i’m still waiting
me too me too
me too me too everyone keeps waiting for the housing market to
crash but what if the market is already crashing out just not in the way anyone expected this
time it’s less 2008 style implosion and more frog in boiling water the market is fundamentally
unaffordable gridlocked by design and slowly rugging the path to middle class wealth the bad
news isn’t that the market is going to crash the bad news is that it isn’t so stay tuned to find
out why my name is Nick and you’re watching the Coin Bureau the last time we spotted trouble
brewing in the housing market it was late 2022 and the pandemic era bubble looked perilously
close to popping beginning in 2020 house prices were driven to record highs by a perfect storm of
tailwinds these included ultra- low interest rates government stimulus higher household savings
increased demand for larger homes driven by remote work limited housing supply due to the
construction delays and labor shortages and a surge in investor and speculative buying but this
real estate sugar rush was rudely interrupted when central banks started aggressively hiking rates
in 2022 as this made mortgages much more expensive the US average 30-year fixed rate mortgage rate
for example increased by 130% within a year up from 3% in late 2021 to 7% in late 2022 depending
on location and house price this made monthly payments sometimes 50 to 80% more expensive for
the same loan amount talk about getting wrecked as affordability collapsed many buyers could
no longer qualify for loans or dropped out of the market entirely and for investors who rely
on credit to finance rental properties it was a similar story lenders in the US saw application
volumes plunge as mortgage demand cratered to a multi-deade low and all the while the Federal
Reserve welcomed the downturn as a muchneeded correction giving no indication that rates would
be relaxed anytime soon meanwhile in Canada where around a third of homeowners have variable
rate mortgages the central bank’s aggressive rate hikes crushed affordability this pushed
some borrowers to default or consider selling threatening a deleveraging cycle where rising
payments lead to forced sales causing prices to fall further in Toronto which is among the world’s
most overvalued housing markets house prices fell around 17% in 2022 meanwhile in the UK where
mortgages often involve short-term fixed rates for 2 to 5 years homeowners were particularly exposed
to payment shocks when refinancing prices were sliding even before Prime Minister Liz Truss’s
disastrous tenure tore a hole in the bond market the Truss affair caused around 1,700 mortgage
products to be withdrawn in a single week pouring fuel on the bonfire of consumer confidence amid
the UK’s rising cost of living so perhaps you can see why we and many other commentators were
feeling pretty bearish about the housing market at that time some pessimists even warned about a 2008
style global housing crash which is always a good clickbait foder the comparison though doesn’t
stand up to scrutiny and anyone waiting for another spectacular crash will have had a boring
couple of years since 2022 so does this mean a crisis has been averted of course not why do you
think I’m making this video to understand what’s happening now you have to begin by recognizing
the battlefield is fundamentally different now if 2008 was a housing market heart attack the
2020s have been more like a real estate sugar binge leading to a chronic tooth decay where shall
we start firstly uh the structural underpinnings are simply more robust this time around the era
of reckless lending that fueled the last bubble is long gone those ninja loans no income no job
no assets are history and strict requirements are now in place for mortgage applicants lenders
demand solid credit scores documented income and rigorous debt to income ratios and that’s why
we’re now much less likely to see mass defaults from unqualified borrowers who probably shouldn’t
have been given a loan in the first place secondly and perhaps more importantly homeowners
today are sitting on mountains of equity back in 2008 people were borrowing sometimes up to 100% of
the value of their home meaning that when prices fell millions were plunged underwater and into
negative equity and when your house is worth less than your mortgage you’ve got a grim financial
incentive to just walk away from your home and let the bank deal with it now the situation today
is the exact opposite over half of all mortgaged homes in the US have more than 50% equity meaning
that homeowners own a big chunk of the value of their home even if prices fall owning a majority
stake in the property makes homeowners far less likely to default even when facing financial
strain because they have too much to lose and third the supply situation has been reversed the
2008 crisis was exacerbated by a glut of homes from a decade of frantic overbuilding in the
US but now the US and many other countries are suffering from a persistent structural shortage
of housing for years demand has outstripped the available supply creating a flaw under national
home prices and preventing the kind of widespread sharp declines we saw in the previous cycle so if
we’re not heading for a crash what’s all the fuss about it may be a low octane crisis this time but
it’s a crisis nonetheless and that’s because we’re witnessing a housing market paralysis a persistent
affordability crisis gridlock supply chains and fractured demand picture have combined to cook
up something we might call the great stagnation let’s start with the most obvious and painful
symptom of this disease the affordability crisis to say that it’s challenging to buy a home today
is an understatement in many wealthy countries buying a home is mathematically impossible for
a huge segment of the population this spring the median home sale price in the US reached $414,000
an all-time high for the month of April and the 22nd consecutive month of yearon-year increases
at the same time the average 30-year fixed rate mortgage has been stubbornly hovering near 7%
almost exactly where it was 2 and 1/2 years ago put those two numbers together and you’re looking
