The Expert Podcast

so the big question on everybody's mind is what's going on with the real estate prices. whether you are a renter or buyer or you want to buy what happens to real estate prices in the future will have a significant impact on your finances. if you already own a home and you're not looking to move anytime soon some of this may not have as much of an effect but there are some hidden and sneaky ways this can all affect your budget in the future even if you already own a home. the argument we're gonna make in this video is that the official position and forces behind the market are intending to reduce the amount of real estate owned by consumers. to reduce the amount of single family homes that are owned by consumers and to try to convert more individuals to being renters not being owners. the pressures in the market place over time will gradually try to force less homeownership and more rental landlord tenant relationships. so these are the factors that indicates that home ownership is going to be a thing of the past. factor number one many of the new single family homes being produced and constructed in the marketplace are being purchased by institutional companies large investors like blackrock or other financial institutions are buying up large tracts of single family homes for the purpose of renting them out. in fact some large builders are being consigned and tasked by investment hedge funds and other financial institutions of building subdivisions for the single purpose of being rental only not being sold to an end user. and there's a great article in Yahoo finance it says you may want to invest in real estate while you still can. sounds pretty ominous. it's saying that at some point you won't be able to invest in real estate. so how did they come to that conclusion it says that large investment firms have an appetite for single family rentals and the appetite has been growing the past couple years and buying activity in two thousand twenty two makes it clear there's no plan of slowing down. extreme shortage of housing firms are focusing on acquiring available land to develop build to rent to communities. build to rent community and there's some builders American homes for rent they have twelve thousand lots for development and there's some advantages so the homeowner market if you're a builder you actually have a higher cost of building a home to be purchased by a primary residency owner. because there's a lot of customization. there's a lot of delays in closing. there's a some uncertainty in the sales process how many buyers are you gonna have. if it's constructed for built to rents there's only one customer for maybe five hundred houses you have one buyer one closing its all cash you don't have to customize each house differently. so for a builder it's actually an advantage. what about the financial industry. where are they gonna make more money. well in the past they might have put money into the mortgage market and made money on a mortgage well nowadays mortgage profits are so slim that you can actually make more money on the rental. think about the difference in renting a house versus collecting a mortgage payment. if you sell a house to a person and they get a thirty year mortgage and their mortgage payment let's say is fifteen hundred a month for the next thirty years you are only going to collect fifteen hundred a month from that consumer. if you restructure the financing of that single family home to where you are renting it to that tenant you can now raise that rent every year fifteen hundred fifteen fifty sixteen fifty eighteen hundred in five or six years a could be double. you're increasing the rate of return on your investment. and with the shortage of homes and the increase in demographics is almost a sure bet for these financial institutions. if at any point they need to cash out you can always sell it's a liquid asset. so there may be fewer homes being built for end users than are being built for rental opportunities. next almost all mortgages that have been originated in the last two to five years have been basically owned by the federal government. the federal reserve has been the ultimate buyer or a producer originator of all mortgage loans. well the federal reserve is now exiting that business the federal voted unanimously to begin winding down its program for purchasing treasuries and mortgage bonds that ease credit markets and sent home loans tumbling to all time lows. in light of substantial progress the economy is made the committee decided to begin reducing the pace of its net asset purchases. so what are the numbers. there's four trillion of bond purchases since the beginning program and the balance sheet is that eight trillion so that's double before corona started. just in two years. so they're gonna shut that down. and they're going to in addition to not getting new mortgages they're going to sell off their existing portfolio. the fed tapering will prompt mortgage rates to rise but it doesn't mean the housing market will crash. they'll be a cooling of demands but there won't be a cooling of pricing. so it's kind of like a double edged sword. they're going to sell off all of their existing mortgage holdings to private parties so the federal government will no longer be involved with the mortgage industry in terms of owning the assets they're going to regulate it but not own it. what's that gonna do for mortgage rates well they've already gone up double from three to six percent roughly in the last four months. and the fed hasn't even started selling off its assets yet so it's only going to go up even more. so this is going to create a higher cost of borrowing for potential buyers who do want to buy a house. let's say you can find a house that's not being bought bought out by a financial institution for rental now you have to get a mortgage. well if you're gonna pay six seven eight percent your mortgage rates going to be too high to it have you afford a four hundred thousand