To everyone wondering “When the Real Estate market will crash??” - my prediction

So basically you're getting these people with big down payments who are making a lot of money, who can afford these houses, who are buying; this is hardly a bubble, and this is very sustainable long term because none of these people are ever gonna let their homes go into foreclosure because they have so much equity tied up in their house.

What's up you guys, it's Graham here. So one of the things I realized that I really like from this particular camera angle is that you have no idea what I'm wearing from the shirt down. Am I wearing khakis? Am I wearing dress shoes? No, I'm actually wearing oversized sweatpants and really comfortable socks. That is one of the reasons why I love this angle. All I have to do is put on like a decent shirt and a jacket, and I am good to go.

So anyway, besides that, one of the comments I get a lot is asking when do I think the real estate market is going to crash. Along the same lines, I get a lot of the comments saying I'm going to be investing in real estate, but first I want to wait for the market to crash and then I'm gonna buy back in. It's almost assuming like I have this answer of when the market is going to crash just because I'm in real estate. But I think a lot of people think that I know, like, "Oh, on February 12th, 2019, the real estate market is going to crash, ah ha ha ha." But it's not like that at all.

So I'm gonna share my thoughts on what I really think is going to happen long term for the real estate market, and when it might crash, and if so, what's going to cause it. Now, I have been right about these things the last few times. Now, just because I've been right the last few times does it mean I'm gonna be right in the future, but let me give you some examples.

Everyone, I was right, and then what I think is realistically going to happen to the real estate market. And by the way, I'm making this video from the perspective of both a real estate agent and a real estate investor, so I see both sides of the coin here. I see what people are buying and selling, and I see what I want to invest in myself.

So like I said, I predicted a few things right in the past. The first one was in 2011. What I saw real estate just become absurdly cheap; I just couldn't imagine it going any lower because it got to a point where you were buying these properties for like twenty percent of their appraised value in 2006, and it was 2011 at this point. I couldn't see it possibly getting any lower, and the reason why? Because these properties were selling far below the replacement cost, which replacement cost is just the cost to build that exact same home as it sits.

A lot of time the replacement cost of a lot of these homes was like a hundred and fifty dollars, maybe two hundred dollars a square foot. So that's the minimum cost a builder needs to make any money, and real estate just to break-even is that amount per square foot. Realistically, they need to charge maybe an extra twenty to fifty dollars per square foot to even make a profit.

These are properties that were selling at like $50 a square foot, $40 a square foot, so I knew that was unsustainable, and I knew the market had to come back to a much higher level. That is just when I started buying properties. It was a little bit out of disconvenience because that is when I actually had the money to invest in real estate, but also, I saw it as basically no risk because it couldn't possibly go any cheaper.

Sure enough, it was, and I more than tripled my investment on the properties I bought back in 2011. I also made a post in 2012 on this real estate forum explaining why I thought the hardest-hit areas were going to be the ones that would make the most money.

Now my reasoning behind this is because these areas dropped to a price where they were so cheap. More people can afford to buy a cheap home than a much more expensive home. So I felt like these are the areas that people were first going to invest in just because it was so cheap. I'm talking about houses that were like 30, 40, 50 thousand dollars. These are gonna be the areas that are gonna appreciate the most because so many people are gonna want to buy in, fix them up, rent them out, wait for values to come up, and then slowly start selling them off.

Sure enough, I was right, and that's been true, especially around Los Angeles and like South Central, Compton, Watts. A lot of these areas that were lower end of Los Angeles made the most money in terms of what they appreciated.

Then it's now about 2015, and I started to see the market changing again. Now in Los Angeles, we had a big boom in Venice, California, when a lot of the tech companies started moving in. That money was extremely concentrated in Venice, which I grew up in. Venice used to not be a pretty area. I mean, it was filled with drug addicts and prostitutes. It sounds weird, but like literally gang members!

I remember in our alley, we would constantly, maybe every few weeks, get someone like tagging or spray-painting in our alley. So then this was not a place that you really wanted to be. But Venice saw a huge tech boom, and now it's called like Silicon Beach. So, a lot of people were buying up in Venice. Tech money was moving in, and that tech money slowly started to move over to Santa Monica.

