The Housing Market Is About To Go Wild | DO THIS NOW

What's up, Diamond Handers? It's Correction here, and the markets have gone completely mad. Like, I'm sure we've all heard the saying, "If you can't beat them, join them." But have you ever heard the phrase, "If you can't beat them, offer all cash over asking, sight unseen, in 24 hours?" Coming soon to an area near you!

All right, I know it sounds like I'm exaggerating, but I'm not. All thanks to a new home buying program launched by some of the largest online real estate firms in existence, each in an arms race to buy up as many American homes as they possibly can, as fast as they can. That's at the same time that nearly one and a half million Americans are seriously delinquent on their payments. The stock market tops another all-time high while the Hindenburg Omen makes an ominous appearance. Paying with a credit card is about to cost you more money, while Millennials are now spending an extra $765 a month.

And the most surprising from all of this is that a research vessel recently found a SpongeBob look-alike a mile under the ocean's surface. Okay, but in all seriousness, given everything going on all at the exact same time, let's talk about exactly what's happening, what this means for the future of both the stock and the real estate market, why credit cards are getting a lot of backlash, and then the point you all came for—how you could use this information to make you money.

But really quick, if you appreciate an entire week's worth of information neatly condensed in a video like this, just do me a quick favor and destroy the like button for the YouTube algorithm. Doing that lets me know if you enjoy this type of information; it also gives me a really good gauge on whether or not you want to see more like it. And best of all, if you watch this video at half speed, it sounds like I'm drunk! So thank you guys so much for doing that, and with that said, let's begin.

So first, we've got the most mind-twisting topic that you all came for, and that would be real estate. It's no surprise that throughout the last year, real estate is the most competitive it's been in history, while inventory is at the lowest level ever reported. Buyers are paying a million dollars over asking in hot markets and even volunteering to name their firstborn child after the seller to gain an edge.

But now, the madness continues even further because we have Zillow and other tech firms in an arms race to buy up American homes. This came just a month after the Wall Street Journal ran an article claiming that if you sell a house these days, the buyer might be a pension fund. Well, they buy up entire neighborhoods at a time, paying 20 to 50 percent over asking and ruining the dream of homeownership as prices continue skyrocketing—faster than the likes on this video, if you haven't done that already.

But now, things are heating up in a different way—all thanks to the concept of iBuyers, featuring Will Smith, coming soon to a real estate market near you. All right, but jokes aside, here's what's going on: Vice reports that the race is on among tech firms to gobble up U.S. housing stock and dominate the increasingly competitive high-tech house flipping market, otherwise known as the fast-growing iBuyer industry.

And if you're totally confused, here's what you need to know: Websites like Zillow, Redfin, Offerpad, and Open Door are doing anything they can to expand market share and gain dominance as the go-to real estate mega hub. But to do that, they need inventory at whatever cost it takes. Their goal is to offer a service that would make sight unseen cash offers in 48 hours that would be comparable to what the seller would receive by listing their home on the open market for sale.

Then, after buying the home, they'll sometimes make a few quick repairs before listing the home back on the market for sale—ideally at a slightly higher price that gives them a bit of profit. That concept is gaining a lot of popularity. Like, iBuyers' market share has been steadily increasing through markets like Phoenix, Arizona; 6.8 percent of homes in Raleigh, North Carolina, were purchased using this technology. Throughout 2021, that number has been steadily increasing. Zillow is about to lock in $450 million worth of funding to buy even more homes. Rocket Homes just started their own iBuyer program, and Redfin is racing to become the first major iBuyer to hit the Chicago market.

Let's call it for what it is—it's a real estate free-for-all during a time when the housing market continues getting more and more expensive. In fact, recent reports showed that in 94 of those metro areas, median prices rose by more than 10 percent from a year earlier. And now, prices are rising so rapidly that they are outweighing the benefit of low borrowing rates, effectively meaning it doesn't matter how you spin it; real estate is out of control for iBuyers.

The main pitch is convenience, or as Redfin calls it, "it's like having an easy button to sell your home," making the process almost as easy as selling a stock or smashing the like button for the YouTube algorithm. But this whole process has to make you wonder how much of these companies are actually making by buying your home and then flipping it back on the market for sale after making a few repairs.

