’ll still be at 4.7%. UBS projected to go to 5.4%. Nationwide projection will go to 5.5%. The Fed is more positive than all of ’em thinks we’re gonna go up to 4.5%. Jeffries, I don’t know who Jeffries is. It might be a guy Jeffrey. Jeffrey is really aggressive and he thinks it’s shooting up to six and a half percent. 

That’s really what we’re looking at. That’s a doubling of unemployment in the us and when you see that level of employment, who gets cut? The low man on the totem pole. Yeah. Whether it was the last guy in, whether it was the least valuable, laziest, worst employee. And the majority of those people that fall that place on the scale are not homeowners.

So we’re saying 94% of people, 93.5, even in Jeffrey’s estimation, are still going to have their jobs. We had an increase of 3% losing their jobs. So where are we gonna get to the distress, Jeb? 

[00:22:59] Jeb Smith, Huntington Beach Realtor: Here’s my argument every single time I hear this. If you lose a job, Josh, if you lose your job, hypothetically, you’re an employed person, right?

You’re a motivated working individual. In this case, you’re a homeowner and you’re not low man on the totem pole. You’re a productive employee out there in the market, right? If you lose your job, do you just sit at home for the next however many months and watch the bills come in and collect, a small unemployment and not do anything, or do you go try to find another job?

I’m asking even if it, even if 

[00:23:29] Josh Lewis, Expert Mortgage Broker: you’re gonna go try and find a job. And if you find it really hard, you’re gonna take a job that you think is beneath you or that doesn’t pay you what you think you’re worth. And I say that. If you don’t have another alternative, if you own a home yes. And you have a mortgage and you have no alternative, you’re going to take a job. You’re not just gonna throw up your hands and go, ah, I guess I’m not a homeowner anymore. 

[00:23:48] Jeb Smith, Huntington Beach Realtor: And that’s very difficult for me to understand because I’m in a position, I’m the only one that works in my immediate family, right? My, my wife does work, but in a different capacity taking care of the kids.

I’m the only one that brings in money. [00:24:00] If I lose my job, the real estate market closes today, for whatever reason, I can know, guess what? I go get another job. And if one job doesn’t support what I need, guess what? I’ll get a second job, right? I’ll do what is necessary to get me to where I need to be to keep everything moving along. All the while trying to figure out how I can get back to where I was.

And now maybe I’m naive to believe that people that get laid off, don’t go looking for jobs. And I realize a lot of people, because of the pandemic, there’s a mindset out there that, Hey, listen, the government’s gonna take care of me. And in some right, they might. If there’s a major recession, you might see that, but don’t count on it.

But I think, okay, yes, four and a half percent, 5%, 6% unemployment. Yes, some of them get laid off. Some of those people are going to find jobs. Therefore, even if they were in a position to lose their home, You got, you need shelter, you don’t have an option there. So you either own a home which you’re paying a mortgage on, likely a 3% interest rate, three and a half, whatever your number is.

Or you decide to go rent and we know rents, yeah, while they’re not growing at the same rate they were a year ago, they still aren’t declining. Rents aren’t any lower this year than they were last year. 

[00:25:14] Josh Lewis, Expert Mortgage Broker: We’re talking about reasons why people say a crash is coming and say, no one can afford these payments. Who is going to be able to buy at a $4,500 payment, a $6,500 payment, whatever there is. There’s validity in that. But very few people have bought in the last six months, 12 months relative to the total housing market. People are shocked. When I tell them that the median home payment in the United States is $1,600.

Now, I don’t know where you’re at, where you’re listening from, but for us here in Orange County, median rent is up close to $3,000 for apartments. Two bedroom apartment is in the high two thousands. Houses are in the high three thousands to low four thousands. Nice houses are 6, 7, 8 grand a month. When you hear that, it doesn’t mean that hey, go buy because you get a $1,600 payment and renting is $4,200.

