For the past year, we all have been complaining about how house pricing have been rising
faster than ever. Every single month, we had a new record. What happened over the last year or
so was something unbelievable. People would stand in lines to be able to have a chance to bid for a
house. I am not talking about being able to buy but just having an opportunity to fight for it.
People paid 10, 20, or 30 percent over the asking price just to be
the one who is going to buy that house. However, that has changed in the last few months.
The market seems like it has reached its peak, and it doesn't seem like it's going to rise as
it did before. In April, Realtor.com data showed prices on active home listings up a whopping 17.2%
compared to a year prior. In October, that bump declined considerably, falling to just 8.6%. That
doesn't mean prices are about to fall.
But that definitely indicates to the fact that they aren't growing like they used to.
Some people are worried about a potential crash; others are calming us down by saying prices will
keep rising but not at that pace. Whatever opinion you are looking for, it does exist out there. But
what we want to find out are the facts because only based on them can we have a clear image
of what's happening and what could potentially happen. Real estate is such a market that it
affects everyone and not only homeowners. That includes investors, renters, and so on.
But the slow down in prices was expected. We all knew that was going to happen. It was
not a matter of if but rather when. So whoever ripped the benefit of this housing rollercoaster
is smart because we aren't going to see anything like this in the coming future. However,
it is still impossible to predict the market because even the Almighty algorithm, which has
all the data you ever need to predict the market, couldn't make it. Yes, I am talking about Zillow.
If you haven't been living under the rock, you probably heard about the disaster that
Zillow went through by trying to use its data to rip the market, but their plan backfired,
and Zillow's stock is crashing down. In the last few weeks, at the time of this script,
the stock has plunged by over 46 percent. That's literally worse than what happened
during march 2020. Ark Invest, sold its entire portfolio of Zillow stocks. Yes, it's that bad.
But to be honest, Zillow had a rough year. Just take a look at their stock
graph. Although judging by the housing market, it should have had a great year.
Anyways, since Zillow has all of this data, it tried to predict accurately future home prices,
so it purchased thousands of homes. More than 14,000 homes in just six months.
It makes sense because Zillow literally has more data than anyone else, but the plan backfired.
Zillow had overspent and was sitting on massive losses in the months to come. That resulted in a
combined loss of 550 million dollars and the end of a business that had been rapidly growing — the
layoffs will pare 25% of Zillow's entire staff. The board decided to shut off the project.
So when it comes to housing projections, take them with a grand of salt because
this market is literally uncontrollable. Anything could happen. But what is certain for sure is that
getting a mortgage at a super low rate is a great deal. Mortgage rates peaked at around 5 percent
in 2018 and reached their lowest point in January 2021. Just to give you an idea,
how much would a single make in your final house price. For the sake of example, let's
take a half-million-dollar house for a 30-year mortgage with 3 and 4 percent mortgage rates
with a 20 percent downpayment. Of course, there are many other factors that influence the price
of a house, such as property taxes, insurance, and so on but let's take those factors out of
the equation. With a 4 percent mortgage rate and a 20 percent downpayment, that 500K dollar house
would amount to 859K dollars while at 3 percent, the total amount would equal to 758K dollars.
A single percentage in this example equals to over 100K dollars. That's a pretty good amount
of money. Especially in the long run, it would make a real difference. Especially if we count
the opportunity cost but we won't do the here. That's why when the mortgage rates dropped to
their bare minimum, people rushed to secure a mortgage at that rate because
even if they slightly over pay for a house, they will still win since their mortgage rate
cover it over the long run. Especially if you factor in the fact that
house prices generally rise over the long term, either way, you won't lose.
However, that astronomical demand led to the highest price increase in home price
in recent history. At some point, prices began to rise so much that even a low mortgage rate
wouldn't compensate for it. I guess that's exactly what has been happening lately.
Imagine for a moment when you have that kind of demand, but there is still a
shortage of homes in the market? I guess the answer is obvious!
It's not easy to build more homes, especially if you don't have the infrastructure in place.
So, according to be basic laws of supply and demand, when demand rises while supply
stays the same, the price increases. But what if the supply drops as well.
When the pandemic broke out, the future seemed so unpredictable, even the stock market crashed.
No one knew how to deal with this virus! We had no idea when the vaccine would be ready, so a
lot of people felt hesitant to sell their homes. Letting people to get into your house to check it
out would create a risk of getting the virus, so even those who were planning to sell postponed it,
which drove the price higher and higher. On top of that, when you see the value of your house
rising so rapidly, the desire to sell it now instantly disappears. Why sell it now when you
can sell it at a much higher price 6 months or a year later? That further diminished the supply of
homes in the market, creating a bigger shortage. We have already made a few videos about the 2008
crash, and if you take a look at the factors that caused the great recession, you won't find any of
them in the current soaring market. We don't have subprime mortgages, we don't have fake
AAA ratings to junk loans, and the industry is pretty regulated. Although the number of people
who took portages did significantly increase due to the reasons we have explored earlier,
most of them had good enough credit scores to keep up with their mortgage payments.
Will house prices keep rising? Probably yes, but only time will tell. However,
we won't see anything like we have seen in the last year or so in the coming future.
But that's just one prediction out of many. When you are buying a house, you shouldn't concern
yourself with short-term ups and downs. When you are taking a mortgage, you aren't taking it for 2,
3, or 5 years but for 30 years. You have no idea how many crashes and ups are going to happen
during that period. Median Home prices 30 years ago were around 100K dollars. Today
it's 375K dollars. So 5, 10 or 15 percent crash wouldn't mean much in the long!
Of course, it's better if you can buy right there at the bottom. However, even if you don't,
it doesn't matter. You are still safe. Even after the 2008 crash, home prices rose back to the
pre-crisis level in 2014 and are much higher now. That's the mentality you should use
when you're buying a house and not a crypto mentality where prices can shoot through the
roof today and crash the next day. The real estate market is also old as civilization.
Keep in mind that it was not just real estate that soared that much. We had huge inflation overall.
Asset prices across all sectors have dramatically risen, so it's difficult
to come to a conclusion that prices might crash in the coming future. What happened
in the last two years is more like a boom, and we might be at the end of it, or it might
last for a few more years. Only time will tell. Meanwhile, you should learn how to take advantage
out of this boom. You might need a fortune to get into real estate, but you don't need much if you
are getting into the stock market.
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