What's Up With The Housing Market?

For the last five years, we've all heard that the housing market is in a bubble. Prices have shot up over 50%. Mortgages are through the roof. But for the first time in years, homes are just sitting on the market. So is this the big one? Is this the next massive housing crash that takes down not just the real estate market, but also the stock market and maybe the whole economy? That's the question of this video. I'm gonna dive into the data on the subject so that you can make an informed decision, not just about buying a home, but about your investment and personal finance strategy as a whole. We're gonna look at the case for a bubble, the case against a bubble, and then I'll give you my opinion. And ultimately, I want you to walk away from this confident in making your own opinion. Now, this is kind of part of a mini-series, so I just went into the question of, is the stock market going to crash? Is the economy and AI specifically in a bubble? You can see that video up here. And these are complements, right? If one bubble bursts and the other is likely to be a bubble, then maybe the whole house of cards falls down, or maybe neither are in a bubble. I'll let you decide that for yourself, that in mind, let's get into the video. Okay, now, before we continue, you may know that copper prices are breaking out again. And this is more than a price move. It's the market and the US administration finally realizing how important copper is to the United States and national security. In fact, last month, the administration hit copper imports with a 50% tariff. And that's a clear signal that the US knows that they need to refine copper domestically and reduce dependence on China, who refines over 45% of the world's copper. But why exactly is copper so important, right? Well, it comes down to the technology that refined copper is used in. And so if you control copper, you actually control AI infrastructure and defense production, which is obviously critical to every country and company on the planet. And that in a nutshell is why the US is quietly and sometimes loudly moving away from Asia and looking to apply these copper supply chains in friendlier, closer jurisdictions. And the government has even started taking stakes in copper companies in an effort to control and guarantee their supply chains. Now this truly is historical and something that the market may not fully have grasped. And that's also obviously an extremely bullish signal for the copper industry. And in particular for today's sponsor, Copper Giant Resources, which is a publicly listed company under CGM on the TSXV and LBCMF exchanges in the United States. And so the aptly named Copper Giant owns 100% of the Makowa Copper Project in Southern Columbia. And that project alone is one of the largest undeveloped copper systems in all of the Americas. And while on the subject of the administration, the CEO of this company, Ian Harris, was invited to the US embassy in Bogota to discuss shipping concentrate to US refineries as opposed to China. And this was right after that copper tariff was announced. Now Copper Giant trades at about a $30 million market cap on the public markets, yet it has about 2.1 million tons of undeveloped copper resources available, which is just over $22 billion of copper at the market prices currently. So with policy, global security, and a hot resource market, the signals are there and the interest in Copper Giant is booming. And that in mind, if you wanna learn more about Copper Giant Resources, you can click on this link or the link in the description to read more about them. And that said, genuinely, I think minerals like oil are one of those things that kind of secretly runs the world in a way that we don't fully all realize. And so if you guys wanna see a video where I do a deep dive into the economics of this stuff, this is a little bit of a different video than what we normally make, just drop that in the comments and we can make that happen. That in mind, thanks to Copper Giant Resources for sponsoring this video and let's get back to it. Okay, so first, what is the case for an impending crash in the housing market? Well, point number one is that there is a massive and hidden affordability crisis for homes. And if you're under the age of 30 or even 40 at this point, you've probably experienced this yourself. But this isn't just qualitative, this is a very real thing. And according to the NHAB, over 75% of American families cannot afford a new median priced new home. And that medium price is now over $400,000. And keep in mind that while the average US household, and remember, this is household, not individual, net worth is about $1.3 million. The median, so not the average, but the median is about $200,000. So what that means is you have the ultra elite, right? The wealthy that pull up things like average income and like average network. But when you look at the actual majority of people in that normal distribution, most households, again, not individuals, households have that net worth in the range of a few hundred thousand dollars. And the median home price is over $400,000. And in some states, it's even worse than that. In Maine, over 91% of people are fully priced out of the home market. And let me correct myself there. 91% of households, not even 91% of people. And in California, some data has showed that you need an income of over $400,000 a year to qualify for a medium priced Californian home. And so the argument there is just, well, can home prices stay that detached from local incomes forever? Well, if they can't, and there's just no buyers, then those prices have to crash. Okay, now point number two comes down to very high mortgage rates in the market right now. Now we lived through a decade plus of basically free money when interest rates were zero or near zero. And what that meant was extremely cheap mortgages. And a lot of people, especially older people, locked in their two or 3% 30-year mortgages. And because the interest on their home is below the interest of, say, just bonds or the amount they expect to make in the stock market, they're never gonna sell that or want to move or do anything other than just stay in that property. Because think about it, you could just refinance, take a million bucks out of the house, put the million bucks in bonds, you pay 2% on the million to the bank, and you earn 3.5%, 4% on bonds, and you keep your 2% a year, that's free money. But for new buyers right now, you're talking about very high mortgage rates, five, six, seven plus percent. And these high rates materially destroyed the buying power of Americans. In fact, each 25 basis point or 0.25% rate hike prices over 1.1 million households, so multi, multi millions of people out of the market. And so if you're talking about those rates going from 2% to 7% over the past few years, that's most of the nation that gets priced out. And so multiply that kind of freezing demand in the short term by this overarching home price to income problem, and where's the demand going to come from, right? Something there has to give, otherwise any sellers who do wanna sell just aren't gonna be able to, or more realistically, no one's going to sell and no one's going to buy. Okay, now point number three is that, well, the market is already showing some signs of weakness. The typical home now sits for 63 days on the open market, which is back to where it was in 2017 through 2019. And price