Name: Will The Housing Market Crash By The End of The Year? - What banks don't want you to know
Uploaded: 2025-07-26T18:37:23.000Z
Duration: 15 min 50 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...

The housing market is in a very weird position.

Adverbs of degree

On one side, people are waiting for the interest rates to be dropped so that they can finally buy a house with a low interest rate, just like in 2020 and 2021.

Modal verbs - B1

On the other side, we have inflated the housing market since 2020 that prices have grown by 50 percent, something very unusual for the housing market, which might indicate that we have created a housing bubble that's about to burst, which also provides you with an opportunity to buy a house at such a low price.

And this is the Fed's plan for the housing market.

In the short run, rates are high and that's going to weigh on housing activity, but the best thing we can do for the housing market, the absolute best thing is to restore price stability.

Does restoring price stability means that we're going to crash the market?

Does that mean that interest rates will actually be dropped just like they were in 2020?

And is it possible to have the exact same interest rates of 2 to 3 percent in the foreseeable future?

Most people are looking at the interest rates and are waiting for them to be dropped.

Because it means that lower interest rates, lower mortgage rates.

But what if I told you that is absolutely wrong and low interest rates does not mean that mortgage rates are going to be dropped.

Yes, historically, there is a good case that could be made.

Because in 2020 and 2021, we had near zero interest rates.

And that resulted in such low mortgage rates.

Because mortgages are extremely unprofitable for the banks.

At the end of the day, every bank must be profitable.

Their job is to make as much money as possible.

And loaning you money at a low interest rate for the next 30 years is literally a huge risk because you don't know what's going to happen.

The value of the dollar could drop dramatically.

Just look at what happened to the value of the dollar over the last 30 years.

So most of these mortgages are extremely unprofitable and most of the banks would never actually provide you with such a mortgage.

But wait a second, the entire country is getting 30-year mortgages.

And that's because most of the mortgages are being subsidized by the government. 70% of all 30-year mortgages are being sold to these two corporations, Fannie Mae and Freddie Mac that are being backed by the government.

Which means that these banks that are providing 30-year mortgages do not have to be profitable.

When JP Morgan provides you with a 30-year mortgage, it doesn't have to be profitable because it takes that mortgage and instantly sells it to one of these corporations.

Now these government-backed corporations do not keep your mortgage.

They take them together, bundle them under one joint security called mortgage-backed security and sell them to investors.

For these investors to buy mortgage-backed securities from Fannie Mae and Freddie Mac, they must provide them with a good interest rate.

So mortgage rates do not depend on the interest rates that are set by the Fed, but rather by how much or at what interest rate can we sell these mortgage-backed securities to these  And who is going to accept a 3% interest rate on a mortgage-backed security for the next 30 years?

Now I want to ask you, are you ready to literally lock your money for the next 30 years getting 3% interest on your money?

That doesn't sound like a good idea, especially when the value of the dollar is rising so much.

Especially when in 2022 we had inflation of 9%.

Who on earth is going to buy that kind of investment?

But wait a second, we had such a low interest rate, we had such a low mortgage rate, who actually bought them?

And that's because the Federal Reserve stepped in and subsidized all of these mortgages.

Because these investors were not willing to invest in 3% mortgage rates, the Federal Reserve started massively buying them from Fannie Mae and Freddie Mac.

In fact, between 2020 and 2022, the Federal Reserve purchased 1.5 trillion dollars worth of mortgage-backed securities, which means that all of these loans that the banks provided you at such a low interest rate were only made possible because the Federal Reserve purchased them at a loss.

In other words, the government simply subsidized your mortgage.

That's the only reason that the US had 3% mortgage rates in 2020 and 2021.

The balance sheet of the Fed instantly grew from around 4 trillion dollars to 9 trillion dollars, adding an additional 5 trillion dollars, and 1.5 trillion dollars of that were mortgage-backed securities.

In fact, the total amount of mortgage-backed securities in the balance sheet of the Fed grew to 2.3 trillion dollars.

But the goal right now, in order to stabilize the economy and bring inflation down and stabilize the housing market, the Federal Reserve is planning or is actively trying to reduce its balance sheet and decrease mortgage-backed securities.

But the only way it can do that is by selling these mortgage-backed securities to somebody, and that somebody are investors over there.

But for these investors to accept 3% mortgage rates, then inflation might be brought down to 2% so that these investors are at least making 1% in profit.

Otherwise, none of these investors are going to buy from the Fed the mortgage-backed securities.

And that's why the Fed is so eager to bring that inflation down to 2% and guarantee to those investors that we are not going to play this again, you can confidently buy all of these mortgage-backed securities.

