It’s Here: The Reverse Housing Crash Of 2024

What's up Graham, it's guys here and in a weird twist of events, home prices are crashing higher. That's right! Despite 8% mortgage rates, record low affordability, and home sales on pace for the worst year since 1993, home prices have managed to hit a brand new record high in September, leaving everybody to wonder: Is the market actually going to get any better in 2024 after all?

Wells Fargo believes that we're soon about to enter a 1980-style housing recession, while others like Morgan Stanley think that prices, rents, and affordability will improve over the next year, with the market having just hit rock bottom. So, given all the confusion, let's discuss exactly what's going on, why the housing market could see some dramatic changes in 2024, how Canadian super pigs threaten to make their way into the United States, and what you could do about all of it to put yourself in the best position possible, whether you're a buyer, seller, renter, or just concerned about the mutant pig market.

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All right, so in order to understand what's happening, it's first important to see how real estate did throughout previous downturns because this is where things get incredibly surprising. One of the first major real estate crashes that we should talk about happened in the year 1929, just when the stock market peaked from record high speculation and borrowed money. The real estate market fell alongside everything else, and historically, this was the worst real estate crash in history. Home values plummeted by nearly 67%, and it took almost three decades for those prices to return to pre-crash levels.

Then again, from there, real estate encountered a lot more difficulty in the 1990s. Until that point, the real estate market had seen a huge increase from new lending options, inflation, and growing population, but the Savings and Loan crisis caused interest rates to rise, new home construction dropped, and home prices remained fairly flat until 1997.

Now we have the most recent one that most of us can remember, and that would be the housing crash of 2008. This was caused by too many people speculating on the value of real estate, fueled by easy money and short-term adjustable-rate mortgages that allowed anybody to get a loan if they could just make the introductory payments. However, most of these mortgages had what's called a balloon payment built in, which meant that there was a big lump sum that was due a few years from when you originally took out the loan, and that of course led to a complete disaster. Depending on the location, home prices fell anywhere between 30% to 62%. A bailout was put in place, and now again in 2023, we're back at all-time highs.

However, the most surprising part from all of this is that besides 1929 and 2008, for the most part, home prices have been fairly resilient. Like during and after World War II in the 1940s, home prices and construction boomed from a surge of demand. During the 1970s stagflation era, while stock prices were going down, home prices were going up due to inflation.

During the 1980s recession, home prices saw a 45% increase as inflation stayed high. The 1990s saw some markets drop, but even the hardest-hit markets didn't see a decline of more than 10%. Even the dot-com bubble of 2001 had very little impact on the housing market because even as stocks fell, interest rates also fell alongside it, causing home sales to climb to a brand new record high.

Although today we certainly have some different challenges that will directly affect the real estate market, and these are a few of the obstacles that stand in the way. First, let's begin with Wells Fargo's warning that the housing market is headed back to a 1980-style recession because it's probably not what you're expecting. This all occurred after President Nixon removed the United States from the gold standard, which eventually led to runaway inflation. So as a way to combat that, strict policies were put in place and interest rates were increased as high as 20% to prevent prices from skyrocketing even higher.

Although, as you would expect, that caused prices to come crashing down. However, even though Wells Fargo believes that we could wind up seeing a similar 1980-style housing recession, to them that doesn't mean necessarily lower prices. In fact, they see it the opposite because fewer sellers are listing their homes. Wells Fargo went on record to say that home prices will continue to appreciate at a slightly slower pace because of underlying demand and tight supply, rising 1.8% by the end of the year and 25% in 2024. In 2025, Wells Fargo forecasts that home prices will rise by 4.4%.

So how on Earth is this even possible? Well, on the surface, most people just pay attention to nominal home prices, which is simply how much did something cost today relative to how much it was a year ago. But if you actually want to get a good understanding of how much something really goes up in price, then you have to take into account inflation.

Here's just something to consider: Would you say that making a 400% return from 1970 through 2020 is good? Well, if you answered yes, you would be wrong because you would actually be losing net purchasing power when adjusted for inflation. When you take this into consideration, you're going to begin to see that we really only saw one decline in the last 50 years, with that being in 2010.

Even more confusing is that up until 1970, home prices were essentially flat and were only driven higher by the need for larger homes, loose policy changes, lower interest rates, and the one you've all been waiting for: a lot of money printing. Bill McBride points out from the Calculated Risk blog that the real estate market today is surprisingly similar to the market that we saw back in 1978.

He pointed out that from 1978 through 1982, home prices continued going higher, but real returns, when accounting for inflation, fell by 11% over three years—meaning home prices were up in terms of dollars but down with inflation in terms of net value. Meaning people's net worths were going up even though technically it was going down.

After all, according to the National Case-Shiller index, median prices are up 3.9% over the last 12 months during a time where year-over-year inflation is 3.2%. This suggests that national home prices are really only up 0.7% over the last 12 months, which is completely in line with historical averages.

