Housing Market Crash 2022
There is going to be a crash coming soon. Not only a crash in the real estate market but also economies and the world markets in general. It is possible, so that is want to talk to you about today.
I saw a significant crash back in 2008. Many people lived through it, but I was investing through the crash in 2007-2008, buying properties in 2006. As it was running up, I started thinking it was a good time to purchase real estate. It was an excellent time to buy real estate if you purchased it correctly.
What I want to talk to you about is the actual crash or correction. Soon, there’s going to be some sort of correction. If it’s a crash, it’ll be dependent on a lot of different variables.
Cash Flow Properties
I remember back in 2006, 2007, when I first started investing in real estate. I lived in California but was investing in Ohio, Texas, and Arizona, because California is expensive.
Everybody knew that was so crazy of a time when the market just kept going up and up. I was buying properties for cash flow, not for appreciation. I was investing in 2006 and bought cash flow properties, probably $250 or more in passive income from the rents.
By 2009, the crash happened. The prices kept going up in 2007 and 2008, but in 2009, home prices dropped dramatically. We’re seeing that right now, and it’s almost even worse. I can’t say for sure that there will be a massive crash like 2007 and 2009, but there will be a correction.
Invest For Cash Flow
If we invest for cash flow in real estate, where the money comes into our pockets every month from the rents minus expenses, we will make money regardless of an up, down or sideways market.
If we invested only for appreciation, such as flipping properties, we would be losing money. When you buy a property, thinking it will go up to a certain level, but it crashes down, you lose money.
There Will Eventually Be Crash
In 2009, I was buying properties for cash flow and making money. Even when everybody was losing their money, everything was going bad, and people went bankrupt. While all of these things were going bad, I did well.
That’s how I quit my job was by investing in real estate rental properties. I make $250 a month, every month from every property. I have 30+ properties now, so I have plenty of money coming in.
What I learned back in 2006, 2007, and again in 2009 was that there would eventually be a crash. I’m going to tell you something that happened recently. In March 2020, COVID-19 happened, and everyone thought that this would be the crash.
I disagreed and explained it was like a manufactured crash. At the time all of the businesses shut down, they stopped working. What you’re going to see is that people will come back to work, which they have already. But it is essential to look at future possibilities.
Now the economy is coming right back to where it was before it artificially closed down because of COVID-19. It was artificially brought down because there was no environment to operate a business and everybody stayed at home.
It’s coming right back up, so you don’t see a crash right now. It’s not a crash; I see it more as a correction.
Four Different Reasons for Possibility of Crash or Correction
I see four different reasons somewhat of a correction, or possibly a crash coming somewhat in the near future. I’m not going to give you a timeframe, but just be watching for these factors:
- Interest rates
- Home prices
- Supply and demand
- Unemployment or jobless rates
These are interconnected and affect what’s going to happen in the market and the greater economy.
#1: Interest Rates
Interest rates are interesting because several different factors go into them. Back in January, the Federal Reserve lowered its interest rate down to absolute zero. That is just borrowing between banks and not a mortgage rate.
Interestingly, the mortgage rates were probably about 5% or 6%. In January, the Federal Reserve cut it to almost zero for mortgage rates for interest rates between banks.
Mortgage rates always follow interest rates from the Federal Reserve. For the next three or four months, you should watch for a good interest rate on your mortgage. Precisely as I thought, the mortgage rates dropped as well.
On top of the COVID-19, another thing that just threw all this stuff out. Covid-19 was more of a black swan event, something that just happens and probably doesn’t happen again.
Let’s hope! We’re looking at prices now. Interest rates for homes are as low as 2.75%. I talked to someone who was buying a house to live in who got about 2.5% or 2.75%. That is ridiculous!
Because I see such great interest rates being so low right now, I am refinancing one of my investment properties. It’s not a personal house or a second home. It is classified as an investment property.
The banks are giving me a 3.125% for about the cost of $700 to get it to that point. Additionally, I’m going from a 30-year note to a 20-year note.
