The TRUTH About the Housing Market the Media WON'T TELL YOU

The media has been telling you many myths about what's going on in the real estate market to continue to drive demand and sell you real estate. But this video explains what really drives real estate from the fundamental levels and price appreciation across the board. Why have we seen so much price appreciation and why is that about to invert and we're about to see a decline across the United States? There's 10 reasons why.

Listen to the end to find out all 10 reasons and some of them may surprise you. But let's dig in into why the media has completely gone a muck and is completely ignoring the fundamentals of real estate. So number one thing that impacts the value of real estate is actually affordability. And what I mean by affordability primarily is mortgage interest rates.

A 1% change in interest rates can shift buying power, even the uh price of a property by 10 to even 12%. So we obviously went from an rate environment from the twos all the way up to the sevens which would indicate that over time we may see a 30 to 40% decline because mortgage rates are the number one factor that drives housing. Okay, because we live in a payment economy that is based on affordability of housing. The second thing attached to that is lending standards and one comment on those mortgage rates.

There are studies that show between Goldman Sachs and independent studies between 50 to 80% of the price appreciation that we've seen over the last 40 years has been due to mortgage interest rates dropping. And I believe that that interest rate regime is changing direction and is actually going to start moving up as we accumulate more debt as a country and as the deterioration of the credit from the consumer standpoint also continues moving forward. And we're starting to see cracks in that already in asset back securities like car loans. We're also seeing student loan crisis.

We're also seeing credit card crisis and all of those aspects that are almost near the great financial crisis levels. And we're not even in a crisis at this period of time. Number two is lending standards. Credit score, down payment requirements, and debt income to ratios determine how many buyers can actually qualify to purchase because not every buyer has the 20% down or the high credit score to be able to purchase.

These are the main factor. This is like the number one factor. There's three primary ones and there's seven kind of secondary ones that drive the market, but this is the number one factor. So, let's dig into how that's been playing out.

So, this is an insane acknowledgement by Fanny May that this is an urgent crisis that we need to resolve ASAP. So, they're saying to get back to the levels of 2016 to 2019, one of three things or a combination of things would need to happen. We'd need to see single family home prices drop 38% which is insane. Okay, that's a crash.

A crash is a technical 30% drop from the peak. We already peaked in the United States in October 2022, about 6 to 8 months after we saw the uh the Fed actually increase interest rates for the first time. Or home prices would need and it would have to go down to 257,000 or we would have to have income rise by more than 60% which I don't know about you with the rise of AI doesn't make sense for me that that's going to happen anytime soon. Or the mortgage rate would need to fall to 2.35%.

The only way that that happens is with massive government intervention buying mortgage back securities to lower, you know, the rates for these mortgage holders and provide liquidity to the system. So, we're actually seeing because of this affordability crisis, an entire generation that's falling behind in home ownership. And the affordability crisis continues to get worse. So, you can see here from this chart, if you bought after 2021, you are paying a ridiculous amount of your income to your shelter cost just to live, right?

That doesn't include all the other costs associated with this, but you can just see what your mortgage payment is. Uh it's it's actually insane. You can see here it is. You need the income to purchase a house $115,000 up from $58,000 for your median income.

And that's crazy. So the median American would need $28,000 of a raise to afford a home in today's market. And the affordability crisis already from the standpoint, I know a lot of people saying, "Hey, it's not as bad as the great financial crisis." Well, when we're looking at ratios, it absolutely is. This is the home price to median household income ratio.

We are already worse than the housing bubble previously because of incomes not rising as much and home prices going much faster and also interest rates moving up much faster. But this is the chart that shows that 40% of income right now is going to your shelter when you buy a home. And this is causing home sales to collapse. It's an affordability crisis truly.

And you can see here on the blue line, this is the mortgage payment as a percentage of income. We're up at 40%, it was 50% previously. We did see interest rates come down a little bit. We did see prices come down a little bit and we think prices will continue to fall and that will bring more buyers back into the market because it truly is an affordability crisis.

This chart really explains it all. This comes from Reenture. It does a good job of explaining that home buyer demand versus an affordability by state. The more affordable affordable the state, the more that sales are actually holding up.