It means had you bought 10, 12, 15 years ago, refinanced during the pandemic, you’d be sitting on a median payment of about 1600 bucks versus renting for $2600, $3600, $4600 a month. So the vast majority of people, you said this Jeb, very low Covid interest rates on their mortgage, very low loan to value more nested equity than we’ve ever seen in history.

We would still have it if home prices dropped 20%, which hopefully by now you understand they are not going to. But even if they did, you would still have them. And if you lose your job, You are going to get out there and find one because if you lose your house, and I don’t mean through foreclosure, cuz you have so much equity, by putting a sign in the yard, you’re going to pay more in rent by a large margin than what you pay for owning that house. 

People will hold on for dear life. Those few that are caught up in the run from three and a half percent to six or 7% unemployment, which is unlikely to happen even in a recession, like people, Jeb get hung up [00:27:00] on this idea.

AI is gonna put people outta work. That’s an employee mentality. Hey, I want a job and I’m worried the machines are gonna come and they’re gonna take away my job. The employer mentality is, I’m glad we have AI coming because I can’t find enough employees to do the work. So I need to, empower my employees to use this technology to do more work.

We are sitting here at a point where we have a very low growth rate after the millennials. Where we don’t have a big cohort coming behind them to fill the job market. So the bigger concern over the long haul is low unemployment, not a high unemployment rate. That’s going to lead to trauma for homeowners because they lost their jobs and can’t make their payment.

[00:27:41] Jeb Smith, Huntington Beach Realtor: That’s the idea, right? Is that, There’s equity, there’s low payments, it costs more to rent. On top of that, Josh, this is something I really wasn’t even gonna mention, but a lot of people are gonna say what about the people who put 3.5% down and they bought, three, six months ago? Those people are at the highest risk. 

Yeah, they are. They are at the highest risk of something happening financially, and putting them in distress. But here’s what I’ll say, FHA, for example, is already working the idea, I don’t know if this is past yet, Josh, but something that I read, they’re already working the idea of, this whole modification type forbearance program to last forever.

For people that things do happen to, I wouldn’t rely on that. But what I can tell you is that the government learned last time in 2008, by not helping it created a bigger financial mess than if they had just done a little bit of help to keep things moving along. In my opinion, if things ever got there, which I don’t see a case in which that would happen.

Chances are you’re going to have some sort of government intervention to some extent that would protect the majority of people out there to some degree. But Josh that said, let’s talk about boomers. Let’s talk about foreclosures because. I think we’ve touched on foreclosures a little bit because we’ve talked about the idea of, equity and low rates.

But let’s, we haven’t said the word foreclosure and that’s going to come up. So let’s talk about the idea of boomers aging out, them needing to get rid of properties, sell properties, let them go, come to the market, whatever the idea of all these hedge funds having inventory that they might bring to the market.

And the idea of foreclosures. 

[00:29:17] Josh Lewis, Expert Mortgage Broker: I meant to search for this Jeb to see when was the first time the phrase silver tsunami entered the lexicon in terms of the media using that? I believe it was late nineties. It might have been the early two thousands, but people were saying the stock market is gonna be the first to hit.

Baby boomers are gonna hit retirement. They’re gonna tap their 401ks for living expenses and all of that money getting sucked out of the stock market is gonna make it crash. Don’t know if you’ve been paying attention since 2008, but stock market has done incredibly well. Housing market the same. 

We had the silver tsunami in housing was gonna be baby boomers are gonna look and they’re gonna go, huh? I bought my house in the seventies for 40 grand. Now it’s worth 200. And I can go buy a condo in Boca for one 20. They [00:30:00] put 80 grand in their pocket. Go buy the little condo and all the supply of suburban single family homes is gonna hit the market.

Has that happened? No. Cuz people are comfortable, their friends, their family are near them. They lived in this house forever. That’s where their memories are. Do some people downsize? Yeah. Is it a big proportion of the market? Absolutely not. We’ve also seen at a certain point once you die, you no longer have the choice whether to buy or sell your home, but your heirs Absolutely do.

