The Rachel Cruze Show - Bonus Episode: Is the Housing Market Going to Crash? A Real Estate Reality Check.

Episode Date: July 22, 2022

Alright, so the real estate market has people freaking out and feeling uncertain about buying and selling a home. Maybe you're feeling the same way—and that's understandable when opinions are coming at you from every direction. It's time for a reality check about what's really happening—so you know how to navigate the market. Get Ramsey Real Estate Recommendations here: https://bit.ly/3n9bhyR Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey guys, it's Rachel here. So we all know that the real estate market has people freaking out and feeling really uncertain about buying and selling a home. So it's time for a reality check about what's really happening so you know how to navigate the markets and why the housing market is not going to crash. So check out this recording from our live stream where Dave Ramsey, George Camel, and I unpack the facts,

answer your burning questions and help you figure out what all of this means for you. If you actually want to see the graphs and the visuals that we reference, then you can find that video or more information at ramsysolutions.com slash reality check. We hope this helps you in this crazy time because you deserve to make decisions based on facts and not here. Hey guys, welcome to our real estate reality check. Brought you by our team here at Ramsey Solutions. We're so glad you joined us tonight to talk about this crazy economy that we're in. and all the real estate issues that are out there.

And man, there is a lot to talk about. You know, a couple of weeks ago, I had a retreat with our Ramsey personalities. For those of you don't know what that is, that we've got about eight people on our team that write best-selling books and speak for a living and are thought leaders in different spaces. So we were on a retreat,

and I decided we were going to go skydiving, at least those of us that wanted to. Now, skydiving, jumping out of a perfectly good airplane. that's just what's known as scary. The first time I did it, you know, I really thought I was going to be very afraid. Like I was going to be shaking, like scared, and they were going to be the guy that had they push out of the plane or something. But I'm going to get up there and I'm going to try it.

And the weirdest thing happened. All of the preparation, all of the knowledge, the quality of the people we were diving with, and they were showing us how all the equipment worked and how all the fail safes were there. I just relaxed. And I ended up having fun. And the same thing happened when I dove the other day. You see, the statistics are this. Three and a half million people jump.

There's about three and a half million jumps a year for skydiving. Only about ten people lose their life a year out of that. That's a 0.28 fatalities per 100,000. Now, George Camel and Rachel Cruz-Ramsey personalities are joining us tonight to talk about this stuff. They, however, did not jump out of the plane. You didn't see any of their pictures up here, or you won't see any of their pictures up here, jumping out of a plane. However, they both drive Teslas, and statistically, you're much more likely for your Tesla to catch on fire

while driving to work, then you are to die jumping out of an airplane. And yet they didn't want to jump out of an airplane. So this is me shaming them one more time for not jumping. We had a blast, and we have a lot of fun teasing about them driving Teslas and me driving a big gas-guzzling raptor all the time. But the point is this, facts and information in a scary situation can help us to calm down. And tonight, we're going to set us out our feelings, and we're going to look at facts. We'll address the feelings, but we really need solid information. not some Twitter economist on Twitter telling us how our life is going to work.

There's a lot of scary headlines out there and there's a lot of feelings. There's anger and frustration and FOMO and worry and hopelessness and uncertainty. Will I ever be able to buy a house? If I buy a house now, is it a mistake because the housing market's getting ready to crash and I could have got a better deal later? Or if I don't buy now, is it going to continue to go up and I'm going to get completely priced out? and I don't know what to do, and there's just all of this angst and worry and fear and anger.

It's all over the place. We're hearing it on our radio show, the Ramsey show. We're seeing it in our social media comments and the people coming at us, and some of them are angry at us just because we dare to say it's going to be okay, because it is going to be okay. And people are making decisions right now. It's pretty scary. Real estate market's a lot of rumor, a lot of speculation out there.

And there's a lot of stuff in, you know, flying around the Internet. Abraham Lincoln once tweeted, you can't believe everything you see on the Internet. So if there's an economist that's not an economist on Twitter, just calm down. Let's look at actual data. See, you hear things in the real estate market. Real estate has always had this emotion around it, this drama around it, this rumor mill, this gossip around it. So did you hear the house down the street? He sold it for $100,000 under asking price.

If that was actually the truth, which it might not even be the truth, the gossip mill is not reliable data. But if it was actually true, did they know about the mold problem in the house or the septic tank didn't work? Or did they know that there was a divorce situation so there were motivated sellers?

Did they know they were almost in foreclosure and they had to get rid of the house so they took a beating on the price? And so it has nothing to do with an indebted, that the real estate market is crashing. Or did you hear about that house? The guy sold his house, $200,000. Over-asking, over-appraisal, with no appraisal and no inspection, did you hear about that? Well, that might be true. But that's not an indication of actual value. That's an indication of someone moving into that market that had a lot of money, was in a hurry, and got freaked out and overpaid for a house.

You can't take those things as economic indicators. It's a bad idea. When we don't have facts, we make up stories in our brain. We add drama. If your teenager is out on a date and isn't home by curfew, well, they must be dead in a ditch somewhere. When the reality is, they're over there making out with their boyfriend or girlfriend. Hey, don't allow crazy headlines and drama and talking heads to affect your long-term money goals. We know that hope deferred makes the heart sick, but when desire comes, it is the tree of life. Tree of life.

And hope comes, one of the things that gives me hope or gives you hope is perspective. When we can look at data, that gives us hope. When we can look at, or maybe not, but when we can see things in their light of time, we can zoom back and see things the way they really are, then the distortions of the drama are pushed away. The classic on the internet today is the fishing photos. You know, we get these great guys, they bring up their fish and look at the size of this trout. That trout must be 300 pounds. There are no 300-pound trouts. Let me tell you how you do this, by the way.