On top of that, I’m doing it because I’m only paying about $20 more. At the end of it all, the total time and interest are lower. You should be doing that too.
What’s interesting when interest rates go lower, that means prices go up. That happens because everybody only has a certain amount of money to spend either on rent or a mortgage payment every month.
For example, Joe Smith only has $1500 dollars a month to either pay for rent or pay for a mortgage. If the interest rates are around 5.5% or 6%, the amount of money he can borrow is much lower than when the interest rate is 2.5%.
When you have a $200,000 house, if you borrow $200,000, at 6%, or even 5%, your mortgage payments will be closer to $1700 a month.
If you also had that same $200,000 loan, but you’re paying 2.75%, your mortgage payment will be closer to $1100, maybe even $1,000. It’s going to be so much lower.
Buyers will then realize they have the $1500, and their mortgage is at $1100. So they may look for a bigger, better, or more expensive house to get to that $1500. It is still the same money, but it can go much further with that lower interest rate.
#2: Home Prices
Right now, home prices are skyrocketing. They are going so high. It is so amazing to see. In a bad way, near Phoenix, where I currently live, is a city called Surprise.
Surprise isn’t the biggest city, and it’s not the most well-developed city. Houses are selling for $500,000, but there’s no reason for this. It’s not Scottsdale, and it’s not Hollywood.
However, $500,000 for a house is ridiculous, but because people still have $2,000 for a mortgage, the prices keep rising.
As I saw prices in 2006, then go up 2007-2009, the crash happened, and it came down. Now, 12 years later, from then it’s right back up to where it crashed.
So it went up here, crashed down, then it’s right back up to where it crashed. Now it’s about 20% above the prices of when it crashed. In my opinion, in 10 years or 12 years, it should not be above where it was when it crashed.
If it was bad when it crashed, then there’s no reason why it should be like that or this high right now. I’m seeing prices so crazy high right now.
What I want to do is I want to show you how to be prepared for the future for this correction or this crash so you can capitalize on it. Near the end of this video, I’m giving you some tips on preparing and getting ready for this great opportunity to be buying loads and loads of property.
A house worth $300,000 is going to be on sale for around $130,000. I have lots of money just sitting on the sidelines in a money market account, making about 2-3%, which is good, but I want the money in properties.
#3: Supply and Demand
With the uprise of COVID-19, there was a whole different ball of wax and things going on with demand and supply. The demand died down a little bit because people were locked down.
But the ones that would typically buy, they prolonged how and when they would buy because they just waited to see what would happen. It also accumulated more people who wanted to buy with interest rates down.
More people who want to buy, but the demand was high, and the supply was meager. Because of COVID-19, supply was so low because people weren’t listing their properties. They figured no one was buying, so it didn’t make sense to list their property.
What’s interesting now is once COVID-19 started to get a little more on the back end, where people began to realize that they can get out of the house, they started listing their properties. But now there are so many more people, and it’s regular supply and demand.
If there are high demand and low supply, that means the prices will go up just like everything else you’re going to buy. We saw this when the toilet paper was gone. People were selling toilet paper on eBay for like $1,000, which is crazy, but there’s a lot of demand and low supply.
The same thing goes for houses. Now you have so much demand for people who have more money to spend. They realize they have to move out of the big cities where there are many riots, looting, and all of that stuff.
They want to get out of there for so many other reasons, but that does not change the supply. After all, it’s still low because people think they better just wait until all this COVID-19 stuff goes away. Then they believe they will be able to live their life like they want to.
#4: Unemployment and Jobless Rates
We know with COVID-19, we had record unemployment. We had record everything; a 2.8% unemployment rate of the entire population. That is never heard of, and it was going well, and then COVID-19 happened.
Then the rate dropped to about 20% unemployment. It’s horrible that people were on furlough, or they’re losing their jobs. Now, the economy’s coming back.
In March, everybody was screaming; this is the crash; this is the crash, but I wasn’t doing that. I knew this was an artificial change in the market, a black swan event.
