The Largest Housing Crash Is Coming | Why I Sold

What's up, guys? It's Graham here. Now, I usually don't record informal videos without a whole bunch of charts and graphs and fancy research, but something needs to be said about the current state of the housing market and the direction it's headed.

I don't think anyone could be truly prepared for what we might see begin to happen. So, with everything going on— from declining home sales, sky-high prices, and rising rates— I wanted to give you my completely unfiltered outlook into the future of the housing market, coming from someone who's been a real estate agent, a real estate investor, buyer, seller, and nosy lookie-loo on Zillow for almost 15 years now. Gosh, has it been that long?

I just think there's a lot to be said about the first-hand experiences that can't be conveyed through a monthly chart. We're going to be covering exactly that and more on this episode of "When Will the Housing Market Finally Crash?" so that everyone could buy a home that's not completely unaffordable.

Although before we start, if you appreciate these videos and the fact that I drove all the way to Los Angeles to get Jason Oppenheim's perspective on the housing market, as someone who sold over two billion dollars worth of real estate, it would mean a lot to me if you smashed that like button by tapping it for the YouTube algorithm or subscribing if you haven't done that already. Doing that is completely free, and as a thank you, here's a picture of Steve Martin! So, thank you guys so much, and also a big thank you to Experian for sponsoring this video, but more on that later.

Alright, so to start, for those unaware, without real estate, I wouldn't be here today making videos in a half-converted garage on a Sunday night. But I digress. For me, real estate is how I got my entire start, throughout— well, pretty much everything. I received my real estate license in 2008 right out of high school, and from there, I pursued a full-time career as a real estate agent with Coldwell Banker before joining the Oppenheim Group in 2015.

But for those who remember what the market was like back in 2008 when I first started, it was horrible. Home prices had just seen one of the most meteoric rises of all time, and I was jumping into a new career at the peak without any prior experience, right as home prices were about to fall and fall and fall. In fact, this was the worst housing market since the Great Depression, and there I was, without a single clue what was going on— besides being an 18-year-old kid who was happy if I earned anything.

But I have to say that experience gave me the full perspective that housing prices don't just keep going higher. Just as some people thought the market was over forever, others were ready to seize the opportunity. After several years of building up my own business, I finally decided to take the leap of faith to buy property for myself in 2011 and 2012. I purchased three bank-owned properties, I fixed them up, and then I rented them out.

From there, I continued building out my business as a real estate agent so I could save up enough money to buy another property that I could remodel, and another, and another, and another. It's really from those experiences that I started to make YouTube videos. Really, up until March of 2020, real estate was my priority. Even now, I'm still involved in almost every aspect of the business, whether that be managing my own properties or partnering with other people.

But over time, I've definitely noticed a shift very similar to when I first started working in real estate, and that I think is worth discussing. First, we should talk about what most people want to know, and that would be when the housing market is going to come crashing down. As a buyer who's actively scouring the market myself, the honest answer is it depends where you're looking.

Any quick Google search is going to tell you that home sales are plunging substantially. Bay Area homes see the largest May through June price drop on record, and the top 10 cities where home prices are being slashed. Yet, on the surface, it seems like a pretty good time to be a buyer right now. But that's not the entire picture. Overall, it's still incredibly competitive, and in June, the National Association of Realtors pointed out that homes stayed on the market for an average of 14 days, which is two days less than they were back in May and three days less than we saw a year ago.

However, with real estate, it's difficult to play a one-size-fits-all approach across everything. Some markets have even begun to see a net decline. In fact, Boise, Idaho saw more than 60 percent of their sellers issue a price reduction, or a price improvement, as the realtors like to say, along with 50% of sellers dropping their asking price throughout Denver, Colorado, and Salt Lake City, Utah.

Basically, the states that saw the highest influx of home buyer demand in 2021 are now the first ones to see the market beginning to soften. In terms of my own experience though, I have to say it's still wildly competitive out there depending on where you're looking as a home buyer today. Fortunately, you'll be in a position where you can finally begin to negotiate on deals. You could offer a lower price, and if you miss out on something, no worries, because most likely there's going to be another property listed shortly.

Saying this a year ago would have been impossible. Back then, it was name your firstborn child after the seller while paying a hundred thousand dollars over asking to even be considered. But today, that's not the case, and you could use that to your advantage.

On the other hand, if you're looking for an investment property, good luck! There is no shortage of investors out there with deep pockets looking to buy multi-family real estate to hedge against rising inflation by leveraging cheap mortgages with large tax deductions. Like, I bet you didn't know that this is the last year for 100% bonus depreciation, so that's going to prompt a lot of people to enter the market, knowing that this opportunity is only going to last another few months.

On top of that, it's also clear that rental prices are continuing to move even higher. So, if you're an investor who prioritizes long-term cash flow, it's going to be competitive. And despite what the headlines might say, there's more money than ever chasing after some of these deals, and that is keeping prices relatively high.

But now, let's talk about this through the perspective of a seller. As some of you know, I've recently made the decision to sell off a few of my very first rental properties that I purchased. Up until a few months ago, I had the mindset that you don’t wait to buy real estate; you buy real estate and you wait. But as I’ve gotten busier with new opportunities on non-mortgaged properties located in the state that I no longer live, it just makes sense to hand them off to a new owner who could manage them in ways that I just don't have an interest in.

Now, I'm still holding on to about 80% of my real estate portfolio, and these just happen to be the few least expensive ones. But I have to say I was absolutely blown away by the amount of activity I got. There were multiple offers over asking within days of listing the property at a price that I couldn't have dreamed of just two years ago.