at a pretty ugly picture nearly 75% of all US households which is about 100 million households
cannot afford to buy a medium-priced home the market is hyper sensitive to these numbers too
as a mere $1,000 increase in the price of a home is enough to push an additional 115,000 households
out of the market a tiny quarter point increase in the mortgage rates excludes another 1.1 million
households the mortgage burden has swollen to intolerable proportions since 2022 for a family
earning the national median income about 36% of their earnings are now required just to cover
the mortgage on a new home for a lower inome family that number rises to an absurd 72% of their
income more than double the official threshold for being costburdened this has created a mortgage
gap that has split homeowners into two distinct economic realities on the one side you have those
who locked in mortgages during the pre2021 era of zero interest rate policies these are the halves
insulated from inflation their payments are stable their equity has ballooned and in real terms
their housing costs are actually shrinking and that leaves us with the have nots which is let’s
see everyone else new buyers renters who want to own families who need to move for a new job or a
growing family they are facing the full force of today’s prices and today’s rates and the financial
strain is immense this division explains an apparent contradiction in today’s housing market
why prices remain stubbornly high even though nobody can afford to buy a home oh I didn’t see
you there well now that I’ve got you I may as well problem the supply paradox common sense suggests
that if fewer people can afford to buy prices should fall as supply grows faster than demand but
that isn’t happening on a national scale at least not in the US UK and Australia and that’s because
of something called the locking effect which is exactly what it sounds like in the US over 80% of
current homeowners have a mortgage rate under 6% which is subsequently lower than what they could
get today and this means that a vast majority are locked into their homes by their own good fortune
after all nobody wants to sell their home only to buy another at double their monthly payments for
a comparable property you would only do that if life events compel you to move of course that does
happen and so the locking effect will erode over time but right now the financial disinccentive
is keeping millions of existing and often more affordable homes off the market strangling that
supply now you might be thinking okay then why not just build more homes and that’s a good question
if demand for affordable housing exceeds supply then ideally market forces will sort it out
because this presents an opportunity for the builders but here is the other side of the supply
paradox in the US new construction is slowing down dramatically building permits recently dropped
to a nearly 5-year low of 1.39 million units and housing starts fell even more sharply to a 5-year
low of 1.25 million units and this is far below demand which indicates that the US needs at least
2 million new homes every year builder confidence has plummeted to one of its lowest points in over
a decade in a sign of desperation 37% of builders are now cutting prices and 62% are offering
sales incentives just to move the inventory they’re facing higher material costs that aren’t
helped by new tariffs which are projected to increase overall construction costs by 5 to
7% there is also a persistent labor shortage and this isn’t helped by mass deportations of
undocumented migrant workers according to the Hispanic Construction Council a nonprofit think
tank around 700,000 to 1 million US construction workers are undocumented and their deportation
would devastate the industry a new study from the University of Denver found that the lack of
skilled workers cost the sector $10 billion and prevented the construction of 19,000 single family
homes last year so homeowners aren’t selling and new construction is nowhere near enough to meet
demand rather than rebalancing the market is stagnating at a very high price point and that
brings us to the demand side of the equation which is just as fractured and strange you’d think
that demand would be weak across the board but the reality is that it’s a ferocious competition
just concentrated in specific segments the biggest players in the market right now are surprise
surprise baby boomers aged 60 to 78 they represent the largest share of both home buyers and sellers
in the US many have immense equity from decades of home ownership allowing them to make all cash
purchases which makes them completely insensitive to the problem of high mortgage rates at the
other end of the spectrum is Gen Z who make up a tiny 3% of buyers despite a strong desire
for home ownership they are being systematically priced out the median age for a firsttime buyer
is now 38 years old and their share of the market has fallen to a historic low of 24% many are now
completely reliant on financial help from family to even consider a down payment now there is
another character in the demand story and that is the investor but if you think this is going to
turn into a plot twist about Larry Frink buying up all the homes in America you clicked on the wrong
video the data show that the large institutional investors like Black Rockck have actually been
scaling back real estate investments but as institutional investors have pulled back small
investors so individuals or companies buying fewer than 10 homes have become increasingly
dominant and now account for a record 59.2% 2% of all investor purchases and which homes are they
buying entry-level properties in high yield rental markets particularly in the Midwest and the South
which represent the last vestigages of affordable housing in the United States these investors
are in a direct bidding war with the very same firsttime home buyers who are already struggling
to get a foothold so you have this three-way battle for a limited pool of affordable homes
cashrich old buyers yield seeking small investors and hopelessly outgunned firsttime buyers it’s a
