Home Prices Went TOO FAR Now the Market Is Breaking

If you feel like prices make absolutely no sense right now, you're not crazy. In the last few years, real estate prices have skyrocketed across the board, and buyers, sellers, and builders are all reacting to what is happening on the ground here as prices went way too far and way fast. When this video, I'm going to be explaining why prices went so far, so fast, why transactions are basically frozen, and most importantly, what happens next in a market like this. Let's dig into what's really happening on the ground.

So, the first thing is that home prices have quadrupled relative to incomes since 1975. Look at this chart. It's unbelievable. This is comes from Fannie Mae and BLS.

You can see the first bubble was the 2008 bubble, but you can see it bubble two is just far and beyond what happened at the last bubble. Prices relative to incomes are just not the same. This is why you hear the next generation start to complain what is happening across the board. I can't afford a house.

I can't afford to get married. I can't afford to start a family. This type of stuff all starts with owning a home and finding a home base to start basically nesting and then starting a family in a lot of cases across the board. And this is a problem that we will continue to see demographically even with the baby boomers sadly passing away over the next two decades and the next generation not having kids, which leads us to ask the really important question, who is the next buyer to buy the house at today's prices?

And that is why we believe that prices will come down over the next decade. And of course, the Federal Reserve will step in. The Congress will step in. They'll come up with policies to try to extend what we're seeing here for as long as possible, but financial gravity will eventually take place.

Should interest rates go up at some point, and that will cause the payments to go up and put pressure on the next wave of buyers and they'll have to negotiate more. And this is what we're seeing already. It's way cheaper to rent than it is to buy a home across the country. Look at this.

Mortgage payment to buy is all the way at 2,700. You could rent that house or a similar house for 1,900. Why would you spend those extra $800 to buy a house and have the cost of maintenance, insurance, taxes, all these other things that are factored into it versus just renting a house and not having to deal with it. So, there are a lot of great reasons why you would want to buy a house, but the reality is buyers have options.

So, if they're not able to negotiate a price and a payment that makes sense for them, they will go ahead and just rent and save that extra money versus owning their home. So, this is really great for the next wave of buyers. They have options and they have alternate places that they can go to be able to get negotiating power to buy. And I really think that this is good.

We need a reset in the market. We need prices to come down and we need more competition here. Now, how did we get here? Well, of course, we saw the zero interest rate policy in 2020 that just spiked housing prices in Florida that were up 50% plus on prices in some areas, 68% within the last five years.

It's become completely unsustainable and the locals are completely priced out and only people left buying are people who are relocating from high cost states with a bunch of cash and they're buying houses cash. That's why we're actually seeing about 30% of buyers also be cash buyers at this point in the market cycle, which is interesting. It's not because the locals have tons of cash. It's because we have people relocating here who have cash.

But this is the rule of 28, right? So, the rule 28 is you're only supposed to spend 28% of your income on a house payment, and right now we're at 39.4%. So, this is house payments as a percentage of median income from 1967 to 2024. And I can tell you this chart is disturbing to me.

You can see obviously, just like the other chart, we're in another housing bubble right now. For the prices to make sense, we need prices to come down 30 to 40% to become affordable again. So, look at this chart. Really understand where we are in the market cycle and ask yourself, is now the best time to purchase a home?

And in some cases, it might be if you can negotiate the right price and the right terms. But just buying retail across the board, absolutely not. Now, here's what we're also seeing from another perspective so you can understand that we're in a bubble at this point in time. This is US homeowner equity, the equity in the house from 1955 to 2025.

Our equity levels have 3x since the 2006 peak, which is phenomenal if you're an owner and you held the asset that entire time period. But now, if you bought during this peak period here, and we're seeing a lot of people in 2022 to 2024 vintages, their prices of their properties are already starting to fall here in the Sunbelt and they're underwater. So, if you're looking at this chart, you might say, well, the market's really stable. Well, actually, this shows a very unstable market just like it did in 2006.

