Housing Market: Is The Bubble Popping?! How Low Will It GO?!

The long-anticipated housing market Crash may be upon us prices and sales in Some of the world’s hottest property Markets are beginning to fall mortgage Rates are at multi-year highs and Market Analysts are wondering whether this has Any parallels with 2008. so where are we Going and what should you be looking out For well that’s exactly what I’ll be Covering today so don’t go anywhere Thank you given that it’s the largest Property Market in the world let’s start Off with the good old us of a It’s pretty clear that America’s Pandemic price boom is long over For example according to the s p case Schiller index for the 20 largest U.S Cities prices fell 1.3 percent on a Month-on-month basis in August this was Below expectations and it was the Largest fall since March of 2009. not Only that but home sales are also on the Decline new home sales decreased 10.9 Percent to a seasonally adjusted annual Rate of 603 000 units in September this is down from 677 000 in August there are many factors That have been driving this slowdown but Perhaps one of the biggest appears to be The high cost of buying a home not in Terms of actual home prices themselves But in terms of the cost of getting a Mortgage on those homes that’s because

The rate on a 30-year mortgage at over Seven percent is the highest it’s been In 20 years what’s even crazier than This however is the fact that the Monthly mortgage on a median-priced home With a 20 down payment went from Thirteen hundred dollars a year ago to Over twenty three hundred dollars now That’s an eighty percent increase in Payments To give you an idea of how unaffordable This is on an annual basis this equates To about 43 percent of the median Pre-tax household income according to This ing report to put that into context This was about 26 in the fourth quarter Of 2019 and 37 at the peak of the 2006 Housing market boom This has forced some buyers to consider Adjustable rate mortgages as well as Loans that have lower rates for the First two to three years called one two Bydance Needless to say the exorbitant cost of Taking out these mortgages means that The demand for them appears to be Cratering demand is half what it used to Be a year ago and it is at its lowest Level since 1997. These higher mortgage rates are of Course due to the monetary policies of Jerome Paul and Co as the Federal Reserve aggressively increases interest Rates it’s been one of the fastest

Periods of rate hiking in recent history As you can see in this chart over here In each of its last three meetings the FED has increased its funds rate by 75 Basis points it’s not as if Jerome and Co are really that concerned about a Correction either in a press conference Back in September Jerome stated quote we Probably in the housing market have to Go through a correction and quote the Deceleration in housing prices that We’re seeing should help bring prices More closely in line with rents and Other housing market fundamentals and That’s a good thing Now whether you agree with him or not The fact of the matter is that the FED Is not slowing those hikes anytime soon And the overwhelming consensus is that We will see another 75 bips at the Meeting tomorrow The fed’s fund rate is expected to Peak At between 4.5 and 4.75 percent the last Time rates were at this level was Between October and December of 2007 the Start of the great financial crisis It’s not only the fact that taking out a Loan is a lot more expensive however First time buyers may also struggle to Source the funds required for a down Payment on many properties surging Inflation is destroying purchasing power And making it a lot harder for many to Save

Now that is all on the demand side but We also have some troubling Statistics Over on the supply side for example the National Association of home builders is Sentiment index has fallen for 10 Straight months the slowdown in sales at A time of widespread construction means That the inventory of new homes is near All-time highs in this chart over here You can see the months housing Supply I.E the months required to clear the Housing infantry this is at the highest Level it’s been since 2010 so how low Could house prices fall in the US well Let’s see what analysts on Wall Street Are saying at the lower end of the Estimates we have Morgan Stanley who are Now expecting house prices to Fall by About seven percent next year While that may indeed be less than the 27 we saw in the peak to trough of the 2008 housing crash it is still a Sizeable and would be one of the largest Ones since the Great Depression According to Morgan Stanley’s analysts Quote if we assume a seven percent Mortgage rate affordability looks Materially worse than today and the pace Of its deceleration has already more Than doubled compared to almost any time In history they do note however that Even with this price decline of seven Percent house prices would still be About 32 percent higher than they were

