Hey guys it's Ken McElroy. So a lot of people are asking me to kind of weigh in on some of the other
gurus out on YouTube and so I do follow a lot of them and one of the kids that I follow and I
call him a kid because he looks like he's under 30 years old but it's uh it's Meet Kevin and I like
uh his content generally I like it a lot actually I I love his facts I love how he's analytical and
and I think generally he looks like he's a great guy and he's a hustler and I appreciate anybody
like that but I just watched his video called the coming housing crash in 2021 and while I agreed
with most of it there was a bunch of things I felt like he might have left out so I just want to add
some things but I want to commend Kevin because I think he did a great job on the videos he's done.
I don't necessarily agree with him on where he thinks that the housing market's going to go
but I’m going to articulate a few things that I think are really really important or maybe that he
didn't talk about in the crash video of 2021. And maybe I didn't articulate enough in my crash video
of 2021 and just to be clear I really believe that we are gonna have a serious housing crisis
and I think we're right in the beginning of it and I’m going to go into the reasons why.
So I want to start with mortgage delinquencies because this is something that Kevin didn't really
talk very much about. Mortgage delinquencies are a massive indicator even though the cares act rolled
out these forbearance programs and we have lots of people that are on these forbearance programs
the real issue I think is that we have over two million people that are over 90 days delinquent,
okay, so that's a massive indicator there's four million people delinquent that is which
is way higher than mortgage delinquencies were before COVID. But there's four million
right now so there's a couple websites that I really want you to look at. One is black knight
k-n-i-g-h-t. I love this website because they take all this mortgage data whether you're in
forbearance or not in forbearance they're looking at housing they're looking at apartments they're
looking at houses they're looking at all the single-family stuff and they have
great data and great resources that's one. The other one is the mortgage bankers association.
I would look on there because those are the folks that are collecting the dough. And don't forget
if you don't pay your mortgage then the mortgage doesn't pay someone else. It does affect someone
else and nobody's really talking about that right now. So the mortgage bankers association
is another great resource another another great website that you need to watch. What I
really like about the black knight resource is that they have these you know different
graphs and things like that and the one thing I wanted to show you serious delinquencies - 20%.
An additional 370 000 borrowers became 90 days past due in July now they also ran out of stimulus
money on employment money in July as well and this is up over 1.8 million from pre-COVID levels. And
it goes on and on and on to talk about all the different graphs and all the different stuff
but the really cool thing is if you guys are real estate investors you can go in and actually see
these are the markets with the largest delinquency increases and these are the markets with the
lowest. And so you can kind of track by market because as you guys know mortgage delinquencies
in some cities are better than others and it's just going to be that way and so they track it
by market. So as a real estate investor you can do a deep dive on all of this stuff so I’m going to
come back to mortgage delinquencies in a little bit because I really believe that it's going to
add massively to the inventory which is super low which I’m going to talk about in a second. The
next piece that Kevin talks about is evictions. Now he talks about evictions but I went through
this in 2008. I experienced it firsthand we had massive upheaval in 2008 on the mortgage side and
the financial side and on the eviction side. Now I get the luxury of owning about 10 000 apartments
and so i’s plugged into a national network I’m plugged into the national apartment association
I’m plugged into the small owner’s association for the folks that own smaller properties
and I’m plugged into the national multi-housing council. I’m members of all those things
including the urban land institute or uli.org. These are all great resources but one of the
things that I want to show you today and one of the statistics I think that Kevin was way off on
was on evictions. If you go to the AspenInstitute.org you'll see that the
COVID eviction crisis is an estimated of 30 to 40 million people in America that are at risk. That's
a significantly higher number than Kevin mentioned in his videos. And I will tell you right now
that before COVID we already had a rental housing shortage. We already had
an affordability shortage because rents have gone up so high. We already had markets peaking,
we already had concessions emerging, we already had occupancies dipping all over the country in
various cities. Some cities were doing just fine and others were flat or negative already
pre-COVID. So just to talk to you a little bit about apartment shortage or housing shortage
I pulled up the national apartment association which I used to be on the board. They're based
in Washington D.C. It's naahq.org. You can go on and take a look at this for yourself
or the national multi-housing council which is nmhc.org. These are great organizations that track
rental housing. Right now they're tracking rental payments and delinquencies by city by submarket.
Great data. This is part of the data that I’m going to use for you today but I want to show you
that this is an article that came out in 2017 and this is the article the united states needs 4.6
millions of new apartments by 2030 or it will face a serious shortage. Okay this is just three years
ago. We obviously did not deliver this. These 30 or 40 million people that are facing eviction
obviously they're not all going to get evicted but there's going to be a large percentage of people
that are not going to be able to stay where they are what's going to happen. It's going to put more
demand on the rental housing. So what we have is we have a housing crisis. We have a housing crisis
because we have people that are going to lose their homes and we have people that are going
to get evicted. It's going to be putting more pressure on rental housing. So rental housing
over the long term is going to do very very well. Single-family prices are not going to
do very very well because the inventory levels are going to increase over the next 18 months.