I started to predict Venice is too expensive, Santa Monica is too expensive, Mar Vista is right next to those areas, and it's like 40 percent cheaper. There is no way Mar Vista is gonna stay forty percent cheaper with all of these areas close to the beach staying that expensive. What's gonna happen? People are gonna get out priced at Venice in Santa Monica, then they're gonna move to Mar Vista.

Sure enough, I was right on that. Now the following year, Mar Vista boomed in probably, I mean, I'm talking like, it's all like a 30% price increase within like 18 months, which is crazy. Now at that time, I was in the market to buy another property, and I saw Mar Vista getting so expensive. Venice was just absurd. Santa Monica was just absurd.

The next area that I thought was really gonna hit it big is Culver City. So everything is moving in further inland. So I figured, you know what, Culver City is gonna be the best place to invest in, and I did. I bought a 3-bedroom mid-century house there, and since I bought it, it has gone up in value over 30%. The house is worth way more than what I bought it for, and just a little bit over a year, almost a year and a half.

It's going to continue to move inland, so sure enough, now Culver City is getting extremely expensive because you have now Amazon just moved their production headquarters into Culver City. So now Culver City is getting absurd. So I saw, okay, now I'm in the market again for another property this year. Where am I gonna buy? Because now Culver City is so expensive, Mar Vista is so expensive, Santa Monica, Venice; I can't even afford to buy a place there. What's next?

I figured, you know what, West Adams is next. West Adams is just east of Culver City, just five minutes east. All of the money from Culver City is gonna move further east, that's right into buying and that is my bet for the next five years.

But let's talk about the real estate market and in general what's going to happen and what are we gonna generally see throughout the country for the next maybe five years. I don't see there being any sort of devastating real estate crash like everyone is talking about. So many people are talking about there being another bubble, that real estate is just grossly overpriced.

But the thing that they forget to mention is that people are still buying at these prices, and not only are they buying, but they're putting a lot of money down. The thing is this: in the last 2006 bubble, people were buying properties on stated income that they couldn't afford when they were banking on appreciation to make more money. Now that's not so the case.

Now, in order to buy a property, you are screened religiously. Even for me, to buy a property, it took weeks of them poring over every single bank statement that I had, all the debt-to-income ratio, the credit score, the income; everything was scrutinized and verified in order for me to buy something that really wasn't all that expensive.

A lot of people that are buying right now are putting between fifteen percent on the low end to maybe thirty percent on the high end on average. That means these people have a ton of equity in their home already. This is hardly a bubble; this is hardly people buying things they can't afford. This is people putting down more money than they ever would have in the past and qualifying at a low debt-to-income ratio.

This is the other thing: banks are very strict about the debt-to-income ratio. They want to know that you can afford the home that you're buying and you're not just somebody who has this big down payment but who makes like $10 an hour, who's gonna buy some like million-dollar house. They like to see consistent long-term income that's going to support the house payments.

So basically, you're getting these people with big down payments who are making a lot of money, who afford these houses, who are buying. This is hardly a bubble, and this is very sustainable long-term because none of these people are ever gonna let their homes go into foreclosure, because they have so much equity tied up in their house.

Plus, all the people that were previously underwater on their mortgage in like 2010, 11, 12 are no longer underwater. Chances are, if they've just held and done nothing, chances are they've ended up making a pretty decent amount of money. Long story short, I don't see any reason that real estate is overvalued, and I don't see any reason that there's gonna be a bubble or a crash coming in the near future.

Now realistically, this is what I think is going to happen and what I think is actually happening. What I've noticed so far is that there is a huge construction boom. There is a ton of inventory coming in the market, at least in the west side of Los Angeles. You drive down any block, and you see at least one home under construction and one home being flipped.

Now the problem isn't so much all these people flipping and developing homes and selling them, because they're still selling and there are still people with a ton of money buying these homes. The problem comes, I would say maybe another year down the line, maybe a year and a half down the line. I think we're gonna see a huge surge of new homes coming on the market.

I think that is going to outpace the demand for these homes. So I don't really see this as a bubble; I don't see this as something that the market is gonna crash. What I see instead happening is a lot more homes are coming in the market, a lot fewer people are there to buy those homes, just because there's so many available.