Back in March of 2020. Morgan Stanley Has a bull and a bear case as well this All depends on how interest rates Progress over the next few months for Example in their bull case they assume That interest rates start coming back Down next year If this were to happen they assume a Price increase of five percent however If the U.S falls into recession next Year then we’re looking at potential Falls of 10 or more according to the Analysts quote affordability is already Challenged exposing would-be homeowners To an increasing rent environment that Erodes their ability to save for a down Payment If that were to be combined with Increasing unemployment we could imagine A scenario in which existing home sales Continue to outpace the great financial Crisis to the downside In other words a worrying State of Affairs Moving on though another bank that had a Change in their view of the U.S housing Market was Goldman Sachs let’s not Forget that as recently as last month They were predicting a modest 1.8 rise In prices well their current estimates Are for a fall of five to ten percent Quote We view the risks to these estimates as Tilted to the downside because of a

Sharp deterioration in our descriptive Home price Outlook scores and evidence Of strong mean reversion in Regional Data meanwhile on the ratings agency Side Moody’s Analytics is predicting a Drop off between 5 and 10 although they Don’t seem to think that we will see a 2008 style housing crash Their Chief Economist Mark zandi stated That plain vanilla lending good mortgage Underwriting and low vacancy will be Enough to Stave off the crash however as I noted earlier housing Supply is at a High level and even zandi admits that These factors aren’t sufficient to Stave Off an inevitable correction Moody’s Analytics actually draws up a Quarterly index that looks at local Fundamentals such as income levels Etc That helps determine whether house Prices are over or undervalued in the Regions being examined you can see what This Regional index looks like over here In this Fortune article this shows the Over and undervalued regions for Q2 if We were to compare this to the index for Q1 you can see the deterioration I can’t Wait to see what it looks like for Q3 Anywho in those housing markets that Moody’s views as quote significantly Overvalued housing prices should see Declines of 10 to 15 percent however if We do indeed hit a recession then these Could even fall by 20 to 25

That will hurt like heck Anyway getting the perspective of Another ratings agency Fitch rating Seems to think that we could see prices Fall by between 10 and 15 percent quote The likelihood of a severe downturn in U.S housing has increased however our Rating case scenario provides for a more Moderate pullback that includes a mid Single digit decline in housing activity In 2023 and further pressure in 2024. Now one final analyst with a prediction For housing prices next year is Paul Shepherdson the chief Economist of Pantheon macroeconomics he expects Housing prices in the U.S to Fall by as Much as 20 percent in 2023. he said Quote we expect home sales to keep Falling until early next year by that Point sales will have fallen to the Incompressible minimum level where the Only people moving home are those with No choice due to job or family Circumstances Shepardson also thinks that the supply Of homes available for sale will shrink Next year and that prices will have to Fall much more to restore equilibrium So those are the estimates for the U.S Housing market not exactly 2008 level Armageddon but disconcerting nonetheless But that is only the US are there any Other housing markets that are at risk Of 2008 type collapses well there is one

And it’s just north of the U.S border That’s right Canada’s housing market Appears to be one of the biggest Property bubbles in the world in fact According to ubs’s recent Global real Estate bubble index Toronto is the city That scores the highest on the list Vancouver isn’t too far behind at number Six You can also see how this has progressed For the cities over the years ever since 2018 it’s been an upward March from Overvalued to Bubble risk territory it’s Not as if this is a new phenomenon Either there have long been many Analysts ringing the alarm Bells about The risks facing the Canadian housing Market And there are several factors which have Been driving demand in these cities they Include High immigration levels falling Mortgage rates and high investment Demand now the most recent housing Frenzy actually began back in 2019 and Only accelerated during the pandemic Much like central banks in other Countries around the world the Bank of Canada dropped its Benchmark interest Rate to near zero this made it a lot Cheaper for people to take out mortgages And gave those first-time buyers who had Been waiting an opportunity to get on The housing ladder During the pandemic property prices in

