George Kamel - This Broke The US Housing Market (What You Need To Know)

Episode Date: January 13, 2025

💵 Start your free budget today. Download the EveryDollar app!  What does the housing market and your kid nephew’s birthday party have in common? Chaos. But in this episode, find out how you can still buy or sell—even in these wild times.   Next Steps:  🎥 Watch my video 4.5 Million People Bought Homes Last Year (Here’s How).  Connect With Our Sponsors:  🔒 Get 20% off when you join DeleteMe.  💸 Learn more about opening a high-yield savings account with Laurel Road.  📱Get $5 off Tello's Unlimited Plan and enjoy great nationwide coverage for only $20 at Tello.  Explore More From Ramsey Network: 🎙️ The Ramsey Show  🍸 Smart Money Happy Hour  💸 The Ramsey Show Highlights  🧠 The Dr. John Delony Show  💡 The Rachel Cruze Show  💼 The Ken Coleman Show  📈 EntreLeadership    Ramsey Solutions Privacy Policy  Learn more about your ad choices. Visit megaphone.fm/adchoices

Things are a little chaotic right now. You've got a wild job market, the unpredictable housing market, and most chaotic of all, Trump's cabinet picks. Still a little upset he didn't choose Guy Fietti to be Secretary of Transportation. That guy has given me some wild rides to Flavortown. Put him in, coach, put them in. But let's focus on the housing market, okay? Median home prices are almost double what they were a decade ago,

and interest rates are 2.5 times higher than the end of 2020. So today, we're covering how we got here, what it's going to take for things to get more affordable, and how you can still buy or sell a house, even though things do be crazy. So how do we get here in the first place? At the beginning of the pandemic, there was a home buying rush,

as evidenced by that one friend in the group who manages to always bring up the crazy low rate he locked in. Listen, Brad, I wish that 2.5% rate could make your dad proud of you. It isn't. It will never be enough. You are enough. I love you. That was a little weird.

And here we are post-pandemic, where everything took a hard turn with skyrocketing interest rates and shrinking home inventory. This left buyers and sellers wondering whether to make a move now or hold off to avoid making a costly mistake. And if you've been looking to buy, you probably haven't loved how things have shifted. You may be thinking, am I ever going to be able to buy a house? Can I afford something if interest rates drop? How do I save up a down payment when rent and home prices keep going up?

I get it. Those are legit concerns. But before we get to the best way for you to navigate the housing market, let's look at where all this chaos came from and what it will take to fix our problems. The first major cause of the chaos is a shortage of new build home. For decades, the U.S. was pretty consistently building enough homes to keep up with demand, averaging around 1.5 million new homes per year from 1959 to 2007. But after the 2008 crash, you know, the big depressing one, that pace slowed way down.

And since then, we've only hit 1.5 million new builds twice in 2021 and in 2022. Overall, the slowdown in construction has left us short by about 7 million homes compared to what's needed to keep up with demand and that long-term average. So, is this problem fixable? Well, the main challenge of building more homes boils down to a few big factors. One factor is the consolidation and near monopoly of these major builders. Here's what that means. In 2007, the top 10 builders in the U.S.

built 27.5% of all homes. But by 2023, the top 10 builders in the U.S. built 42% of all homes. But here's the kicker. Most of that growth comes from just the two top power players, old D.R. Horton and Lenar. These guys alone snag nearly two-thirds of the market share game since 2002. So they're like your ruthless uncle that now has boardwalk and park place.

Oh, you thought you were going to land on go, but now you owe $2,000 because boardwalk has a hotel on it? Well, sorry, you should have thought about how broke you are before you rolled up for grandma. This is why I don't play monopoly with grandma. I don't need that kind of animosity. Another case of monopoly-related violence, chief. So with these two companies controlling so much of the market, they have a lot of power over the supply, and that means fewer choices for buyers and longer wait times. But here's the thing to remember. Less supply drives prices up. And with that, their profit margins go up too.

Cool, cool, cool. So the solution here is more competition and increased production from the other major players. But there's another problem here. Home builders would still be facing other issues, like regulations and zoning hurdles that make cranking out more homes, as they say in the biz. So the fix for this one is pretty simple. Reduce regulations and red tape around zoning and permits.

