Don't Expect the Housing Market to Miraculously Improve

The housing market has been very screwed up over the last couple of years. We're in a situation where home prices are very unaffordable for many wannabe homeowners, and the ones that are affected the most are the ones that want to buy their first home. And over the last couple of years, especially since 2022, when we started to see interest rates rise back to historic norms, and by the way, historic norms over the last 50 years, about 7.7% for a 30-year fixed-rate mortgage. So as we watch these historic norms return, because of the suppressed 30-year mortgage rate, a lot of borrowers are under 4%, it has really locked in homeowners that have either purchased a home with a very low mortgage rate, or those that had a higher mortgage rate but refinanced when the rates dropped. And the problem that we're seeing right now is that a lot of people are locked in, and so they're not moving if they don't have to. For many, it would mean that if they moved, they would buy less of a house and spend more money every single month for it. That has created an inventory shortage. And then we've also seen where homebuilders, homebuilders that own their own mortgage company, have been buying down mortgage rates to try and move their inventory to sell their housing. So many people believe that this is going to self-correct over the next year, that we're going to see a better housing market than we have seen over the last few years. And a lot of people that are pushing this narrative are in the business, they're real estate agents. However, we have not escaped the fact that the payments don't make sense for most borrowers, most first-time borrowers. And with the risk of the job market and a borrower losing their job over the next year or so is really scaring people to want to move forward to buy a house at all. It's actually cheaper to rent right now than it is to buy. So what do we think will happen? I don't think very much. I think we're going to see the same kind of market this year as we've seen the last two years, that the inventory that's out there, if it's not moving ready and priced right, it's just going to sit on the market. We're seeing today that a lot of flippers have gotten themselves in trouble and bought too high, spent too much money rehabbing the house. And now that inventory is sitting for months and months on the market, in many markets, especially here in Maryland, and they keep reducing the price, but it's just not enough. And working with buyers that are buying houses for the first time, or that have owned before and are looking at their options, maybe they've relocated, or they've been renting for quite some time. Maybe they went through a divorce, had to sell their house, and they've been renting and want to buy something now. It's really coming down to their monthly payment. So a lot of borrowers now are confused where before it's buy low, sell high, and that's how you gain wealth in the real estate industry or in the housing market. A lot of people, their equity, their only investment that they ever make is in fact a home. Most people don't invest in the stock market. In fact, most of the investors in the stock market are baby boomers. A very small percentage of people have the largest majority of the wealth in the United States. So a lot of people believe that we're going to see massive price correction or decline, and that causes a big problem as well. Because if home prices continue to fall, we're going to have a major cohort of buyers over the last five years that will be easily underwater should we see price corrections of 20% or more. We've already seen a softening of home prices, and that creates a problem. Whereas if we start to get beyond that 20% correction in home prices, then now we're starting to see where the baby boomers or the older generation, Gen X, baby boomers, a lot of their wealth, their financial planning, if you will, their retirement or their long-term healthcare is dependent upon their home equity. What that means is if you are a baby boomer going into a assisted living facility, the first thing that they want to do if you don't have long-term care insurance, and many don't, is they want your house. And if we see where equity starts to fall in home prices, this is going to create a problem for a lot of people that are not prepared for retirement or end-of-life type services like nursing homes. So where do we go from here? Well, the administration has identified that we have a major problem here. We know that interest rates are really the driving force of your monthly payment, and that they want to push down mortgage rates again, buying mortgage-backed securities, Fannie Mae and Freddie Mac, government-sponsored enterprises. They're controlled by the government. They've been in conservatorship, meaning government control since the 2009 era, where we were coming out of, or really the bottom of the great financial crisis where home prices kind of bottomed out in that 2009, 2010 period. But they want to, these GSEs, they're buying their own mortgage-backed securities with hopes that they can suppress the rates. And then you have the Fed rate, which really doesn't control mortgage rates. Mortgage rates are really controlled by the 10-year treasury bond. So the Fed wants to now buy 10-year treasury bonds and sort of drive those rates down as well. But if they drop the Fed rate, that makes the investment in a 10-year treasury bond all the better if we're looking at something where you return interest return on your money, your investment. So by dropping the Fed rate, it makes your 10-year treasury investment look all that much more valuable. The problem is back in 2009, when they dropped interest rates or the Fed rate to just about 0%, it didn't prevent the housing price crash that we experienced back then. And a lot of people want to blame it on subprime lending. And yes, that played a part, but the fact of the matter is when people cannot afford to pay their mortgage, it really doesn't matter what you call it. It is a financial crisis. And for many people with this spike in home prices, this also brings that annual tax that you pay every single year on your property called property tax, as well as the insurance that if you have a mortgage, your lender is going to require that you have this property, a homeowner's insurance, because if something were to happen, the lender wants