In 2008, home ownership was at its highest point in a long long time, but after 2008
10 million people got displaced from the fallout of 2008. And what did those people do? They went
into rental housing. That's why we have this big run in rental housing. That's why we've had this
big demand in rental housing. It increased the demand which increased the rents which increased
the values all of those things, pushed the values up. It was a result of 2008 and the fallout from
the housing crisis that created the rental demand and we still weren't out of the woods as you saw
from that article. So the percentage of the four million people that are going to lose their homes
and the percentage of the people that are going to get evicted, they're all going to move around
and they're all going to move into rental housing. And the biggest issue governments have right now
it's actually homelessness. That's the biggest issue we face. And by the way that was already
going on. It was already going on in Portland it was already going on in Seattle it was already
going on in San Francisco and a lot of other big metros and people were moving as a result of it.
And they were moving as a result of the government situation around those things
that was already happening. And so it's only going to get worse so like so many other things,
COVID has been an accelerator for things that were already in motion. So let's talk for a moment. How
can housing prices be soaring? Because what's happening is inventory is super low right now.
At the end of July inventory was only 1.5 million across the whole country or basically three months
of inventory. That's it. It's the lowest ever recorded. And why is that? That's because people
don't want to move right now. I wouldn't if I had financial uncertainty. There's no way
I would be moving. I’d be trying to figure out how much savings do I have? Do I have a job?
What's my burn rate? Do I have to take care of my family? Am I going to have any income next
year? How much equity do I have in my home? All of those things. People are taking an assessment
of their personal financial situation right now and they're hunkering down waiting to see when
this whole thing's going to be over and that's why listings are low right now. That's why inventory
is low right now. Low inventory high demand high prices. So in in July as you can see we had a 24.7
price jump just in the month of July during the pandemic. So if you look right now you can see
that never before has the United States ever experienced such low inventory.
That's why prices are jumping right now, but that's all going to change as evictions
roll out, as mortgage delinquencies turn into foreclosures, and people move into rental housing
and the inventory jumps up and the pandemic's over. And people are trying to sort out what
they want to do next and they're going to list their houses, scoop their equity
and figure it out later. So one last question. When it comes to housing prices we all know that
housing prices have jumped over the last 10 years. In fact, right now they're just north
of 300 000. The highest price inflation adjusted ever. We also know that we have the lowest amount
of inventory ever. So my question to you is do you really think it's going to go higher?
And maybe you're right maybe I’m right. I don't know. But I think given all this pandemic and
given the fact that there's all these businesses closing and all these mortgage delinquencies and
all these evictions pending and all these people that are on unemployment right now,
I think that we've peaked but maybe I’m wrong. So just to summarize I think that this Coronavirus
recession is a housing crisis on two levels. One on the mortgage side and two on the eviction side.
In addition to that we have a lot of people that may never go back to work to wherever it
is they were working. We know this. We're seeing bankruptcies, we're seeing businesses closed all
over the place. Another great website that I look at is called EPI or economicpolicyinstitute.org.
Now it's just a think tank. I understand that, as are a lot of these. They just take data, they put
them together and it's something for you to look at. But I love this one and just two days ago
they said that we're still at 11.5 million job deficit. Still remains okay. When we started we
were somewhere between three and four million so this is call it seven million more people
seven to eight million more people that are still - may or may not go back to work. But I want to
show you a couple other things. One this is a report that came out from CNBC. 5.7 million small
businesses are at risk of closing. This is another one. This is Yelp. Now as you guys know, Yelp just
rates businesses. This is a very interesting - 55 percent of businesses closed on Yelp have shut
down for good during the coronavirus pandemic. That's 55 percent. Yelp has no skin in the game
they just report businesses and they rate them. That's all it is. So nobody's really talking
about this small business issue this is a tsunami of closings these are people that own businesses
these are people that employ people. These are real paychecks people are getting. To pay rent,
to pay mortgage, to pay car payments, to pay gym memberships and those kinds of things. That's
what this is. This is a massive number that's not really being addressed right now. And it's going
to shake itself out over the next 18 months as we get this vaccine, and as people go back to work
and as things go back to normal. There's millions of businesses that are just not going to make it.
