Epic Real Estate Investing - Is ClearTax Value Right About the Real Estate Crash in 2025? | 1349

Episode Date: September 13, 2024

In this episode, Brian from ClearTaxValue offers an in-depth analysis of his prediction regarding a potential housing market crash in 2025. He meticulously examines recent data trends, including record high home prices observed in June 2024 and the subsequent declines that have followed. Brian delves into the effects of seasonality on the market, current foreclosure rates, and the intricate dynamics of supply and demand that are shaping the housing landscape. The discussion covers a range of scenarios that could potentially trigger a housing market crash, such as a surge in foreclosure rates, an abrupt increase in housing supply, or a severe economic recession. Brian evaluates these factors in detail, providing a comprehensive view of why a crash might occur and the likelihood of such events happening in the near future. Despite these concerns, Brian ultimately argues that a significant crash is unlikely given the current economic and market conditions. He presents a nuanced perspective that takes into account the resilience of the housing market and the measures in place to prevent a downturn. The episode concludes with valuable insights on the advantages of investing in real estate. Brian highlights how real estate can be a powerful vehicle for wealth creation, offering stability, tax benefits, and lifestyle flexibility. He emphasizes how strategic investment in real estate can provide long-term financial security and enhance quality of life, even amidst market uncertainties. Tune in for a comprehensive exploration of the housing market's future and practical advice on leveraging real estate for lasting financial success. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Hey, strap in. It's time for the epic real estate investing show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies, and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-aise.com. Let's go, let's go, let's go, let's go, let's go, let's go.

Let's go. Brian at Clear Tax Value made a prediction this week about the 2025 housing market crash. Is he right? Well, let's hear what he had to say. Will there be a housing market crash? So home prices hit a record high in June of 2024. And then in July, home prices fell. So is this the start of the housing market crash?

So let me show you the data. So here's the median sale price of a home in the U.S. It's at $439,455. So you're looking at a five-year chart. In five years, home prices have gone up by 47%. Compared to 12 months ago, home prices have increased by 4.1%. Look at month over month from June to July. Home prices have gone down by 0.6%.

So should we be concerned about this being the start of a housing market crash? That 0.6% drop month over month, it might sound alarming on the surface. But in the grand scheme of things, it's more like the market takes. in a breather after a marathon. You see, a 47% increase in home prices over five years. That's huge. But what goes up must come down or at least pause for a water break. The 4.1% rise in the past year also shows that the market is still pretty strong.

The small dip in July, that could just be a normal fluctuation rather than the start of a nose dive. I don't know what you think, but I want to show you this. in 2023, 2022, and 2021 from June to July, home prices fell, probably because of the seasonality, and it happened again in 2024. Seasonality, that plays a huge role in the housing market. And when we see that drop from June to July in 2021, 22, 23, and now 24, it's more like deja vu than a red flag. The housing market has this predictable pattern of softening up in the middle of the

year, then often picking back up in the fall when things settled down. Let's think about this logically. What would cause a housing market crash? So I would say that one possible way would be if there's a massive wave of foreclosures. Right now, there's about 1.8 million homes listed for sale. So that's the size of the market to give you some context. So in 2010, so we're looking back at the last housing market crash, in 2010, there were 2.9 million foreclosures in that year alone.

If 2.9 million homes got foreclosed on, that would add to the supply and obviously that would trigger a housing market crash, which is what happens. So maybe foreclosures will crash the markets in 2024 or 2025, right? The problem is that foreclosures are actually down this year compared to last year. Okay, so this argument doesn't make any sense that foreclosures will crash the housing market, at least not any time soon. 2010 is still fresh in the memory for people. It was like a perfect storm. We had bad loans, sky-high unemployment, and a tidal wave of foreclosures that nearly drowned the market. But today's situation is very different.

The fact that foreclosures are down, that's rather good news. It's a sign that homeowners, in general, are in a much better position than they were before the last crash. Back then, you had people with risky loans, adjustable rate mortgages that suddenly spiked, and a lot of people who were underwater on their mortgages. Today, lending standards have tightened up significantly. I mean, have you tried to buy a house or refinance lately? And most homeowners have locked in historically low mortgage rates. Plus, home equity, much higher now, given people a lot of financial cushion.

I mean, you can think of the housing market today like a well-built ship. Sure, it could still face rough waters, but it's not springing leaks like it did back in 2010. Now, there's other factors like a sudden spike in unemployment. or a drastic economic downturn, that could still throw us for a loop. But based on current foreclosure data, a market crash from that angle seems pretty unlikely. So for now, it looks like the ship is steering clear of the iceberg. Okay, so maybe we'll get a housing market crash, not because of foreclosures, but because supply just suddenly just shoots up.

