Stop Buying Homes

What's up guys, it's Graham here! So listen, there are very few topics out there that get me upset, and most of the time, I'm just able to brush it off and move on with my day. But when I see flat-out blatant misinformation being spread throughout the interwebs for the sake of garnering millions of views, I need to put my foot down and explain what's going on because there's a lot of it.

First, Zillow is accused of manipulating housing prices. The government is continually inching closer to a complete shutdown. New data now shows that most Americans believe the stock market is rigged, and what's even crazier is that they're also right! Oh, and also the fact that the South Park creators just recently signed a deal to buy Casa Bonita for 3.1 million dollars, but we'll go over that shortly.

Anyway, let's debunk all of the false financial information floating around the internet, the real impact of a government shutdown throughout the economy, why some investors are saying that now is the time to be conservative, and then finally what you could do with this information to make more money. All of that and more on this episode of "The Stock Market Still Makes Absolutely No Sense."

And Congress cannot agree on anything! Although, if there's one thing that we can agree on, it's that it helps me out tremendously if you destroy the like button for the YouTube algorithm. So thank you guys so much, and also a big thank you to Truebill for sponsoring this video, but more on that later.

All right, so since there's a lot going on, we should first talk about one of the biggest stories of the week that deals with blatant manipulation, price fixing, corruption, and deception as seen on TikTok about Zillow, allegedly. It all started when a Las Vegas real estate agent posted this video to TikTok, and instantly it went viral. Now, usually when I see a video like this, I prefer to summarize it in my own words, but I have to say this video describes it perfectly, and I'll admit it really gets you thinking that maybe something suspicious is going on. Just watch for yourself.

"What if there was a company that everybody used, everybody knew of to look for houses? Let's say that billion-dollar company uses that information to go into that zip code and start purchasing houses. So this company is scooping up houses less than what they actually could cost, and let's say that company buys 30 homes within a two-mile radius, and let's say the price is 300,000. So they buy all of these, and then on the 31st home, they buy it for 340. Well, what that just did is create a new comp! So when they go to sell these other 30 homes, that extra forty thousand dollars that you could say this one sold for 340 just made them 1.2 million!"

And one theory here, so that would work. Websites like Zillow, Redfin, and OpenDoor have launched what's called an iBuyer program that allows homeowners to get instant cash offers if they want to sell their house. It's very similar to CarMax, so they'll make an offer on pretty much anything that you bring to them. But in this case, since Zillow and other websites have very detailed information in terms of where buyers are searching, where price trends are increasing, and how much each property sells for, they could in theory target the up-and-coming neighborhoods, buy properties at a discount, and then when they own enough, they can effectively control the market and set their own prices to make a massive profit.

It would be no different than Amazon analyzing the data to see which products are selling the best and then they can make their own product to push everyone else out of business. Except today we're talking about houses, and it's actively happening right now. In fact, Zillow is about to lock in 450 million dollars worth of funding to buy even more homes! Rocket Homes has started their own iBuyer program. Redfin is racing to become the first major iBuyer to hit the Chicago market. And let's call it for what it is: it's a real estate free-for-all during a time when the housing market has never been this expensive.

So could it actually be true, in theory, that they would be able to go and buy up entire neighborhoods, create a real estate monopoly, and then go and charge whatever they want? Well, Redfin responded by saying absolutely not! They would rather broker the deal than own it. They never intentionally under or overpay for a home, and only five percent of homeowners prefer convenience to a traditional listing. But this is Twitter, where the mere fact that they responded caused another person to say, "You're trying to hurt the mere fact that you tried to defend yourself so much points out that you felt Redfin is one of these companies."

Okay, so by that logic, if you're indirectly accused of something and you provide a response, that may as well be the same thing as admitting guilt. Got it. Zillow also admitted guilt—I mean, responded to these accusations saying that the video is an example of misinformation and falsehoods, and that sales history is public information for anyone to see.

But as far as the truth behind these claims, here are the facts coming from someone who's been full-time in the real estate industry for more than a decade. First, this TikTok says that iBuyers could be lowballing properties for the sake of buying them at a cheap price, but the data says otherwise. Zillow claims that homeowners who turn down their iBuyer offers receive an average of only 0.09 more on their home sale by going the traditional route.