And you've already seen the news with a lot of big ones have already filed bankruptcy and already
going out of business permanently for good. So I’m going to give you five things that I really want
you to look at over the next 12 months. The first one is I really believe that prices are going
to go down as inventory goes up and what I would encourage you to do is really dig deep into these
numbers. Really look at the mortgage delinquencies by your city, by your state, by your sub market,
and this should help you make really really good decisions in the future. For your buying decisions
or your rental decisions. Number two, evictions are a real thing. There's gonna be a number
of people that will never be able to pay their rent as a result of their financial situation.
It's gonna depend largely on where they live, where they work, how much they're paying for rent
right now. The CDC has all the landlords locked down through 2020. no evictions. That obviously
is going to roll up into delinquencies on the mortgages on those particular properties that
people are renting from. So that's just going to add to the mortgage delinquencies
on the houses and then the commercial side and drive prices down even further. In addition,
those renters are going to get displaced. And yes, while they might not have good credit,
they will find a place to live. They will roommate up they will move home. In fact, 3 million
people moved in with their parents and their grandparents from the pandemic alone. 3 million.
So the total number right now of adults that live at home totals 32 million people. So right now we
have 32 million people living with their parents or their grandparents. So obviously they're going
to do that instead of going on the street, but still I still believe that we're going to have a
homeless crisis as a result of that because not everyone has that option unfortunately. Three,
you need to watch your mortgage defaults. I know we talked about mortgage delinquencies
and how they jump, the inventory numbers, and that's going to drive housing prices down. But you
need to watch the mortgage delinquencies. Mortgage delinquencies are already happening on commercial
buildings, retail buildings, malls, office space, multi-family, and residential already. All you got
to do is go look for those numbers. It's all over the internet. There are people defaulting
all over the place. I have friends in retail in malls and they're getting annihilated,
hotels they're getting annihilated. No one can service operating expenses and debt when they're
not getting any income. It just can't happen. You either have cash reserves to pay them or you
don't, and some lenders are working with you and some are not, so watch your defaults by market.
Back in 2009-2010 I personally bought a whole bunch of properties from banks. I
bought a massive property in San Antonio, Texas. 680 units from Bank of America, that was 50%
vacant, and it was devalued by almost half what they had loaned on it. So these mortgage defaults
are coming. That's how you want to buy real estate and then you want to ride it up the next wave,
but you don't want to get caught catching a falling knife. You don't want to catch a piece
of real estate before it falls all the way to the bottom. Four, I want you to pay attention to
migration patterns. People are moving all over the place and there's all kinds of reasons and we can
do a whole video on migration patterns, but if you want to really take a look, just go look and see
where the moving trucks are going. No one can get a moving truck right now. U-Haul’s packed, but
one thing U-Haul does do is they track. Are they going from New York to Phoenix - that's trackable.
That's a data point. People know that they're- if a truck's being dropped off in Phoenix, they
say that's where they're going. You can start to see those statistics. You can also see that with
the out-of-state driver's licenses. So as people move and they trade in their driver's licenses
and they change their life to a new location, they usually upgrade all their personal data.
That is all data that's all tracked, so you got to pay attention to these migration patterns. These
moving companies are a great way to do it - to try to see where everything's going because it's
going to help you to make sure you can mitigate on the cities and the sub markets that are going down
and the ones that are going up. I’m telling you people are moving all over the place right now
and it's causing small bubbles in some areas and depression in others. Be very very careful here,
but just pay attention to migration patterns and try to get as much information as you can
on this before you buy or invest in the next sub market. So fifth and final, I really want you to
take a look at these business closures, okay? You really need to look at this because if let's say
for example that you own property in and around American Airlines as an example, who already just
announced that they're going to lay off 18 or 19 000 people immediately, and it could go up to 40
000 by October, just a couple months away, so obviously that's going to have massive
economic downturn in that particular area. You're going to have a massive economic downturn
those people are people that go to coffee shops, they go to dinner, they go to lunch, they rent,
they they own homes, they drive cars, they do all of the things in a community that they would
normally do, and now potentially they're going to move or go on unemployment or find another job,
okay? So all this stuff is happening all over the place and I personally have witnessed this
over the years through the different cycles. As as employers come and go they shrink, they merge,
they go out of business, they relocate, it always has a financial impact on a on a neighborhood,
on a sub-market, on a town, it just will. I’ve seen it on military bases when military bases go
away and they close them or they relocate them. It kills an area. This is no different - this
is exactly what is about ready to happen. These business closures are something that not a lot of
people are watching right now, but you really need to take a close look at this in your sub market
and see and just determine how much financial impact might you have. So I really appreciate
you guys watching, I want to thank Kevin for being a good sport, I really enjoy his videos
and um if you guys like this please hit the “like” button and subscribe and send it along to some
of your friends. I really enjoy doing these guys and so I’ll see you in the next video.