Maybe millions of more Americans will just want to sell their homes, you know, list their homes for sale, just out of nowhere. So let's take a look at the number of homes for sale. There are 1.81 million homes listed for sale right now. So that's a big improvement from last year. Supply is up by 17.7%. However, there's still less supply compared to two years ago. And it's still much less supply compared to pre-pandemic

when we were at $2.4 million in July of 2019. Okay, so there goes that argument. Because how are you supposed to have a housing market crash when there's more demand than there is supply? Exactly. For a market to crash, You need a lot of houses on the market. And we don't have that many.

In fact, in big markets, just last week, like Texas and Florida, we're actually seeing inventory decrease, which adds another layer of complexity to the situation. This slower inventory growth that we watched over the last decade, 15 years, combined with the fact that more sellers are pulling their listings due to lower demand, suggests the market is rebalancing rather than heading for a crash. It's like a game of tug-of-war where neither side is. overpowering the other, just a steady pull back and forth. So while a sudden flood of home on the market could potentially tip the scale, the current dynamics make that scenario seem pretty far-fetched. Okay, so how does that situation reverse where demand just drops and then you have supply going up?

The way that that would happen if there is a nasty recession where millions of more Americans become unemployed, the economy gets destroyed, and then, yeah, that could cause a housing market crash. I will tell you, sincerely, that the... That is close to impossible. So if you don't understand why I'm saying this, then you don't understand the current situation. Our country literally cannot afford a deep recession.

The U.S. government and the Federal Reserve will not allow it to happen. Do you know why? I mean, it's a long story, but long story short, it's because of the debt crisis. This is why the Federal Reserve will cut interest rates in September.

And they're not going to stop. They're going to continue cutting interest rates and they're going to print trillions of dollars. So the market is already anticipating the Federal Reserve to start cutting interest rates, which is why the 30-year fixed mortgage has now dropped to a new one-year low at 6.46%. Now, if they keep cutting interest rates in 2024, that the 30-year fixed will still be deep in the 5% range to 6%. Now, there's a chance that we go below 5% in 2025. That's if inflation doesn't spike back up so quickly, because inflation will re-accelerate.

It's just a matter of when. The government and the Federal Reserve, they're highly motivated. to avoid a deep recession. And there's the debt crisis that they're trying to dodge. And then there's that big event that we got coming up in November. They've got a lot of tools at their disposal. And they're going to use them all to avoid any regression. The lower rates are great news for buyers who've been sitting on the sidelines, waiting for rates to come down.

More affordable financing could bring more buyers back into the market. But they haven't taken the leap quite yet. Lower rates also means the risk of pushing inflation up. So there's this balancing act. that we got to play here. If inflation stays stable, hey, we're golden. But if it starts creeping up again, that will complicate things. To summarize where are we at, foreclosures are low and they're not spiking up.

Demand is still greater than supply. Okay, but a severe recession at high unemployment that could do the trick and cause high foreclosures and reduced demand. But the government and the Federal Reserve, they would come to the rescue in that type of situation to prevent a deep recession. If the Federal Reserve does come to the rescue, obviously that would be inflationary because the way that they would rescue the economy would be to print money and to lower interest rates. A lot of people are rooting for a housing market crash. Not out of bad intent or because they simply want chaos. No, it's because many people want home prices to come down so that they can afford to buy a home. Like, I get it.

Like, who doesn't? For conditions to improve to get affordable housing, things need to get fixed. but things are not getting fixed. What do we need to do? We need to build more homes. We need to reduce inflation. Wage growth needs to grow faster than the cost of living. And the labor market needs to improve.

But the housing shortage persists. Inflation is ongoing. Real wage growth is not keeping up with inflation. The labor market is deteriorating. I know, too, that people are rooting for a market reset. I see it in the comments. And it's likely that we'll need a more comprehensive approach to make housing truly affordable

in the long term, though. If you're trying to buy a home right now, it does not mean that the situation is hopeless. Does it mean that the current economic situation is more difficult and it's going to be more challenging to buy a home? I would say yes, but it's not impossible. And listen, if you already own a home right now, like I must, I mean, I imagine that you're feeling very grateful.

Like, you're seeing the situation and you're like, wow, I really dodge the bullets. So listen, I'm just trying to be helpful here. I'm just trying to give you honest, accurate information without any spend and providing you with free financial education. Like, I'm just trying to do my part. And as I've been saying, I don't want you waiting around for a housing market crash if it's unlikely to happen. So people have been saying that the housing market is going to crash in a few months.