their asset protected. So they force you to buy homeowner's insurance, which has also skyrocketed in many markets. It's always going up because they say the replacement costs are continually going up, labor force, the price goes up to have work done on your home and the material costs go up as well. So I think what we're looking at here is that we have allowed this thing. We've extended and pretended for such a period of time, kicking this can down the road, not letting a natural correction occur, that I think that we will continue to see a softening of home prices across the country. Now there's the headlines and we've all seen them where home prices year over year have gone up. And I've covered this in my podcast before. The problem is, is the devil's in the details of what that really means when they say that year over year price increases are continuing to occur. The fact of the matter is the only thing that's really happening is that the wealthier buying the houses and that is increasing every single year, the home that the value and the home transaction, the purchase price on average. So if you take a thousand houses that are priced high, if you're looking at year over year price increase for that average of that 1,000 homes sold, it's much greater than that. It's 4 million homes, existing homes sold in the last year. But just for example, if you average those thousand homes or even come up with a median, a median price where you say a median price is going up year over year, what that means is in the middle of that, the thousand home sales, that middle price when you've got the prices higher than that middle and lower than that middle, but that number is moved higher and higher as a result of wealthy people buying houses. And we see this because a lot of domestic migration from very expensive markets to lesser expensive markets have been driving a lot of the home sales. And also a lot of these buyers are paying cash. So the way that they are affording to make their move and to buy a more expensive house than a first time buyer would necessarily buy is because they have so much liquidity at this point that they're able to pay cash for their house and not be locked into some rate sensitive monthly payment to make it happen. So if you're a home buyer right now, you really need to decide if this is something that you're going to try and take on in 2026 or whether you're going to sit back and rent for another year and see what happens with home prices. It's been expected by some of the largest, brightest minds, the financial minds out there that like Lance Lambert, that we will still see despite a projection of that median home price or average home price being higher in 2026 than 2025. Again, looking at the basic principles that the wealthy are moving that needle, Lance Lambert believes that we'll still see significant price declines in about 40 to 50% of the markets across the United States. I guess what I'm saying here, a lot of what you have to decide if you want to buy a house this year is what type of life decision is this for you? If you have the financial resources to buy within your means, and what I mean by that, and I teach this in my Todd Simple Home Buying course, is that if you've financed no more than three times your gross income, you should be in a decent position and be able to make your payment. You will have to decide whether if there are two borrowers, a husband and wife, you'll have to decide if one salary is enough or whether you need to buy in that 3x or finance in that 3x of one salary versus combining both salaries in risk that maybe a spouse will possibly lose their job or go through a period where maybe they get laid off and it may take them six or seven, eight months or so to find another comparable paying job. So can you sustain that financially? Do you have enough savings after you buy to withstand some type of personal economic downturn? So if you're a seller right now, you really need to be thinking about your position as well. If you're going to sell a house today, which if you believe that home prices will continue to fall and you can't sustain that for whatever period it takes for a price decline or a stagflation in order for prices to rise again, however long that may take, maybe a decade, I don't know, no crystal ball here, but just from someone being in this business and looking at all of the variables, we could be looking at that. So if you're thinking about selling your house because you have to, you may want to consider doing it sooner than later. Unless, like I said, you can weather the storm and stay put and still be able to make your payments and stay in your home for the long haul. If you can't and you're going to sell your house or want to sell your house, you may consider putting it on in the spring. You may not want to delay much further beyond that because as we get into the summer cycles again, spring is your best time to get your highest price on your home. But I want you to get your home ready for sale. And that means doing anything that you can to make it more appealing to that potential buyer. You'll also want to be very much in touch with the reality of how you should price that house because days on the market is not your friend. Now for this week's Real Estate Q&A. So our first commenter is saying, referencing when it comes to the people that have a 2% or 3% mortgage, this is something I was just talking about. It says, now this is flipping, basically. They looked at it before some of the data and they said, oh, well, a large percentage of the people that have mortgages on their houses are in that under 4% range. And what they're saying is that it's flipping now. And a lot of people have refinanced because they have credit card debt or revolving debt. They have equity in their house, so they can refinance. And they're getting higher mortgage rates as a penalty of trying to consolidate their debt. Now, credit card rates, some of them are 30%. There's no cap on them. Our president is trying to cap for a year once credit card companies to now cap their interest rate at 10%. And I just heard something this morning with our house speaker, where as he was saying that there could be consequences for that. One of the big consequences is if you cap a credit card company that they just terminate your limit, any limit that you have left and don't open up accounts for people. And that for people that are relying