Real Estate: Outlook for 2023

Hey everyone and thanks for jumping back Into the real estate verse today we're Going to talk about real estate and go Through a lot of different charts to Provide a general outlook on the real Estate market if you guys like the Content make sure you subscribe to the Channel give the video a thumbs up and Check out into the cryptiverse premium At into the cryptiverse.com let's go Ahead and jump in so as Ed lemur Famously said housing is the business Cycle now in this video what we're Simply going to do is go look at a lot Of different charts look at the monthly Changes or quarterly changes going on Within the real estate market for a few Different metrics and and try to gauge Where the real estate market is so we're Going to start this off by looking at The Zillow home value index all right And what you'll notice is that you see a Fairly clear Peak back over here in 2006 And 2007 and then it's been a long time Going down and and this is something That you know if you follow this Channel And you're only used to crypto or even You're only used to stocks the real Estate market can go at a snail's pace You know bear markets in in the real Estate market can last a long time and Bull markets can last a really long time The bear Market back over here during The financial crisis lasted years and

Arguably bottomed many years after the Downturn actually began if we look at This in a different way I mean first of All you can sort of see it's Reaching a potential Plateau up here if You look at a monthly change it might Show it in a slightly different way so Looking at a monthly change of this Metric shows us that when the real Estate market sees a major downturn It's typically gotten it's typically not Good for risk assets okay what you'll Also notice is that going back to the Regular view on the uh so if you're just Looking at the Zillow home value index Not looking at the monthly change while This continued to go down well past the Bottom of the S P 500 you'll notice that Once the the monthly change was starting To get better then the stock market had A better Outlook despite the fact that The the real estate market continued to Sort of tumble for a while because it Wasn't tumbling quite as bad the stock Market arguably bottomed before and and Then sort of slowly recovered out of it Where are we today right I'm going to switch this over to a Percentage so we can actually sort of Normalize it a little bit better Right now this person's change on a Monthly basis is right around zero at Zero okay right around zero Back over here we also fell below zero

We also fell below zero over here as Well one of the things that I I notice About the real estate market is that When the real estate market takes a Major downturn it tends to correspond to Negative effects in Risk assets but just Because you have negative movements and Risk assets does not always mean that The real estate market is doing poorly So it's one of those things again like If a then B but if B it doesn't Necessarily mean a right just because The real estate market or just because The stock market's going down doesn't Mean that the real estate market is but If the real estate market is going down In the sustained way and it's getting Worse as a function of time it typically Doesn't have the best effects on risk Assets and for that reason it's always Useful to try to understand where are we Currently Well you can see again the monthly Change has been moving down quite Quickly at least with regards to the Zillow home value index now it's nowhere Near these levels down here but this is Something that we're going to want to Keep an eye on you know I mean it it Certainly has pulled back quite a bit if You look at anecdotes from you know from Various sectors from various regions at Least in the United States it does seem Like there's at least some activity

Going on right now at least in the early Part of the year more so than I think a Lot of people were expecting I think the Big question is does that demand sustain Itself for very long or or does It Ultimately sort of Wither away as we get Further into the year note that I mean The Federal Reserve that's one of the Biggest questions right now how high are They going to raise interest rates will They go all the way to five percent will They go beyond it and ultimately you Know what's what effect well the Terminal rate eventually have on on Mortgage rates and how high will those Eventually go or or how you know how low Will they stay at six percent Or so which I believe is what they're Currently at you know despite that there Actually is still some activity going on Now if you look at the you look at the Percent difference it's it was coming Down quite quickly for you know Basically from April of 2022 until September but it has slowed down a Little bit note that it also slowed down A little bit over here back in 2007. so The question is is right what comes next What comes next in this metric now Something else that I want to look at And we're going to go through you know Through through a lot of different Things and and perhaps we'll first look At mortgage rates just so we get an idea

Of where that is you can see that Mortgage rates have have climbed quite Quickly just over the last year and a Half right so I mean not too long ago You could find you know a lot of people Are getting mortgages for less than Three percent now that just seems like a Dream and now we're all the way back at Six percent uh mortgage rates now that Might sound absurd to a lot of people But you know it's funny like whenever I Talk to you know to my parents or Anything like that six percent would Have been would have been seen as Incredibly cheap uh you know back in the 1980s I mean you're talking about Mortgages that were at like 14 15 over Here back in 81 18 you know I mean Imagine imagine these people that were Buying a home back then at an 18 Mortgage rate or a 14 mortgage rate Hearing the people today complain about Six percent right it just shows you the Recency bias of everyone getting Addicted to to cheap money and and Um and you know a lot of Leverage and Then ultimately ultimately not liking it When it goes up in any any sustained way We were at these rates back in in 2008 Okay so I mean you have to go back all The way to 2008 to essentially find Rates that are are on the same level as Where we are today Now I also want to talk about a few