Vancouver and Toronto accelerated to Their highest levels in five years at 14 And 17 respectively This drove housing affordability in These key metros to levels that were Last seen during the 1980s real estate Bubble in this RBC research note for Example you can see ownership costs as a Percentage of household income houses Are much less affordable in Canada than They are in the US and if you speak to Any Canadian you’ll know how much of an Issue housing affordability is But beyond affordability concerns There’s also the risk posed by bad debts Something that is a lot more prevalent In Canada than in the US is the use of Variable or adjustable rate mortgages or Arms these are essentially mortgages That lock in a lower rate of interest For an initial fixed period but will Then adjust up to a market rate after a Certain number of years in Canada about A third of all mortgages are variable Rate that’s about three times the amount In the US where the share of arm Activity is about 11 percent Those borrowers that took out arms to Buy a home in Canada between May 2020 And July 2022 could soon see their Monthly mortgage payments start to Skyrocket That’s because the Bank of Canada has Been following the FED in its aggressive

Rate hiking policy what may have seemed Like a good mortgage deal when rates Were at near zero percent could become Exorbitantly expensive when they adjust Up this has already started happening And according to Royce Mendes managing Director and head of macro strategy at Dejadan quote banks are already sending Out letters to clients whose variable Rate mortgages owe more interest than Their fixed monthly payment obligation And that’s just the tip of the iceberg As these homeowners face higher mortgage Payments some of them may be forced to Make the ultimate decision and sell Their homes this could only precipitate A broader price crash as people see the Value of the equity in their homes Plummet it’s a deleveraging cycle of Lower prices more sales and lower prices Again So those are homeowners but you also Have to consider the investors who are Snapping up this housing in the hope of Making generous yields on their Properties well as interest rates are Going up the cost of servicing their Debts I.E mortgages is going up too this Means that they have to rely on Rising Rental rates to make up for the Lost Yield while rental rates are still red Hot they could easily turn down in much The same way as they’re now doing in the US now if you were to combine all of

These factors you can see why housing Prices are on the decline here you can See the Steep drop in the price of an Average home in the GTA greater Toronto Area overall prices in Toronto are down 17 as sales Plunge Now this is something that one of the Coin Bureau team members actually Witnessed firsthand when he visited his Family in Canada a few weeks ago the Number of for sale signs in his Neighborhood was alarming now this is of Course anecdotal evidence but I would be Interested to hear the experience of Some of my other Canadian viewers so let Me know in the comments down below The point is that Canada and especially Toronto and Vancouver are due for a Pretty nasty and long overdue correction Okay on to our next hot housing market And this one is a little closer to home For me the good old United Kingdom The UK housing market is also starting To face downward pressure house prices Fell by 0.1 percent in August and by the Same amount in September this left the Annual growth at 9.9 which is the Weakest it’s been since January What these figures suggest is that the Housing market was already cooling long Before the disastrous budget from Liz Trussenko for those not fully clued up The shortest serving prime minister in Our history and her Chancellor released

A budget that would have made Iron Rand All misty-eyed the only problem was that They didn’t think about how they could Pay for it all and it sent the market Into turmoil I’ve done a separate video On this disastrous episode which I will Leave linked to below not for the Faint-hearted if you watch that video You’ll know that one of the side effects Of that budget was that UK government Bond yields went soaring these are the Interest rates that mortgage providers Use to price their fixed rate offerings Therefore in the wake of that chaotic Budget these mortgage products were left In turmoil buyers were scrambling to see Whether they could secure mortgages Before their prices reset in the midst Of the chaos Banks and building Societies withdrew around 1700 mortgage Products in the space of a week Now while the Mayhem appears to have Calmed down since the budget was pulled And a new PM installed the mortgage Rates themselves have been slow to Adjust back down for example although Interest rate swaps have fallen between 1.3 and 1.4 percent average rates on Two And five-year fixed-rate mortgages have Only Fallen 0.16 you can see what that looks like Over here Quite simply lenders are not passing on The lower interest rates to those taking