There's a little trick to it, okay? You hide your hands because your hands will show the actual scale of the fish. You hold the fish out from you, so that throws the thing, and then you fill up the whole frame with the fish, and you use a wide-angled lens. So this is actually a normal trout. And so when something gets up in your face like this, like all of this emotion about real estate, you lose your perspective, and you start freaking out and boom, the bigger fish is in your face. It's a problem. Now, just because you held the fish close to the camera doesn't mean that that's actually the size of the fish. This is all about perspective. It's because of perspective. When it comes to real estate, my perspective comes from data. I own several hundred million

dollars worth of real estate, and I've been buying and selling real estate my whole life. I got my real estate license and still have it 44 years ago. I grew up in a real estate person's household. So I have ridden the wave of these types of economies for many, many, many years. I've watched this stuff happen. It gives me perspective. Now, I'm looking at the data. I want to show you the data tonight, and then you get to decide. I've made my conclusions based on the data and based on my perspective, and it's not right here in my face. It's over time, and it's given me a lot of hope, and I'm really pretty calm about it. And I really hope I can convince you that the way we're looking at the data is correct. Okay? Tonight is our real estate

state of the union. This is what's going on today and what we see coming and why we see it coming. And then you can draw your own conclusions from the data. We've certainly drawn ours. I've predicted things based on data that I've seen in the past and I've been right most of the time, but not every time. I've messed up plenty of times. So you get to decide like grownups after you look at this information if you think it's right or not. Now, one thing we do know is we know that house prices have been skyrocketing. In 2020, house prices went up 29%. That's an unprecedented number.

And so what happened was we came out of the pandemic quarantine and the economic suppression. People were trapped in their homes. They decided they didn't like them, and they needed to go buy a new home. And so home buyers came out of their homes, chasing another purchase like a Baptist chasing a casserole. Man, they were getting after it. And so we saw this unprecedented spike in prices.

Values went up dramatically. In 2021, it continued, but not as much, up 18% were projected, not 29 or 18 in 2022. We're projected to be 8% this year. And they're projecting all the economists that are looking at this, a 3% or 4%, increase next year. Now, three to four to five percent somewhere in there is the average increase in real estate prices, residential single-family homes for the last 50 years, really even longer than that. So that's about average. If we can stay in that four to five percent range, that would be a normal market. Buyers spying, seller selling, people making moves without

all the freak out and without any kind of crash in the real estate. market. We're hearing a lot. Well, Dave, it's like 2008. It's worse than 2008. This is going to be bad. I've never seen anything like this. And there's all this drama and all this octave change in people's voices indicating their fear and their anger and everything else around it. So let's look at some facts. Let's talk about supply and demand. This is how basic economics works. Anytime there is more supply of something than there is a lot of something than there is a demand, the price goes down. Anytime there is more demand than supply, a lot of buyers chasing few goods, the prices go up. If there's a toilet paper shortage, remember that one, prices will spike

up. What's driving our prices at the pump up now is there's a shortage of oil. We can argue about that, but it appears that the spigot has been turned off by Washington, there's a shortage of You want prices to come back down on oil and gas? It's pretty simple. Flood the market with lots of oil and gas. You know, pump everywhere, right? And you get lots of gas out there. Prices will come back down at the pump. It's a pretty simple formula. Real estate is for sure a supply demand price. Pricing in real estate, one thing drives house prices at the end of the day. Supply demand. When demand, exceeds supply, house prices go up. Like we had these huge number of people come out after COVID, boom, we had a 29% increase.

In order for prices to go down, supply has to exceed demand. And real estate, well, we've had a shortage of homes for about the last two decades. That's pretty crazy. And because of low supply, high demand, people have been willing to pay a lot. of money for stuff. And so it was like a guy sitting there with a house and he's going, I don't really care if I sell it or not. But where it is, there's people running around here paying $200,000 more, $300,000 more than appraisal. So I don't really want to sell my house, but if you're going to pay me that much, I'll sell it. I've got a Shih Tzu name Rufus,

and I don't really want to sell him. But for $10 million, you can have Rufus. Rufus is a goner. We're going to give him to you for $10 million. I'm telling you. Sorry, Rufus. We love you, buddy. But guess what? Nobody's going to be. offering me that. But that's kind of the way it has been, is these ridiculous offers cause people who really weren't even sellers to become sellers. They were drawn into the market in this situation. Now, let's look at supply demand. Let's look at the actual data, and this is the data I want you to pay attention to, so you can decide now where you want to go from this. All right? Now, current supply is about half of what it was in 2007. Dave, it's just a

just like 2007, it's just like 2008, the market's going to crash, it's too high, it's too high, it's going to go down. Well, there's three million houses, almost four million houses for sale in 2007, and there's about 800,000 for sale right now. So our current supply is approximately one-fourth of what it was in 2007. Building starts also in 2000. We're about 2.1 million. And this year, they're going to be about 1.38 million, about 1.4 million. So about half, a little more than half on that. So used housing, guess what?

New housing. And new housing got totally disrupted, right, with all the supply chain stuff. The factory shut down with the COVID suppression, the economic suppression associated with quarantine, and we didn't have lumber. And so lumber prices went crazy. Now, lumber prices on new housing have averaged in about the mid-600s for a long time, for decades, right? So, 600 per board foot, right? And guess what? Because we didn't have any lumber, because the lumber factories weren't making lumber, there was a shortage, no supply, lots of demand. Price goes up threefold, 1,700 per board foot, comes down, comes back up to 1,500, and now it is leveled off, and appears to be that production has cost.

caught up coming out of the factories and the lumber crisis, the inflation caused by lumber prices, the messed up supply chain caused by lumber shortages seems to be rolling out, smoothing out, and be over. But this has affected the building starts as well. Can't get labor, can't get materials, can't get houses out of the ground, so we've got a shortage of new houses, we've got a shortage of used houses. And guess what? There's been no foreclosures. Look at the foreclosures. You know, they shot way up in 2007, 2008. But go over here to COVID.

Look what happened. Zoop. No foreclosures. There was a moratorium on foreclosures. None. The government stopped it. And then the banks extended, set by their own decision, another year. We have about two years that major banks have taken almost no houses.

And those people are sitting there paying no payments. They're living there for free right now. And we got about two years backlog a foreclosure. it's going crazy out there. Okay, so we're going to see all of those foreclosures come back into the market, but it's still not going to provide enough inventory to where we don't have this dramatic shortage. Now, we've got a dramatic shortage, not enough supply. And remember, supply has to exceed demand for prices to go down. Now let's look at demand. Is demand going down? Well, one of the things we know is that the millennials have come of age. In 2007-2008, the people in their mid-30s were Gen Xers.

