Name: The Housing Crisis Has Already Begun – And Nobody’s Ready
Uploaded: 2025-10-30T18:05:30.000Z
Duration: 14 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...

Home buyers have been waiting for mortgage rates to drop since 2022.

But now experts are warning that mortgage rates are not coming down anytime soon.

House prices have been rising faster than wages, at least since 1970s.

So getting a mortgage is the only option for the average Joe to ever buy a house.

But with every additional percentage in the mortgage rates, it adds up hundreds of thousands of dollars to the final price of the house.

That's why when the Federal Reserve hiked the interest rates in 2022, it angered a lot of people because it meant that they no longer can buy a house.

But it was an important action to bring down the inflation.

However, what is confusing is the Federal Reserve has lowered interest rates from 5.5% to as low as 4%.

But mortgage rates are still 6.3%, not that different from what they have been back in 2022.

That is better than 2024 where mortgage rates crossed 7%.

But it's still too expensive because house prices have spiked in the last few years.

So why aren't mortgage rates coming down now?

The Fed plans to further lower interest rates to as low as 3%.

Mortgage rates historically have been very high.

If you look at the history of the United States, you will see that a mortgage rate of 6 or 7% were absolutely normal.

Back in 1970s and 80s, a mortgage rate of more than 10% was the normal thing.

Then in 1990s, mortgage rates were about 6 to 9%.

If you compare them to today's numbers, people would freak out looking that mortgage rates could be as high as 8 to 9%.

Even right before the 2008 financial crisis, mortgage rates were very close to what they are today, between 5 to 6%.

But 5% is also not really an ideal mortgage rate for most people.

The problem with mortgages is that there are very risky loans.

Giving somebody a loan for the next 30 years is extremely risky because.

Because you don't know what is going to happen in 30 years from now.

There are so many risks that come alongside with it.

You can get sick, something could go wrong, you could lose your job, you could lose your family.

Even if you are financially responsible, at some point, life can take a completely different turn and you might default on your loan.

So nobody actually wants to give anybody a loan for 6 to 7% for the next 30 years.

So because economically it's a very Bad investment.

Even if you're perfect, even if you're the most financially responsible person out there, the house that you buy is risky because the neighborhood could change.

Today it's a very safe neighborhood, tomorrow it can turn into unsafe neighborhood and the value of the house is going to drop.

So God forbid, if you're going to default now, the bank that provided you with a 30 year mortgage cannot make up back their money.

And remember, a bank is not a charity organization.

Their job isn't to help you or help anyone else.

A bank is a business that is there to make money.

So they not only have to make sure that they are not taking that much risk, but

at the same time they have to profit from that deal.

Otherwise they are simply wasting their money or time on you.

Especially the 2008 financial crisis proved that there is a possibility that the housing market could crash.

And if that happens, suddenly the house loses 50 of its value and the bank has investors.

So that bank is responsible to the investors.

Suddenly the bank is going to declare bankruptcy because you defaulted on your loan.

If mortgages are such a risky investment, why banks are still providing mortgages?

This is the bank that provides you with a mortgage.

So it provides you with that 30 year loan and then it takes that mortgage and turns it into a mortgage backed securities.

The vast majority of the mortgages are turned into mortgage backed securities and sold to investors.

And a very tiny percentage of mortgages are kept with the bank.

And investors are willing to invest in these mortgage backed securities for multiple reasons.

We have different kind of assets in the market.

We have treasury bills, the stock market, the bond market, corporate bonds and mortgage backed securities.

Mortgage backed securities are great from one side because they are backed by a real asset like the house.

Of course there is a risk that the housing market could crash.

There is a risk that house prices in that particular neighborhood could go down.

But nonetheless, it's a house, it's a real asset.

investors are willing to allocate a portion of their capital into the mortgage backed securities.

Not the vast majority of their wealth, but a small tiny portion of their wealth.

So the banks turn them into a mortgage backed securities, sell them to investors, and

the demand from investors on the mortgage backed securities determines your mortgage rates.

If investors are very hungry for this mortgage backed securities, suddenly they will allocate more capital into them.

And banks can offer them a lower interest rate or a lower return rate.

If they can offer them a lower rate of return, then they can offer you a lower mortgage rate.

Let's say you want to borrow money and you start offering 1%.

If you are financially responsible, if you pay your bills, if your friend has extra money, then maybe your friend is going to offer you that loan at 1% interest rate.

But if your friend does not have the money, or for example, you are not financially responsible, then you will have to offer a higher interest rate.

So you start offering 2%, 3% and then 4%.

Until you find somebody who is willing to pay you that loan.

Until you find somebody who is ready to provide you with that loan.

But on the other side, if you want to borrow money and suddenly everybody is like, oh, take my money, then you will offer the lowest interest rates possible because there are so many people are willing to loan their money to you.

Despite the fact that mortgage backed securities are being backed by a mortgage, the 2008 financial crisis proved to investors that anything could happen and even a security that is being backed by a real asset could crash.

And that's why usually mortgage backed securities have a much higher interest rate compared to the inflation.

So if inflation is about 3%, then mortgage backed securities should offer 6 to 7%.

If inflation is about 5%, then MBS should offer about 9 to 10% and so on and so forth to attract enough investors.

Otherwise, it doesn't make sense for these investors to get into mortgage backed securities.

treasury bills or the stock market where they can make far more money than they can make in the housing market.

The real question is how was it possible that in 2020 and 2021, mortgage rates were as low as 2.5%.

In fact, if you zoom into the mortgage rates, you'll find out that starting after 2009, mortgage rates dropped to about 5, 4%.

And in some years, 30 year mortgage rates were below 4%.

Who are these investors who bought so many mortgage backed securities?

Based on everything that I have explained in this video.

To understand what is happening here, we have to understand who is the investor that invested so much into the mortgage backed securities.

The largest investor in the US market is the Federal Reserve.

And if you pull out the financial statements of the Fed, you will quickly realize that the Federal Reserve starting in 2009 started massively buying mortgage backed securities.

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The Housing Crisis Has Already Begun – And Nobody’s Ready

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