When 2008 financial crisis happened, it destroyed the entire housing market, and since then, until 2020, the housing market was entirely broken.

Look at the supply of new houses back in 2008, they were extremely high, everybody was building.

When there is so much demand, you are as a construction worker or as a developer, you will continue building houses because on the other side, everybody wants to buy those houses.

But suddenly, when house prices or housing market crushed, nobody was building houses anymore and the supply of houses dropped so much.

It took the housing market almost 5 years to come back to the exact same level as the 2008.

But during this period, a lot of construction companies, a lot of developers, lost their businesses, it was unprofitable to build houses anymore, a lot of investors stopped investing in the housing market.

And even after 2012, house prices grew by about 2% annually which made the entire industry extremely unprofitable.

So, for over a decade, demand for houses was so weak that it destroyed the entire market and it was undersupplied because nobody wanted to buy a house.

And then 2020 happens and the demand for houses shoots to the roof for two reasons.

Because the crisis happened and people realized that it's really great to have your own house, especially when you have a really huge house that you can literally just live in your backyard should another pandemic hit the world.

And secondly, interest rates were so low that people could afford really great houses for such a low price.

It was much more profitable to buy a house than rent a house.

So, the demand for houses rose again and now it's gonna take time for the market to adjust for the developers to build new houses.

However, this time it's much more different than it was prior to 2008 or prior to 2020.

Because we're facing a lot of other challenges such as the cost of labor shot to the roof.

It's much more expensive to buy houses right now.

The country is going through a lot of challenges.

All these challenges are making it much more difficult to meet the demand.

But on the other side, the Fed wants to be extremely careful and the developers want to be extremely careful so that they do not oversupply the market just like they did in 2008 that would cause another financial crisis that almost took down the entire global economy.

Which is why the first priority of the Fed right now is to stabilize the entire market so that from now onwards, house prices will continue to grow from 2 to 5% in the best case scenario.

There will be enough demand in the market but not too much for the market to be inflated or oversupplied and house prices will stop going down.

And that is important to do so that you can continue selling mortgage-backed securities to investors because they will continue investing believing that there is always demand for  Because if you just go back to 2008, when everything crushed, investors weren't willing to buy those mortgage-backed securities.

So the Fed stepped in and bought around 1.5 or 1.8 trillion dollars worth of these mortgage-backed securities to save the economy.

But the most important question is that, when are we going to have low mortgage rates again?

You have missed your opportunity to buy your dream house in 2020 and 2021.

And now you are wondering, are we going to have the exact same mortgage rates of 2 to 3% in the foreseeable future?

Does it make sense for you to wait in order to buy that house?

Now to answer that question, we have to understand how the market works.

And in this case, I am talking about huge investors, such as pension funds, the government, those people who cannot possibly take a lot of risk.

Those people are investing with hundreds of billions of dollars.

So when you have a pension fund, such as social security, you cannot risk your money in the stock market.

Yes, in the long run, you are going to make millions of dollars, if not billions of dollars.

If you start investing right now and you have a good investing strategy in the stock market, you can certainly make millions of dollars, if not tens of millions of dollars, even if you are on the average wage.

However, and that's why you probably should check the first link in the description to find out more about our academy and start investing now before it's too late.

However, if you are a huge institutional investor that is investing hundreds of billions of dollars, you cannot take that kind of a risk because you need to have a constant cash flow.

So you are looking into the market and you have two main types of investments.

These are risk-free investments, as we call them in the market.

On the other side, you have mortgage-backed securities.

So for investors to choose mortgage-backed securities over the treasury bills, they must provide you with a slightly higher return, such as 1.5% to 2.5%.

So investors in this case, they know that treasury bills are very safe investments and risk-free.

On the other side, mortgage-backed securities are slightly more riskier, but they are providing you with a slightly higher return, which is why investors would actually invest in mortgage-backed securities.

So because investors are ready to buy mortgage-backed securities, Fannie Mae and Freddie Mac can sell them mortgage-backed securities, so they will continue buying mortgages from traditional banks such as JP Morgan, Chase, and other banks, and that is why those banks can provide you with a 30-year mortgage.

So it depends on what interest rates they are willing to buy them.

But 10-year treasury bills are being traded at 4.2%, which means that mortgage-backed securities should be trading between 6 to 7%, and that is why mortgages right now are anything between 6 to 7%.

So if you want mortgage-backed securities to go down, then you have to take a look at the treasury bills and find out when will the treasury bills have a much lower interest rate.

If treasury bills tomorrow would go to 2%, then mortgage-backed securities can be traded at 3.5% for example, so the banks will be able to provide you 3.5% mortgage rate because they know they can sell them to the investors.