Today, the people in their mid-30s, prime home buying age, mid-30s, are millennials. And there's 5 million more of them than there were higher demand than there was during 2007, 2008. Higher demand, lower supply, higher-demand. You've seen what's happening here? And then guess what? In addition to that, we've got 12 million more households in the United States in 2022 than we did in 2007. Today we're looking at 128 million households. Back then we had 116 million, difference 12 million. So we've got that many more people that have set up house that need a house, five million of them, are millennials.

And so this is what's going on. We're seeing this pressure on demand. Add to that that in 2007, 2008, we almost had zero institutional investors in the market buying up houses. Today we've got these big conglomerates buying single-family. homes like crazy. Last year, according to Forbes, they bought 28% of the houses that were for sale in America. And these are institutional investors taking these houses off the market. These are the top 10 cities where they were doing this stuff, where the investors are going in and buying. And this is Q2, our Q1 of 2021 to Q1 now. All right. So Atlanta, Jacksonville, Vegas, Orlando, Nashville, Columbus, Ohio, big time. That's the percentage of homes selling just to investors, meaning what's left over is for everybody else, and we already had a shortage.

So this is driving demand as well. Now, we've got some cities that the investors are not interested in. These are the worst cities in America, as far as the investors are concerned, because they're the lowest investor rate. And so if you look down here, Chicago, Minneapolis, Portland, Seattle, you're starting to see cities that have high taxes, cities that had archaic, crazy COVID freedoms taken away, and you're seeing cities that have a lot of violence in them and a lot of out-of-control law and order issues. And so the investors are shying away from those cities because of the environment in those cities politically. And they're going crazy over here in these Sunbelt cities where those things are not happening. So we've got higher

interest rates, we've got high prices at the pump, high prices in the grocery store, And those things are all pinching most people's budgets. And most people already just barely had enough room in their budget to go buy that house that they wanted to do. And so they're feeling this, and that's where all this fear's coming from. I feel like I can't get that house. And I'm making a little more money, and I've got some things going, but not enough to offset everything.

And it just feels tight. It feels kind of scary. Like, I don't know if I've been boxed out of the market or not, and it gets all this emotion going. So here's the thing. There is, those people, some of those people are not going to be buying houses right now. They're not going to be part of that demand. But those numbers that I just showed you represent a ton more demand than we have supply.

That's why I am saying, it's a conclusion I came to, that we're not going to see crash of housing prices. We're not going to see house prices crash because the supply demand just won't allow it. There's too many buyers chasing two few houses, and that's going to hold the market. Now, we have seen the economy slow down, and I do think it's going to slow down. I don't think it's going to be as crazy, white-hot as it has been. I don't think we're going to continue to see these price jumps in real estate. But that's a far cry from 2008, and we're going to see this huge drop that was unprecedented. The only time in the last 100 years or so, close to 100 years, that we've seen.

seen house prices go down across the board in the United States was during 2008. And it was a different set of economic circumstances during that time. So, in summary, let's look at this. All right. Supply, there's a shortage of used inventory. Remember, 3.8 versus, 3.6 versus 800,000 for sale. Home starts are down. Remember, 2.1 million down to 1.38.

Remember that? and foreclosures have been non-existent down, they're barely starting to come back. And then let's look at the demand against that supply. There's 5 million more millennial buyers in their mid-30s. There's 12 million more overall householders, and investors are buying one out of every four houses that are sold. All of that is a pressure against this shortage that's going to tell you that we're not going to see a crash in housing prices. This looks nothing like 2008. This looks nothing, this looks more like all the other times in history we've seen houses go along and what's happening.

The biggest problem we've got is we're going to have a housing shortage that's going to be prolonged over a long period of time. And real estate's going to start to be a real key part of your plan going forward. So we want to get you towards that house. We don't want you to do it crazy. We don't want your emotions to keep you out of control. Supply demand is not going to allow this market to crash. If you purchase properly, this is one of the best times in history to buy right now. A lot better than a year ago because prices were crazy.

And it's a great time to sell, but it's going to be more of a normal selling environment instead of an auction where you put your house on the market and get 85 offers in 42 minutes. Okay, it's not going to be, hopefully that's gone because that's not healthy for the market. It's not healthy. So, if you're ready, now's a good time to buy. if you're ready, now's a good time to sell. So I ask a couple of our Ramsey personalities to join me, George Camel and Rachel Cruz,

to have a discussion about some of the things we're hearing on the Ramsey show, and some of the things we're hearing within our social media comments, the ones that aren't trolls, and the ones that aren't just out of control. But, I mean, some people have some honest questions, some honest concerns. Rachel Cruz, number one, New York Times best-selling author,

and speaker, you see her frequently on national television, also my daughter, He's the host of the Fine Print, one of the Ramsey Network's great podcast that goes out. You'll see both of those or hear both of those on the Ramsey Show with me on YouTube, podcast, and 638 radio stations around America as we talk about money. And that's where we've been hearing from you guys where you were on this. Professor Dave, great job. Amazing.

The charts and graphs. The graphs, I thought, wow, it's amazing. I thought meteorologists, how they'd be a great weatherman, you know? Oh, that's even better. Yeah, then I'd have to predict the tornado. It's going to rain all this. Even if you're wrong, Dave. He did great.

It was great. I got a whole other field ahead of it. Tonight, he just know. He was like, I just want graphs. I want graphs. Did you get graphs? I got graphs. The graphs.

We got graphs. I love it. No, but we really did. Tonight we were excited about this event because we've all heard a lot of the fear, a lot of the magnified conspiracies or the things out there, which I've dove in those holes a few times. You're hanging out, Rachel.

I know, I know. We've heard it all, though. We've heard it all. And so we're like, we want to give facts. and again, address where you guys are at because there's a lot of fear and a lot of pain. I mean, inflation just came out at 9.1%. So you're feeling it in your everyday budget.

You're feeling it in your lives. And then this real estate confusion, not knowing what's going on, all of it. So if we can just give some peace, some calm and guidance, that is our goal. But I think the number one thing that I'm hearing, at least from even friends, I'm hearing on social media, on the radio show,

is just the simple frustration of how expensive homes are right now. And it's like, man, what we could have bought in 2019 versus what we could buy now, it's a different game. It's a different game. And so it is very, very normal and we don't expect anything less than the frustration of that. So us talking about that and combating the discouragement out there. So just know, we hear you. We see that. We know. But man, there's, but there is a different way. There's a way to still buy a home. There's a way to be smart about this and do not completely take your life. Absolutely. Yeah, as we look at these comments on social media, many of them angry.

