going to collapse. Zero rates kept mortgage  rates so affordable that it didn't matter  

how high were the home prices. It made sense  since the mortgage was split between 30 years,  

which would reduce your monthly payments to just  a few thousand dollars. But the post covid boom  

is now over. Interest rates are at over 4 percent,  and mortgage rates have risen to over 7 percent.  

Now buying a house seems less attractive than  it was when rates were around at 3 to 4 percent.  

a single percentage does play an important  role. It could make a difference of a hundred,  

if not a few hundred thousand dollars over the  course of the mortgage. And now imagine how much  

of a difference a few percentage points make! At the beginning of the year, the Fed was  

convinced that if it is going to raise the rates,  it was definitely going to stop inflation. That  

seemed convincing because that's how it works.  When inflation is rising too fast, you raise the  

rates, but as we are seeing that even though the  rates are at over 4%, inflation is still there! 

Yeah, it has declined a little bit,  but it's still pretty much there! 

So the question is, why is  inflation not decreasing  

even though the Fed has raised the rates? Here is what raising rates are going to do!  

It's going to crash the demand, and let me tell  you this, crashing the demand doesn't necessarily  

fix the problem. Crashing the demand means making  people poorer so they won't be able to afford what  

they could afford so because people are now  poorer, companies have to decrease prices to  

be able to sell their products and services.  But prices don't always rise because there  

is too much demand. There are other factors  that influence the price, such as the cost of  

producing the product or the shipping cost. Definitely, zero rates did play the biggest  

role in creating this inflation in the first  place, but you have to consider the fact that,  

During the Covid era, we also had people  unemployed and sitting at their homes  

with very little savings to survive. The covid era had the biggest impact  

on the housing market. Prices rose faster than  they had risen prior to the last housing crash  

that devastated the entire economy. There was  an almost 38 percent increase in just 2 years,  

and now it seems like the pyramid is about  to collapse. Home prices across the country  

are falling down. In San Jose, prices are  down 9.4%, Seattle 8.2, and Oakland 7.6. 

The question is, are we about to witness another  housing crash? Will the next housing crash be as  

disastrous as the 2008 crash? And how can  you prepare yourself not only to protect  

yourself but take advantage of this crisis? We will answer all of these questions and  

many more, but before we do that, give  this video a thumbs up and let's dive in.

If a year ago, most people still expected home  prices to keep rising, the situation is much  

different now. Morgan STANLEY expects home prices  to finish this year with 4 percent. That might  

seem still optimistic, but given the fact that  they have been growing by over 20 percent over  

the last few years, that's scary! Home prices  are still rising in some places like New York  

or California, in places where your average folk  wont be able to afford a house, But overall they  

are failing in many other places. House prices  are already stratospherically high that only the  

top 1 percent can afford them! And it still makes  sense to buy them since people are willing to pay  

fortunes just to rent a room in New York City. But there is always a ceiling. Doesn't matter  

how great life is in New York, if home prices  decline enough across the country, that will  

drag down the rest of the market, including  big cities such as New York or Los Angeles. 

Some expect prices to fall by 4 percent, others by  over 10 percent. But in order for it to match the  

2008 crash, then prices have to decline by over 27  percent. The 27 percent decline wasn't over just  

over the course of a year but rather 4 years.  If we assume that home prices will lose as much  

value as they have gained over the covid era, then  that's a possibility. And let me remind you that  

prices since march 2020 are up by 38 percent. If they just decline by half of that over the  

course of the next 12 months for unknown  reasons, like people no longer taking  

mortgages because they are simply too expensive. A  half-million-dollar house at a 3 percent mortgage  

rate equals around 2K dollars monthly payment,  while at 7 percent means a 3K dollar payment. An  

extra thousand dollars is a huge difference in  a country where over 60 percent of people can't  

even pull out a thousand-dollar emergency. Think about it this way, let's say there  

are 10 chocolate bars in the entire  economy and 10 dollars. That's it,  

that's your entire economy. In this hypothetical  example, 1 chocolate bar equals one dollar.  

That's what it means that prices are set by  supply and demand, the essence of capitalism.

Let's say now that we have doubled the number  of dollars in this economy now, instead of 10  

dollars, we have 20 dollars, but the number of  chocolate bars is still the same, which is 10. 

In this scenario, one chocolate bar would equal 2  dollars since supply and demand determine prices.  

Now replace chocolate bars with houses, and you  understand what's has been happening the last  

2 years. More money that has been thrown out  of nowhere was the primary reason that caused  

the price hikes, now the fed has been trying  to do the absolute opposite since February,  

taking that money out of the economy which is  why prices have been falling but it seems like  

not everything is going according to the plan. But do you realize what it means for home prices? 

Exactly! Going back to the pre covid period. Of course, they will not go back as much  

as they were before, but even a 20  percent decrease would be disastrous. 

The fed knows that, and they have a strategy.  They don't really care if prices decrease by  

20 percent or 40 percent. People won't  panic and will gradually adapt to the  

new reality as long as it happens smoothly  and gradually. So the crisis wouldn't be  

as bad as it might be if prices fell by  20 percent in a matter of a few months.

After successfully crashing the entire stock  market, sending crypto to the absolute bottom,  

and crashing home prices in many cities across  the country, inflation for October has been 7.7  

percent. Honesty, I don't know what's the peak  of hiking the rates, I would love to know that,  

but let's just hope it ain't going to continue  because the consequences seem very terrifying.

Here is what I think would be the right thing to  do. By the way, this is not financial advice. If  

you have been holding stocks, then everything has  fallen to rock bottom. Asset prices, like stocks  

and house prices, will most likely further decline  over the course of the next 6 months until we know  

for sure how high the fed is willing to raise the  rates. Around mid-December, the fed is going to  

announce how much more it will raise the rates. If the rate hike would be by more than 50 basis  

points, then it seems like the fed is seriously  willing to collapse everything just to bring  

inflation down, but I guess it wanted to  send a message over the course of this year  

that if the fed is saying it will raise the  rates, it will ! and will crash the market! 

No one should think that he is  above the fed because prior to 2022,  

no one took the fed seriously when it  kept saying that it might raise the rates. 

So, we might not have reached the bottom yet.  Even if we have reached it, the fed won't bring  

down the rates overnight. It will gradually  bring them down unless the fed decides to  

hike the rates to 20 percent, as did in the  1980s. But I don't think that's happening. 

It won't make sense to take a mortgage  within the next 24 months since rates  

aren't coming down most likely so those  who hold cash will rip off the market. 

That's it for today, thanks for  watching, and see you in the next one.