1:06 I meant to say 2008* not 2018. When you film these videos as late as I do you mispronounce words and get them all wrong. Still getting comments about this. Just for clarification ;)
Graham Stephan isn't there something in real estate that's like a future contract where you lock in a agree upon price (in this case interest for mortgage) in order to assuage systemic/market risk ?
1xxicecatxx1 - the rates are locked in for 30 years, at which time the loans are paid off. So none are adjustable..but for purposes of the video, the SAME loan would cost 39% more TODAY than it did back when I locked it in. My rates don't increase throughout the term of the loan, thankfully.
My real estate agent says there is no such thing as a bear market in real estate. It is always a good time to buy. As expected from people who are trying to sell you houses for a living. What do you expect them to say? Don’t buy? Basically the message is to buy now or regret later when it goes up in price. Remember fear of missing out? Don’t give in to the fear. Buy low and sell high, not the reverse. This housing market is unsustainable for average people and wages are not going up.
Before the financial crisis the FED increased interest rates 17 times over 4 years. Over the past 2 years they have increased interest rates 7 times... it's a downward spiral. They have already said that interest rates are likely to be further increased over the next few years. Once they hit near 4%, we will see a crash far worse than 2008. Where real estate dropped massively. This debt crisis is far worse. The BOE (I'm from the UK) have released 'stress test' reports that show the stimulated response on real estate in the event of a crisis. The estimate a minus 35% drop in residential and 40%+ in commercial... now is an awful time to buy. You will be taking out a mortgage on the current property valuation, which is near all time highs. Yes, prices could go higher, but that would require more stimulus in demand in the economy - which would require another round of QE which could lead to extreme inflation or hyperinflation... interest rates follow in the footsteps of inflation, so at 0% interest rates (or even negative) when inflation is high could lead to hyper inflation. Yes your asset might be worth a lot more in USD, but USD will become worthless if there is hyperinflation. Plus, with rising interest rates - WHO is buying??? As you said, it's all about supply vs demand... people are currently buying real estate as the price is constantly increasing, it seems like a smart investment - when interest rates go up, there will be no buyers - but a lot of sellers, which will cause the prices to drop massively. And in terms of cash flow, renters won't be able to meet monthly payments so occupancy rates will drop as well, which give you two option... 1. Lower the monthly cost or 2. Liquidate the asset. At the end of the day, markets are controlled by emotion. For as long as people believe real estate is going to forever increase, it will go up (as it will be a buyers market with supply capped) but remember that this has all occurred at a time when it has never been easier to get money - negative interest rates in some places!! One thing I do agree on is not putting a date on it, this could still take a while to play out. But the odds are that they Fed will keep on increasing interest rates and then people will start to default. As soon as that happens, this bull market is over. Just my opinion...
Time in the market beats timing the market. Just buy real estate when you can. As long as it's in a good location and produces cash flow, you don't need to worry about whether or not the market gonna crash in the future because you can't control that.
this is horrible advice. Housing used to only go up with inflation. Housing as an investment has only been a phenomenon with interest rates going lower over the past 40 years. After the next crash government will not be able to lower rates again because they are already to low. Inflation will be rampant and we will be wishing to have the stagflation of the 70s back. You should rent and spend the extra money on gold.
41st. PS my dad in the early 2000's bought a fixer upper sort of house in Vallejo for 70 K, and a few years later with barley any improvements he sold it for 230 thousand. And it was mostly luck considering he wasn't looking to buy-fix-and than sell.