Y'all need to settle down with that. But as I see it, I go, okay, there's legitimate frustration here because the same house that was $250,000 you had your site set on might be $350,000, $400,000 now, and you just feel like it's a moving target, and you'll never be a homeowner. And I get it. It's discouraging. You feel like you're going to need to delay your dreams. You might have to work with what we call gazelle intensity for longer than you planned, your with some crazy cash offers with these California suckerfish. But I want to encourage you guys, with the market cooling down, it's actually a better time to buy because you're not having to compete.

Appraisals and inspections are back. So I want to give you some encouragement that it's been better than it was the last few years for buyers out there. We are seeing the market soften because of mortgage rates going up. And again, it's that some prices have gone down, but the value of the homes are staying. Continue to appreciate it. And what's interesting is, yeah, that now we're going back to normal.

is what it feels like, where you're getting an appraisal, you're getting an inspection. I mean, all of that, it feels like it's going back to normal. And if you've got that frustration right now and that frustration is building it up, catch yourself if you say things like, well, what goes up must come down. That's actually not an economic principle, okay? As a matter of fact, if you look at the charts and graphs that we'll show you even a little bit later on the house prices, what goes up has never come back down. And the other thing you've got to remember is this.

The thing, like I was talking to a guy, you and I were talking to a guy on our show yesterday. Earlier in the week. And he said, well, I mean, I bought this house for 200. It seems like 20 minutes ago. Now it's worth 500. I just don't think you can continue to do that. Well, I mean, guys, I started selling real estate in 1978.

The first house I sold was on East Ridge Drive in Antioch, Tennessee for $38,700. Today. Okay, now you sound a lot. I know I am old. But, I mean, the point is, okay, the point is that $38,000. house today would sell for $400,000. Yeah. And the fact that it went to $200,000 didn't mean it had to come back down.

Right. Just because it went, just because it's uncomfortably large emotionally to you does not mean it's going to come down. That's fair. I know. But it feels unstable, though, because it went up so fast. It feels, though, the feeling is that is that is. Well, because it's something you're not used to.

Yes. But if you look at the data over time, it's always gone up. Yes. And there's no indication, but cause prices went up that they have to come down. I know. That's not a principle. And in so much of this, feelings take over. So whether it is the frustration or the discouragement.

And that's when people make bad decisions financially is when you're making it out of that fear and out of that discouragement. So pumping the brakes and even plugging in, honestly, to the emotion of just contentment, which I know is so hard when you're frustrated. But there is something to be said about our standard of living in America today, where we're at

and what we expect and what we want and all of it. It's changed, right? What you wanted 36 months ago to what you can have now, it's changed. And so what does it look like to really grieve? Dr. John Zolone talks about this, grieving the picture of what you had. I had this picture of what our next home was going to be.

And right now what the math is showing us it's not going to be that. And so I do want people to take the time to grieve that because it is hard. It is really, really difficult. But there's also a level of contentment and joy that I don't want you to lose in life because the market's gone crazy.

Yeah, there's FOMO, and then there's what I call Jomo. The joy of missing out. Because you're not going to be broke in a home because you had to get in because you felt pressure from family. And a lot of people, you know, we're on Instagram and are watching HDTV. And it feels like, well, we just, it's our American right to be a homeowner and have a beautiful home. And it's not right to throw away money on rent because renting is a sin. And when you sit back and go, my life's pretty great overall. You know, we live in the greatest country with so much opportunity.

And the U.S. economy is very strong. It will continue to be over time. And when you can just pause and go, I'm going to get there, but right now I need to focus on what I can control, which is my money and my life. I know, but it is hard because I'm like, there was an Instagram real sound that went around, and it was like, can we just normalize normal homes?

Like, there are normal homes out there that are not this like perfect black and white, everything matches all the time, you know? So there is something to be said of like, okay, what is our expectation of what things have been sold to us, though? But seriously, I'm like, we grew up in a generation, though. It's okay to say. I can't afford it.

I mean, I grew up over there. What's hard is when you could have afforded it. I grew up over there on the other side of the tracks, and the people in this neighborhood were rich people where we're standing right now. And we used to say we can't afford to live over there because mathematically we couldn't afford to live over there. And so we had to do something different with our life if we wanted to live over there. It wasn't because we couldn't move over there. They didn't get to pick those houses up and move them over to us. It didn't work that way.

Right. And so there's a reality to, I can't afford it. The problem is, once you're test drove of Bentley, a Chevy's a Chevy's, It's hard to buy. It's hard. What about test driving on a Tesla? There we go. I might catch on fire. You're going to go back to that. No, you won't. No, we looked up data. We need our own graph here in a second to stick up for the fact that we didn't jump out of a

next. Based on Dave's logic, we are more courageous and brave for driving on our Tesla than Dave is for jumping out of our life. That's exactly right. We're risk takers. We're actually braver than you. How do you feel about that? You're just a couple of gamblers. We are crazy. There's a lot of truth to what you're saying. And to reset those expectations and go, I can't have that single family home in that pristine neighborhood. I might need to get that condo right now. Or I can't have it now. That's what we can afford. Well, it's the timeline. No doesn't mean no. No means not now. Yeah, and it's the location, right? If you drive 20 minutes one way or the other. But again, it's that idea that what it was may not be reality now. Godliness with

contentment is great gain. It's great gain. You gain so much, so much. You make wise decisions when you are content and you're steady and you're looking at all of the facts. And that's really, And that's not happening right now. If you let all that build up and you go buy too much house, you're going to set yourself back a decade. Yeah. Because people that are house poor, meaning their house payment takes up a large percentage of the budget,

because all of this emotion drove that decision, you're trapping yourself and you're going to set yourself back. See, if you're 35 years old or 34 years old, this is your first rough economy. I mean, not counting the COVID shutdown, which was kind of this quarantine thing, But I'm talking about where there's inflation, recession, high interest rates, real estate prices, all these negative things that are in the news right now.