Well, this is the part that I found surprising: iBuyers are actively losing money—an average of $40,000—on each home bought and sold. It's almost like Wall Street bets just entered the real estate market. So what's going on?

Well, first, we've got to take a look at how much they're paying for these homes in question, which upfront, I gotta say, is a lot more than what you'd expect for a virtual service. You would assume that these websites absolutely lowball you in the home's value, and it's just a numbers game to try to get enough good deals. But you know what? It's maybe not. Zillow claims that homeowners turned down their iBuyer offers only receive an average of 0.09 percent more on their home sale by going the traditional route.

However, more recently, it was found that iBuyer offers were not only paying an average of four percent more than the home's market value, but they were also expanding the areas in which they purchased, leading, of course, to even greater losses by the time they put the home back on the market for sale. And speaking of fees, here's where things get really interesting: A year ago, iBuyers were paying about 7.2 percent in closing and other transaction costs, whereas today that fee is reduced to 5.1 percent, which is nearly identical to a home traditionally listed for sale with a realtor.

But you gotta wonder, what's the point of doing all of this if the goal is to pay over market value to buy a home only to later sell it and lose money? Well, Zillow completely acknowledges that their iBuyer program is unprofitable and costs them tens of millions of dollars, but they say to be patient, and all of this is part of their grand plan to transition real estate to an industry where buying and selling is as easy as trading in a car.

However, the piece of information that not enough people are talking about and acknowledging is not so much the loss associated with buying and selling homes on the platform, but instead how much they could charge for the data. Knowing that sellers are actively out there trying to list their homes, it's no surprise that Zillow generates a significant amount of their revenue through advertising.

Now that we could better identify the sellers who are on the edge of their seat looking to sell, they could sell that information to third parties for a hefty cost. For example, Seeking Alpha analyzed the value of each lead. Even though a cheap unqualified lead comes in at twenty dollars, a guaranteed lead could be worth as much as $1,875. Meaning even if Zillow is not making money by iBuying homes, they are gathering data, gaining a lot of market share, and long-term, they're probably going to make a lot of money.

Now, the downside to you is that besides competing with everyday buyers, investors, and pension funds, you could also be competing with iBuyers who don't mind overpaying for a deal because they're backed by venture capital, and any loss they take is simply the cost of doing business. Now, I have a feeling they're not doing this to try to make money flipping homes but instead to gain market share and then sell that information to third parties who will wind up calling you 20 times a day until eventually you decide to sell your home.

Now, as for the concern about one and a half million homeowners being seriously delinquent on their mortgage, it's worth addressing because there's certainly concern that as the foreclosure moratorium expires, foreclosures could hit the market. That could be the catalyst that finally causes real estate to go down in price, but realistically, that's probably not going to happen.

First, let's assume the worst and that all of these homes end up going into foreclosure. If that's the case, be prepared to be very, very patient because properties foreclosed on during the first quarter of 2021 have been in the foreclosure process for an average of 930 days. Yes, you heard me correctly. That's an average of two and a half years from the point of falling behind on a payment to actually being foreclosed on. This is up from 857 days in the fourth quarter of 2020 and 673 days for properties in the first quarter of 2020.

The reality is foreclosures are a very time-consuming and very slow process, so whatever happens today is not likely to show up in the markets for probably another two years. The second, even though one and a half million homeowners being delinquent on their payments seems really, really bad, historically, we're not that much higher than the average anymore. In fact, we're back to the same delinquency rates we saw back in 2017 and 2018. It's only marginally higher today, due in part to mortgage forbearance options, which allows homeowners to temporarily pause their payments if they need to.

And third, if homeowners are actually having difficulty making their payments or getting caught up, banks are currently willing to extend any option available, including no-cost loan modification in the event payments need to be restructured. Right now, foreclosure is really the worst-case scenario; the banks are trying to avoid, and that leads me to believe that realistically, for the overall market, expecting foreclosures to show up anytime soon is probably not going to happen.

You're more likely to get an all-cash over asking offer from Zillow instead. But that's not the only reason why investors are terrified right now. CNN says investors are terrified of missing out on the stock market rally. While the S&P 500 crossed 4,500 for the first time ever in history, this is due in part to claims that the new illness strain could be peaking in certain markets while positive test rates have finally started to decline. Johnson and Johnson noted promising results with the new booster shot, and the fact that investors have few other choices other than to keep buying stocks because no other assets look as attractive in terms of overall growth.