recipe for permanent price pressure at the entry level of the market so the market is stagnant
unaffordable and gridlocked it’s not a crash but a crisis in slow motion and now we’re starting
to see cracks appearing beneath the surface in certain markets firstly the US is seeing a
slow upward creep in mortgage delinquencies and meaning people who have missed up to two months of
mortgage repayments and foreclosures which is when the lender of a delinquent mortgage takes back the
property or adds late fees that negatively impact the borrower to be sure the numbers are nowhere
near 2008 levels and the delinquency rate of around 4% is still low by historical standards
likely thanks to stricter lending requirements nowadays but there is an undeniable trend pointing
to distress in some markets us foreclosure filings in May were up 9% from a year ago while completed
foreclosures meaning bank repossessions shot up 34% in the last year the pain is concentrated in
particular hotspots with states like Florida South Carolina and Georgia seeing the largest increases
in delinquency rates florida is a particularly significant case because it was one of the markets
that became the most overhyped during the pandemic housing bubble and is now cooling fast here
the market paralysis has been broken by sellers capitulating causing house prices to plunge real
estate analytics provider Parcel Labs highlights six major markets in Florida namely Orlando Tampa
Cape Coral Lakeland Northport and Deltona that are undergoing the sharpest downturns together they
have appreciated on average 53% since 2020 about 11% above the national average at 48% but over
the past year these same markets are now down around 4.5% on average and more than 10 times the
national average of 0.4% the pessimistic take here is that Florida is merely one step ahead of the
rest of the country giving America a preview of an impending real estate bare market but that’s
not all because there is another possibly more ominous signal coming not from the residential
market but the skyscraper next door that’s the commercial real estate or CRA a sector that is
in deep trouble a new analysis of commercial mortgagebacked securities debt shows 6.42% of
borrowers were 30 or more days delinquent or in foreclosure the office loan delinquency rate is
at 7.8% 8% and the rate of loans transferred to special servicing a sign of severe distress
has hit a 25-year high of 16.19% and this is all coming to a head because of a massive $957
billion wall of debt scheduled to mature this year refinancing these loans at today’s rate is going
to hurt and if borrowers start defaulting it’s very bad news for the economy and that’s because
the institutions on the hook for these loans are disproportionately regional banks which hold about
$3 trillion in CRA loans accounting for nearly 13% of their total assets if these banks start taking
heavy losses they will tighten lending standards for everyone threatening a credit crunch that
could starve the residential market or financing it doesn’t help that all of this is playing out
against a backdrop of major economic uncertainty gdp growth has slowed but inflation remains
stubbornly persistent driven in no small part by the high cost of housing itself and this puts
the Federal Reserve in a box it can’t confidently cut interest rates to stimulate the economy for
fear of reigniting inflation especially with new tariffs adding to price pressures and this
creates a policyinduced stagnation loop where high interest rates suppress housing activity
which contributes to the economic slowdown which reinforces the cycle of uncertainty and here’s
where I remind you that this isn’t just a US phenomenon we are seeing variations of the same
pressures throughout the world and particularly in the Anglosphere in Canada there is a similar
affordability crisis but with a ticking time bomb in the form of a mortgage cliff over $300 billion
worth of mortgages are set for renewal this year many of which were signed when rates were at
historic lows the shock of paying 2025 rates is the last thing they need in a country where
households already hold $1.74 in debt for every dollar of a disposable income in the UK a brutal
cost of living crisis has been grinding away at household incomes for years while headline house
prices have remained surprisingly stable the pain is showing up elsewhere mortgage repossessions
which are the legal steps required towards a repossession are going through the roof with
repossessions by baifts up 42% yearover-year 2.7 million households are still chilling on ultra low
sub 3% mortgage rates meaning that a wave of pain is going to hit as they are forced to remortgage
at current rates meanwhile in Australia the housing market has been distorted by decades of
policy decisions that have prioritized investors over homeowners policies like negative gearing and
capital gains discounts actively incentivized real estate investment over home ownership costing
the government billions in tax revenue this has funneled investment into existing properties
driving up prices without creating new supply in a prime example of how policy can be the primary
driver of a national housing crisis so where does this leave us and uh what does the future hold
well the central expectation is that mortgage rates are going to remain higher for longer the
days of 3% are gone our main takeaway is not that a bonfire is about to start but that the new
normal is a world where rates stay elevated and the affordability crisis slowly rugs most of us
for generations home ownership has been the main road to building middle class wealth and financial
security and a key pathway to accessing credit but now younger people are systematically locked
out of the process with serious implications for the already vast gap in generational wealth
and so perhaps before you know it housing might just be another subscription draining your bank
account in between uh Netflix and Spotify payments netflix
Spotify well at least you’ll have plenty to watch
and listen to in order to take your mind off it all now if you enjoyed that video
you’re going to love our latest one right