Yes, there's a lot of phantom equity. You don't realize the equity until it sell it sells. But if you're wondering why the sellers won't sell, they want to get that equity. They want to keep that equity and use it to purchase their next thing.

But buyers can't buy because they can't afford paying that price to cash you out of your equity. And that's causing the transaction velocity to really slow for this exact reason. We are seeing record low numbers of units transacting because there's so much phantom equity in these houses. And of course, that phantom equity will be forced to be realized at some point and will actually evaporate downward as the market comes to the new reality of where the payments are versus the rent amounts.

Now, this is another chart that a lot of folks who are bullish on the housing market talk about. 40% of US homes don't have a mortgage. They're mortgage free. This has been moving up all the way from 2010.

This is fantastic. My counter argument to this is, show me the concentration of who owns these paid off houses. I don't think it's the people that we're actually concerned about. It's the folks who bought in 2022 to 2024 using FHA and VA loans.

There were a lot of them. That's where we're going to start seeing the distress first, and then you're going to start seeing those folks who have a ton of equity start cut their equity to get out of their positions to let the next generation of buyers come in. That means that prices will need to fall from here moving forward. And here's the chart that I want to show you that the velocity of homes are very low right now.

You can see the mortgage cost percentage is exactly what we saw on that other chart in the blue. And then you can see the home sales percentage all the way down to 4.7. We're seeing numbers all the way down to 2.8% velocity of home sales. So, for like every thousand homes, there's 2.8 that that actually be sold, something like that.

And so, it's it's kind of crazy to see these numbers out there right now. But the mortgages are just not affordable. The payments, it doesn't make sense to go get these payments or to even sell your house to go buy another house in this type of market giving up your low rate that you had in 2020 to go get a rate around 6% today. The math just doesn't math.

It doesn't make sense. And if you were to sell today, you're probably going to get a lower price if you're in the Sunbelt area versus just a few years ago because of the drastic amount of speculation from investors. That doesn't just mean the institutional investors. It also means the mom and pops.

And if you really look at the data closely, you have to understand that the mom and pops are the actual ones that drove the prices higher. Now, a lot of people don't want to acknowledge that, but that's just the truth. Institutional buyers for single-family rentals, they only own about 4% of the of the supply of the inventory. The rest are owned by mom and pops who own zero to 10 units in a lot of cases.

And they bought up a ton of houses and started renting them out. As those folks start to pass away, generally they're the older generations, those houses will come back to the market. Generally, they go to an estate and 70% of those estates are completely sold off and given to next generation. Those are inventory that will come back onto the market most likely either through a rental or through just like a second home as a primary.

So, although the velocity of transactions has been slowing, my prediction for next year is that we will see more transactions actually happen because people are starting to finally capitulate and give up their low interest rate to buy and move where they want to go. So, there's now more 6% plus mortgages than there are 3% less. And this trend is continuing to move this way, and the lock-in effect will eventually break. I do believe that folks will say, you know what?

Let's just cut my equity. I'll just cut my losses, which is like extreme gains, but it's not as much as they wanted in order to get the money out and move where they want to go. And they're going to go get that new 6% rate. So, I do think that this lock that we've had for the last three years, we've been grinding along the bottom for existing home sales.

I do think it'll break over the next year or two, which is really good for real estate agents, title companies, loan officers, things like that. And it's really good for the sellers who actually want to get where they're going. So, there's this, you know, pull on both sides. The buyers want a certain price, the sellers want a certain price, and the sellers are capitulating and the buyers are getting what they want.

So, the other thing to understand is that real estate is regional and micro. So, this isn't happening everywhere across the country. You can see this is the one-year change in metro-level home prices between November 2024 and November 2025. You can see the most of the damage that's happening right now is in Florida, Texas, and areas of California, mostly areas in the Sunbelt.