And more recently, it was found that iBuyers are actually paying four percent more than the home's market value while dropping their fees, alongside with it. Meaning, in a way, they're actually paying more than what the home is worth just for the sake of being able to buy it.

The second point is the idea that if a company like this is able to buy up all of the homes in the area, they could pay thirty thousand dollars more for the last home, and that would lift the market value of everything else alongside with it. Except that's not how the real estate market works at all!

Let's think about this logically: the average homeowner stays in their house eight years before moving. For a company like Zillow to accumulate enough inventory to create a monopoly, that would be a multi-decades-long process of buying and holding houses without any guarantee, by the way, of ever buying enough to make any meaningful difference in the market!

But even if they were able to buy up all of the homes, they would also need to do that at a discount, which right now, like I mentioned, does not happen. And they would still need to raise the market value of the last home, which is completely impossible. See in real estate, even though one neighborhood comp is helpful, that does not set the market value of everything else. Instead, you analyze a radius of sometimes several miles. You take into account the home's age, condition, upgrades, replacement cost, market conditions, and that is going to vary from house to house year to year.

Now, if you do wind up having one comp at a significantly higher price, you usually just take the average of all the homes together so that way you never have one outlier making that big of an impact on the market. Now what's concerning to me is not so much Zillow or Redfin, but it's a licensed real estate agent of 11 years who even believes that this could be a possibility, despite being feasibly impossible and costing more money than Zillow would ever be able to raise.

Instead, these companies only seem to be interested in buying homes for two reasons: Number one would be to gain market share, and number two would be to gather data. For instance, they would be able to sell active seller information for as much as eighteen hundred and seventy-five dollars a lead, meaning even if they don't make any money buying and flipping homes like this, they could still gather data. They still gain market share and, in the long term, they’re going to do quite well. But rest assured, they're not going to be doing that through raising the cost of houses in your neighborhood.

But speaking of raising costs, you know what? That's what Congress wants to do! And if they don't pass a new spending bill very soon, the entire government could effectively run out of money and shut down. Even though the government has the ability to print an endless amount of sweet, sweet money, you and I can't, unfortunately. But thankfully, our video sponsor today, Truebill, is here to help. They're an all-in-one finance app that's like having your very own personal finance enthusiast living in your phone, constantly finding new ways to save you money!

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On top of that, Truebill is loaded with other features that allow you to keep track of your monthly expenses, get notifications when you've spent too much money, monitor your credit score, and give insights on how to improve it instead of having an automatic savings fund that you're able to withdraw at any time. Plus, it's incredibly simple and easy to use. They don't sell your information to third parties and they have the same security protocol as banks to ensure that your personal information is fully encrypted.

So if you're interested in learning more, checking them out, and most importantly, saving more money, feel free to use the link down below in the description or go and visit truebill.com/Graham. So thank you guys so much! Now with that said, let's get back to the video.

All right, so we need to talk about the term "government shutdown." We've seen this headline throughout almost every major news outlet. The stock market is performing like a roller coaster while it prices in the possibility of the U.S. not being able to pay its debt. But how bad is it really, and what's actually going on?

Well, here's how it works. In the United States, we have something called the debt ceiling. This is the maximum amount of money the U.S. government could borrow and add to the ever-growing national debt. This prevents the government from just saying, "Oh yeah, I'll just buy a little bit of that, throw a trillion over there..." and, uh, you'll love this! Instead, all spending increases must be agreed on between parties, but that's not happening.

As of today, we're quickly approaching the debt ceiling limits Congress previously agreed to, and once we hit that amount, that's it! The government can't borrow more money; they can't operate as intended. Essential services shut down, Social Security stops, and certain government workers are furloughed. If that continues, there's always a chance the U.S. defaults on its debt. The value of the dollar plummets into the abyss, gasoline costs skyrocket, and we're all forced to watch Meet Kevin to figure out which stocks to buy!

Now in terms of how severe this is, it's really important to mention that a government shutdown is not exactly anything new, and the debt ceiling has already been raised 98 times in the past—or on average, almost once every single year. But that doesn't mean a government shutdown won't have an impact throughout the market! Historically, we could see that overall, on average, the stock market remains completely mixed.

