Okay folks, so in today's video, I want to talk to you about the housing market. Back in June, Fed Chairman Jerome Powell said we need a reset. Here are his words: If you're a home buyer somebody, or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again and mortgages or mortgage rates are low again.

So this this will be a process whereby we do our work in a way that where the housing market settles in a new place and housing availability and credit availability are at appropriate levels. And quite frankly, folks, his wish is coming true and we are rapidly heading into reset territory. This is going to be a short and to the point video, but if you watch it in its entirety, you are going to have a different perspective on what is going on. So right now a record number of Americans are searching quote, sell my house, with data suggesting that search volume has ballooned 147 in the Us alone and is at a record high.

Meanwhile, the combination of rapidly rising mortgage rates with pre-hike real estate value still mostly intact has caused housing affordability to get to levels that are the worst since 1989 about three decades ago. And if you look at existing U.s home sales, they reflect that truth. Existing home sales are falling rapidly, and the Fed is signaling that rates are slated to continue going up for the foreseeable future. probably more than markets are pricing in.

Come over here for a second and look at the monthly supply of new houses in the Us. So the way that this chart and the ratio that it tracks works is that it compares the supply of new for sale houses relative to the number of houses currently being sold aka if you're at a ratio of three, which was pretty damn common during the pandemic. It means that you have three months of inventory at the current sales rate before you run out of houses, entirely assuming that no new homes are being built. If you imagine this in terms of water, if somebody tells you, oh, we have a three-month supply of water, they are gauging how much water you have left if you keep drinking at the pace that you're drinking at right now.

And it's a similar concept in the housing market. This ratio measures the amount of months we have at the current supply and demand. You can see a dramatic increase in the monthly supply of new houses in the Us during the inflation battles and corresponding recessions of the 1970s and 80s upwards of 10 to 11 months of supply at peaks. You can see a huge uptick during the 08 housing Market collapse, but after that, monthly supply of homes ticked down pretty consistently and considerably.

And while it did rise a bit in the last five years prior to Covid, during covet, people largely took their houses off the market and the ones that were on the market were quickly bought up. Which meant all of a sudden boom, the supply of houses dropped to levels that you haven't seen before. But look for a moment, what is happening now. Oh, monthly supply has almost doubled since the start of this very same year, to the point where at the current level of supply and demand, it would take almost 11 months to offload the current inventory.

Just a year ago, it would take five or four, or even three months. Now it would take 11 months. That is a dramatic shift in the amount of inventory available versus the amount of people buying. We are at a point where it would take 11 months to offload the inventory available on the market right now at the current rate that homes are being sold.

Now a lot of people say, Charlie, you know there's a massive home shortage in the Us. We hear that every single day. So how can you have a massive shortage of homes at the same time where monthly home supply is ballooning to levels that are near all-time highs in the Us? Well, the answer is yes, Absolutely, there is a massive shortage of homes in the Us. The problem is, there's an increasingly massive shortage of buyers as well eligible buyers that can afford to buy these homes that are dumping onto the market at the still very high property values and the exponentially increasing interest rates.

So it's like, yes, there's a shortage of homes relative to the amount of people that may desire to have a home, but there's not so much a shortage of homes relative to the amount of people that can afford them. Wait a second, Charlie, that doesn't make any sense. Why can people not afford to buy as much home as they could last year? Well, a bit of a redundant question. You probably already know the answer.

In 2021, 30-year fixed interest rates fell to a record low at around 2.65 percent. And what are they today? Well, your good credit borrower is looking at a bit more than six percent for your average home purchase, right you ever take. I mean, you could still get something under six percent right now, but the fact of the matter is that on average, six percent is probably what a lot of people are getting, and it's certainly going to be going up from here. So for simplicity, let's go ahead and say it's averaging out of six percent.

What does that mean in terms of payment? Let's say it's 2021 and you put a hundred thousand dollars down on a 500 000 house and borrowed the difference at an interest rate of 3 over 30 years, your total monthly payment of principal plus interest would be sixteen hundred eighty six dollars a month. Now let us say that you do the same thing in 2022 today at an interest rate of six percent. You're looking at a monthly payment of almost twenty four hundred dollars for the same exact house. You are paying 42 more per month for your mortgage on a house that is not any better than it was last year.

In fact, it might be worse if the prices in that neighborhood went up. And keep in mind, this is before property taxes, insurance, utilities, and all other upkeeping costs for the house. And as a homeowner, I will tell you those aren't getting any cheaper either. I am not the most emotional person in the world, but every time I see a utility bill, I cry a little bit.

Don't get me started on those damn property taxes. but the point is, if you are a family who could have afforded a 500 000 house with a 1686 payment, you probably won't be able to do that anymore. Now that that same house is at 2 400, right? And even if you can, and you have that extra wiggle room in your budget which most Americans don't, you're still gonna have some sticker shock knowing that not only are prices a lot more pumped than they were three or four years ago, but interest rates are much, much more expensive than they were during the pandemic. So it's like you get all the bad without any of the good, at least before you could borrow at low rates and pay the expensive prices.