But the bigger fish to fry in this whole new build shortage pot is that the construction industry is also dealing with a severe labor shortage. As of February of 2024, there were over 450,000 construction job openings, which is the highest number since 2000. This gap has made it difficult for builders to keep up with all the demand. And this problem is not going to get fixed overnight. But increasing the number of workers would make it easier for small and large builders alike. So hey, Gen Z, I know you have big dreams about being a YouTuber and stuff, but there's like real jobs out there that pay real money if you're willing to do real work.

And can you imagine if instead of a YouTuber I was in construction, the tan I would have, the muscles I would build, the car hearts I could car heart? Oh, the car hearts. Carhart. It's basically the Midwest Gucci. I'd have the ego of a Greek god if I was in construction, and that's why I don't do it. I stay humble. Anyway, a shortage of new builds is problem number one. Problem number two, there's also been a shortage of resale homes. Even though the number of resale listings are growing in the last year, they're still below pre-pandemic levels, which is a pretty big deal. So why are homeowners holding off on selling? Well, likely, they want to keep that sweet. sweet, sweet low-interest mortgage.

Even if that puts you four to bed like Charlie's grandparents. Still haven't seen the new one? I am simply too shallow made out. Let's give it some time. Give it some space. Hey, Dad, can you come get us? Everyone here's super mean. You see, from 2011 to 2022,

mortgage rates stayed under 5%. And during the pandemic, rates fell below 3%. So there's a decade of homebuyers that are looking at today's 7% rates, not wanting to trade in their little 3% weight. It's so little. I don't want to give it up. So is the resale inventory problem fixable?

Well, honestly, getting housing inventory up is probably the most difficult problem to solve. But there is some good news here. October of 2024 marked the 12th straight month of inventory growth. So we're trending in the right direction, but we have a ways to go to get back to pre-2020 levels. Can I get a half-hearted? Who-woot? Guess not. And whether it's resale or new builds, problem number three that's causing chaos in the market,

investors are now grabbing a big slice of the limited supply. In the first quarter of 2024, investors bought one-fifth, of all homes purchased. And even worse, investors snatched up a record 26% of low-priced homes that sold in the first quarter, making it harder for lower income and first-time homebuyers. It's like when your grandpa circles back five times for samples at Costco. Maybe not illegal, but it doesn't feel right and who's going to stop him?

Who's going to stop grandpa from getting another sample? Not me. And he's been flirting with the sample lady. The guy still got the Riz. 82. Still a charmer. So is the investor problem fixable? Well, unfortunately, this one is kind of baked into the cake.

It would take some serious legislation that would have little to no possibility of passing. So what can you do about it? Well, you can't put yourself in the best position to win with your home purchase. And we'll talk more about that in just a minute. Now, problem number four standing in the way of a healthy market is rising interest rates. Along with skyrocketing home values, which have added insult to injury, monthly mortgage payments have nearly doubled in the last four years. And some of you might be wondering, wait, didn't the feds drop race recently? Yes, good eye, they did.

They dropped the fund rate by 0.75% from August of 2024 to November of 2024. But mortgage rates basically went up that same amount instead of down. And that's because the Fed's fund rate isn't the same as mortgage rates. They're more like distant cousins, not conjoined twins. The Fed's rate directly influences short-term borrowing. That's things like credit cards and car loans, while mortgage rates are tied to long-term bonds and influence by factors like inflation and demand in the housing market.

So is the rate problem fixable? Well, here's the deal. A 6% or 7% interest rate feels higher. right now, but if you look at the bigger picture, like this graph, it's actually pretty average compared to historical rates. And in terms of trends, they're actually down from the recent peak in 2023 when they were over 7%. So the good news is that rates are expected to continue to come down in 2025. But barring a financial catastrophe, we're not going to get those sub 3% rates again. And let's be honest, do we really want another global catastrophe in order to get there? I will

personally pass. No, hard pass. So that's how we got here. And while we can hope for the market to get better, you don't need to wallow in sadness and listen to Boni Vair in a dimly lit corner. Home ownership is still possible, and you actually have more control over it than you might think. And you also have control over how much you're paying for your phone plan, which we can both agree is too much. And with Tello, one of the sponsors of today's video, you actually have complete control because their plans are customizable. So if you don't need a lot of data, you can get a plan as low as five bucks a month. And if you want unlimited everything, that's only 25 bucks a month. And if you're worried about coverage, don't. They piggybacked off