on their credit cards to live for life's essentials, getting back and forth to work, gas, auto expenses, food, things like that, that they had no intention on financing at 30% interest rate, but they're forced to because they don't have the money and they need to borrow it from the credit card companies. But what they're saying is that the data is now showing that more people are carrying higher mortgages than people that have lower mortgage. I don't know that we're quite there yet, but we'll continue. Also, I know people right now that have lower mortgages that are forced to sell because of job loss or that the area they live in is changing. And at the end of the day, people will move when they have to move. Yes. And like I said, we're getting people, their tax, their escrows are going up on their monthly payments because now they're spending a lot more money in property taxes and insurance than they did when they bought their house. So people think I buy a house, I'm locked in for 30 years at the same payment. It's just not true. But a lot of people, and this commenter is not saying that have bought in the last five years that bought without a home inspection or realizing they can't afford the necessary home repairs. A lot of them are financing those on credit cards. But what they're saying is Redfin just came out saying there's 36 to one sellers to buyers. What does that mean? That means that home prices eventually have to come down. So yeah, when you see more inventory than demand, it certainly makes it more advantageous for a buyer to get a better deal. But the problem is, and I've explained this before, is that if you're looking at a house that's for sale and you're wanting to go in and scoop that up for a discount, you have to know whether the seller can even sell it for the price that you wish to buy it. Now they may say, hey, I wish I could, but my mortgage is more than what you're offering me. And they're in a situation where it doesn't matter. They're not going to take your offer if they don't have either the equity or that their mortgage payment is still less than what that lowball offer that you're offering them. And our next commenter sounds defeated. I'm 53 and never had the ability to buy my first home. I'm the type of person that wanted to do it, save 20% down, stay within my means. Every time I was able to see the light at the end of the tunnel, the RE would continue to go up and continue to be out of my reach. I gave up in 2017. Now this commenter was saying they wanted to save enough for a 20% down payment. So that really helps your monthly payment in many ways. Number one, you're not financing anywhere near the maximum amount of that home purchase. You're financing 80% of the purchase price. But you also, by putting 20% down, eliminate your mortgage insurance, which is a very expensive insurance that certainly increases your payment. And it's also, depending on your loan type, is sensitive to that mortgage insurance, is sensitive to your credit rating. But back in the day, I mean, if we go really before World War II, if you bought a house in the US, you had a interest only loan and you put 50% down. And so basically you had a five or six year mortgage. And then at the end of that period, you had a balloon payment and you had to have the extra 50% of your balance. You had to pay it off when it ballooned in five or six years. But I'm seeing the major problem today is that people want to put down as little money as possible. I have buyers that don't even have the escrow deposit. So they want to buy a house. They're qualified to do so. Their credit score is good. Their income is good, but they have no savings. And I've had somebody recently that said, okay, when do I need to put my escrow down? So if it's 1% and I'm buying a $500,000 house or $400,000 house, and it's 1% is the recommended escrow, that's four grand. How long do I have to come up with that money? Well, you have to ask, if you don't have $4,000 in your savings or checking account, you have to ask yourself, should you be buying a house right now anyway? But the fact of the matter is you need it now. You need it within a couple of days of that contract acceptance. Maybe our contract that we would say that that $4,000 would go into an escrow account within three days of a contract acceptance. So you need that money now, but this is a true, what I love so much about our channel and our audience is that these are real people that are giving their personal experience. They want to buy a house, but they're talking about how they've been priced out. And a lot of this is because of investors as well. I mean, in 2009, back then the Obama administration, they were dealing with the fallout, the 2008 housing crash of GFC. And as they thought they were doing a good job, but what they did was they sold millions of houses to Wall Street and saying, hey, look, we're in a crisis here. It'll take us forever. These are plaguing neighborhoods nationwide. Grass is barely getting cut. Pools are uncovered and hazardous. Windows are boarded up. People are entering these houses, stealing the copper pipes out of them, taking the appliances out of them. We need to stop this. So they bundled up these defaults, sold them to Wall Street companies. And then the housing market started to recover and Wall Street got a taste for the investing the good that came out of back then, what they purchased those homes for, how much money they actually made with home price appreciation and turning these homes into rentals so much so that it fueled more than any other time in history, investors to buy even more of the home inventory. And this resulted in about 30% or 33% for many years of the homes being sold, being to investors, non-owner occupied investors. And a lot of these aren't good landlords. So they've plagued neighborhoods still in many ways or haven't been a great choice for a lot of the tenants because that's, I mean, look, there's the term slumlord. It came from somewhere. And that's where somebody spending the least amount of money in fixing up that house or making it rentable and the conditions aren't that great necessarily for the tenant. So, again, we're hearing in the news that President Trump wants to eliminate large investors, their ability to buy single family houses. He made a comment on his social media site that people live in houses, not corporations. And so we'll see what happens with that. I