Name: The Next Housing Crash - 5 Signs
Uploaded: 2021-04-06T17:55:29.000Z
Duration: 9 min 38 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

What happens when house prices rise through the roof?

Adverbs of manner

Because, unfortunately, that's how it works.

Last year house price increased by double digits.

If you compare that to other assets such as stocks, that might not seem high; however,

a double-digit rise in real estate is a sign of a bubble.

The housing market didn't emerge yesterday like cryptocurrencies.

It's a well-established market that grows by around 2 percent annually to catch up with

However, when prices started rising slightly faster as they did in 2008, the market crashed.

With such low interest rates, it was not easy to sit aside and not take a mortgage, or at

least refinance your house because even a one percent difference in your mortgage rate

is going to make a huge difference in the long run.

Let's say rates do rise a full 1 percent by the end of the year.

How much does a 1% difference in a mortgage rate make?

If your loan is 200K dollars, a 1% difference means you will pay an additional $35,935 over

That's a lot of money if you ask me, and we didn't even take into account the opportunity

cost of that money, which means how much that money would have grown if you have invested

A 1 percent difference on a 200K dollar loan equals an additional $239, which equals 518K

dollars if you invest it in the s&p500 for 30 years, assuming you will get a 10 percent

Imagine if you negotiate and get a slightly lower rate.

You will end up with an extra half a million dollars when you retire.

I think that's something worth considering.

What if your mortgage is 300K or 400K dollars?

That number would be significantly higher.

If you borrow $400,000, you will pay an additional $71,870 in interest over 30 years or $477

If you count the opportunity cost, it would equal $1,035,720.

that's why whenever you take a mortgage, the number one thing you should pay attention

So when the fed lowered interest rates to almost 0 percent.

Everyone who had the opportunity to get a mortgage did actually take a mortgage which

led real estate prices to rise significantly in the middle of a pandemic.

Real estate prices didn't just rise, but they rose faster than income, which means fewer

people can afford a house now, but because mortgage rates were so low, it still made

But what happens when mortgage rates will rise?

Which eventually will happen, the demand will significantly slow down, which could cause

Another factor that we have to consider is rent prices.

Usually, rent prices go hand in hand with house prices, sometimes one grows faster than

the other but not by a huge difference like it happened last year.

Which led man experts to believe that we might be repeating the same path as we did in 2008.

If the fed didn't intervene last year, then we definitely would have had a real estate

collapse since most people wouldn't be able to pay off their mortgages.

Most people live paycheque to paycheque, and the only reason they qualified for that mortgage

is because they had a constant stream of income.

But when millions of people suddenly can't make their monthly payments, the bank will

freak out and start selling these homes to make up the payments, but that means there

will be an oversupply of houses in the market which will drive the price down, which will

Therefore the government said - listen, guys, you can take one year break from your mortgage

That was the main reason why the market didn't collapse, but what happens when the forbearance

period is over, and the economy hasn't entire recovered yet.

When people have to make their mortgage payments, but they don't have the financial ability

Especially since prices were rising faster than ever, and that creates the expectation

That expectation attracts speculators who invest in the market, hoping to profit from

This further increases demand and prices, causing the bubble to stretch and grow.

And on one beautiful day, it's going to burst.

In 2008, mortgages were not regulated much, so banks started giving loans randomly.

I am not saying that sarcastically, but that's literally what happened.

Mortgage underwriting got so sloppy during the housing bubble that some lenders were

giving out "ninja" loans—no income verification, no job verification, nothing.

On the other side, developers were building houses faster than the U.S. population could

It took a while, but eventually, prices plunged, people defaulted on their mortgages, and the

U.S. economy crashed, helping bring down the global economy with it.

When values crashed, some of these homeowners were unable to keep making payments.

And they couldn't sell the home for the amount they owed.

Banks didn't care much since they would take these mortgages, bundle them together and

sell them to investors in the form of securities.

That's why these banks kept calling people to convince them to take a mortgage and didn't

even require them to provide any documentation.

It made sense because everyone thought that home prices will always rise, isn't that what

If you give it a closer look, the housing market today is nothing like in the 2000s.

No one is getting a mortgage unless they can prove that they can pay it off.

Secondly, The homeowner vacancy rate is 0.9%, the lowest in the U.S. since 1956.

In other words, there's a shortage of houses this time, not an excess.

And when there is a shortage of supply in the market, the price naturally rise.

Since the 2008 crash, home builders were very careful because the banks have been heavily

regulated since then so there was no point to keep building new houses unless there is

No one expected that suddenly there is going to be a pandemic, and the fed will lower interest

rates to 0 and mortgage rates would plummet to the bare minimum.

Remember at the beginning of the video where we talked about how big of a difference does

a single percentage makes in the long run?

That's why so many people jumped to buy a house.

So even though home prices rose significantly, smaller mortgage payments still attract buyers.

However, we also have to consider that 1 in 10 homeowners with a mortgage is behind on

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The Next Housing Crash - 5 Signs

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