Terrible investment bro you should have cash got you pops to refinanced the house for new cash if you had Atleast 20% down on the 70k like 15k than cash re fiancé at 230k pay off 70k loan 160k cash equity created for other investment properties
I think it’s better to pay less for house with the higher interest rates. This way you’re not trapped in case you want the option to sell. A realtor I talked to in Florida just sold his 10 properties. He said tenants weren’t paying do to lack of jobs in his area. If stock market drops 10% then we are 6 months away from a realistate crash. The factor that many aren’t thinking about is the collapsing petrodollar. If the dollar begins to hyperinflate because nobody’s buying are treasuries the cost of goods will go through the roof. People will choose to stop paying their rent before food. US debt situation is beyond return. Graham, have you seen Inside Job? It won an Oscar for best documentary and it talks about the housing crisis. Kiyosaki talks about it: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-_5pCulILQi8.html
Hey Graham I just turned 18 last week so I am finally going to be able to get my real estate license in Orange County! thanks for all of these videos Im feeling excited for this crazy journey
There wasn’t really a period of low interest for regular people which eventually pushed up prices. The low interest was for Wall Street investors who via Corporatism/cronyism had the credit velvet rope lifted for them to buy up SWATHES of properties to rent to the people who lost their homes in the first place. It was a double whammy where bailouts/tarp/quantitive easing etc was done on the premise that the banks lend to the middle class. The opposite happened. They locked up credit UNLESS you had rich peoples credit/connections. Only when investors picked the bones clean of a bottomed out market did the banks lift the velvet rope for the middle/working class to scramble for the scraps. The result is banks upped the % PLUS did so AFTER the houses got more scarce (expensive) AFTER the 1% feeding frenzy. It’s why rent is so high. The same people who caused the crash, profited from the fallout. The banks are not worried about the current climate of lending to regular folks for current higher prices because...Bailouts, quantitive easing etc etc is the new normal. Once again they can blame the victims for overspending on mortgages and lobby for bailouts again. It should be front page news. I give it a year before rent/interest on mortgages for overpriced houses becomes unsustainable with lower wages. It’s not just a double whammy. I’m running out of whammy’s. The “economy” is owned by the 1%. The average family has very little invested in “the market”. Most are in the same boat as the crash. If food stamps were breadlines, the lines would wrap around Walmart. They blend in as it’s a credit card. People don’t have more money. The job statistics don’t take into account most of the jobs are paying less or at best stagnant wages. Nearly all of the economy is booming aspect is telling us how amazingly rich a small amount of people got post bailouts/quantitive easing.
In general, people buy houses based on gross monthly payments (Principal, interest, taxes, insurance). As rates go up, prices of houses will adjust accordingly
haha no idea how that slipped past editing, too...usually I'll re-watch it a few times to make sure it all flows nicely and if there's anything else I need to mention or delete. I usually edit late at night so occasionally something might slip through!
what makes the economy good? corporate earnings propped up by a drop in the corporate tax rate. Consumer spending? consumer is all time debt loads. stock market prices? propped up by record low interest rates and Quantitative Easing multiplying the cash in the system by 4x.....Wages? barely higher than the year 2000. What do you define the economy? I mean if you go buy a bunch a stuff with the credit card is your financial life doing better or worse? I would argue that the economy has only medicated the symptoms of 2008 and once the medication wears off it will reveal the debt sickness that existed in 2008 but only magnified.
I totally understand what you're saying but I truly hope interest rates have a direct impact on real estate prices. Property values need to be driven down. I live in NYC and home prices are out of this world nowadays. Its ridiculous how speculators and investors are driving the prices up. It's a joke to look at the historical asking price; $50k+ here, $100k+ there. How? How Sway? If you go outside of the city, taxes are more than doubled. Just a joke. The American dream is dead.
I think that interest rates will hit 6% or higher as the economy keeps going strong. Buying is not rational right now relative to rental income. But tight inventory is def the problem/driver of the current price increases.
But Graham! My uncle's wive's friend's coworker got a 4% percent interest rate that's making good cashflow in LA. What about those deals Graham? Dislike, Unsub, Block, Report as Spam.
2br 1ba 1 car garage Town Home in Denver Colorado with 300$ HOA fee back in 2012 was sold for 108k$ now its going for 265k$ and already under contract average home going for half a million dollars. In popular cities like Denver or Seattle that everyone moving to, is impossible to get a home and price going to keep on rising at astronomical rate.