Practically though, Realtor.com did find that the share of homes that reduced their list price reached 14.9% in June versus 7.6% from a year earlier, meaning that sellers can no longer ask unrealistic prices and get it. Even as recently nearly five offers are being received for every property sold, with more than fifty percent of buyers still offering over list price. Of course, just like the last example, it does matter a lot in terms of where you live, and some markets are seeing a decline anywhere from three to eighteen percent.

But despite what some people might think, the market is still extremely strong even with higher interest rates and properties that are priced competitively. However, the one we really need to talk about is the rental market because this is where we're seeing the biggest changes. Although, I have to say when it comes to building wealth, leveraging your money, and buying real estate, a lot could be improved with a higher credit score, for which our sponsor, Experian, wants to help.

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Alright, now we got to talk about the most controversial topic from all of this, and that would be the rental market. Just recently, a Realtor.com analysis found that metropolitan cities' rent increases have finally begun to slow down, and in some locations even reverse, as demand begins to subside. On top of that, others say that rents have simply increased to a price that tenants are no longer able to pay. Like Bloomberg noted that after rents went up 12 percent year over year on the average two-bedroom apartment, they've begun to come back down with a decrease of 2.9 percent.

Now, my own experience though is a mix of both. For example, throughout these last two years, even though I have fixed-rate mortgages, my own costs have increased anywhere from 15 to 20 percent due to higher property taxes, higher insurance, higher labor prices, and higher material costs. That cost has to come from somewhere, so either I subsidize those costs by paying out of pocket or it gets passed on to the tenant.

Even though I'm in a really unique position where that isn't so much of a concern, most mom-and-pop landlords have no other choice but to raise rents accordingly. Just like any other business, the tenant pays more. That's why we've seen the rise of these evil landlord memes when, in reality, 77 percent of landlords are mom-and-pop owners. I know it's hard to feel sorry for someone who's fortunate enough to own a property to begin with, but the fact is 43 percent of mom-and-pop landlords used to live in the home that they now rent, 26% plan to move back into the property at some point, and 30% are already in retirement years and rely on rental income to pay for their expenses.

To me, this problem is simply just a symptom of decades of underbuilding and the inability to construct affordable housing. But you know what? I digress. In terms of rental prices, in the last year, out of 10 units, I've had two vacancies. One was rented before we even put it on the market for eight percent higher than the previous tenant was paying, and the second took three weeks to rent in West Los Angeles below my asking price. The fact that everyone else at that price point either already bought something or ended up moving out of state really goes to show that rental demand is very much price and location-based.

As we're starting to see, rental prices have begun to stabilize, even though they're significantly higher than they were just two years ago. That's enough about me. I think it's really important that we get as many different perspectives as possible. So, I drove all the way to Los Angeles to meet with my former broker and the star of Netflix's "Selling Sunset," Jason Oppenheim, to get his thoughts on the market and the direction we're headed.

Oh, there's so much to unpack there. Interest rates have slowed demand, certainly, especially in the lower price points. I've seen, I think we're holding probably 20 escrows at a time or probably in like five or six escrows right now, so volume has dropped considerably. You know, this is like kind of that nervous period for the next six months, and then I think we'll get back to like a normalcy. Prices really haven't gone down much at all. You might not be seeing as many multiple offers, so you're not seeing that.

I think that it kind of knocked the froth off of a lot of these properties. How do you think sellers are approaching the market differently? I think they're pricing more aggressively now. I think they're not as emboldened to come on the market and expect multiple offers. I think they're considering their first offers now and considering offers that are under the asking price. So, they're just not as cocky as they were.

I think we're going to see just complacency in the marketplace for the next year or two, so prices will have stabilized. I think they'll just continue to stabilize. I don't think they'll go down, but I also really don't think they'll go up. People were buying to buy. I was buying to buy for investment or what have you, or just because interest rates were so low.

I think right now, people are realizing that if you— sellers are realizing and buyers are realizing that they should buy or sell based on their own unique circumstances and whether it actually makes sense for them, as opposed to just trying to make an investment or a business decision. But the reality is this is what any realtor or long-term investor should want— is normalcy.

I've been hitting legs! Don't skip leg day, Graham! So, overall, it's definitely apparent that we're beginning to stabilize and enter a new phase of the market that isn't just prices rising indefinitely. From what I could see, mortgage rates have begun to hold firm and even declined to five percent. Prices are increasing albeit at a slower pace, and rental prices are only going up as much as a tenant can afford.

In terms of the future of the market though, I've said this before and I think it's worth repeating again. The Calculated Risk blog pointed out that we could be following a very similar trajectory to real estate prices in the 1970s, which were also plagued by rising prices, skyrocketing mortgage rates, and high inflation.

But here's where things get interesting. During that time, home prices continued going higher in terms of a dollar amount, but real returns when accounting for inflation fell by 11% over three years. Meaning home prices went up, but the net value declined. After all, median home prices are up 10.9 percent year over year but inflation was 9.1, meaning home prices only increased by 1.8 percent above inflation, which is completely in line with the historic average.

That's pretty eye-opening, right? All of that is to say that inflation needs to be accounted for when comparing home values and borrowing. In a complete meltdown of our entire economy, most likely, home values are going to begin to normalize from here on out without prices just continuing to rise up indefinitely without merit.

So, with that said, you guys, thank you so much for watching! Also, feel free to add me on Instagram. Thank you so much for watching, and until next time!