If you're 34 years old, this is your first grown-up bad economy. And it's not to put you down for being young, but if that's you and you're watching this, or it's your kids and you're watching this, your grown kids, you know, this is the first time they've experienced those emotions. For the millennials, it's the first time some of them have experienced these emotions. They've never really faced this before. And so you don't know what we know that have been through about three or four of these, that it's going to be okay. This two shall pass.

But right now, you know, you just look at it with the fish up here. Yeah. It sucks pretty bad. Yeah, because it's like this price of the home is so much. Part of this is rent has gone crazy high too. And so everyone's going, well, why should I rent when I can just put that money towards a mortgage? That's the same argument for 30 years. But they're not equivalent to say that renting and home ownership,

it's the same number. I should just jump into a home. Right. It's very expensive to own a home. There's so much that goes in with it. Yeah, absolutely. It's okay to rent, not a sin. Just want to put that out there.

To be content if you're renting, I know it's not fun. For a period of time, not for a lifetime. But until you can get squared around. Yeah, absolutely. So that's one thing that we're hearing a lot of is just the frustration of where the market is and that it is. It's frustrating.

Something else we're hearing a ton is the word recession. And we're looking at Q2, closed in June, so we're going to know here in the next week or two or even sooner if we are technically in a recession.

And so that word is a fear-based word. People say, there's certain words around money that when you say it, it's like, that sounds terrible

and it sounds bad and what's going to happen? And so actually, this was the Instagram post that kind of blew up because we did one together and I was like, okay,

what happens to the housing market during the recession? And you were like, you explained that and people did not like your answer. So let's like, let people not like you again here in a moment.

That's what I'm here for. It's my gift. Explain a recession and what happens in the housing market. People didn't like my answer because they're wanting to see a house price crash. Yes, yes. And you're not going to see that. And if you don't like that, then you can decide for yourself about this. So you can be mad at me, but I didn't do it.

I mean, it's just this is analysis of data. Okay. What a recession is, and by the way, there's, well, let's just talk about what it is. It's measure of the goods and services sold in America. So all the total of all the goods and services sold, the size of the economy in America, is measured by gross domestic product, the GDP. When the GDP gets smaller two consecutive quarters,

that's called a recession. Now last quarter, it dropped a little over 1%. So it shrunk a little bit. And most of us watching it felt like with the Fed coming in and raising interest rates and some of the other things that were slowing the economy down, slowing the metabolism of the economy down, that the goods and services would shrink yet again.

And so we would have two quarters in a row that it shrunk. If you have two quarters in a row, it's a recession. Now, if it shrinks 1.5% and 1.25%, this is not a deep recession. This is a rainstorm. This is not a hurricane. okay and so it appears right now now actually we're through with the quarter so we just don't have the data to tell you what happened in that quarter so today we're in the third quarter so we're probably not in a recession today but I actually thought this two two quarters in a row we're

going to drink and I said that on the air and I think I'm now may have been wrong I think that's a possibility wait no no I think it's a possibility I would say it again for America to hear you're so bad so this is what you're doing with your daughter on here So the point is that it may not be down 1%, it might be up 1%. The bottom line is, is we have a weak economy. Yes. Whether it's receding slightly or expanding slightly, it's weak. But recession has never, there's no data, there's no graph you can find, that due to recession, house prices went down.

Not one time. 2008, nope, 2008, house prices went down. and then there was a recession. That's what caused part of it, right? It caused a recession, but the recession didn't cause the house prices to go down. What we had was a whole bunch of broke people bought houses, and they sold those mortgages

with hedge funds and insuritized and mortgage-backed securities, MBSs, and boom, they crashed the economy because broke people quit paying their bills because they were making bad loans out there. And that was the cause of 2008, and then that caused a recession. Recession didn't cause it.

So no other time can you find recession and then house prices go down because you can't find another time when house prices went down. Yeah, except for any of the time. Which is just fascinating though because I think people think all of this is so correlated, right?

It is and it isn't. Because a recession, one of the biggest factors that usually it causes, right, is the job market. And what's weird about this is that the job reports just came out and it's looking good.

Like you're like, oh my gosh. So it's just a very interesting bowl that we're dealing with economically is what it feels like. There's a lot of negative news and some of it is kind of propping each other up. Yeah, yeah.

And so, like, the job thing is crazy because the labor market has been disrupted, and now that's pushing back and holding the recession back. Yes. But it's about, you know, if you had enough people get laid off, if you had a deep hurricane recession and enough people lost their jobs, then you could see demand for housing go down. Right. Over a long, long period of time.

And if it actually fell below supply long enough, you would see house prices or values come down. But we've never actually seen that happen. ever. Which is wild. It's never happened to once. So the recession obviously is a big topic, and then we also hear about mortgage rates. Oh yeah.

Because they've risen. About doubled. Yes. And so I just checked the rates right before we went live, Freddie Mac. 30-year fixed rate mortgages right now, about 5.5%. 15-year fixed rate are about 4 and 3 quarters. And so that feels high to folks who have only been home shopping when rates were 2% and 3%. But historically, that's rates that were about around the 2000s.

And interest rates do not cause home prices to go up or down. There's just not a direct relationship there. As a matter of fact, I mean, we'd go back to the dinosaur ages. You want to pick on me again. I mean, we'll go back there when the dinosaurs were on the earth. But I got my real estate license, as I said, in 1978. So I was selling real estate. In 1978, the rates went from 9 and 3 quarter to 10%.

It was the first time we saw interest rates go above 10% was in 1978. In modern history, anyway. for homes. And they, under the Carter administration, they went on all the way up to 18% in 1981. And so I was selling houses as a young guy at 18% interest rate. The interesting thing was, we were selling houses, not many of them. The demand was really, really low. The market just slowed way down. A lot of the sellers stepped back and sat on the sidelines and just were going to wait the storm out because they weren't going to try to sell a house to somebody when they're 18% an interest rate and they were going to try to get some kind of low ball offer. A few sellers

here or there in those days were giving houses away because it's the only way they could get them to move. But overall, we had these high interest rates and here is house prices. House prices did not go down during the most extreme crazy interest rate increase in history. They didn't go down at all. They steadily have increased all the way up into the 90s regardless of what the interest rates were. So, I mean, by the time, you know, we came around in 1983, 84, interest rates came down to 14 percent. I sold 78 houses that year at 14 percent fixed rate. Now, that's just wild, y'all. That's crazy. But all that was was the demand was sitting back there from those buyers that didn't buy at 18. And when it came down just a little bit, they immediately, like after COVID,

