WTF Is Happening To The Housing Market?!

0:00 Welcome back to the Graham Stefen Show.

0:01 And it's one of those rare times where I'm just going to turn on the camera

0:04 and talk about exactly what's going

0:06 on and what I'm finding throughout the housing market.

0:08 There's no agenda.

0:09 There's no script.

0:09 I'm just going to be off the cuff

0:11 on this one because what I'm finding is really interesting.

0:13 To start, all of this really began

0:15 with China's real estate market that has erased

0:18 all of its gains from the last 20 years because they've simply built so much.

0:23 New buyers aren't flooding in the market.

0:25 you have so many more sellers and that has completely

0:28 collapsed their housing market which led me to this here.

0:31 Apparently 1.1 million American homes are now in negative

0:34 equity up a massive 15% in a single year.

0:37 Now you might be asking yourself here but Graham what is negative equity?

0:42 I haven't heard that term before but you know what man

0:46 it was quite common when I started doing real estate in 2008.

0:49 Negative equity was everywhere.

0:51 And this is concept that you owe more on the house than what the house is worth.

0:56 And what a lot of people don't realize is

0:58 that when they bought a property from like 2022,

1:02 three and four and they locked in a low interest rate, they might be fine.

1:07 Their payment might be normal, but a buyer today is going to have

1:10 to pay substantially more because they're getting

1:13 a 6.5% interest rate whereas a buyer a few

1:16 years ago is paying a 3% interest rate.

1:19 So, when a new buyer comes in, they're going to say,

1:21 "I can't afford that same monthly payment, and therefore,

1:24 I can't afford to buy your house unless the price comes down."

1:27 But the issue for a lot of sellers these days is that they say,

1:31 "Okay, well, for me to be able to break even on the sale,

1:35 counting for 6% commissions and closing costs,

1:38 I have to get this amount, and I can't get this amount.

1:42 I could only get like basically what I

1:43 paid or maybe a little less." And that means

1:46 their equity is completely wiped out once

1:48 you account for those commissions and closing costs.

1:51 And that is why in California we have an average of $25,000 of negative equity.

1:56 Nevada $16,000 of negative equity.

1:59 Arizona $24,000.

2:02 Texas19,000.

2:04 And somehow Wyoming, they're crushing it over there.

2:07 Wyoming is flushed with cash.

2:08 Like if you look at the entire country,

2:10 Wyoming just stands out like a sore thumb.

2:13 they're actually sitting on $23,000 worth of equity.

2:15 So, this all means that if people need to sell,

2:19 if they are in a position where they had no choice,

2:21 they can't stay where they're at, they're going to have

2:24 to take a loss on that property in order to move it.

2:28 I mean, or they're going to foreclose on it.

2:29 But but I mean these aren't like big enough numbers to me

2:32 that would signal walking away entirely and foreclosing on a house.

2:36 But it does signal that most likely people are going to have to either

2:39 lose their equity or their down payment in a property or come up with some

2:43 extra cash to bridge the gap on this which then leads me to this over

2:47 here is that most Americans now think it's a bad time to buy a house.

2:52 67% of US adults say it's a bad time to buy

2:55 a home while only 29% say it's a good time.

2:58 Now, of course, when it comes to this, it's the young adults ages

3:00 18 to 34 who are the most pessimistic from all the age groups,

3:05 with 77% of them saying it's a bad time to buy,

3:08 compared to 63% of those aged 35 to 54 and 64% of those aged 55 and older.

3:15 Now, some of that also has to do with the fact

3:16 that apparently the housing market's running out of buyers.

3:19 Now, I highly recommend if you guys are on Twitter, follow the Coobesie letter.

3:23 I I really hope I'm pronouncing that correctly.

3:25 I really like them a lot.

3:26 I find that their research is fantastic

3:28 and they just have some good data surrounding them.

3:31 Uh, but when it comes to this, it's estimated

3:33 that there's an extra 46% more home sellers than buyers.

3:36 In February, which is the biggest difference

3:38 since Red Fin began collecting data in 2013.

3:41 Now, when you compare that to where we were in 2022,

3:44 there were 36% more buyers than sellers.

3:47 So, now it's just completely flipped to the opposite where more

3:51 people want to sell than there are people who want to buy.

3:54 This also comes at a time where, believe it or not,

3:57 with all the bad data that's out there,

3:59 pending home sales rose 7.7% year-over-year,

4:02 reaching their highest level since September of 2022.

4:06 Of course, when it comes to pending home sales,

4:08 you know, some of that is a little mortgage specific.

4:10 And we saw like right before the conflict in the Middle East,

4:15 mortgage rates were going down.

4:16 They were trending downwards.

4:17 Everyone was so optimistic for a rate cut this year.

4:21 And then all of a sudden the Middle

4:22 East stuff happened and mortgage rates went back up.