So this is home sales versus 2019 levels because obviously you want to compare to pre-bubble levels. But you can see even Florida's down 25% in number of closed sales versus 2019 which is a huge drop off in the number of sales. Since the 2008 period, Florida has seen a 20% increase in population. So it's kind of rare to see stuff move backwards so fast but it's because the prices went up too fast and then we saw the mortgage rates go up and the consumer and this goes to the lending standards.

The consumer is maxed out. I mean, most of them are loaded up with debt. They don't have the money for the down payment. They have to borrow from friends and family to get their down payment and things like that.

It is really complicating the market um from the lending standards. We have to as realtors, we have to pull things together and often find creative solutions to get the deal across the finish line with these mortgage loan originators because it is really tough out there and people are frankly losing their jobs or scared of losing their jobs. They're backing out of deals and housing costs are so high that Americans are delaying milestones like getting married, having kids, and even adopting a pet. I mean, this goes to household formation, which we have slides on.

So, be on the lookout for that because that is one of the major factors that impacts real estate as well. And frankly, Americans are being priced out or delaying home ownership because it's getting so expensive. So, you can see that 72% of the US renter population is 30 or older. So more people who are older are actually just sticking to renting because now it's actually cheaper to rent than it is to buy and that's a that's a huge problem.

So that was number one, affordability. Number and mortgage rates. Number two is supply and inventory, right? So this is the number of homes that you have available.

This is the new construction homes that are coming on and the distressed display supply of inventory in the marketplace. So this is the again the number two factor. Number one mortgage interest rates, number two supply and inventory. And right now we are experiencing that there's 35% more home sellers than buyers.

This comes from Red Fin. And the numbers continue to go up every single month. So sellers are panicking because they're saying, "Where's the next buyer from my house who can pay this price at these payments?" And instead, what they're actually doing, we're seeing a lot of this is, which is why we're not actually seeing more inventory on the market, is the seller is rage cancelling their listing and just pulling it off the market altogether and then turning it into a rental or just continuing to live in the house because they're frustrated that they can't get the price that they want. And from a new construction standpoint, this is the new home inventory.

We're already near great financial crisis levels with new construction inventory just stacking up. Now, the builders are starting to provide massive amounts of incentives to get the affordability factor down for new construction homes, which is why new construction is outperforming existing homes, right? The new construction builders have the economies of scale. They can buy tranches of mortgages to to sell to uh buyers and get that rate lower.

They can use their own title company to save cost, right? They just build their own little package. Existing homeowners don't have the availability of that type of scale and they must compete with new construction. So, we're seeing a lot of distress or frustration from these existing homeowners that live near new construction because there's just so many new homes that are coming on the market.

In Florida specifically, we have the most number of sale like active listings on the market ever and it's going up every single month almost vertically, which is crazy. So, we're seeing again a massive amount of supply. So, we have an affordability crisis. We're starting to see a massive amount of supply come onto the market.

And when they can't sell, again, this is the rise of the accidental landlord, which is bad news for investors because now we're having a massive amount of inventory coming on from the rental standpoint. And now rents are starting to drop because the seller gets upset, can't sell their house, let's turn it into a rental, they turn it into a rental. Boom. We just have an extra 20% of rentals come on the market and it's flooding the market with rentals and they have to fight over a limited number of renters if there's not migration to the area or household formation in the area and that's driving rents down.

So number three, so this is that was number two. This is number three, demand factors. Okay, so this is all about population growth and generational demands and we're seeing really big red flags on these moving right now. So population growth would be like migration patterns for Florida and Texas household formation.

And we're going to dig into these charts. So hang on and take a look at this because this is impacting a lot of areas of the country. Specifically, it's impacting Florida and Texas, Georgia, the southern states. The northern states are still holding up pretty well because they did not have that number two problem which was this massive amount of speculation from new from new construction builders and investors that drove up the prices.

And then there's a ton of supply at the end of it and they overbuilt. So here's the demand factors. So we're having this population crisis and this chart should terrify you because we're having people have less households form because they're not having kids. There's less population growth here.

So you could see that um people who are older, the age is on the y ais. The older generations will start passing away. We call this the silver tsunami. Sadly about 15.6 6 million boomers or older will pass away in the next 15 years, which is really sad.