Now you can only pay the expense of prices and have to borrow at expensive rates. Back in my day, they called that a rip-off and just because my days weren't too long ago, that doesn't mean that it's any better. And you think about the impact that this has on a broader scale across price ranges, the amount of people that can afford houses at each price level is lessening dramatically and the willingness to buy is lessening dramatically as buyers aren't seeing their money go as far and this is happening at the same time where home sellers are still demanding top dollar for their homes because they are comparing to last year's comps which of course were in a very, very low interest rate environment and a very frothy environment. However, at some point and some markets are already really experiencing this, at some point you get into the situation where all of a sudden wait this home isn't selling.

It's been on the market for five six seven months. It's time that we start reducing the price and as supply becomes increasingly available and buyers become increasingly restricted and can afford less and less because interest rates are going up well, then all of a sudden, the market price, the equilibrium between the buyers and sellers starts going down. For example, if your standard equilibrium between supply and demand is that same family we were just talking about who can only afford a 1686 payment despite payments now being at 23.98 for the same thing, Well, that same five hundred thousand dollar home price that they could afford before, but can't now all of a sudden would have to drop to 350 in order for it to get back into that family's affordability range. And for that payment, that monthly payment number to be possible again at these higher interest rates.

And that's again, just assuming that rates stay around six percent. If rates go up more, the equilibrium would go down more. But in order to really understand why this is, you have to understand why we got here. You look at the average U.s home prices from 2019 to 2022.

In Q2 of 2019, prices were at about 376 000 on average. In Q2 of 2022, they were at 525 000. that's a 40 increase in three years. So what changed in those several years to justify this? Well, if you ask your real estate industry friends, what will they tell you, they'll probably tell you.

Oh, we had record high demand as a result of the pandemic and people realized they wanted to move into a house or a bigger house. They wanted to move into the suburbs. And guess what? at the same time as all that high demand was skyrocketing. Well, all of a sudden you didn't have as many homes being built at the same time, you didn't have as many people wanting to list their house they wanted to hold on to their houses.

And overall, we already had a pretty low home supply as a country heading into the pandemic. so you had a massive increase in demand at the same time where you had very low supply. And these statements are true and fair enough, right? But they miss a big crucial component. A lot of people discuss this real estate boom as oh, all of a sudden people realize they wanted to upgrade to a nicer place of living.

As if people always don't want to upgrade to a nicer place of living. The crucial key component isn't Oh, people wanted a better living environment. The key crucial component is now they could afford it because of the record low interest rates. If you're somebody buying in 2019 versus somebody buying in 2020 or 2021, you could afford a lot more house In the latter situations, because the rates were cut dramatically.

Your same down payment gets you a lot more house in 2021 than it did in 2019 or in 2018. the Fed effectively created swarms of eligible buyers by making money super super cheap. Now the Fed is doing the opposite and cranking down on demand. They're cranking down on the number of eligible buyers that is getting smaller and smaller as every rate height gets factored in.

and as the pull of eligible buyers goes down at every single price point. and even the ones that can't afford it no longer want to because their money's not going as far and they want to wait until you get a bigger correction all of a sudden, you can see how it makes sense that as this process plays out, that equilibrium market price is going to go down and down and down and down. Now Obviously I'm speaking in a broad sense: The real estate market in the United States and especially across the world, is very, very diverse. Different areas throughout the country have had different migration trends, different job creation and destruction, different policies being enacted, or certain, income growth or income reduction, so on and so forth.

And all of these things are going to have a huge impact on how that housing market fares, but on a broad scale it makes sense that as the Fed cranks down on demand and supply continues going up steadily, that you're going to see a reduction in prices and the reason that this is worth acknowledging and why I'm talking about it is because if you are somebody that is saving up for that first house for your family or you already have one and you're saving up for an investment property, I think it's time to start doing everything in your power to save as much capital as possible and prepare to take advantage of these prices as they start really dropping down. I think right now you should take every opportunity you can to make some extra cash and store it up. For example, if a gentleman in a suit comes by and offers you up to 13 free stocks with Moomoo using our link down below, well you should definitely not bat an eye and take advantage of that offer. But the point is, if you are somebody that has a strong cash position going into 2023 and 2024, you are going to be able to get yourself a lot more house than you could have gotten with that same amount of cash just a year ago.

All cash buyers will certainly benefit a lot, but even if you have to take out a loan at the high interest rate, you can always refinance it later when the Fed goes back down. But anyways, let us know what you think down below: Is the real estate market going to crash? Do you have a different theory? Let us know. If you enjoy content like this, make sure to hit that ravishing like button and subscribe and we will see you in the next video. Also, make sure to get your 13 free stocks with Moomoo of course.

Very, very important.