Other things so there's the sales price Of houses sold and you can see that that Has also sort of come up here to a Potential Plateau more importantly let's Take a look at the quarterly change and Then compare it to all of the prior Recessions one of the things you'll Notice with prior recessions is the Monthly change goes below zero but again Just because it goes below zero does not Always mean a recession so again again It's one of those things right if you Have a recession It can typically correspond to the Housing market not doing well but just Because you see a monthly change below Zero doesn't necessarily mean anything But if we switch this over to a Percentage and take say like a three Month moving average or sorry a Three-quarter moving average it can help Clean up the data a little bit right and You'll notice that we had a recession Back over here in the 70s we came well Below zero Stock market sold off into that again in The 80s twice in the 80s it came below Zero on a three-quarter rolling average Right a simple moving average again You'll see it over here in the 1990s and And so on and so forth going throughout You know throughout history every time It does go below it doesn't necessarily Correspond to a recession but oftentimes

Majority of the time a recession can Easily correspond to negative movement In the real estate market and this is One of those reasons why the saying you Know you'll often hear the saying like Housing is the business cycle it's Because there's so much wealth tied into Into the real estate market and you know I think a lot of people sort of you know I have a lot of value in the equity of Their homes and if that value is Deteriorating then I think there's some Element of the wealth effect taking Place if people don't feel like it's Worth as much they might cut their Spending if they feel like what they Have is is worth a ton they might be More likely to spend on things just Because of the wealth effect but again There's a there's this instance of here Right in the in the 70s that we had a Recession but the real estate market Wasn't necessarily all the way back down Below zero I mean it was coming down Quite quickly but it the the Three-quarter SMA of it did not actually Go back below zero so where is it today Right I mean you know if you look at it Right now It still is pretty high I mean it's all The way up here the the three the Three-quarter simple moving average Shows that it's at 2.56 so still well Above zero it is moving down again it's

One of those things that we need to keep An eye on because if it goes well below Zero like we've seen in the past it's Typically not a good thing okay a lot of People talk about you know will we have A recession well we not and you know I Think people are placing their bets We've talked about all the different you Know elements that go into a recession The unemployment rate we've looked at The smooth recession probability Indicator the some rule recession Indicator we looked at a lot of Different things and and the housing Market is just one more thing that I Think you can look at so it is going in The wrong direction for the US economy Of course it's going in the right Direction for Um you know at least trying to trying to Curtail the effects of inflation but we Have to ultimately see how this plays Out but again it's an interesting metric To sort of get a gauge on where the real Estate market is we can also look at new Single family homes sold all right and See what is that doing and again what We're going to do is again I think Always looking at the derivative is is Better than just simply looking at the Raw the raw data because oftentimes the Market doesn't care if something's going Up or down it cares more so on the Derivative right and again that goes

Back to the first chart we looked at Right just to remind you if you go back To the first chart the the house pricing The house house price indices the Zillow Home value index remember if you waited For this to bottom what way of a year in 2012 I mean the the bottom of the stock Market would have occurred like three Years earlier but look at the monthly Change look where that bombed it Bottomed in August of of 2008 it slowly Started to get better and then I think Once investors were a little bit more Confident that the real estate market Was not you know it wasn't continued to Accelerate in the wrong direction we Slowly we slowly came out of that okay So just something to consider when you You know when you're thinking about These metrics it's not always the raw Data of the metric it's it's oftentimes The derivative that that actually can Make make a an interesting impact on on How people are feeling in terms of how They want to manage their Investments This again new single families new Single-family homes sold look at the Monthly change Take the percentage takes a a Three-month rolling a three-month moving Average might not even be that actually Is somewhat messy still perhaps we need To change it to a seven month And here again I mean you know these

These recessions can easily correspond To pretty large downturns in the real Estate market in terms of new Single-family homes sold and right you Know recently it's it's been trending Down you know it has been turning down For a while So far at least if you look at you know Over the last few months it hasn't been Getting as bad and that's why I was Mentioning anecdotally I think at least The beginning phases of the early stages Of where we are there has been a little Bit of a surge back where that is where We are at the end of the year after After you get through the initial surge Of investors that you know that have Decided they want to buy I don't know and I I don't know exactly Where the fed's going to stop raising Um of course it seems like you know five Percent is is what a lot of people are Thinking and I think there's some you Know there certainly is some credibility To that if you look at this one's Interesting so this one the the amount Of months to sell a new home I think is Something that it should not go Overlooked and this is an element that You have to take into consideration as Well you know while it might seem like The real estate market has deteriorated A ton and it's extremely bad in the Context of History