I’m a good example of this. My dad passed away in, in 2020. My sister and I still own his condo. That was not supply that came to the market. It’s a wonderful investment because my dad paid it off. So my sister and I make a nice chunk of money every month off of my dad’s hard work. So from the grave, he gets to smile every month when he puts money in my pocket and my sister’s pocket.

And that is, As common, if not more common than kids liquidating a property. Now, if you go in the mls, Jeb you know the numbers. There’s estate listings coming up all of the time of people inheriting. Some people don’t want the property. They’re located out of area. Yes, it’s going to be supply and there are going to be a lot of boomers passing away.

And those homes coming to the market. But the reality is the biggest cohort we’ve had since the boomers is the millennials. Millennials are entering and in the middle of prime home buying age. We have plenty of buyers to absorb that. So we talk about supply demand balance. So we have supply coming to the market with dying boomers. We have demand coming to the market with coming of age, millennials needing a home for their family. 

[00:31:25] Jeb Smith, Huntington Beach Realtor: I’ve had several friends within the last couple of years unfortunately, lose family members, fathers, mothers, whoever, who at that point were single parents, own the property by themselves.

And they took that property once it was passed on along to them, and that’s the property they moved into. Why? They weren’t homeowners before that. They probably never quite, to put it lightly, never would’ve been homeowners just because of how high home prices have gotten. And they got left behind the curve one way or another, whether, they just decided not to buy financially, couldn’t make it happen, didn’t have the down, whatever the reason is.

They just weren’t in that position. Now they’re homeowners because that property got passed along to them. So instead of that property coming to the market, It went along to family and fortunately, went into the right hands and they’ve been able to now enjoy home ownership in their own way.

So will there be some? Absolutely. And with that said, what I’m seeing right now are the homes that are coming to the market. Right now in this market are the people that need to do something. They have to do something to some extent, right? Two of the listings I have at the moment, job relocations, they’re relocating out of state.

They have to sell their homes in this position. A listing interview that I went on Monday. That lady is, she’s older, she’s been in the house since 93. She is moving to be with her daughter up in Oregon, right? So that is a property that’s going to come to the market that’s, she didn’t want to keep that’s essentially her retirement.

So in, in the instance of boomers bringing their homes, this is an example of [00:33:00] that, right? So you have one but there’s not, like all of these people aren’t doing it at the same time, the same day, bringing this massive flood of inventory to the market, and I think that’s really important to note. On top of that, Josh, something we haven’t mentioned here, and I actually don’t even see it in our notes, is home builders.

We just got the best news on building starts that we’ve had in I think 30 years was the stat that I read. And so last year, About September, October the whole thesis behind a housing crash was wait until the new construction comes to the market. All these homes are gonna come to the market at the same time.

It’s gonna push inventory up that is going to crash prices. And here we are couple of months later. I think home builder confidence at the beginning of the year, I don’t have the stat in front of me. I’m just grabbing these numbers outta thin air. Was it like 25%? As of yesterday or the day before when the latest stat came out, it was nearly 50%.

So the number is more than doubled in just a short period of time because home builders are looking at the market at the moment, seeing how underbuilt we are with regards to supply, and we could talk about the reasons why but supply is very low. So builders are looking at it saying, Hey, listen, this is an opportunity for us to make money, right?

If we build homes right now, we make up, I think 30%, 30% of the inventory at the moment is new construction. So there’s an opportunity out there for builders to make money and they see the writing on the wall and it’s going to lead to more supply, but it’s not all gonna happen at one time.

[00:34:38] Josh Lewis, Expert Mortgage Broker: Jeb, the weakest arguments of all for a housing crash to me are the ones that rely on builders over building or the hedge funds that invested in residential real estate and people calling them weak hands. These are probably the smartest hands out there. It’s not to say that home builders never make mistakes. They made horrific mistakes.

In 2008, they were coming off record profits and they wanted to build more and more houses, and they did not pay attention to what was coming in the economy. They did not, more importantly, pay attention to the baby bust of Gen X and realizing there were less of their clients coming into prime home buying age.