I think it's slowly gonna stagnate the real estate market. It's not gonna crash. I don't think anything is gonna be dropping like ten percent in price, but I do see the market not appreciating at like ten, fifteen percent a year like it has been, which is just absurd, and that's not healthy.

I see it instead appreciating at a very modest, maybe two to four, maybe two to five percent, depending on the area, overall annually, and I think that's the right place to be, and I think that's a healthy market.

Now, obviously, some markets are going to appreciate way more. If you try to like time the next like Venice Beach, it's certainly doable; maybe you can make fifteen, twenty percent if you buy the right property at the right price in the right area. But I think as a whole, we're probably gonna see much smaller appreciation, and I think things are gonna start to take a little bit longer to sell.

The next thing I want to talk about is interest rates because those do have an impact on real estate prices. Now what's kind of weird is that historically, the higher the interest rate generally hasn't really impacted real estate prices all that much. But if we were to raise interest rates right now from like four point two percent all the way to seven percent or six percent, it would make a huge impact on what people can afford.

Now let's take this from the perspective of an investor. If an investor is paying a four percent interest on their money, they can buy a property at a certain price knowing that their debt only costs them four percent. But if their debt costs them six percent, that means that either that property they're buying has to make more money to compensate them to get the return that they want, or they have to buy the property at a lower price to make sense of a higher interest payment on their loan.

So the way I see it is that if interest rates rise too quickly, that would put a bit of a deterrent on a lot of people buying real estate who are either maxed out to begin with, and now they can't buy as much, or the investors where it just doesn't make sense to buy a certain property at a certain price because they're not going to get the return because their profit is eaten away by a higher interest rate.

The way I see it is that nobody is going to be stupid enough to raise interest rates to a level that's going to collapse the real estate market or really make a huge long-term impact really quickly. Realistically, it's not gonna happen; they're not idiots; they're not gonna do that to themselves. That would basically just be like them shooting themselves in the head by raising interest rates a stupid amount.

What's realistically going to happen is that interest rates are slowly going to rise over the next maybe five to eight years, and I see them eventually ending up somewhere on like six, six and a half percent. Right now, we're about four percent; I see them eventually ending up maybe two, two and a half percent higher than we are right now over the next five, six, seven, eight years.

Long-term, it's not going to make a huge difference, but it is slow enough that I think, again, we're not gonna see these huge price increases that we had been seeing over the last seven years. That is completely unsustainable, and that is not a healthy market.

By doing this, we're gonna see a combination, like I said, of increased inventory and higher interest rates. Between the two, it's really just going to soften the appreciation that we have been seeing over the last seven years, and it's gonna be very slow in terms of the value that you're gonna get.

Long-term, real estate is still a great investment. You have to buy smartly; you can still add a ton of value by renovating the properties. Just don't expect to go and buy this like brand new construction at retail and then sell it the next year for three hundred thousand dollars more. It's not gonna happen.

But let's take the worst-case scenario here. The only thing that I could see that would really cause real estate to totally crash is any sort of war or any sort of like global crisis that would have a direct impact on real estate prices and the confidence that investors have in America in general. If that happens, I think there are bigger problems that we have to deal with in the price of real estate.

But pending any sort of like global disaster, or maybe like a natural disaster like a hurricane, or a giant earthquake, or a huge fire, or a volcano erupting; a lot of these things realistically, I mean, come on; they're out of our control. We can't really help there's gonna be an earthquake or not. A lot of these things we can't predict.

So in that sense, I mean, just withstanding that, I think real estate for the most part is pretty safe. And again, even though I've been right about a few things in the past, I have no idea. This is just like my best educated guess as a realtor and a real estate investor about what's going to happen. Maybe I'm wrong, maybe I'm right. Maybe real estate shoots up another 50 percent, maybe it declines.

So anyway, this is just my best-educated guess. Thank you so much for watching this, you guys. I really appreciate it. If you haven't already, because I post on these almost daily, Snapchat and Instagram, if you want to add me there and follow me on there, feel free to add me. That's a cue for you guys to add me on Snapchat and Instagram. I try to boost up my Instagram a little bit, so if you want to add me on there, feel free.

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