4:25 So some of this could be some of that pent-up demand of like,

4:28 oh, mortgage rates are coming down, things are getting better.

4:30 Let's go and buy a house right now.

4:33 Uh so I would be interested to see how this changes over the next uh you know,

4:37 month, maybe month and a half, give or take.

4:39 But when it comes to selling prices,

4:41 the median sales price for a new single family home fell $21,600 month

4:46 overmonth or $5.3% in March to its lowest level since July of 2021.

4:52 This also means when you adjust for inflation,

4:54 the median real home price fell 6.3% month overmonth, the lowest since 2014.

5:00 Now, this next part is where uh things get really interesting.

5:03 This is the part that I'm really into.

5:05 And a lot of this other stuff I brought

5:06 up only to give you context of what's going on.

5:10 But here's what I find really interesting.

5:12 Okay, according to their research,

5:14 this suggests that a handful of luxury homes are inflating the average

5:18 price upwards while most Americans are

5:20 purchasing at significantly lower price points.

5:23 After all, when it comes to this, the income needed to buy

5:25 a typical US home has increased 79% in just the last 6 years,

5:29 which means you now need to make $93,000 a year

5:34 just to finance the typical property here in the United States.

5:37 Although, before we go into the next topic,

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5:52 And it's also one of the places that people

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7:40 Thank you so much.

7:41 Enjoy.

7:42 Now, let's get back to the video.

7:43 So, what's going on with the housing market?

7:45 Well, I will tell you because again, this is just what I'm seeing firsthand.

7:49 I probably spend, I want to say an hour,

7:52 maybe two hours a day of researching the housing market.

7:55 I see every property that comes on the market,

7:57 everything that sells throughout Las Vegas, Nevada, California, Florida.

8:02 I could I just love seeing what's going on.

8:04 It's like one of my hobbies.

8:05 I have these like Zillow alerts all set up and I'm like, "Oh, you know,

8:08 I track prices and I see like I kind

8:10 of basically just bet against myself and I say,

8:12 "Oh, I think this property will sell

8:14 for this and this." And then I compare if I'm right or wrong.

8:17 But what's interesting is that baby boomers are dominating the housing market

8:20 as the largest share of both buyers

8:22 and sellers per the National Association of Realtors.

8:25 Why is this?

8:26 Well, I will give you my own theory of exactly what's going on.

8:30 first-time home buyers, Gen Z, younger millennials,

8:34 or millennials with not a lot of money.

8:36 I hate to say it, you're okay, there's no way around it.

8:39 You are absolutely in the toilet.

8:42 Why is that?

8:43 Well, unless you have significant assets invested,

8:46 you are just getting reamed every day with rising prices,

8:50 inflation, we're seeing more national debt, they're printing more money,

8:53 and they're doing it at the expense of people

8:55 who don't have extra money and disposable income to invest.

8:58 But here's what I'm noticing.

8:59 All of a sudden throughout Las Vegas, California, there are an influx of buyers.

9:07 And I'm trying to think where are these buyers coming from?

9:09 They're coming out of the woodwork all of a sudden.

9:11 And you could say, well,

9:13 maybe they're moving out from Washington because of the millionaires tax.

9:16 And there aren't that many people moving right now.

9:20 Yes, they exist, but uh not to this degree.

9:22 They're not like instantly up and leaving overnight.

9:24 There's a lot of people there that uh will probably have to take a year

9:27 or two to to really exit the state to move and all that good stuff.

9:31 But what I am finding is that right

9:34 now because the stock market's moving up so much,

9:38 you're getting all of these buyers who have this extra

9:41 confidence because the market is at its all-time high,

9:44 their portfolio is doing the best it's ever done in history,

9:48 and they're saying, "Well, now I could just trim some of this and put it over

9:52 here and buy this house." If interest rates are a little higher,

9:55 I don't really care that much because I've

9:57 just made so much money in the market.

9:59 And I don't think it's a coincidence over the last two months, give or take,

10:03 that I have seen more properties just randomly open

10:06 up in escrow at prices that I think is dumb.

10:11 Okay, dumb prices.

10:13 And I'm trying to think the only rational explanation just

10:17 anecdotally from what I'm seeing is the market's doing well.

10:20 They're trimming some of that, putting it back in real estate,

10:23 and we're seeing a very bifurcated market because the market that I'm seeing

10:26 with the most traction right now in Las Vegas is 5 million and higher.

10:33 Keep in mind, most of the market in Las Vegas is probably 850 grand or lower.

10:39 And that market is uh, you know,

10:42 suffering to a certain degree because one, those buyers are really impacted.

10:47 When mortgage rates go up a little bit,

10:49 that could mean the difference of qualifying for a house or not.

10:52 But the 5 million plus segment,

10:54 even though it makes up a smaller portion of the entire market here,

10:58 a lot of those buyers are also heavily invested in the markets.