cuts are becoming really common, especially in some of the Sunbelt areas, for example, like Florida and Texas, like Austin and Houston. And so you can argue that that's evidence of that decline in demand. Okay, now point number four is the primary accessory market to the home market, that being commercial real estate, and then also just a macroeconomic situation that we're dealing with. So currently the office property market is in a full-blown crisis. Delinquency rates right now are north of 11 1⁄2%, which is worse than 2008, and regional banks hold nearly 50% of that debt load. And if smaller regional banks fail, then that can trigger this wider credit crunch that kind of just freezes lending. And the reason for that is primarily just COVID, and a lot of people and a lot of companies have not gone back into offices. So you have too much supply, not enough demand. And so for a lot of real estate developers, you would rather just try and sell for very little or just ignore a property. And you've been seeing that happen in a lot of places. And again, it's the lending there and the crossover on those banks that can then impact the home market. Okay, and then on the other side of it, and this is like we spoke of in the video about, well, is the stock market about to crash? Well, how safe is the job market right now? It's not doing very well. And if the job market continues to slide into a worse and worse situation, that translates into consumers having less money. That also means less demand for homes, which then translates into them not being able to pay off their mortgages, and then it just cycles and cycles from there. So that was all the case for a bubble, but don't worry, it gets better. Now let's jump into, well, why are we not in a bubble? Why is this different from a case like 08? Even though all of that does sound not so great. So first, if we look at a true housing crisis of something like the 08 crash, if you've seen the big short, you know what I'm talking about. Well, that crash was fundamentally caused by bad loans. And today's lending market is just completely different from that in large part because of the 08 crash. So these uber risky no document loans are completely gone. And the average loan to value ratio today is about 28%. And that's compared to 55% in 2008. And this means that the average homeowner does have a very large equity cushion in their home. So they're not underwater. And if they did need to sell, they could cut the price. They wouldn't be facing foreclosure of any kind. And this is also where you can start to hint at something that I said previously, and that's on the mortgage note, which is less that there's this massive price crash incoming, but more so that sellers maybe just won't want to sell. So coming back to this lending data now, what we're seeing is essentially homeowners are good. The problem is just buyers can't break into the home ownership market. But that's very different from a price or a kind of debt induced crash in the housing market and among current homeowners themselves. And that leads into what you can call the golden handcuffs, which is that you have millions of homeowners sitting on these two or 3% mortgage rates. And so they're never again going to sell because if they sell, they immediately have to go and buy their new home at a 6, 7, 8% rate. And so this keeps inventory almost artificially low. And active inventory is still lagging 15 plus percent behind pre-pandemic levels. So a crash fundamentally requires an oversupply. But where is that flood going to come from? At least right now, considering that rates are so high. In fact, what you're looking at, you could argue is the opposite, not a crash, but a market that needs more housing where there's lots of demand. The problem is that demand is for a cheaper level or a cheaper type of housing. And you could argue that, yeah, we're going into a rate cut cycle, so rates are going to drop. But if rates drop, then that unlocks a lot more flexibility because now the buyers can pay much less for new homes, which enables a whole new category of buyers. And also the sellers are more willing to sell and relocate because they can buy homes for less. Okay, now point number three is the demographics that we're looking at here. So while affordability is terrible right now, there are a lot of positive demographic trends. Millennials right now are entering their peak home buying years. And so if prices were to come down in accordance with a rate cut cycle, then you could see all those millennials finally getting the opportunity to use some of their cash that's currently sidelined and put it into their first home. Additionally, baby boomers aren't downsizing as predicted, but are rather keeping their larger homes for longer. And this creates kind of that structural demand shortage that I was referring to, where any dip in prices or mortgage rates could be met by this massive pent-up demand that puts this kind of floor on prices dropping. Okay, based on all of that data, I'm going to give you my perspective on whether we are in a impending housing crash situation. But of course, use that data to make your own informed decision about all these kinds of things. But all in all, I don't think the data points to us being in a 08 style crash or anywhere near there. I think it's much more acute to say that we're in a stalemate. Rates are too high, supply is too low, and so while prices are too high for buyers, inventory is just too low for a true crash. Because again, there is a massive amount of cash on the sidelines here. I think Americans have something like $7 trillion just in cash, and you have a rate cut cycle coming up. So as those things start to work together, if for whatever reason people started suddenly selling more homes and for a lower price, I think the demand would be there and tons of people would be very happy for an opportunity to buy in at a lower price. And you also see very different sub-markets now in the US, and so maybe it's better to look at it through that lens. Or you do have overheated markets like in Florida and Texas and Arizona that may see modest declines, but otherwise more affordable markets like in the Midwest and Northeast should continue to see modest growth as these things work together into this kind of correction, kind of stalemate that just works itself out over time. And so yes, the days of 100 grand over asking are over, and that was what the market has been like for a lot of the last decade with this kind of free money interest rate rush. Now that said, I want to wrap this up with the forecasts for 2026. So mortgage rates are likely to drift downward but still remain structurally high. So they're supposed to end 2026 somewhere around 5.9 to 6.2%, while home sales should finally rise off of their 30-year lows, rising somewhere between 5 to 10% in 2026 as buyers adjust to these lower interest rates. And finally, home prices are the big debates and forecasts there range from a 5% decrease up to a 4% increase. And that'll probably be determined in large part by what happens otherwise. If the U.S. enters a recession versus you have 4% GDP growth, right? You could see a lot of variance there in the real estate market. Okay, now if this breakdown helped you understand more about the housing market or make a better financial decision for yourself, make sure to subscribe for more videos like this. And I appreciate your time. I'll see you in the next one. Cheers.