came back into the market and kept going. Bottom line is, though, the supply demand curves did not across, and so you continue to see these house prices increase regardless of interest rates, regardless of interest rates. Interest rates will not cause home prices to go down. There's no time in history they have. Okay, and so what's interesting, George, I'm going to leap you into my age group. Thank you. I feel like we're together in this, because our home buying, right, time was like here. So this is from a millennial generation, this is what we've known. And I think what you were talking about earlier, the perspective, right? That like this is starting to feel high, and that's where we're seeing the market weaken and soften a little bit because people are like, oh, my gosh,

interest rates are going up. Oh, my gosh, they're so high. They're so high. Because this is, this is what we've known right through, right, right about there. And when you look there, they came below 10 the year I went on the radio. Huh. Yeah. In 1992. And they've been down below 10. And back there, we were saying, we'll never see 6% again. And we were completely wrong. It stayed down below 6%. Forever it's been down here. And they pushed it down to try to revive the economy to cause people to come out and buy

because super low rates after 2008. But you got this spike here, and that's what's causing all this emotion. Absolutely, yeah. So my thing is... You don't have this perspective. That's a trout in your face. Right, 100%.

So seeing the home prices and that they're going to continue from what we're seeing, from the date of supply and demand, continue to keep going up, not at this rate, It's not like that, but we'll continue to see it go up. So even if you bought a home, if you had the ability and you said, hey, all of our finances

are in order, we're ready to buy a home and it's a wise move, then buying here is still okay, even with the high interest rate, because you can even refinance if it goes back down to like the crazy interest rate you're at. Well, can you imagine if you bought a house at 10% today what that house would be worth? Mm. You know? And how many times you could have refinanced it over the years from down to six and then down to three and then down to two?

Yeah. And so if you have, let's say you're buying it a high interest rate, well, just refinance later. Right. If it goes back down, yeah. Because the only reason you wouldn't buy now is you think there's going to be a price correction. And I'm giving you all this data and all these reasons to say, I don't think there's going to be price. Well, and I think it's important to say, too, that prices could, because I mean, like, if you go on like Zillow. Value correction. Yes, because when you go on Zillow or something, you, there are places that you're like, oh, wow, it's gone down.

The price has gone down. But the value of the home has not. Because people are still thinking, oh, I can, I can ask here when my house is appraised here. So this is what's correct. Well, that's the auction. The auction element is gone. Right. And so if you were asking $100,000 more than appraisal and you've adjusted your price down to appraisal and you call that, prices are going down, well, that's not an indication.

Values are not what we're talking about. But I think that's what people see, though, because when you go on these websites. If you see that and you use that to say the economy's crashing or house prices are crashing, you're making a wrong assumption. Because technically, though, prices are going down because the original price, yes, the original price was not even at the value. This is what it's like. It's like when Beanie Babies are real hot, I could sell my Beanie Baby for $500. The craze is over. And now my Beanie Baby, though listed at 500, might go for 400. And people go, oh my gosh, there's a crash. It's not a crash. The Beanie Baby was never worth $500. I'm sorry.

Princess Diana Beanie Baby, remember that one? That one might be, Rachel. Hey, Rachel's in the market. I'm still holding out hope. But that's what's happening. I'm getting messages like that. Well, George, market in my city, my city's special because I'm seeing price cuts everywhere, which means there's a crash in my city. And I'm going, no, people are just wanted to get in on the top of the market, and it's not the top anymore. And they're going to have to come down. Well, what happened was I was playing golf with some guys in my neighborhood the other day.

And we've had a huge, in Nashville, we've had a huge influx of Californians have come in here. And when you sell a house in California, it's a big price. And then you come into a city like Nashville or a city in, you know, Jacksonville or something. something like that, you can buy twice as much house, three times as much house for what you sold your other house for in California. And so the Californians are just flushed with cash, and then there's this bidding war. And so the house is actually appraised at $800,000, and they're paying a million. Yeah. Yeah. And these guys are playing golf with, he goes, yeah, I put my house on the market, and I decided to take it off the market. I couldn't get that price for it. And I said, well, how much?

He said, I had a price like, you know, $200,000 over market. I was looking for one of those California suckerfish. California, we love you. I feel like we're picking on California. That's what he was looking for. He was looking for a buyer that was willing to pay more than value. Those are starting to go away, so those prices are going away down to actual value. That is not an indication that the real estate market's correct.

Right, absolutely. Indication that the crazy white hot auction is over. Yes. So let's talk about the specific regions because we do hear that a lot. To zoom into the economy of a certain area. Of a city, because again, we're getting these calls and these questions. all the time, well, y'all are saying this, but in my city, we're seeing X, Y, and Z, in my city, this, this and this. Because there is a level that, yeah, depending on where you live,

factors could be slightly different depending on the situation of the city. And tonight, again, this is, we're looking at the, at the macro level, but there is a micro level of the real estate market. But you can't use what happened on your street or in your particular economy to say the entire real estate economy is overheated and is going to go down in values. But if you look at a city that's prospering like, I don't know, Phoenix, Arizona. Okay, I was on a radio station in Phoenix today, earlier today doing an interview. It's white hot. It's a strong economy.

It's been a strong economy. It's a very diverse economy. There's no macro or micro problems with that economy. It's going to continue, okay, to boom, okay, and continue to move. I don't see any issue with it at all. But you've got other cities where there's things going on in that particular city that are political, they're about the crime, or they're about the economics in that city. and some of those things are going to drive prices

in that individual city down. For instance, I don't see any softness big time yet, but I'm hearing some stories anecdotally. I don't have any research on this, but Houston, Texas is largely, the economy is largely driven by energy. And the spigot got cut off. So those people are, it's hurting.

