When you look at the stock market, it's clear that the last 2 years have been some of the
best years in the history of the market.
The sp500 grew by more than 100 percent since the crash of 2020.
That's something unheard of.
That's not what usually happens.
Historically you can expect around 10 percent at best, and if we are going to be conservative,
then 8 percent annually.
But as we entered 2022, January proved to be catastrophic.
The entire market collapsed.
The sp500 fell by almost 10 percent.
Apple, Tesla, Meta, and everything else just went down the drain.
It was the worst month since March 2020.
However, while stocks have been suffering, the housing market continues to grow.
Extreme low-interest rates have kept pushing prices higher and higher, and experts have
been predicting a crash since the beginning, but the question is - where is the crash?
Why is the housing market still growing?
Why hasn't the real estate market crashed yet?
We will answer all of these questions and many m ore but before we do that, make sure
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The housing market is very predictable and easily controllable by the fed.
There is always a demand for a house because everyone needs a roof over their head.
And even if you have shelter, a house is one of the best assets that you can invest in
since it provides cash flow.
The demand for homes will always be there, but it fluctuates based on the prices.
From 2017 up to 2020, houses price didn't grow at all because the economy was at its
peak.
If they were growing prior to 2017, all that investors could see in the housing market
is stagnation.
Mortgage rates were around 4 to 5 percent, which really hurt the demand for houses, but
2020 came in and lowered the interest rates to almost 0 percent, making mortgages much
more affordable.
Buying a home at 2 to 3 percent is one of the greatest financial decisions you can ever
make.
That's what fueled the demand and pushed the prices to grow by more than 20 percent.
The moment those super-low rates go away, that demand will vanish, which is what experts
have been predicting all along, but guess what?
In the last 2 years, the fed never increased the rates.
They kept them at nearly 0 percent.
At the time of this script, rates are still nearly at 0 percent.
But mortgage rates are slightly higher than they were in 2020.
Of course, Federal Reserve Chairman Jerome Powell has said the central bank intends to
raise interest rates this spring, but that's not certain because the fed usually doesn't
do what they say until they do it or sometimes misrepresent facts in order to not cause any
chaos in the market.
Back in 2020 and 2021, they kept saying that inflation is not an issue although the fed
has the best data possible, and they knew that it's a problem, but in order to calm
everyone down, they kept saying that inflation is around 3 percent.
Regardless, rising interest rates is not a matter of if but when.
It's a normal proceeder.
At the end of the day, if inflation is higher than 3 percent, that's unsustainable.
The main question is, will the market crash when the rates are raised?
The answer is - probably, no!
After the 2008 crash, the supply of houses has shrunk dramatically.
This chart perfectly illustrates how many fewer homes have been built since then.
The government understood that if it ain't going to control the housing market, then
we might see another such crisis, so the supply of houses was already tight, which kept real
estate prices to rise gradually.
However, the pandemic just destroyed whatever was left of that supply chain.
Although we are almost 2 years into the pandemic, the supply chain hasn't recovered yet.
So even if mortgage rates will rise substantially, there aren't going to take houses prices down
because there aren't enough homes in the market anyways.
We have been building this supply chain since the end of ww2.
To make a single timberland boot, for example, the materials would be delivered from 5 or
6 different counties to a factory in Thailand, where it will be assembled and then shipped
all over the world, including the United States.
So, a closed factory in one place can affect the rest of the supply chain.
That's why companies are reshaping the ir entire supply chains in order to be ready
for another pandemic by relocating their factories closer to where the final product is sold,
for example.
That's going to take some time as we are learning how to live with this virus.
About 91% of the home building companies surveyed by Zonda reported struggling with s upply
chain problems.
The lack of material availability is making it take longer to build a home, and the delays
and higher input costs are contributing to rising home prices.
This is the most disastrous the situation has been since at least World War II.
These are not the only factors.
Corporations are buying homes to rent, around 20 percent of homes are usually bought by
corporate entities which further lowers the supply of homes in the market.
But the biggest threat is definitely inflation.
Inflation has a deep psychological impact.
If people expect their home to cost more in the future, especially in the foreseeable
future, then they will less likely to sell now and wait for another year or so.
Guess what does that means?
A fewer supply of homes in the market will keep prices rising.
Why would you sell your house now when you can sell for a 10 percent higher price by
the end of the year for example.
So until inflation is solved or supply chains are restored, it's difficult to expect houses
prices to calm down.
But why hasn’t the fed increased the rates yet?
The job of the fed isn't just to tackle inflation but also to make sure the economy is growing.
And the last 2 years have been much more unpredictable than anyone thought.
At first glance, it seemed like as soon as we come up with a vaccine, the problem is
going to be resolved, however, the government struggled to vaccinate enough people, and
secondly, new variants of the virus kept coming out which were not protected by the current
vaccine.
And thirdly, by the time we figured out how to deal with the new variant or convinced
the rest of the people to take the vaccine, the people who took the vaccine initially
had to revaccinate.
It's a never-ending crisis.
Most government officials are coming to realize that no matter how dangerous this virus is,
there is no way we can get rid of it entirely, and even if we do that, that would come at
such a great cost that it doesn't worth it so we are learning how to live with it.
So the fed is keeping the rates low until its clear how the economy is going to move
forward under these new restrictions.
What we can say for sure is that we will not see a double-digit increase in prices this
year.
It's probably going to be around 5 to 8 percent, maybe even smaller.
Even those who cannot make the payment on their mortgages can still sell their houses
with a profit because of the shortage of houses in the market, which is another reason why
we shouldn't expect any housing crash this year.
If the fed manages to bring down inflation to under 3 percent, then things will get much
clearer.
At the end of the day, these are all predictions based on the facts on the ground.
Only time will show what exactly will happen.