think, again, there's a lot of things that have occurred over the past, let's just say two decades, where this is going to be not an easy thing to reel back in. Our next commenter is talking about Harry Dent. And I'm excited to say that Saturday, I have Harry on again. I just podcast with Harry and this, I mean, Harry Dent is a very smart guy. He's a businessman. He's been known as a turnaround guy. He's gone into major corporations that were looking to head into non-existence and has turned them around. And he's very good at it and has a lot of great ideas. But he's a guy of charts and he's a guy of looking at historical data and cycles and determining where we are in that cycle today. And he says that we should be expecting a major price correction in both housing and the stock market. He believes that house prices are going to go back to 2014 levels. And he believes that stock prices are going to go crash 90% back to 2009 levels. But with this commenter saying, this is an older video that I have with Harry. We've had him on, I think, maybe three or four times in the last year and a half. You just watch one of the older videos. He said, I listened to this guy on the video and he is an idiot. He is right. Money has been printed and the creation of inflation, that is where it ends. This is not a bubble, it's inflation. And what Harry believes is that bubbles throughout the history of the US have naturally corrected. You've had naturally occurring bubbles, times where you have boom cycles, exuberance. The industrial revolution is a perfect example of that. To where things expand and prices go up and then they hit their natural state of unbalance and they correct themselves. And we go through a period or downturn or recession, which historically has been a very short cycle event. This has been happening over the last 200 years. If you go back and study the booms and busts of the US history, every two or three or five years, we had a recession, depression, a panic, a pandemic. And prices got to a point with exuberance that they auto corrected themselves. And then really, when we had Greenspan as the Fed and he put in the Fed put saying that, you know what, we needed all costs to make sure that the stock market, because it's pensions, retirement funds, wealth of older people, that we need to protect their wealth and we need to protect these Wall Street companies or these businesses that we want capitalism. In the US, that's what it's all meant to be, but it has turned over the years to more like crony capitalism. So you have lobbyists in these companies or special interest groups that they, yeah, you've got capitalism, but it's crony capitalism and it squashes out the small guy. But what's happened is the way Harry describes it, and I highly suggest that you watch this video on Saturday, but what he is saying is that these last bubble cycles have been artificial. They have extended what typically happened every two years or five years or seven years, these natural cycles, and they've pushed them to where they're a decade or more. And then it's more catastrophic because they've been artificially suppressed or extended and pretend, as I mentioned earlier, kind of a kicking that can down the road. And what Harry is saying is that at some point it has to stop, that it doesn't work anymore. And I think that's the question. And he also says that it would be a genius move if somebody can figure out how to prevent what typically occurs in economic boom and bust cycles. If you can prevent that or come up with some way that is sustainable where we're not separating the rich from the rich and the poor and eliminating the middle class, if you can still keep things status quo of the way they used to be prior to this manipulation of markets, if you can manipulate the market and prevent these bust cycles, that it would be genius to have that happen. But what he's saying and what he believes is that it can't, that we're going to see this happen. We're going to see where we hit the wall and we've come up with as many things as we can, these pulling rabbits out of the hat, and that we'll get to the point where none of this will work anymore. And I think what's surprising everybody is how have these markets stayed up over the last several years? Well, a lot of money printing has occurred, but not just that, we've prevented foreclosures from happening. So we're not seeing that bust cycle. We're not allowing that natural bust cycle to happen. We're letting people stay in their houses and not foreclosing. They're staying in two, three, five years, 10 years we've seen over the GFC where someone has stayed in their house that I know of for a decade and not paid a mortgage payment, a tax payment, that it has all been paid by the government, which is taxpayer money. And so I guess the question would be, can we figure out a way to where everybody could be happy? I don't know that it's possible, but again, it would be a genius move. So we'll see what happens. It's funny, before you say to somebody or discredit and say that they're an idiot, there's something that you can pick from, from me, anybody that has any kind of extensive knowledge or history in business or cycles that have been through downturns and that have been part in turning businesses around and like Harry Dent has and invest as a financial analyst. So we can't just say that somebody is an idiot because you haven't seen what they believe or what many people believe will come to fruition. And you think that things will only continue to go up and that we won't have any natural downturns. And of course a natural downturn, once we finally get through the artificial inflating of these bubbles, a natural downturn by not letting it happen before could be even more catastrophic than if we let that correct naturally. Thanks so much for watching. If you're new to our channel, consider subscribing. If you got something out of today's video, hit that thumbs up and let me know that you did. Keep those comments and questions coming. You never know guys, you might just be on next week's real estate Q&A. See you next time. This video is brought to you by sacksrealty.education. Many of the costly mistakes that people make when buying a house can be 100% avoided. To learn more, visit sacksrealty.education and become an educated homebuyer today. Sacks Realty, Maryland broker number 607720, office number 443-318-4514, equal housing opportunities.