The worst government shutdown occurred in the 1970s when stocks were down almost four percent. But in late 2018, while the government was shut down for over a month, the markets rallied over 10 percent, of which, by the way, you could track all of these stocks using my Hungry Bull app down below in the description.

All right, but even though the debt ceiling is certainly a consideration, the U.S. so far has never once defaulted on any of its debt. The only thing preventing the debt ceiling from being raised in the future is just an agreement between Congress in terms of how much money is going to be spent.

Now on top of that, if you wonder why the stock market is about to go absolutely bonkers over the next month, we have a lot happening. First, part of that has to do with the ever-unfolding drama of Evergrande, the real estate company who recently defaulted on more than 200 billion dollars worth of debt while leaving the entirety of China picking up the pieces after it was discovered that they would not be able to repay their debts.

China issued a statement to prepare for its demise and the possible storm to come, and as it appears so far, that might be right. On Wednesday, Evergrande failed to make a 47 million dollar interest payment, and insiders say that Evergrande has not communicated with them about any indication of a payment in the future. Though obviously, that was enough to spook the markets, and as of right now, they're said to be selling off a portion of their assets for one and a half billion dollars to settle a liability with one of their banks. China also issued a statement asking firms to buy up even more of their assets to prevent them from defaulting. And of course, all of that uncertainty is causing the stock market to flip more than Congress trying to negotiate the next debt ceiling.

Now, second, we also have a reason behind the recent tech sell-off, and that would be inflation, which was found to be 5.3 in August. I mean, it's really no surprise that the price of everything is going up way faster than expected, but according to the Federal Reserve, it's also lasting longer than they expected. Who's even noted that factory shutdowns and shipping problems were holding back supply, weighing on the economy, and pushing inflation above the Fed's goal of two percent on average? Even now, natural gas is said to have increased a whopping 180 percent; rents are rising more than 10 percent across the country; bacon is the most expensive it's ever been; and according to Jerome Powell, supply chain issues are getting worse and are said to hold up prices into the next year.

Between that, the rising national debt, and Evergrande potentially collapsing the Chinese economy, high inflation could cause interest rates to go up way faster than we expect, and that in turn puts downward pressure on the stock market, which benefits from low interest rates. Now since the stock market makes absolutely no sense, it’s also no surprise that more than half of all retail investors say the stock market is rigged against them, and apparently, they're right!

A new report from Bloomberg highlights that there are more than 82,000 insiders who are defined as executives, board members, or shareholders who own more than a 10 percent stake in the company, and by law they're required to file a report with the SEC anytime they make a trade. Well, despite that, many insiders seem to consistently beat the market by buying stocks before the information is publicly available. It was even said that purchases made by U.S. executives outperformed the S&P 500 over the ensuing 12 months by an average of five points between 2015 and 2020. Much of this is never investigated, and when it is, charges rarely ever stick, given how difficult it is to prove beyond a reasonable doubt that insider trading was the cause.

As a result, the vast majority of retail investors do not fully trust the market during a time where financial literacy is more important than ever. Investors also feel like now is the time to begin taking risk off the table, with more than 75 percent of them saying that now is the time to be more conservative with their investments. In the market, by and large, there's a lot of uncertainty in the market right now. But I will say this: the good news is that everything right now is temporary, and any dip in the market is a good opportunity to buy in at a lower price. After all, if you're making an investment, all things being equal, it's better to buy that investment at a lower price, right? Well, that exact psychology applies here, so don't fear the red but instead buy it.

Lastly, the story you all came for: the creators of South Park, Matt Stone and Trey Parker, have recently signed a deal to buy Casa Bonita for 3.1 million dollars. In a move they call "the most crowning achievement in my life." For those who don't know, this all started with an episode where Cartman scored a birthday invitation to the restaurant but was later pulled away when it was revealed that he tricked his friends. Well, as it turns out, the real-life restaurant was not doing so well financially, so as they filed bankruptcy, the creators of the show stepped in to turn things around. They also promised to improve the quality of their food. And now all they need is Primus to make things complete.

So with that said, you guys, thank you so much for watching! I really appreciate it. As always, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram—I post it pretty much daily. So if you want to be a part of it there, feel free to add me there. As my second channel, The Graham Stephan Show, I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that. Thank you guys so much for watching, and until next time!