They’ve learned their lessons. They have not built nearly as quickly. They’re not bringing as many homes to market at one time. So we look at these permits and where things are at stages of construction, they’re not bringing tons of homes all onto the market at the same time. They’re slow playing their build out.

So permits are up. All of this it goes to tell you that these are some of the smartest hands in the room and they have big margins available. They want to keep prices elevated. So what do you see? Talked to a client yesterday that says, Hey, we don’t wanna buy new construction, but Lennar will buy our rate down to 5.625%.

It’s more than three quarter percent lower than what you could do on the open market. That eats into their margins, but it doesn’t eat into home prices. The flip side is we talk about hedge funds. This is the funniest bone. We had a comment on a video a couple weeks ago, guy saying we have a record number of homes in weak hands with hedge funds.

Weak hands… do you think [00:36:00] these people are dumb? Look at it, last fall when we saw some negative month over month reads, they were hit with redemptions. People who invested in these hedge funds coming saying, Hey, I want my money out. I’m not confident with warehousing. And you start reading the fine print. They covered their butts pretty well, cuz these guys are smart.

If you look so far, year to date, two of the biggest ones invitation Homes and America, American Homes for Rent, they are net sellers. They sold more. Than they’ve bought, but they’re buying. So make no mistake, they are buying. And if we looked at those, I will bet you they’re selling off less desirable properties.

Maybe the one with one bathroom instead of two bathrooms. Maybe the one that’s had more vacancies, maybe the one that’s in a higher crime area and the ones they’re buying are probably, they’re bread and butter. 

The reality is for these hedge funds, if I gave you Jeb and said, Hey, Jeb. Here’s the deal. I got 50 billion and tomorrow your job is to get a return on that. I expect this return, and you get the profit above and beyond that. It sounds like a good problem in the short run until you realize there are a finite number of places you could put 50 billion to work and get my required return so that I’m willing to pay you a profit. 

They are sitting on massive appreciation. There are tax benefits to owning those properties and there is a yield in the rents that is almost impossible to get anywhere else even with interest rates higher today than they have been in the last 40 years. They are highly unlikely to become massive sellers.

Can they remain net sellers? Yes. But we’ve seen for now going on the better part of a year, they’ve been net sellers and the market has absorbed the inventory they’ve put down into the market with no problem. So just remember, if they wanna give themselves a problem, they would say, Hey, let’s go unwind half of our portfolio next month.

That’s a problem. So if they decide they don’t want to own half of their portfolio, that’s probably a five year process to unwind that. They’re not gonna be foolish and shoot themselves in the foot on the way out the door. 

[00:37:50] Jeb Smith, Huntington Beach Realtor: Yes. Exactly now and I read an article today, I think Starwood Capital was another fund out there, it’s looking at selling 2000 of its properties. And in the article basically, it’s looking for a buyer. So I assume, I don’t know if they’re coming to the open market, it’s looking for one individual buyer that, that’s going to be buying these. But in the article, someone from the company is quoted saying basically, none of these cells are going to be distressed.

These are sales at market value. And for various reasons and why they might be doing that. But 2000 homes, nationwide. I think our latest stat we’re sitting at 443,000 homes. So 445,000. Does that make a difference in, in your market? Probably not, right? If all 2000 are concentrated in one local, Piece of the market then that, that creates a problem for that market, right?

Real estate is local, but when you got 2000, for example, just using this and they’re spread across a couple of different states in a couple of different markets, and you’ve got a hundred homes here, 50 here, whatever the number is. Less of a concern, right? You could, it’s easy to absorb that type of inventory, and that’s exactly [00:39:00] why we’re seeing the market continue to move along.

Because again, some markets are balanced, some markets are still appreciating at a very moderate pace. And some markets might be seeing some small declines. It’s changes by, everything that’s going on in that local economy. It also changes by how much that home appreciated.

How much above that mean did it go? How much more does it have to revert? I don’t know if you guys caught this earlier when we talked about reversion to the mean. We believe that yes, we are gonna revert back to that trend line, but instead of it happening, In a day, a month, a year and a half, two years, it’s probably gonna be over a 5, 7, 10 year period.