As soon as people get back to work, it’s going to pick it right back up. Even though jobs are coming back, there’s a downside.
Many small businesses are closing down because all the money went to Walmart, Amazon, Facebook, and Apple. All of these big companies made so much money.
They’re doing their business, so it is not as though we can get mad. I knew that many home delivery people were getting arrested for driving around when Amazon could drive around and deliver things.
So what’s sad is all the money went to these big companies instead of small operations.
Interestingly, these small mom and pop businesses, who just want to make a living and provide for their families, are limited and don’t have their businesses anymore. Therefore, they don’t provide jobs anymore. It’s sad.
Until that picks up, I don’t know how much more unemployment will be going down. It might stay up because the businesses are gone. Not everybody will be able to work at Amazon, Apple, or even Walmart, for instance.
The Bottom Line
When you sum all of that up, what you see is really low interest rates. Interest rates have to go up. They will always eventually go up. Even if it goes up and down, it will go up. In the 1990s, my parents bought their house and paid near a 17% interest.
Consider if it gets back up there, that may mean prices are going to crash. I’m not saying it will do that, but if it does even to 3% to 6% or 8%, that is so much less money.
Any people have a minimal budget for paying their rent or mortgage. Some people have only around $1500 to spend on rent, so what’s going to happen is that $1500 goes so much less far.
If prices are so high, eventually, people cannot afford the rent. In 2007, 2008, and 2009, people walked away from their houses when the crash happened.
People who are buying $500,000 homes in Phoenix right now, which is silly to me, will say that their house is worth $100,000 less than when they bought it. Maybe even walk away when the house is $200,000-$300,000 less in some cases.
If that happens, it is going to exacerbate or make things worse. This occurred in 2009. However, what is great for us investors who have prepared, we will be able to invest and capitalize on the properties.
Pro Tip: When People Are Selling, We Need To Be Buying, When People Are Buying, We Need To Be Selling.
What we’re looking at now is prices are jacking up really high. We’re looking at a potentially coming bubble. If you look at how the economy was back in 2008 and 2009, it was high when it crashed.
There was a bubble that burst, and the market came down and went down dramatically. It is interesting that now, 12 years later, we see that there is a pattern.
7-8 Year Market Cycle
Every single market cycle is usually about seven to eight years. That means the market goes up and corrects then comes down, it goes up and corrects, and comes down again every seven to eight years.
However, right now, what’s happening is it has not corrected in 12 years. Since we have been filming this, it has always been about seven to eight years.
If you look at home prices at the crash of 2009, they were high, but right now, they are at least 50% higher than when the crash happened.
This is scary unless you are an investor like me, which I am excited about this. We look at inventory, interest rates, and also jobless rates.
Right now, because of Covid-19, the jobless rates are sky-high, but at the same time, businesses are back to running, and people are getting back to work.
Interest Rates Stay Low
Another huge thing that should be on our radar is the upcoming elections. No matter if the incumbent president is Republican or Democrat, they all want the economy to be as good as possible.
The president in office and wants to be re-elected wants to make sure the economy is good to show a good track record. The one hoping to come in wants to convince everyone that the track record isn’t that great and tries to prove they will correct it and make lives better.
The sitting president will make sure as best they can, the interest rates stay low.
He, or anyone coming into the position, will be pressuring the Federal Reserve to lower the interest rate, so the economy remains high. The new one that wants to come in wants the economy to be lower.
What’s going to happen is the economy is going to stay high. This will almost be 13 years of constant up when it’s been up and down for every seven or eight years. Well, this is nearly double that this is 13 years of up, up, up.
If you look at a graph or look at a chart, it’s so high. There’s going to be a bubble, and it’s going to crash.
Increasing Jobless Rates
Jobs are coming back, but at the same time, it’s projected that there’re going to be about 20 million jobs lost in the next year or two. That’s less money in the market, and it concerns us as investors.
At the same time, if there is a correction, we as investors will do very well. When you see the possibility of a correction or a crash coming, make sure that you’re ready for when it happens and be prepared to invest.
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