Graham, I know this is a year old and maybe you realized it now, but the reason why 7:55 value has been going up is because of the short term bidding up of real estate BEFORE rates really go up. People wanted to get in before then, but now we're experiencing rate cuts in 2019 as me and others that understand the markets predicted the Fed would do when they first hinted at hiking rates
I think locking in the low rates, breaking even renting for a year or two while rates go up, then renting for cash flow is the way to go. Do you think rates going up and prices not dropping will increase what you can rent a house for? Thanks! I'm new to this.
You don’t need to be a real estate expert to know that when prices or interest go up to the point where no one can afford to buy something has to happen. Explain how do you sell something that no one can afford and how do you keep the prices rising? I took a real estate course and one of the things I remember clearly is “your house is worth whatever people are willing to pay for it”
My real estate professor said house prices will go down as interest rates go up. He's an old man though. He's like 60 and has seen it all in real estate.
Jordan if Supply was held constant, then he would be correct. But, Supply is not a constant. There are more variables, supply, demand, interest rate, job growth, demographic change in your region (median income), and inflation.
I'm new to REI but I think something you're overlooking that is within the near scope of topic of the video is the fact that, if you're spending more on interest even if the monthly cost is nearly the same, your tenants are contributing less to building the equity in your property while only paying for the loan. Cash flow=cash flow, but building equity with 4% loan vs a 6% loan will is not equal. Appreciate your thoughts nevertheless! Thx
I've wanted to buy my first duplex to house hack in the next few years but looks like with interests rate going higher, I might get fucked unless people are willing to pay a higher rent. However, I think there are always deals to be found. Broken down houses to fix up and house hack with. We'll see.
make sence! a full time real estate agent who personally buys properties at the high price and rate will say and "hope" that the bubble is not going to burst for another couple years :))))
Brother you have excellent communication skills, I wish I could talk as smooth as you do. I’m taking my real estate course right now and one day I will get to the point where you are , thank you for your inspiration.
Thanks so much man! Definitely wasn’t always like that. The communication skills took a looonngg time to get good at. Also RU-vid is highly edited so anytime I say something wrong I can re do it. You only see the polished version!
More important than interest rate is credit access. Right now, the government buys up most of the mortgages in the secondary market. When the government relaxes the re-purchase condition, as in now, it creates more buyers (since more people quality for getting a mortgage). This relaxing lending standard is pushing up the medium prices in LA. But check the lot prices in LA. They are falling. Why? Because the government is not buying the lot loan. Where there is no government involvement, the pure market is in place.
I partially agree. The expected increase in interest rates will boost short-term demand for homes as home-buyers attempt to lock in low interest rates - this will place upward pressure on home prices. Subsequently, prices will then experience downward pressure in the mid-term as potential home-buyers will be priced out of the market. This assumes that Supply (inventory) remains constant and does not increase.
When people mention that interest rates were 13% or more in the 80's, you also have to take into consideration that house prices were 1/4 or less of what they are today. That's what still made them barely affordable. Now apply that 13% interest rate to today's $500k + ave house price and it's clear to see they would be unaffordable. Rates on 30yr mort are about 5% now and climbing. Rates will have a huge impact on homes sales in the next year or two as the Fed continues to raise rates every quarter. There will come a point where buyers back off and prices slide.
What if the properties are cheap but you have good cash flow....like values aren't going up because of the area. You don't need a mortgage because it doesn't cost that much. But if you sell you probably won't make much past your initial investment.
Utah/Salt Lake is nuts right now, real estate sky rocketing while wages remain stagnant. Californians moving in and buying up/driving up costs. Pretty frustrating...
I have seen prices staying high, currently. Homes worth only 30-50,000 in Kentucky are still marketed for 75-100,000.... the bottom line is that the lumber is worth what it’s worth. If the house isn’t worth the cost of the lumber to build it, it’s over priced...