Prices are starting to come down. Here in Jacksonville, there's certain neighborhoods that are down 10 to 20% already. 10% is a correction. 30% is a crash.

And we peaked in our market price in August October of November 2022, and we're just seeing prices start to come down as we see the amount of inventory come up. So, please understand that not every market is the same. You might be saying this is not happening in my market. So, drop below.

I want to hear where you're at. What market are you in? What are you seeing on the ground? Because I think if you're in Florida, your world view of what's going on in real estate or if you're in Texas is going to be completely different than the majority of the rest of the country because we had the wild speculation.

We had the builders come in and just build a ton of supply. They're and the relocations have basically come to a halt. So, this is what we're also seeing this phenomenon of folks who are getting upset on their prices, and they're just ripping the house off the market. And just I want you to understand this because this is so incredibly important.

Why do you think you can rent this house out? Try to But hey, I can't rent it for $2,350. I'm going to try to sell it for 650. Who would buy it for 650 when you could rent it for 2350?

I mean, a 650 house, depending on how much you put down, you could see a payment of up to four to five thousand dollars a month. It just The math just does not make any sense. I don't think people understand that buyers have options. They can rent, they can go look at other areas, they can negotiate on the price.

So, I do think people are going to need to start getting realistic on what is happening with these prices. And you can obviously even they the amount that they wanted for rent is going lower. So, we're seeing this across the board with a with a lot of sellers are getting frustrated. They can't get the rent amount they want because there's flooded in inventory with rentals.

They can't get the price that they want cuz there's a flooded inventory of competing properties, and they just need to readjust back to reality. You're not going to have another 68% run within 5 years with what's happening today with the supply and demand metrics. And we're seeing this across the board. Delistings jumped 28% as sellers pull their homes off the market rather than settle for low prices.

So, instead of selling, they have all that equity, they just get upset, they rip their house off of the market, and they're saying, "Hey, I'll sell it next year for a higher price during busy season." Well, everybody's thinking the same thing, and they're going to put all their houses on the market at the same time, which I expect March, April, May, there's going to be a ton of new listings that come on. All this pent-up supply will come back onto the market. So, be on the lookout for that. One other factor I want you to pay attention to is that the migration has been phenomenal to Florida, Texas, and Nevada.

Look at this. Texas had 50.1% growth 2000 to 2024, Nevada 63%, Florida 46.2%, and all of this just drove affordability out the window. Now, I moved to Jacksonville in 2014. It used to be super affordable relative to where I was over here in Washington, D.C.

It was a place that didn't have state income tax, and it was just a great spot living over here by the beach, and the lifestyle was fantastic. I can tell you that opportunity to relocate from a high-cost area to a low-cost area, Florida is no longer that low-cost area due to the prices of everything skyrocketing, including insurance across the board, either be car insurance or homeowner's insurance. We have hurricanes here. There's a lot of other things to start to think about when you move to Florida that you may not be aware of.

And this affordability issue is now a big problem. Now, what is that causing? It's causing less people to actually move to Florida now because that opportunity isn't there. You can see This is comes from Fox Local.

Highest inbound moves versus highest outbound moves. You can see the gray is neutral, the blue is where people are moving to, and then you can see that Florida is now gray. People are not moving to Florida, the affordability just isn't there. Thankfully, the builders are keep building here in Florida, so there's going to be supply, and affordability will start to get a little bit better, but maybe not enough for people to really start slinging themselves down and making a huge move to get here because the reality is Florida relies on these inbound moves, especially as the silver tsunami plays out.

So, 22% of Florida's population are baby boomers or older, and this is a massive problem as they start to pass away, who is going to be the ones that are going to be purchasing these houses at today's prices? Well, I don't think they're going to remain at today's prices. The prices will have to come down to attract the next wave of buyers. But the next wave of buyers are not feeling good.