TeamMobiles towers, so you get the same great coverage at a much lower price. And to do you one better, I've got a deal for you. You go to tello.com slash George, and you'll get five bucks off your first month of unlimited everything. That's tello.com slash George, or click the link in the description below. And whether you're saving up for a down payment or something else, you might as well get a boost with a high-yield savings account like the one offered by online bank, Laurel Road. Picture it like a moving sidewalk for your money.

And to be honest, when I'm taking one of those in an airport, I feel better than everyone who's moving at a snail's pace while I pass them with ease. And with Laurel Road, you get top-tier rates that help your money make you more money. Your deposits are FDIC insured, and there's no minimum balance and no sneaky fees. It's easy to get started, and you can check them out by going to laurel road.com slash George or click the link in the description below. All right, let's get back to what you can do about your place in this housing market. Let's talk to the homeowners first.

If you own a home, let's talk about those golden handcuffs. Listen, low rates are great. I'm not mad at that. But they're not a get-out-of-life-changes free card. And that's why paying off your home is actually smart, because it gives you freedom. You're no longer tied to your mortgage, and if life changes, maybe you need more space, less space, a fresh start,

who knows what. You can make that move without worrying about rates. A paid-off house is like having the keys to your own cage, except you don't have to pretend you're happy staying there anymore. And if you're looking to sell your home, now might actually be a great time to put your house on the market, because inventory is still low, so there's definitely demand.

Just don't expect it to sell overnight like it might have, a couple of years ago. Buyers are more cautious with these higher rates, so it might take a little bit longer. But if you're priced right, you're patient, you work with a good agent, it's still a solid time to sell. All right, let's shift gears and talk to the folks

that don't own a home, but want to buy one in the near future. Here's the deal. Do not rush into buying a house just because you're tired of your landlord's Pepto-Pink bathroom. That's a constant reminder of why you're there in the first place.

If your finances aren't ready, you're just trading one stress for another stress. So get your financial ducks in a row. Pay off your consumer debt, build up a solid emergency fund, and save up a good downpour of at least 5% and ideally 20% to avoid private mortgage insurance, which protects the lender, not you. And crunch the numbers to make sure that you can actually afford a 15-year fixed-rate

mortgage where the total payment is no more than 25% of your after-tax income. So if you're out there scrambling to buy a house with no down payment, you still got consumer debt, you have no emergency fund, you're being average. That's what the average person does. And average people are broke, stressed, and have no margin to actually enjoy their life or their home. So your dream home should feel like a blessing. Not like you're about to start on the next season of House Poor, Why on earth did I do this? That show is worse than Is It Cake, Season 4? That's the cake version of me. And all of you keyboard warriors in the comments, let's see if I can guess your chief complaint. George, prices are high, rates are high, and I'm still supposed to have

a big enough down payment to afford a 15-year mortgage. You're crazy. Yes, I'm crazy enough to want to give you freedom in your financial future. And I'm not blind to the fact that this is one of the toughest markets for home buying, but there's still a right way to do it. and that might mean you need to make some compromises. Can you be okay buying a smaller home than you initially planned? Maybe it's a townhome instead of the single family with the big yard. Can you move a little further out where prices are cheaper, even though it's going to increase your commute by just a little bit?

Can you buy a home that needs a little TLC and cash flow of the renovations over time? And if some of those things are non-negotiables, you're going to need to be patient. You need to wait longer, you need to save up a bigger down payment, which will decrease your monthly mortgage payment. And you'll be surprised at what you can do with intense focus and sacrifice. Ultimately, when you do it the smart way, the market doesn't control your financial situation. You do.

And that means having a clear picture of your finances, your goals, and your game plan. And you're not alone in figuring this out. 4.5 million people still managed to buy a home in 2023, even in a challenging market. How did they pull it off? Watch this next video to find out how they did it and how you can too. Or just click the link in the description below. And don't forget to like and subscribe if you enjoyed this video so you don't miss the next one. Thanks for watching. We'll see you next time.