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  • Billionaire Andrew Carnegie famously said that 90%  of millionaires got their wealth by investing in  

  • real estate. Not a single industry produced more  millionaires than real estate because it's the  

  • easiest and simplest way to accumulate wealth. In the year 2000, the average home price was  

  • $119,600. Today, in 2021, the average  house price has grown to $374,900. So,  

  • most people who took a 30-year-old mortgage to buy  a 300-400k dollar house are already millionaires.  

  • In 1980, the average house price was $47,200.  In the long, house prices do not only beat  

  • inflation but actually rise significantly. Yeah, a crash is bad, but if you are a  

  • long term investors, the crash doesn't  matter because prices will bounce back  

  • right where there have been and keep rising. However, since March 2020, the housing market  

  • has been going through a wild ride. Prices  have risen by almost 25 percent since then,  

  • which has led many people to think  that we might be in a housing bubble.  

  • And a housing bubble means that sooner or laterit's going to burst. We have already talked  

  • in the previous videos about why the market could  possibly crash? Why are we in a bubble? And how  

  • could it end up driving the entire economy down? However, not everyone agrees with this opinion.  

  • There are plenty of respectful  people who believe that we are  

  • not in a bubble and the rise is naturalYeah, sooner or later, this boom will stop,  

  • but it's not going to crash since the rise this  time is nothing like the 2008 crash. We no longer  

  • have predatory lending, and most mortgages  are given to responsible buyers and so on

  • They have a point. There are many reasons  why the housing market may not crash.  

  • So let's take a look at why the housing crash  is not happening, at least this year. Because in  

  • order to make an objective opinion, it's important  to look at it from an opposite point of view

  • So, if you are ready, give this  video thumbs and let's dive in.

  • The number one reason that house prices rose so  much was because of short supply when there was  

  • a huge demand. That's basic economics. In factin 2020, there haven't been many houses built,  

  • and covid restrictions have only  slowed down the construction.  

  • And that not just because contractions  couldn't resume due to the pandemic  

  • but entire supply chains have been  damaged. Some places entirely shut down,  

  • others couldn't get their employees back to  the factories, and so on, while the demand  

  • kept rising due to super-low mortgage rateshttps://fred.stlouisfed.org/series/MSACSR 

  • Just look at the data. The sharp fall in the  supply of houses hasn't even recovered to the  

  • pre-pandemic levels. When too much money chases  too few houses, house prices rise that much

  • But why can't they build more houses? Because it's difficult to do that during  

  • the pandemic and secondly since the 2008 crashthis industry has slowed down dramatically,  

  • and you can't pomp it up instantlyespecially during a global pandemic

  • And that's what makes this housing boom  so different from the last crisis.  

  • Take a look at the supply of houses in  2007 and 2008. At its peak, it literally  

  • was twice more than it's now. That's why it  crashed. There was an oversupply of houses.  

  • Sellers had to keep reducing  prices to find a buyer,  

  • especially when they defaulted on their mortgages. Today, the situation is different. The  

  • astronomical demand may have ended, but  even if prices drop slightly, there are  

  • plenty of people who are ready to buy a houseSo experts see two ways out of this situation.  

  • Price just stabilize and stay where they  are for the next few years or so or drop  

  • slightly but quickly bounce back since interest  rates are still low enough to encourage demand.

  • In fact, the chairman of the fed hinted that  the fed is not planning to raise the rates  

  • any time soon. And that's not unusual because  it's normal for the fed to keep the rates low  

  • for a few years when a crisis hits the economyAfter the 2008 crash, the fed kept interest rates  

  • low for the next 7 years, so it's entirely  possible that rates won't rise at least in  

  • the next 2 to 3 years.  

  • https://fred.stlouisfed.org/series/FEDFUNDS Thirdly, there is a huge difference between a boom  

  • and a bubble. There are periods when the economy  recovers from crises and experiences a boom,  

  • so asset prices rise dramaticallyespecially when there is a limited  

  • supply of that asset in the market.  A boom doesn't necessarily mean a bubble.  