Confidence cracks after late cycle spending surge. This is the consumer opinion survey, and it's at like the lowest level that it's ever been since the 1980s. People don't feel confident, they don't go out and make the largest purchase of their house in life and buy a house. And so, we're seeing this across the board.

The consumers are loaded up with debt, they have student loans, they have car loans, they have credit card loans, they're using Klarna now to buy a burrito or a cheeseburger and pay interest on it. It's getting out of control to the point where the next generation is pretty much giving up on homeownership, and it's not a good thing because the homeownership aspect, you know, it builds community. It also gets people into the middle class if they hold onto the asset long enough. And so, this is a huge problem to not have the next generation have this level of homeownership that previous generations had.

Now, what's happening is there's more sellers than buyers, and 36.8% more sellers than buyers. This gap is widening, and I think it will continue to wide moving forward for those reasons. People don't have confidence to buy, there's going to be less buyers, if there's job loss, there's going to be less buyers at the sellers are trying to cash in on all these properties at the same time, and that means that prices will just simply have to come down as inventory continues to stack on the market. You can see here the generations.

You can see the boomers are the largest generations, 76 million. You have Gen X, 55, millennial, 62, and the silent, 47. Well, the silent and the boomer generations will sadly start passing away over the next 20 years, and the Gen Z isn't even on here, and they're going to be the next wave of buyers in the next 20 to 30 years. Who and who they'll have to end up buying the houses from these folks who are passing away.

They're going to be older houses, they're going to need to be remodeled to the way that they like, and there's going to be a a lot of construction that will have to finish up during this time period, too. So, I think there's going to be a wave of a lot of inventory that's coming onto the market that I think isn't talked about enough in the real estate industry. It's going to impact some areas more than others depending on what their age demographics are of those specific areas. But something you want to be thinking about in your area, what am I going to do with this house because if you plan on holding it for 20, 30 years, you need to be thinking what could prices turn out to be during that time period when I actually need to sell.

Now, back to today, wage garnishment for student loans starts this month, and there's five things that borrowers should do, right? So, this is an article that's come out. Well, if you're have wage garnishment from over 5 million delinquent loans, that's going to drain cash from that next wave of home buyers, and that's a lot of potential home buyers that are going to be taken off of the market who are not going to be able to afford it. Not only that, but their credit's going to be hit.

So, this is another thing that's going to slow the next generation from being able to purchase after getting these massive student loans for degrees that aren't worth the money that they paid for them. Meanwhile, we see the labor market is cracking. We're seeing a deceleration in the labor market activity. It continues to move down.

This is change in ADP private employment, and it gets worse every single month that we see come out. We saw record numbers of layoffs announced last year from Challenger and Gray, and it's not looking good for the future. So, again, consumer sentiment is low. We're seeing a lot more sellers than buyers.

We're seeing lack of migration to Florida because the affordability isn't there anymore. Costs continue to move up, and the system is strained, and there's a ton of equity in these houses, but they're starting to evaporate every single month that goes by. And this is what we talk about the you know, the evaporation that's happening here and here where we saw the massive speculation. I mean, look at this.

Punta Gorda is already down 24.8%, Cape Coral is down 18%. Austin is definitely the epicenter down 26.7%. That's where we saw the most amount of speculation. It was impossible to get a house there.

But you can see across the board, it's not happening in the Northeast. So, it's a down cycle in the Sunbelt, and we expect it to continue to do so. We do I do believe that the Northeast will eventually cool off, but it could take a little bit longer following the Southeast that we see here. I'd love to hear from you.

Will affordability start to come back in 2026 if prices start to fall and interest rates fall at the same time? Then I'd love to hear where you're from and what you're seeing on the ground, what you're experiencing. Are you seeing the same things that we're seeing that we talked about in these charts? And as always, you can follow me on Substack.

It's johnbrooks.substack.com. I can talk about things there that I can't talk about here on YouTube. You can also connect with me on X @JohnBrooks. Love to hear from you and hear your story and stay connected here in 2026.

See you next week.