So instead of seeing 4.6 or 5% appreciation, maybe you see one or 2% appreciation over that period of time, and it just takes a little bit longer. Just a small, gradual incline. Or maybe there is some year over year declines in some markets, but it’s not going to be crashing. And so Josh, there’s one other argument that comes up all the time and it’s the idea that, housing is cyclical, right?

Often, I often talk about seasonal, right? Seasonality within a year, how their ebbs and flows in markets, cyclical housing is the idea that there’s ebbs and flows in the overall housing market, that it goes up, it comes down, and that we’ve been on this major incline for the better part of 12 years. 2011, 2012 was really the time in the market when you really started to see some appreciation in most markets out there. So what are your thoughts on that? 

[00:40:36] Josh Lewis, Expert Mortgage Broker: It’s one of my least favorite arguments just because it’s lazy and simple. But I will say one of my all time least favorite arguments was back in 2005, people would say, nationwide, we have never seen a year over year decrease in home values.

So there was truth to that. We did see it in 2007, 2008, but the truth there is that most of the country is not cyclical. It’s not an up and down market like Florida is, like California is. As we’re now more connected, people are able to move around the country. We’ve seen Californians go and blow up a bunch of markets. They take their thought processes. More and more markets are cyclical, so there are cycles. 

But when someone says, Housing has a 10 year cycle. We’re overdue. Cool. 10 year cycle according to who? What clown did you read their article? Someone will say, Hey, it’s a 15 year cycle. We’re overdue. The absolute best thing you can do to educate yourself on cycles is read the Secret Life of Real Estate and Banking. It’s so academic, the guy doesn’t even make it available on Kindle. It is a big hard back book, very dense, and he goes back like 150 years and his thesis is plus or minus two or three years.

It’s about every 18 and a half years. So if we call 2007, twenty twenty five, twenty twenty five and a half, But to me it’s the equivalent of tarot cards. Of saying, Hey, this card says the moon’s here and this is what’s going to happen. Going back and looking at history and fitting it to [00:42:00] that it could happen. Technical analysis is looking at charts, kinda seeing what’s happened in the past and trying to figure out where we’re going.

It could happen and I think the thing that we should take from all of these things. Everyone asking these questions is being prudent and wise. Right now. We are not at the point of the market like in 2020, 2021, even after a year of 15, 20% appreciation, Jeb, we would show up on the live show every week and tell these people, if you are thinking now is the right time for you to buy a home, buy it now. We don’t know how long we’re gonna have rates this low and prices are absolutely going higher. 

Now, it’s definitely a yellow flag. Make sure you have a longer term time horizon. Make sure you’re doing the research on your job, your market, your relationship, all of those things. Because this is a market to pay attention and be cautious and not bet heavy.

Maybe you end up buying a $500,000 house instead of a $600,000 house just to give yourself a cushion. All of the reasons that we’ve listed tell us. I don’t think there’s a cyclical nature to it, but if you believe there is, please don’t read online article, get it from a real publication, the Wall Street Journal. A book, someone that’s actually done some research, easy to publish a book. So this is not, none of this is the greatest advice, but please the easiest thing someone could do is push publish on their blog post. 

And now you’re quoting it to people who, their livelihood depends on this. And I’ve done the research. I don’t take this lightly. But for me talking to you, and I don’t take it lightly for me, for figuring out what my life is gonna look like the next 10 years. 

[00:43:23] Jeb Smith, Huntington Beach Realtor: No. And understand that even, Josh mentioned, go to some of these major publications. There are pay for play articles out there. Forbes I think has some of ’em.

There are reputable sites that deal with financials, stocks, the housing market, whatever. They give great information, real information, data backed information. And on that same site you got pay for play, which means I can put my crazy article that I did absolutely no research in and publish it on that site.

So just understand, even when you think you’re on a reputable site, make sure you’re doing your homework. You’re fact checking some of this stuff again, people will leave out things that we’ve talked about today. Again, when you talk about the idea of affordability, they’ll talk about prices and wages, but never talk about rates or never talk about all three.