Those houses will be inherited and a lot of them will be sold off. Usually about 70% of them get sold off. But also the younger population here in their 30s and 40s, they're opting out of having kids altogether or just having one kid because it's so expensive to have a kid. And so we're starting to see the population decline.

So in 30 years from now, who's going to be the buyer of the house? I mean, there's going to be so few people, but there's going to be so many houses available. So, if we don't have uh immigration or migration to this country, we're going to have a huge problem um moving forward long term for the demographics of the United States. This is another really interesting chart that looks at household formation.

You can see household formation right here that's added every single year. And you can see in 2020 it dropped off a cliff. We had a little bump back and then it's kind of struggled the last two years for people to to create new households. Business is because people are delaying major life events because of the affordability crisis.

So, it's showing up everywhere. This is insane if true. I looked it up and it does appear to be true, but during the Great Depression, 48% of young people lived with their parents. Today, it's 52% because it was more affordable during the Great Depression than it is now.

That is just insane. And again, it just points to, hey, we have an affordability crisis. So, the demand is falling out. And it's insane for many reasons for for for demand dropping, which is the married and own a home by 30 years old has dropped from 50% in 1950 all the way down to 12% in 2025.

So people are not getting married, they're not having the big life events, and then they're not owning a home prior to 30 years old. I mean, that's 12%. And so this is a huge red flag if you're an investor looking long-term to hold real estate for 30 years. It's like who are these buyers going to be if they're not having these type of life events?

Could there be just permanent renters out there in the marketplace? And if that's the case, you know, how many of those people will be available to rent these type of houses and what type of upgrades need to be there long term? So, I'm not optimistic on long-term on real estate because of these demographic shifts that we're starting to see in the tendency for people just simply not to be able to afford a home. Even with the inheritances, I don't think they're going to make it through to the next generation because a lot of that money is going to get eaten up by the hospital system, the long-term care facilities and things like that rather than get inherited to the next generation.

Now, there's also these other factors that impact real estate. And what I'm going to do is just share them with you and give you my quick opinion on it. And on future uh future YouTube videos, I will share with you charts that kind of dive into these deeper. Those are the main primary three that you need to be thinking about and getting data on before you make a decision of getting into the market today.

But look, there's local economic conditions. So, every single area of your city even is going to have a different outcome depending on unique compensating factors such as job growth. Um, so wages, unemployment rates determine purchasing power and a willingness to buy. Strong economies that attract workers and fuel housing demand.

So, we live in Jacksonville, Florida. So, there's two things that prop us up. We have two naval bases, Mayport and NAS Jackson. And then we've also got Mayo Clinic and a ton of hospital systems with nurses.

And those are usually recession proof. So no matter what happens during the recession, you're still going to have people come through those systems. So that would be an example of a compensating factor. We're also a beach town and if you live on the water, generally those areas get hit a little bit less as long as there wasn't wild speculation there, but there's nowhere left to build, right?

So that takes out of the the supply aspect. If there's more demand for that specific area than what's available, then prices should hold up during a downturn. So you need to think about your local economic conditions, the major employers that are moving there and what the housing costs are doing around that. We already looked at this chart, which is the income to price ratio.

So we want to look at things in terms of ratios and comparison compare things on a relative basis. So when home prices grow, then local incomes, affordability constraints, cap demand. That's what we're seeing right now. This ratio often signals overheating or undervaluation in markets.

We are completely overheated here in Florida beyond what's reasonable and it's showing up big time. Another aspect that you want to look at is government policy and regulation. You can see tax incentives, mortgage deduction, property tax rules. Right?

In Florida, we have the proposal of no property tax for homesteaded properties. We have local zoning laws and permitting. Right? In California, it's really difficult to do the permitting process, but if you're in Florida, it's generally not as challenging to do that.

It's not as challenging to do zoning laws. So, you can continue to build very rapidly through the zoning and the permitting versus other areas. And that's a problem for supply because now you have a lot of people coming in with supply and that can bring down prices. Rent control, we don't have that in Florida.

Land law landlord laws and subsidies also shape the housing dynamics, right? These are government incentives. Investor and speculative activity. This is massive here in Florida because literally a third of buyers were speculators or investors on real estate here in Florida.