And so we may see some softness, some actual downturns in values, the supply of manned curve could flip upside down in Houston. But if just because you're uncle in Houston, has that happened, doesn't mean that Phoenix is crashing. And so, you know, politics and real estate are local. And so that's there. And the other thing we're seeing is in the past two years, we've had this mass exodus of people across America. It's crazy. I mean, this is affecting the supply demand curve in the local markets as well, the supply of houses versus the people

buying. So in California, Illinois, New York, Massachusetts alone, okay, They had almost 900,000, close to a million people, move out of just those states in the last year. Oh, in the last two years. I'm sorry, the last two years. Okay. And they largely have moved into North Carolina, South Carolina, Florida, Tennessee, Texas, and Arizona, who have picked up 700,000 of those 900,000 alone. This is the largest migration in the United States in modern times.

the largest turning over of the tables of people in mass moving out. And they're moving out of the political environment. They're moving out of the tax environment. They're moving out of the violence. They're moving out of whatever it is they're running from in these states that isn't working and they're running to low-tax states. And they're running to tax states that didn't have archaic over-the-top, taking away of your freedoms during COVID.

and so people noticed that and they said, I'm not living here anymore, and they moved. This is the largest migration in recent history, in modern times. We haven't seen anything like this since the dust bowl. And so these numbers are unprecedented, and that's going to affect positively these economies and negatively the other economies in terms of house prices, potentially. Now, we've not seen any California house prices go down yet,

and I don't know what they're doing in these other states off the top of my head. But again, you've got this exodus. It's the first time in recorded history that California got smaller in population. It's the first time it's happened. So this is very real, and it affects economics. Well, what's interesting, too, is a lot of these states, like you think about a Chicago, you think about a New York, California, even Massachusetts, it's expensive to live there. So like you were saying earlier, you know, some of its cost of living.

They're taking this money of a house that they sold there, and they're coming to a Texas. they're coming to a Tennessee where they can buy such of a bigger property. And the interesting thing is that there seems to be a waning in this. It's just about over. Yeah, yeah. And so again, we're going to see, you know, my buddy trying to sell a house to a California suckerfish. He couldn't find one. But, you know, half the houses sold around there were to California people.

You know, we've got a whole bunch of new folks, new neighbors and friends from California here in Tennessee. We welcome you. No, we do. No, our neighborhood, I know we're getting specific about us, but my neighborhood is, and there's a lot of new builds happening in one section of it, so people are moving in. And anytime we meet someone new, we're like, hey, welcome, you know, where are you from?

And they're like, sorry, California people. I don't know why we're picking on you tonight. But they're like, we're from California. We're sorry. And I was like, no, you're fine. No, Kyle. I'm glad you're here. It's great.

But again, what you, what, but they always say, oh my gosh, the home that we got here is amazing compared to the home we had there. So, again, it's all influx and it depends on your city, your situation of what's going on. but I think that's fascinating. It's fascinating. Okay.

Now another, you touched on this earlier, but it's important to talk about, though, is foreclosures. There's another trigger word that you hear in the financial space, and that is a scary word foreclosure. So talk through that and what we're going to be seeing here in the next few months. Well, the first thing you need to remember is you're probably going to see an increase in foreclosures because there's not been any. I just told you that.

One of my good friends is a foreclosure attorney. Another one is a bankruptcy trustee, which are tied together, bankruptcies and foreclosures, right? And he said the other day, he owned normally from this large bank that he works with, he would do about, in a normal world, in the old days, he would do about 50 foreclosures a month for that bank. And he hasn't done hardly any in two years. And they called him the other day and we're asking him about his staffing,

are you ready to take on a bunch of extra volume? And he said, what do you mean? And he goes, well, we're getting ready to start sending you about 250 foreclosures, about five times normal. per month. So all that is, is they got this big stack from two years on their desk, and they got to start getting them executed. They've got to start getting them out there. And so that's going to push all that out there. So some people are going to hear foreclosures are on the rise. That stuff proves that real estate's going to go down. It's going to go bust. And no, all it is that

they're trying to catch up for the last two years when they're done it is. That's all it is. Well, that's like the scare tactic, the news headline. Right? That you're going to probably see here. To that point, people think of short sales and foreclosures, but they're very different. Short sales, when you're upside down in the home, there's a lot of people who aren't upside down. Because of the home appreciation, there's lots of equity, but they can't afford the mortgage payment, which is what's causing the foreclosure. So it's an important note to make. Well, and I hear people say, well, I'm going to wait until there's a lot of foreclosures to get a good deal,

and that's not always the case either. They paid close to value for it, and now they're getting foreclosed on, and if they finance close to value, there's not going to be a deal. The foreclosure doesn't always mean deal. Yes. I used to buy foreclosures for a living. And, you know, just because it says foreclosure doesn't mean it's a good buy. And it doesn't mean it's a good house either.

So you've got, you know, it could be, it's okay to look at and to look for deals. I love a good deal too. I want everybody to get a good deal. But, you know, don't be fooled that the foreclosures coming into the market are an indicator of the market crashing. It's going to happen and it's not going to crash, okay? Because it's just a backlog. It's a back, the dam is breaking. They're going to come downstream, and we're going to see them start hitting the market.

That's all that is. If you're ready to buy a house, don't wait around for a foreclosure. So we've talked a lot about graphs and charts, and I was kind of jealous because y'all are up there being the weather man and weather woman. So I have my own if it's okay. You've made a chart? I made a chart. George got a chart. The team made it for me.

George has a charge. But here's what's interesting. We just talked about a lot of things that you can't control. Let's go down the list real quick here. We've got interest rates. We've got the economy. We have lumber prices. We have the Fed, inflation, recessions, investors,

gas prices. And lastly, California. Oh my gosh, y'all, stop picking in California! A lot of things out of control about California. I'm just going to leave it there. Now, let's look at the very long list of things you can control. You. That's it. I wish there was more, but at the end of the day,

I want to refocus it back to what we can do about all of this crazy real estate market and how you can become a homeowner the smart way. So let's talk about that. Yeah, so buying and selling, some of you watching, maybe thinking, okay, when do I get in? Is it a good time to buy a home or to sell my home? And, you know, it is.

Right now what we're seeing is that home values are not going to go down. So here's the thing. Home prices, we think, based on the data we showed you, and you get to decide. We've told you that several times. You just be mad at somebody if you're going to be mad at somebody, but you decide, okay? Home prices, we think, are going to value.

are going to start to go up in 23 in a 4 to 5% range for the next five years. So that means five years from now, house prices are going to be more than they are now, four years are going to be more than they are now, three years are going to be, so if you're going to buy and you're in shape to buy, you're ready to buy and you're waiting on prices to come down, I wouldn't do that. I would go buy right now. And if you're going to sell, it's a great time to sell. There's a shortage of houses. Now, do expect a more normalized process. Don't expect an auction. the California sucker fish is not going to be in the market, okay? So I think you're going to have a normal process.