The you know I mean it's only on average Taking what two months to sell a new Home As of December Has it ever been like that I mean look At you know look at at going into the Financial crisis it was a three and a Half months Right now we're at we actually went all The way down to 1.5 or so So It's not always black and white is is The point I'm trying to make right there Is a sub there's a there's a demand side Of things where people are likely going To not buy as as freely as they would Have when cash was cheap but there's Also the other side of the equation and That's the supply side of things and you Know one of the issues I think is that The supply side has has not uh been Super high and therefore while demand Isn't nearly as high as it was because There's still limited Supply Um you know you aren't really seeing a Huge change yet one thing to consider Though is If the Fed is successful in Their in their goal of reducing or Raising the unemployment rate which They've said they want to do I mean They've said that they want to raise the Unemployment rate to that sort of like That four to five percent maybe like Four four to five percent level or so

Um so that they can loosen up the if They loosen up the labor market it can Help you know put take off some of the Upward pressure of of wage inflation you Know if people are out of jobs it's it's Probably going to affect negatively Affect the housing market right so I Would expect this to go up but again It could it has a long way to go up Before it's anywhere close to what we've Experienced Um in the past because we're so far down Here and again I think a huge part of That two things there is a huge demand Because of cheap capital and we've also Just had very limited Supply and one of The reasons we've had limited Supply Arguably is because a lot of people who Might want to move don't want to move Because they they would they realize That they would actually have to get a Much higher interest rate a much higher Mortgage rate uh simply because mortgage Rates are much higher now so that might Feel like they're kind of locked into What they have Um and that could be contributing to you Know to the relatively low supply of the Houses on the market and therefore the Relatively short amount of time on Average that it's taking for for houses To to sell simply because there just Isn't a ton of inventory at the moment But you know in a couple years right

There there could be a lot of inventory And remember The housing market takes a long time to Play out right it does not play out in In a year it takes place over over Multiple years right Um and then you know maybe a few other Things right the housing unit started This is a another interesting indicator To look at so again if you look at where Recessions occurred you can see it Occurs in where where housing units Started are going down quite quickly Exhibit a in the 70s exhibit B 75 or so And then in um 80 and then in 1981 and Then in 1990 This one didn't correspond to one but The next one did in 2009 and even over Here in 2020 right it came down fairly Quickly fairly short recession right the FED printed our way out of it not a Luxury we necessarily have this time Because inflation remains High This is not going in the right direction Right it's going in the direction that Typically corresponds to a recession now Does it always no look over here in the 1960s you can see we had a pretty sharp Downturn and technically speaking I Guess it wasn't a recession but also Technically speaking the stock market Still went down you know so Um this is something else that I I again Like the housing as a lot of people say

Right the housing market is the business Cycle if the housing market Falls Considerably it's likely going to have An effect on risk assets but just Because risk assets fall doesn't always Mean the real estate Market's falling so That's something we always have to keep In mind is that the real estate market Is a huge Market you know absolutely Enormous compared to especially compared To you know what we typically talk about On the channel which is is Cryptocurrency Um but we must understand that things Like real estate can affect risk Assets In general equities cryptocurrencies Whatever you know they can have severe Effects on this stuff so right now you Can see this is actually rolling back in The in sort of the downward direction if We apply let's say a three month moving Average to it This is what it looks like and so Another thing we're going to have to Watch I mean we don't talk about real Estate much on the channel but perhaps We should talk about it more because Again it is a a pretty good indicator of Of where the economy is headed Especially if if this continues if you Look at the monthly change and switch This over to a percentage And unfortunately it's still quite noisy So you might have to take like a seven

Month moving average but again you can See that recessions correspond to U.S privately owned housing unit started Also sort of being down here in the Negative when you look at the at the Rate of change of it so the derivative Of it not just the the raw data Um and I'm trying to think if there's Anything else I'd want to look at maybe The home ownership rate Could be something interesting to take a Look at right now or at least as a this Is actually kind of outdated here we Only have data going through July so Perhaps that one won't be as interesting Just because I guess it we don't have The data to fully to fully look back on But again I mean you know we've looked At a few charts here hopefully it's it's Insightful here is Furniture and Home Furnishing sales uh Which again is is very seasonal as you Can imagine as you get into the early Part of the Year again this is why the You know as you get into the spring Everyone you know the you'll see a lot Of houses come under the market and of Course the the furniture and Home Furnishing sales tend to spike Um you know as you as you get into that Phase right like December time frame Going into that area let's look at a Monthly change of this maybe maybe apply A moving average or something to see if

There's anything interesting going on You can see over here at least in the Financial crisis I spent a lot of the Time below zero right now it's actually Not looking so bad okay so a lot of Different charts a lot to digest let me Know if you guys like the content uh if You do maybe we'll talk about real Estate more but either way make sure you Subscribe if you're not subscribed to The video a thumbs up we also do have Into the cryptographers premium at into The cryptoverse.com which I know it's Caught into the cryptoverse but we Actually have a ton of different charts Macro charts real estate charts stuff For equities mostly cryptocurrencies but We are continuing to build it out Several different tiers available Including a free one so make sure you Check that out down in the description Below thank you guys for tuning in Subscribe again give the video a thumbs Up I'll see you guys next time bye

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