Graham Stephan agreed, however, compared to California, land in PA is not as big a factor. Bought my first home for the family in 2011, for 229,000.00 in Sacramento. Put about 10grand into the kitchen, hardwoods- engineered- , and ecoscaped the front and back yards, around the pool. Ended up selling it in February for 410,000. So we made a little profit.
also you can't compare interest rates of the 80;s to interest rates of today. The amount of leverage and debt is waaaay higher today. you don't need interest rates to go up to levels in the 1980's for there to be issues in real estate. Due to the amount of principal leverage
Don’t buy the argument - it’s statistically proven that the supply of credit is the no.1 factor for raising property prices. We are drowning it thanks to your not so friendly bank. Nothing to do with supply that’s BS. Interest rates up, over leveraged property down - simple.
I have a builder going through this right now in Desert Hills, Arizona. He is wondering why the first home sold easily where the buyer locked their rate in the low 3's, and the second one has been on the market over 6 months.
Hey, Graham, I don't know if you'll see this or reply to comments like this, but here goes: So, my dad is planning to sell our entire 4.73 acre lot after we get a land swap deal done where they get 1/10th of an acre and we get 1.6 acres. (I believe it's 1.6. I could be wrong though.) We have a real estate investor that's been looking to buy the property and we believe he plans to use it to develop a subdivision. He already has his investors looking at the property and the approval of the county, so he's good there. The water line has already been ran down to the road they would have to pave in for the subdivision, the road has already been cleared, we had about 20 or 30,000 dollars worth of tree work done for free, so all of that's out of the way, and there's also a large level lot on the top of the hill for them to put in the cul-de-sac and a few houses. Also, there's right around 1,000 feet of road frontage. We were looking to get 200,000 for everything, however our bare minimum would be 160,000. Is that a reasonable price or no? Also, I'm not trying to oversell it, but I figured those details would be important. Anyways, sorry for the very long comment and keep up the great work.
Prices have been falling since the start of this year, peaking in December 2017, at least according to the NAHB Housing Market Index, and in all areas around my hometown (Pittsburgh). Perhaps CA/NYC have yet to tumble
I typically see rent lagging behind price increases in the underlying asset. This was clearly evident in the price run up to the peak in 2008. Prices were doubling and even tripling but rents and salaries of renter's were not. Fundamental question: is the target renter's salary increasing at the rate of the rental increase that is needed to keep up with the price increase? In other words the rental increase that is needed to keep up with a price/cost increase in the underlying asset, to keep the cap rate the same as at the previous lower price.
This guy is totally wrong. Watch prices drop hard, when people can't buy because the cost is so high and defaults increase, prices will come down. Also expect a massive recession soon. Exactly definitely do not listen to this guy. So wrong.
Well no one has a crystal ball so it's hard to say when they next economic slow down is going to be. We have a supply and demand problem right now. There aren't enough affordable homes for middle class people. Rising interest rates will only exacerbate that problem for the little guy. With that being said, big players in the real estate market will get the chance to go wild. They will see that the middle class is going to have to rent because they can't buy an affordable home so those that already own property or have the cash for big down payments regardless of interest rates will rent their properties out to them. This will cause a big increase in rent prices until the next recession. But to say that no one is going to buy real estate anymore just because of raising interest rates just isn't true. There's always someone with deep pockets out there that can buy.
People are beginning to REFUSE participation in this market(s). Could they afford a 2-br for $300K? Yes but WHY? The only people who want things to continue the way they are with no consideration for the future are the bankers, mortgage underwriters/brokers, owners looking to sell, and real estate agents.
Meanwhile, because of mortgage regulations being so strict, I can't buy a $50k 2 bedroom country house in the middle of nowhere. I pay $900 a month rent for a similar sized 2 bedroom townhouse.
I diddled the Like button. I have no clue what's going to happen with the real estate market - but thanks to cashflow, I hope prices drop so that I can ride it out, and buy more real estate at a solid discount.