five hundred thousand dollar home. do you think six or seven percent sounds high well our projection and you'll see this in a future video is that mortgage rates will be at ten percent by two thousand twenty four. double digit mortgage rates by two thousand twenty four. a ten percent mortgage rate a four hundred thousand dollar house it's going to give you a a mortgage payment of four thousand dollars a month for four thousand dollar house. that is a median home price as of right now about four hundred grand. and your mortgage payments gonna be four grand a month. that's going to really change the landscape of home buyers new home buyers. what about is this gonna change well according to many financial analyst it's the new normal. it's not going go away tomorrow or the next six months in reality it's never gonna go away. this is not the new normal what is happening right now is not normal. it's just the beginning of what the normal is going to be. the normal will be what the market exist at the beginning of two thousand twenty four first quarter of two thousand twenty four that will be your normal for the next five or six years. and very likely what that normal means is ten percent interest rates a close to five hundred thousand dollar median price of a home starter homes will be three fifty to four hundred. already a starter home is basically three hundred thousand basically. by two thousand twenty four a starter home will be just shy of five hundred it'll be four fifty four sixty for a starter home. at ten percent interest that's going to be four thousand dollars a month for starter home. real estate will be a privileged ownership status for an individual. real estate is not gonna be normal for most people it's gonna be a privilege status. so get back to the first question you may want to invest in real estate while you still can. where else does it show up in a financial analysis seventy five brick page report will give you the details it says the homeownership rate will continue to drop for most groups through two thousand twenty four. consistent across all races and ethnicities and the homeownership will drop. end the pace of renter growth will be more than double the pace of homeowner growth. so it's saying home ownership goes down renting goes up. and they're projecting out two thousand forty which sounds like a long time away less than twenty years think about what you're doing twenty years ago. twenty years ago was two thousand and two what were you doing in two thousand and two. that wasn't that long ago two thousand forty it's coming quick. we see this every day in our building division. most of the new large scale building projects are rental there large scale apartment buildings condo complexes for rent it's even creeping into as we said single family homes being built for rental use only. homeownership has gradually declined over the last fifteen to twenty years but the reasons for that decline are accelerating going forward. part of what will also put pressure on it is external to the real estate industry that is general inflation fuel prices insurance prices. insurance property tax all these things are going up groceries are going up. when you have those going up even if the interest rates weren't spiking from three percent to seven percent even if median home prices were going from two forty two four sixteen as they have. the pressure on homeownership will have already been in place before the real estate factors kicked in. so if you're planning on having a secure financial future that is underpinned by real estate ownership now might be the time. you might be hesitant because you've seen the prices spike you might be hesitant because the interest rates have spiked. but if you can still get a home and have a mortgage payment two thousand dollars or less you're probably going to be in better shape than if you wait two three five years because at that point buying a house will be double four thousand dollars a month and rents will be three thousand. we've already seen in some of the more competitive areas for rent studios renting for twenty five hundred three thousand dollars a month. it's almost impossible to find anything even in rural low cost areas for anywhere near a thousand fifteen hundred eighteen hundred and those are only going to go up. the rental housing markets construction developments incentives is where all of the market forces are going. so look for that loophole for you to lock in a housing cost a monthly housing costs today to keep you from waking up twenty years from now realizing my ren is now thirty seven hundred a month and I can't afford to buy a house because it'll cost me four thousand a month. here's the other forward thinking trick about buying real estate if you purchase a home today not only will your monthly payment for your home never go up your mortgage thirty year mortgage will stay the same for thirty years it will never change except for one thing in thirty years it will change from eighteen hundred dollars to zero. because you pay off your mortgage you have zero payments whatever age you are right now if you add thirty years to that you're thirty years old today and you add thirty you'll be sixty years old that day at age sixty might be a good time to not have a monthly payment anymore because you might be thinking about retirement or changing your job. whatever you're doing right now for income is partly based on your ambition and your ability to be more competitive in the market place whether you're in sales construction auto mechanic your ability to earn income is based on your youth and as you get older even though technically there should be discrimination it's harder to get a job with the same income when you're older. so eight sixty might be a good time to have no monthly payment for your house mortgage rent or what have you. so think about that look at the numbers look at the facts don't take our word for it put your comments below let us know what you think