  • Theoretically, it could turn into a bubble but  that's not always the case, and judging by the  

  • facts, it doesn't seem like it's a bubble now  due to the reasons we have talked about earlier

  • But you might say there are still millions  under the forbearance program. Once it ends,  

  • millions of Americans won't be able to keep up  with their mortgage payments which mean, there  

  • will be millions of houses for sale in the market  which means, home prices will fall instantly

  • You have got the point, but  the data says otherwise.  

  • At the height of the forbearance program,  9.3 million mortgages were in forbearance.  

  • If it wasn't for the forbearance program, the  market would have collapsed long ago. But today,  

  • that number is far smaller. According  to the Mortgage Bankers Association,  

  • approximately 1.7 million homeowners still  remain in some type of mortgage forbearance plan.  

  • Of course, if those buyers face foreclosure or  simply opt to sell rather than restart payments,  

  • then it could cause the number of homes for sale  to rise. But even that is unlikely because a huge  

  • chunk of them are there because they want to  take maximum advantage out of this program.  

  • The mortgages that have been given after the  2008 crash are very different to pre 2008 crash.  

  • Banks are heavily regulated since then  and strictly provide loans only to  

  • those who are responsible enough not to default  and are able to keep up with their payments.  

  • But even if hypothetically most of them default on  their mortgages when the forbearance program ends,  

  • that would only cause a temporary 11% rise in  inventory. But low-interest rates will quickly  

  • push people to buy those houses. There won't  be bidding wars as we saw thought last year  

  • when people overpaid for over a million dollars  just to outbid everyone else, which is not super  

  • smart, because your property most likely won't  appreciate in value in the next few years

  • On top of that, judging by how many times the  government extended the forbearance program,  

  • it seems like it will be doing  everything possible to prevent  

  • homeowners from defaulting, even if that  means extending the program to 2022.

  • The arguments against crashes sound legit, and  that's exactly what could happen. No one knows  

  • the future, and every prediction has a 50/50  chance. But if we go back to 2007, 2006 or 5.  

  • There were plenty of economics professors who gave  us multiple reasons why the housing won't crash.  

  • I mean, Americas largest financial  companies, such as AIG and Lehman brothers,  

  • have bet hundreds of billions of dollars  against the housing crash since they were  

  • so confident that it's not going to crash. I am  not saying just because they were wrong last time,  

  • they are wrong this time, but these opinions  should be taken with a drop of skepticism.  

  • What we also should consider the  Nature of every crisis is different.  

  • These 2 crises are not identical. Yesthey all follow some similar patterns,  

  • but they are not clear before the crisis, and they  happen due to different reasons. So comparing the  

  • last housing crash to the next one isn't really  wise. If we knew exactly how all crises happen,  

  • we would have figured how to solve them long  ago, but we only have learnt how to soften them

  • If you are afraid to invest in real estateyou always have the stock market, But before  

  • you start investing in the stock market, you have  to understand the basics of the stock market, you  

  • have to learn how to read financial statementsanalyze companies and read between the lines,  

  • that's why I created a short, animated course  on Skillshare that will teach you everything  

  • you need to learn about the stock market. The  entire course is animated from top to bottom and  

  • explained so simply that even if you know nothing  about the stock market, you will become an expert,  

  • the first 100 of you to use the link in the  description will get a 2 weeks of Skillshare  

  • premium and will be able to watch the course  for free. At the end of the course there will  

  • be an assignment that you have to completely  and I will personally check your assignment  

  • and provide you with a feedback.   

  • And now give this video the thumbs  up that it deserves, and make sure to  

  • subscribe if you haven't done that yet. Thanks for watching and until next.

Billionaire Andrew Carnegie famously said that 90%  of millionaires got their wealth by investing in  

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Why The Housing Crash Is Not Happening - I Wish I Knew This Before Buying a House

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    Summer posted on 2021/09/11
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