House prices will go down to make up for the higher interest rates, at least until salaries catch up to inflation, especially for hot markets like California. Those interest rates make up a huge chunk or your payments
I'd think now would be the time to have inventory that was picked up after 08 at a steal and paid off over past 10 years, sell at the premium prices right now while customers can borrow at lower rates, stack cash, wait for interest rates to go up. Higher interest rates would cause people to be able to afford less house, which would raise demand for those homes but lower the demand for higher priced homes, which would drive those prices down. Take the cash made from 08 bought low to 2018 sold high, get a discount on upper end home. ...Hindsights 20/20 right Thoughts?
Graham Stephan ya.. really, your vids on steadily accumulating properties and cash flow from rents over 30 to 50 yr period and having that during later yrs in life sounds like it makes sense.. Wanted to get ur thought since u have experience in re tho.
Quick question for you Grahm, are you worried about people leaving California in record numbers? I live on the east coast so I only have bits and pieces of information to work with, but what I've seen seems to suggest that people are leaving the state for a laundry list of reasons. As someone on the outside looking in it seems like the real estate prices in the cities are a massive bubble that will pop if people keep leaving and the bottom is going to fall out soon.
The economy was doing alot better in the 80's. Education was affordable, Cost of living, healthcare, jobs. There are alot of misleading stats out there. Stats can be manipulated! Now! different story. Be careful, be smart, plan for the future! LA is a unique real estate market!
I think at some point the interest rates are going to affect businesses hiring new employees and expanding...This side has yet to see significant changes
What if interest rates indirectly affect supply and demand that causes home prices to drop? Say you are selling that $500K property. If the interest rates go up, and it becomes too expensive for some percentage of people, your demand pool would shrink, causing your property to sit on the market longer, and eventually you accept a low ball offer just to get out of the property.
Totally disagree , secondary Bayarea Realestate is now taking a dump suddenly over the last 3 months, it's about a 10% correction in just the last 3 months ! Alot of the stats are not up to date but lag a few months. Once they raised the interest rate most homes & condos slowed down & most dumb owners have stuff sitting 80 days & more cause they are stubborn and aren't lowering prices. Many homes / condos are selling because of price reductions, down , down baby, It's going to be a nightmare what's coming.
You can reduce higher interest rates with refinance, but you can't reduce purchase price with refinance... I'd rather have higher interest rate than higher price. Am I right?
Graham Stephan in addition to lower prop taxes there is more appreciation potential which is equally as important if not more important than cash flows.
Thanks for your opinion , i am always thankful for your truthful thoughts on the market. Always good to hear from a experienced buyer/seller. These videos gives us buyers/seller something to think about.
I always thought it was going to go back down 15 years ago but it's been always going up in a booming town. Yeah you can get a good deal on houses that is super far from every thing
Nice video, but you forgot about the sellers and demographic trends. As interest rate goes up, the price will go down. For Buyers the affordability is the "same." HOWEVER, the money a home seller can cash out of their property does get negatively impacted. Therefore, if there are more sellers coming onto the market in fear of lower future home value. And the demographics support the idea that more people might be aging out of their 2000 sq homes, then the supply will start to outstrip demand over the next 10-20 years. Causing the overall affordability to go down for buyers. Just another plausible scenario.
This is extremely interesting stuff to think about, especially all of the different factors that can (or usually do) keep affordability the same even while home prices fluctuate. By the way, it was fun seeing you in Kevin’s live stream earlier today. Loving the content all around.
Expect at least 50% correction. When interest rates goes up people can’t pay their repayment and they will sell. And when everyone start selling at the same it will increases the supply and less demand due less affordability.