And is it a misunderstanding of the definition? Possibly. Is it them trying to win over the audience by misinterpreting the stuff? Possibly. We never know the intentions of why people do what they do, but the reality is just make sure what you’re reading. You feel is a trusted source and go hear another opinion, right?

Part of Josh and I having this conversation is listening to the opinions of other people, reading their comments on YouTube, on other websites and saying there’s some validity to what they’re saying here, but this is where they’re missing, or this is what they aren’t bringing into account.

Or Hey Josh, we need to go check this out because this does make sense. And then when you bringing it into the [00:45:00] full picture, you realize, okay, maybe it doesn’t because of X. So again, it’s just all about taking information, gathering it, and then using it for you. This episode isn’t us getting you to buy a house.

Josh and I, as bad as this sounds is gonna come off the wrong way. We don’t care or I don’t care if you own a home. I would like you to own a home. I know the benefits of owning it long term, but I don’t gain anything by you owning that home. I want you to do it because you decide it’s the right thing to do in your life at that time.

Not because I said, Hey, you should buy a home, or, Hey, you should do this because of X. So Josh, that said I’ll get off my little Pedestal here, and no, unless you, no. 

[00:45:39] Josh Lewis, Expert Mortgage Broker: Here’s the thing, Jeb. We don’t need to coerce or convince people to buy homes. The case is settled. The last 150 years have told us that homeowners will have a better financial existence than renters.

And most people choose that, decide that, determine that, and enter the market. So if you’re seriously thinking about it, If you’re not a homeowner and you would like to become a homeowner, hopefully you’re here educating yourself and hearing all of this. Like I said, and don’t listen to just us, don’t go to any one source, go to all of them.

When I’m reading these cases for a crash I always go back to. Never attribute to malice that which can adequately be explained by stupidity or incompetence. And I choose to give these people the benefit of the doubt and say they’re just not that smart versus intentionally trying to mislead. But the reality is, I think a good portion of these people are out there trying to mislead you because it is easy.

The easy button. If Jeb wanted to have a 250,000 subscriber YouTube channel in the next six months, separate from his channel, what he would go out and do is make a crash channel. Cuz it’s the easiest content to make, the easiest way to get clicks and link people who don’t own. Want to believe that there’s going to be this massively better entry point and it is highly unlikely to occur.

Also, highly unlikely that if you buy today, you’re gonna be sitting on 25% more equity in 2, 3, 4 years. Like the people who bought two years ago. Yeah, we are likely to trade sideways. Slight appreciation potential for slight depreciation. So have a long time horizon and make sure you want to own for all of the reasons that will play out over the next 10, 20, 30 years.

You’ll have a lower payment than a renter. You’ll build up equity, you’ll have stability, you’ll have a home base for your family. All the stuff under Maslow’s Hierarchy of Needs that home ownership helps you meet. But do it for the right reasons. Do it after you’ve done your research and you’re convinced it is the right thing for you. Every year, in the worst year possible, 4 million plus homes are going to change hands. Make sure when you’re one of those four to 6 million homes changing hands, that it’s for the right reasons. 

[00:47:36] Jeb Smith, Huntington Beach Realtor: Josh, really coming through with all the book quotes today. Huh guys? What are your thoughts? What are your thoughts on what we talked about today?

I would love to know, if you’re watching on YouTube, make sure you leave it in the comments. If you’re listening on the podcast, you can send us an email. You can reach out back on the YouTube channel as well and leave your comment there, but really interested to know what you guys think of this information, because what I found is a lot of people that [00:48:00] listen to us also listen to other channels, other people that have other opinions, different opinions oftentimes, and that’s a good thing to listen to. 

So with that said, would love to know what you guys are thinking out there. But in the meantime, we appreciate the continued support. Appreciate you guys constantly reaching out with all the good news on finding homes and having success in the market.

For that we are grateful. So until next time guys. Adios 

[00:48:24] Josh Lewis, Expert Mortgage Broker: amigos.

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