You're going to put your house on the market for what it's worth, and you're going to negotiate some, and it's going to take a little time. If it stays on the market more than when weekend, don't be shocked. It's probably a 75 to 120-day period of time to sell a house in a lot of markets. There's still some white-hot markets. You may have those auctions still happening. You put the house on the market and multiple offers on the weekend. But we're probably about past that.

I hope we are. So it is a great time to buy oddly and a great time to sell oddly, assuming you're in a position to do either one. Right. So you know that you're in a good place to buy a home. We always teach once you're out of debt and you have a fully funded emergency fund. And that is because we want your home to be a blessing, not a curse. And so it's hard if you're living, paycheck to paycheck, have tons of payments, a lot of debt, no savings. And you go and buy a home, that home costs a lot. Even after you buy it, everything, all the main. maintenance around it, all of it, home ownership is expensive. So we want you guys to be in a great place financially before you go and do that. And we would love for you to have a strong down payment. Ideally, 20%, which I know is a lot, but in that case you can avoid PMI, private mortgage insurance, but it's okay if you're a first-time home buyer for 5, 10%. And then we teach a 15-year

fixed-rate mortgage. That fixed rate is really, really important. And again, 15 years, because we want you to pay off your mortgage as quickly as possible. And then making sure your payment is no more than 25% of your take-home pay, which, again, I know it's conservative, and that formula freaks everyone out, and they get very angry with us because of this formula. And we do take the more conservative approach when it comes to home buying,

because, again, we want your home not to completely own you. We want you to be able to buy a car and go on vacation. There's more to life with that. Yes, and when your mortgage payment has taken up so much of your budgets, and, you know, if it's 50% of your budget, then you only have 15% left of your income to invest, to give, to spend, to save all of that. And so, again, not letting your house take over your financial plan completely

because we want you to enjoy life too. Yes, absolutely. And we found in our millionaire study that the millionaires, you know, we look back at the data and it goes, oh, they all paid off their homes early. In the last few minutes we've got, before we run out of time, we've got some don'ts. Yeah, so Rachel covered the dues when it comes to buying a house. Here's some don'ts. Don't buy too much house.

Use wisdom and facts, not your feelings to make this decision. It might mean scaling back on the money. the house, going to a different area, doing a condo or townhome, I'm okay with that. Don't do a dumb mortgage type. Rachel talked about the 15-year fixed. That's the only one you should be doing. There's a lot of variable rate, arms, FHA, VA, tons of fees in there. Don't do these types of mortgages.

Again, don't skip inspection and appraisals. Luckily, that's more normalized now to do those. Don't skip that because you've got a bad foundation or a bad roof. That's going to cost you big time. And lastly, don't sit on the sidelines if you are ready to buy financially. Now is the time. So when you're selling a house, again, right now, is a great time to sell because there's a shortage. And Georgia, we've got some dues if you're going to sell a house.

Absolutely. So Rachel talked about getting a good agent on the buy side. You need a great agent on the sell side as well. A good agent isn't going to allow you to go underpriced the market. They're going to help you navigate all of this, do the comm, stage the house, get good photos, get the inspection, get the appraisal, and help you adjust your expectations. Yeah, and don't have a relative sell your house or your friend who just got his last. license or your mother's friend on Facebook or just got our license. Oh my goodness gracious. This is your largest asset. You need a professional real estate agent that does a lot of transactions

and doesn't hasn't done too. Uncle Larry doesn't need to sell your house. Uncle Larry doesn't need to help you find house. I'm sorry Larry. We're not here to help you. Okay. Is Larry from California? Yeah, I don't know where Larry's from, but poor Larry. But yeah, it's just a problem. And so you really need professional that has done a lot of transactions. The kind of economy we're in, it's not amateur hour. Yeah, yeah. And we've got a team of real estate pros that are in your area. Our team vets them here at Ramsey Solutions, the Ramsey trusted, and you can find those on our website if you're looking for a good one. And George, you ran into this other day with the agent. Oh my goodness. Yeah, this home got listed in our neighborhood, and I'm looking at it going, what are these

janky photos? They're trying to sell for 800,000. Looks like it was taken on a Nikon Cool Picks. I go to the description. It says, agent related to the seller. And I went, and And it shows. Uncle Larry. Did a terrible job with the picture. So you got to work with a pro. It can severely affect how much you get for your house. So if you're a seller, don't get desperate, understand that it's going to take a little time and set your house at the proper price and go through the normal marketing procedure with a good agent.

So you guys, I hope tonight, I hope this has helped. I hope it's helped you, you know, come with facts, with data, making your decisions. Your best financial decisions are going to be with a lot of peace. and a lot of facts versus just feelings and emotion. So again, my hope for tonight is that we've inserted some hope that you've been able to see, okay, I can do this, or my home buying process, it may look a little bit different, but it is still possible over a course of time,

and that, again, the world is not ending. We have a lot of confidence in that, and that it's going to be okay. Yeah, and for people who are wondering, okay, you said there's one thing I can control, and that's me. And that starts with doing a budget, paying attention to what you're doing with the income that you have coming in. It might mean getting more income.

It might mean shaving some things off. But you've got to do a budget to even figure that out. We've got a great app called Every Dollar. You can start your budget for free and do that to figure out how much house can I afford? What are some things we can shave off in order to afford that house one day? The bottom line is this. If you pan back from the fish, he's just a fish. He's not a monster.

And life is not a snapshot. It is a film strip. And so what we're seeing is one or two frames in the film strip, and don't let the scariness of that moment in the film cause you to do something desperate or silly or greedy or out of control. What Rachel said earlier is right. Godliness with contemptment is great gain. And what we're trying to do tonight is to help you with your vision,

where there is no vision, the people perish. And so if you can pan back and say, gosh, look back there at 1982 when rates were 18, look at this spike here. Look at how there's no correlation in these numbers. Look at these supply numbers and these demand numbers. If that data, along with just a spirit of peace, can help you guys, then we've done what we wanted to do tonight. Thank you so much for being with us.