This... this is the video I've been waiting for!! With regards to real estate, your analysis makes sense, but there's the broader market to consider. People say stocks and real estate aren't correlated, but I think that's bullshit. With the spectre of trade wars ahead, the ripple effect of that could lead to job losses, defaults, and thus lower prices. The fed in addition to simply raising rates, is also selling off all the treasuries and MBSs they bought after the last crash. This is another factor that could sway rates in addition to simply raising the funds rate. All in, if I can wholesale or flip a property I bought below market I'll do so, but buying in now at these prices?? Fuck that, I'm more than happy to wait for a proper recession as I refuse to become impatient and lose my ass during the next recession. It's easy for the Wall St. companies and other investors who bought during the next down turn, since now if/when prices fall again they'll have a huge cushion and won't need to panic sell!! Something that won't be true for people buying now.
Short answer ...No . It's been shown that no matter the cost ? People will pay it . And with the Chinese buying the West Coast . Prices will only continue to rise .
You need to look at constructions starts....that is what tells you what the market is doing and what will be doing in the next 1-2 years. No market correction for at least 2-3 years from now (Summer 2018).
This is very market specific. Also people aren't building homes and are opting for used homes. I don't blame them in places like california where permits and code can delay projects 1-4 years on average. In my market, people are buying small 0.5-5 acre plots of land as older generations start to die off and building new. Nobody with money wants to live within city limits as it's (to use the presidential term) a shithole.
We do not have an improving economy, far from it. Interest rates are being raised in addition to other measures which will trigger another economic correction. Wait till the housing market crashes and buy with cash if you are smart enough to save.
Graham Stephan we are in a time where companies are buying back their shares in record amounts, same time as the executives are selling their shares in mass. Interest rates are almost at record lows encouraging borrowing by people that wouldn’t be able to afford it otherwise. House prices are in a massive bubble again, average price of a home is unaffordable by the average income. I could go on and on,but I am very curious why you think we are in a stable economy??
I liked your analysis; however you failed to factor in the impact of recent changes in our tax laws which place limits on the amount a homeowner is able to claim for property tax... Here in Taxafornia we are now limited to $10,000 in property tax write offs. This just made owning real estate here significantly more expensive........
Im in this line of work and do investment real estate. I actually see quite the opposite. I see real estate prices going way higher. I've already seen house prices in my state increase 50% in just last couple years. Just really high demand and not enough houses. This could be due to certain circumstances in my state though. We lost a lot of house to several different factors and they just never got built back. It's pretty fun to be in the real estate market in my area. Anyone into it can make a quite a bit of money. It wasn't like this until a 2 years after Obama was elected on first term. Before Obama houses prices had dropped over half their value during the crash when Bush was president
Can u pls make a video on what ppl (investors) should do during a crash? By “investors” I mean ppl like me who invest small amounts through apps like acorn or robin hood, etc. Is it better to pull it all out, then invest back in when the economy as it’s lowest? Any vid around this topic and how to take advantage of such events would be greatly appreciated and helpful!
Graham Stephan hey, you earned it. I sent You a PM to your profile, if you can't receive it in there I'll try to message you in your Facebook group! Best wishes!!!
Why not get 15 year mortgages on a cheaper property instead? I mean if you plan on flipping them relatively short term 30 is the way to go but 15 looks a lot better to me from the interest rate standpoint if you plan on keeping it
Ok so you put 10-20% down on a property and the bank creates 80-90% out of thin air. Literally the bank conjures up 90% on your promise to repay, they don’t have that money. Now you are saying that lending money out of thin air and interest rates have no effect on the real estate market. Let me pose this question then, what if banks didn’t exist and there was no such thing as a loan how much do you think a houses would cost then? Probably 50-90% cheaper right! Banking and interest rates are how the market is rigged. When interest rates were 18% in 1980 the average cost of a House was 50-70K. Since 1980 the Interest rate steadily went lower and the price of housing kept going higher. The inverse is also true as interest rates go higher the price of a hoses go down.
Important question..what was the average price of a home in the 80s versus today..then compare that price to average wages then and now. Good ole ratios..Too many rent seekers fucking everything up. Government doesn't seem to mind since higher prices mean higher taxes. I hope home prices go to zero...fuck it