Out the mortgages these higher mortgage Rates are causing a great deal of Uncertainty for homeowners and Prospective buyers in the UK This is especially the case for those Who took out fixed-rate mortgages now This may sound counter-intuitive but in The UK fixed rate is more akin to Adjustable rate in the United States I.E There is a fixed term that is for a Limited period of time usually two to Five years after which they will adjust Up Think of it as in the same way our Public schools are in fact fee paying And therefore nothing of the sort makes You wonder how we ever ruled over a Third of the globe doesn’t it Anyway for those who took out these Loans in the period when mortgage rates Were low the costs of servicing them are Suddenly looking much higher over here You can see what that looks like in London for example mortgage payments Make up over 50 percent of first-time Buyers take-home pay Now this is something that I myself am Worrying about with my mortgage in the UK as it’s coming up for refinancing in The next couple of years that’s because I know that interest rates are only Going in One Direction The bank of England is also widely Expected to raise interest rates by 75

Basis points this Thursday that’s the Largest hike by the Boe since 1989. Beyond that interest rate Futures Currently predict that the Boe rate is Likely to tap out at almost five percent Next year that’s all the more pain for Borrowers already on the edge If we were to add this to the pressures Of inflation and Rising energy costs This is all a bit too much to bear for The average UK homeowner some may decide To sell and this will of course have a Negative impact on prices as a result Analysts are predicting Steep Falls in UK house prices next year for example Credit Suisse analysts are predicting a Fall of between 10 and 15 Meanwhile Andrew wishott senior property Economist at Capital economics also Predicts similar Falls in prices quote The rise in Market interest rates that Has already happened will push up Mortgage rates to at least six percent And reduce the size of loans that Lenders can offer and quote the Resulting drop in buying power makes a Significant drop in house prices Inevitable Ouch Okay time for a few of my closing Thoughts it’s clear that the global Housing market is heading for some Turbulencies the era of pandemic fueled Cheap credit is coming to an end and

That means a reckoning for those trying To secure a mortgage all eyes are on the U.S housing market as a number of the Hottest metros start to cool housing Supply is on the rise and prices are on The decline While a 2008 style housing crash is Unlikely analysts are predicting pretty Nasty Falls which are likely to put a Massive dent in consumer confidence Perhaps this is what Jerome Powell Always intended when he wanted to quote Bring housing prices back in line with Fundamentals but it’s a bitter pill to Swallow for all those who have a great Deal of their wealth tied up in their Homes However such worries are perhaps even More acute for Canadian homeowners as Concerns about a massive correction Ripple through the airwaves While this has been a long time coming It appears as if the dominoes are Beginning to fall this could be Canada’s Version of the 2008 housing collapse in The U.S at least according to the Pundits if that is the case it could do Significant damage to the country’s GDP Given that so much of household wealth Is again tied up in housing That said it could prove a silver lining For those Canadians who have given up on The dream of owning a home indeed many Younger people in the country are

Secretly hoping for a correction Anything for them to be able to Eventually afford a place to call their Own When it comes to my native UK things Aren’t looking too pretty there either While the housing market in Britain is Slightly more resilient than those in North America it’s the overall economic Picture that has me most worried Inflation is over 10 percent and the Recent snafu with the budget has thrown The country’s finances into disarray the Cost of living is only likely to get Higher for those homeowners who may have To refinance their mortgages at higher Rates So let’s hope that our new PM can help Steer the ship to Karma Seas And that’s it for my video today folks But I would love some of your thoughts On the matter are there any Americans Canadians or fellow Brits who would like To comment about their property markets Let me know in the comments below in the Description you can also find links to All the other places that you can follow Me Twitter telegram Instagram and Tick Tock if you want a preview of what Videos are about to be released as well As my personal portfolio breakdown then You should also sign up to my free Newsletter all of that is down below Oh and if you would like to support the

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