It's just right around the corner. They've been saying that for the past four years, as if, like, I've never heard that one before. And I know that some people are saying, because they're reading the comments, the housing market has already crashed. They're not saying that it's in progress of crashing. They're saying it's already crashed. To that, I would say, okay.

if the housing market has crashed and if homes are so affordable and cheap right now, then why don't you go buy up all the homes that you can during a crash? Isn't that the best time? Like, this is your time to shine. This is your opportunity. I think he's right. And I can't tell if he's holding back or not his convictions about the market. But the idea of buying right now, it sounds crazy to a lot of people.

And there very well could be a dip in the near future or even a few years down the road. But the American dream of homeownership is slipping further out of reach for the average person. And it could soon be gone for good. And here's why. You see, we're on a trajectory where owning a home is becoming less accessible for most Americans. Corporations are snapping up single family homes and turning them into rentals, while builders are focusing on build to rent communities. I mean, they're building entire communities not to sell, but to rent. So if you're waiting for a significant drop in home prices, you very easily could end up losing out in a long run. I mean, I really believe we are hovering around where this is right now as affordable as real estate is going to get. So if you are serious about building wealth and securing your financial future, you need to pay attention to what's really happening because there's a lot of evidence suggesting that waiting for home prices to fall is a losing game. The supply demand imbalance in the U.S. housing market, that's pushing prices up and it's continuing to do so.

It's not going to wait anytime soon. I mean, even if prices dip slightly in the short term, as many have been predicting, Brian pointed that out too, the long-term trend is clear. Demand remains strong and when mortgage rates inevitably decreased to that breaking point, and there's a little bit of debate as to where that breaking point is, but when we hit it, competition will drive prices even higher. If we continue down this path where institutions own the majority of single-family homes, everyday people could find themselves permanently locked out of home ownership.

So is the market going to crash? Short answer? No. So if financial freedom is important to you, here's why you should consider investing in real estate right now. Number one, wealth creation through appreciation. If you bought a home with a 20% down payment, say 10 years ago, your ROI is 22.25% or 22.5% annually. Few investments, including all of the 401,

Ks out there can't match that. Despite rising costs like property taxes and insurance, real estate continues to outpace inflation, solidifying its role in wealth building. I mean, if the down payment is a hurdle for you and you have a 680 credit score with no recent collections or bankruptcies, Bank of America offers a zero percent interest program for real estate investments. I've helped clients secure up to $150,000 and zero percent funding recently through no-cost capital.com. And then there's this. This might help you too. the zero-down kit that includes 10 realistic ways on how to buy a house with no money down. And you can get that at zero-downkit.com.

Both of those together can really help you out and get into homeownership. Number two, the tax benefits and equity growth. The average homeowner's net worth, it's roughly 40 times greater than a renters largely due to home equity and tax benefits. Homeowners, they can deduct up to $750,000 in mortgage interest and $10,000 in property taxes, saving them thousands of dollars annually. Every mortgage payment, it builds equity, unlike rent, which leaves you with nothing financially. Number three, long-term stability and control.

Average annual rent increases have ranged from 3 to 5% over the last decade, with some areas seeing over 10% jumps in a single year. In contrast, homeowners with fixed-rate mortgages enjoy stable payments. Bad news for renters, but great for those who own. Number four, leveraging real estate for low. lifestyle flexibility. You see, over 16 million U.S. households own rental properties because they know something. You see, in premium areas, rent can be much lower than mortgage payments. For example, instead of paying $4,000 on a mortgage, you could buy a rental property elsewhere that generates

$2,000 a month and then use that income to cover the rent in your preferred area. This strategy lets you build wealth through real estate while living in a better area for less, or even for free, if you do it right. I personally owned 350 rental units before buying my primary residence because this strategy, it allows for wealth building while enjoying a higher quality of life in a more expensive, nicer neighborhood. Number five, real estate as the final frontier for wealth creation. Real estate, it makes up about 60% of the total assets of wealthy households, according to the Federal Reserve. Compared to volatile stocks or low return bonds, real estate offers a balanced mix of appreciation, income, and leverage.

While the S&P 500 averages a 7 to 10% return over 10 years, leveraged real estate can easily yield 15 to 20% annually, really 30% without trying too hard, making it the last realistic path to financial freedom for most people. Thanks for watching. Take care. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too?

There's a really good chance you know someone else who would. and when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings, and success to you. I'm Matt Terrio. Living the dream.

Yeah, yeah, we got the cash flow. You didn't know home for us, we got the cash flow. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.