11:02 And so those are the buyers that are not

11:04 as price sensitive that can go and pay these prices.

11:07 And they are bidding up some of these properties

11:09 to levels that I just I don't see it worth it.

11:12 Okay?

11:12 Unless you're just trimming these like crazy Nvidia gains

11:15 or you have private equity and this and that, whatever.

11:17 Okay, but this basically means the average

11:20 person in the housing market is getting

11:22 screwed and everyone else who's invested is able to reap the benefits of both,

11:29 you know, a somewhat stagnated market for the most part,

11:32 but then using that as leverage to get

11:35 great deals in properties and just buy them outright.

11:38 The level of cash deals that I've seen lately in the market is astounding.

11:42 Uh, a lot of the deals that I'm seeing, they're cash at 5 million plus.

11:46 And it's one of the reasons why I have this chart here that says

11:48 the US stock market has almost never been this expensive in 150 years of data.

11:53 The PE ratio is currently at 38, the second highest reading in history,

11:57 only surpassed by the dot peak of 44.2.

12:01 Now I had said this before but Ben Carlson of the wealth of common

12:05 sense blog he has pointed out that this PE ratio uh when you look back

12:10 really to 1880 is not the best to look at like it includes a lot

12:15 of data and a lot of information

12:18 from an economy that's no longer relevant today.

12:21 And I see his point, okay?

12:22 Because before the computer, companies operated differently.

12:26 They were restricted in terms of their reach.

12:29 And really, as you could see,

12:31 since the year 2000, our PE ratios have skewed higher.

12:34 And so Ben Carlson points out that the PE ratio today that we're at is high,

12:39 but it's nothing unusual given the last 30 years of data.

12:44 And if we just extrapolate and look at the right half of the chart,

12:47 this could just be the new normal because this is the way the internet works.

12:51 This is the way other companies and businesses

12:53 and the world is going to come together with AI.

12:55 And we have a global marketplace now that never

12:57 existed 30 plus years ago to this degree.

13:01 So by that metric, we could very well just be

13:04 in a new normal where all of this data is uh somewhat irrelevant.

13:08 This is also why they say that the Buffett indicator might be completely broken.

13:11 And for the longest time, this was always a measure of how well

13:14 the stock market is valued relative to its past performance.

13:18 And for a long time, the Buffett indicator has been overvalued.

13:20 If you've looked at that metric, you basically think,

13:22 I shouldn't have invested over the last like 15 years

13:24 because it's been high outside of like the great financial crisis.

13:29 But this really argues that GDP badly

13:31 undercuts the digital economy because you have YouTube,

13:34 Instagram, WhatsApp, Gmail, Google.

13:36 Same applies to AI models and all

13:38 these new technologies that the Buffett indicator

13:40 was never designed to fully take into account when it comes to their valuations.

13:45 Yes, it is no surprise the stock market is expensive.

13:49 Okay, I found this interesting too.

13:51 According to Charles Schwab,

13:52 it's either very expensive or expensive relative to past

13:55 performance across every single metric that they track,

13:59 which is quite remarkable.

14:00 All of that is to say that right now in the housing market is

14:03 just dominated by older people who have assets who are making money in the stock

14:08 market taking some of that money and then reinvesting it back into housing

14:12 or people who have significant amounts of money tied up in AI chip companies.

14:17 I mean, if you're in that segment of the market,

14:20 money is like coming so easily right now.

14:23 Money is coming faster than it ever has been in like, you know, decades.

14:27 And so again, I think for those people in that market,

14:31 they are flooding these houses.

14:33 They are bidding them up.

14:34 They are offering these cash deals and everyone else is

14:37 kind of unfortunately screwed a little bit for the rest

14:40 of the market that uh seems to be beginning

14:44 to level off and cooling off in terms of affordability prices.

14:49 Yes, they are still expensive,

14:51 but relative to what you're seeing in the luxury market,

14:53 that's exactly what's going on.

14:54 So, I would love it, by the way,

14:56 if you guys give me your own take down below in the comments section.

14:59 I will do my best to read and reply to as many of you as I can.

15:03 And uh let me know what's going on on your end.

15:06 And also, don't forget to check out our sponsor, Fora.

15:08 I felt really bad.

15:09 I posted them in a prior video,

15:10 and that video for some reason just like completely bombed.

15:13 Like, it just seems like people would rather me just

15:14 kind of rant to the camera for a little bit, which I'm good with.

15:17 Like, I I kind of prefer this over the the reaction.

15:19 I just started getting tired of the reaction videos unless it's a great video.

15:23 I prefer just uh just chatting just chatting with everybody,

15:26 you know, something a lot more low-key.

15:28 So, feel free to check out Sephora because again, I just I felt bad for him.

15:32 And with that said, thank you so much.

15:34 Hit the like button, subscribe, and till next time.