So, you're even talking about the institutional in uh buyers, invitation homes, progress homes, first key, all these major player progress. They are flipping homes, they're renting homes, they're creating second um home demand that can inflate markets. Um we're also seeing investor activity through the cycles. They are the ones that ultimately fuel these booms and busts because they are speculating.

They're buying up, you know, tons of these at a times. These mom and pop landlords and these institutional home buyers driving rents up and taking away an inventory that a regular home buyer could just buy versus just rent. And that's that absolutely drove up prices. I mean, everybody was purchasing properties back in 2020 2021.

And that's why the prices went up like 70% within fiveyear period which is absolutely unheard of. The other one is construction and material costs. Luckily lumber has been coming down. There's obviously other issues with with labor but a lot of the costs have come down.

Obviously, there's been tariff concerns u that's been been being worked through, but overall lumber costs have come down. But we had this spike in the cost of lumber that caused pe you know these home these new construction homes to just skyrocket in price. And those people who bought during that period of time are just underwater. Now we're getting stories left and right, hey, I need to sell my house.

I'm underwater $200,000 already. Already. And in Jacksonville, we're only down about 10 to 15% across the board. Although we are declining every single month but the housing costs can res restrict new supply or pass that cost on to the consumer keeping prices elevated for existing homes and of course inflation and broader economic indicators.

So inflation is obviously an issue and we continue to see inflation that's why you see gold skyrocket. Um broader consumer confidence which consumer confidence is like near a record low and it gets really it gets worse you know every single month but the equity market health has been fantastic. So that is a bright spot but it's primarily driven by seven tech stocks that's driving the entire market. So that's the only problem is those other companies are actually struggling and losing money.

What meanwhile the winners are kind of taking all uh in this type of market. So we are seeing a disconnect from main street and from Wall Street. There's obviously external shocks and macro risks as well. In Florida we have natural disasters, right?

We have hurricanes. The insurance costs are up 72% in 5 years. We have climate risk. There's geopolitical events, pandemics, financial crisises that can impact the liquidity and the migration to the area.

So, those are other factors that can impact your local real estate. So, when you're thinking about buying a house or selling your house, you need to be thinking about all these different 10 factors and how it could impact your sale and how you know it could impact you for as a long-term investors. So, I would love to see what you are seeing on the ground. What factors are you seeing the most important play out in your market?

Are you seeing job growth? Are you seeing supply stack up? Are you seeing demand go down? I can tell you here in Florida what we are experiencing on the ground, which the news is not talking about.

They're saying the opposite. They're actually saying we're about to go into a 10-year uh 25 year bull market, which is just insanity to me. But what we're seeing on the ground is we're seeing an affordability crisis. People aren't able to pay the price.

We're seeing houses actually sell when the seller brings the price down, you know, 20% and then it boom, it gets snatched up right away because the demand is there. It's just not able to afford at the current payment. And that's why most people are moving to new construction because the builder's bringing down the price to to, you know, three or four percent, which is a huge risk because that owner has to stay in that house basically 30 years or else they're going to lose the value of that rate buy down. And then we're seeing supply just skyrocket.

Our level of multif family and new construction for single family is just insane. They're building on every single corner. It doesn't take a genius to see that. You can just drive around the city uh and see what's going on.

And then demand unfortunately is is falling off because we have that silver tsunami of the boomers passing away and migration is down 80% uh from the peak in 2022. So we are starting to see a lot of factors that are kind of turning into massive amount of trouble for the real estate market specifically. There's always going to be areas that are hyper local that are doing better than other areas of Florida. In the north is not going to be the same.

It's not going to have the same outcome as we are seeing in the south like Florida and Texas. It's just not the same environment because of the new construction because of the demand. They don't have the same issues that we have. So, we may see for quite some time a you know tale of kind of two different markets here.

I'd love to hear what you have to think. Comment, like, and subscribe. As always, you can follow me on Substack to get information I can't talk about here on YouTube. The information below to subscribe is below.

And every single time a new video comes out, you will get an email with the new video and a summary. So, thanks so much for following. I hope this helps you understand what the major factors are for real estate. And I think again, the media has gotten so far away from fundamentals.

They're not looking at those top three. They're just saying we'll just continue off until the sunset. And it couldn't be further from the truth. Thanks for watching.