Millennials are now spending an average of $765 more a month than they did a year ago in 2020, indicating that there's a lot of pent-up demand to make up for lost time and spend some of the money that they saved throughout the shutdown. But of course, other people find a slightly more ominous sign associated with these all-time highs, as seen by the Hindenburg Omen, which recently appeared as it does before every stock market crash.

Now, here's the thing: the Hindenburg Omen is a technical analysis that was designed to help signal the increased probability of a stock market crash by comparing the ratio of new 52-week highs with that of 52-week lows. However, even though there's always been a Hindenburg Omen before every single stock market crash, there's not always been a stock market crash after a Hindenburg Omen. Because of that, it's only been accurate 25% of the time since 1987. So needless to say, it's not a reason to panic.

But if it makes you feel better, investing at or near all-time highs, just consider this: since 1950, the market has hit a brand new all-time high seven and a half percent of all trading. If we include the time the market was trading within one percent of the recent all-time high, then the market was at or near an all-time high one out of every five trading days. In addition to that, from 1988 through 2020, investing cash at all-time highs paid higher returns for all three periods when compared to investing on a random day.

Basically, this points to the fact that it's better to stay invested in the markets at all-time highs than to hold too much cash on the sidelines waiting for a drop because the Hindenburg Omen appeared on Yahoo Finance and you got all spooked. And lastly, we got to talk about my favorite topic of all time, and that would be credit cards and why using them could soon start costing you money. The Wall Street Journal just reported that an increasing number of businesses are now either charging an additional fee for paying with a credit card or offering a discount if customers agree to pay with a debit card, check, or cash instead.

That's because every time you pay with a credit card, the merchant pays a processing fee—usually in the range of 1.3 to 3 percent, plus a flat 10 to 20 cents. On small items, that quickly adds up and can eat into profits. As a result, some businesses are fighting back by either raising the cost of their product or offering you a discount if you pay with anything other than a credit card.

Now, on the one hand, for the consumer, credit cards are generally good. They offer purchase protection, it's easy to keep track of expenses, and they frequently give cash back. But for the business, that comes with the cost of a fee. The credit card companies argue that the convenience of allowing your customers to pay you with a credit card is worth it because not only are buyers more likely to have confidence with their purchase, but statistically, people spend more money on a credit card than with a debit card.

So the credit card companies say that overall it averages out, but businesses are not having it. They're taking matters into their own hands. Like five years ago, only two percent of all small businesses offered a discount for cash, but now five percent of businesses are going that route.

Now, here's my thinking: as a customer, it's worth it to pay a small premium for the convenience and safety of using a credit card. Not to mention, certain cashback rewards make it almost always advantageous to use a credit card, even if you end up paying a fee. But I also understand that could have an impact on small businesses, and usually, that cost goes back to you in one way or another.

Obviously, if you're paying a small business that you trust on a small ticket item that you know exactly what you're getting, it's not the end of the world to pay with cash instead of a credit card. But the real issue is whether or not credit card transaction fees are sustainable long term. I would argue probably not, at least not in the current capacity it's running, especially since Visa spent $150,000 buying this NFT.

Now, I know everyone is probably going to say, "But Graham, this is why we need the cryptocurrency blockchain," and that's true. But with blockchain, there's not necessarily the purchase protection of buying a defective item and not realizing it until a week later, or getting the insurance on certain things that break, like you do with a credit card. So realistically, probably nothing is going to happen until it impacts a much higher percentage of businesses or if people stop paying with credit cards, which is probably not going to happen.

And then finally, the story you all came for: a research vessel found SpongeBob look-alikes a mile under the ocean surface. If you can't see the resemblance, then here you go. But unfortunately, the story is not exactly a happy one. He was quoted as saying, "In all likelihood, the reason the starfish is right next to that sponge is because the sponge is about to be devoured at least in part." Yeah, uh, that's awkward.

So on that note, 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 pretty much daily. If you want to be a part of it there, feel free to add me there as my second channel, The Graham Staffing 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 so much for watching, and until next time!