However, some analysts have a completely different interpretation of what they think is going to happen in 2024, and this is where the debate starts. Although before we go into that, it is important to mention that objectively, Americans are still spending like there's no tomorrow. Studies now show that there's a boom across various industries in terms of what customers are buying.

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Now with that said, let's get back to the video. All right, so in terms of why some analysts disagree with the belief that home prices will continue to stay strong, look no further than Morgan Stanley because they believe that prices are about to get a lot more affordable in 2024. Or I guess as they say, we expect home sales to be weak in the first half of next year, but activity should pick up in the second half and further into 2025, and that's primarily because affordability will improve.

They also expect that the Federal Reserve will begin lowering interest rates by mid-2024, which would prompt more sellers to sell and more buyers to obtain an affordable mortgage. In fact, they anticipate that rates will be as low as 4% by late 2025, meaning, according to them, we'll be back to almost 0% interest rates in just two years from now.

The chief economist at Realtor.com also agrees with the sentiment that affordability is only going to improve from here, noting that Fannie Mae, the Mortgage Bankers Association, and the National Association of Realtors all predict that the 30-year mortgage rate will fall below 7% in the second half of 2024. However, in fairness, the critics of this say that none of these associations correctly predicted the interest rate increases that we saw throughout 2023, nor did they anticipate that home prices would rise as much as they did.

So basically, their guess is just as good as anybody else's. Of course, the downside to all of this is that it seems as though regardless of who you ask, there's almost unanimous agreement that home prices are not likely to meaningfully fall, at least until home sellers outnumber buyers, which at this point is unlikely to happen anytime soon.

Essentially, what we're seeing right now is an almost perfect equilibrium of supply and demand because there is very low supply but also very low demand. So prices really don't have anywhere to go but sideways. For instance, the chief economist at Realtor.com believes that home prices don't really have much room to go any higher because buyers are already maxed out in terms of what they could afford.

So why does Redfin then believe that the housing market's hit rock bottom? Well, to answer that, keep in mind that 2023 has been a fairly bad year for the real estate market. Like we all know that prices didn't crash into oblivion, but inventory is at a historic all-time low, mortgage rates hit a multi-decade high, and affordability is near the worst it's ever been. So according to the CEO from Redfin, the only good thing about the US housing market right now is that it can't get much worse from here.

By the way, I think we just jinxed it by saying that, but we'll continue anyway. He says that the biggest differentiator in this market is that the homeowners who are selling are often required or forced to sell because of job changes, lifestyle changes, divorce, or marriage. Unlike 2008, where sellers faced foreclosure risk and a race to the bottom, this suggests that prices have very little room to fall because those sellers could afford to make their mortgage payments and be patient until eventually they get the price that they want.

Or basically, in this case, home sales have hit their rock bottom because it can't possibly get any more gridlocked than it currently is. Sellers don't want to give up their historically low mortgage rates, and buyers just can't keep paying higher and higher and higher indefinitely.

I mean, at this point, it's said that in order for affordability to return back to its previous levels, one of three things has to happen: either the 30-year mortgage rate needs to fall by 4.4 percentage points, the median household income needs to rise by 62%, or home prices need to fall by 38%.

However, despite all of that, it's also said that of the home sales in October, 28% went above the listing price, which suggests that there was still a bidding war among would-be buyers. And in terms of where prices are rising and falling the most, apparently Detroit had the fastest annual home price growth in the country at 6.7%, followed by San Diego at 6.5%. The weakest was Las Vegas, where prices fell by 1.9%.

Which anecdotally, by the way, as someone who follows the Las Vegas real estate market very closely, I can tell you definitively that I am seeing way better deals out there with properties that don't properly advertise themselves. But you know what? I could save that for another video.

Anyway, with that now out of the way, we got to answer the question now: Statistically, what is most likely to happen throughout the housing market in 2024? Well, according to the data, here's what we do know. Investors overwhelmingly believe that the Federal Reserve will begin lowering interest rates in mid-2024, or if you want more precise information, there is a 52% chance that we'll see a quarter-point reduction by May of 2024, along with four more rate cuts throughout the end of the year.

We also know that investors and institutions have a record $5.7 trillion parked in cash, like money market funds, many of which are yielding above 5%, potentially serving as a massive catalyst when that money eventually enters the markets or real estate. This is all just waiting on the sidelines for interest rates to drop.

This leads me to believe that even though by all measures the housing market is unaffordable, there's still no shortage of money out there that's willing to bid up low inventory and that skews the market to prevent it from falling. Honestly, the way I see it, as someone who's worked full-time in real estate since 2008, I'll call it for what it is. I can't see many situations right now where buying makes sense in the short term.

The fact is renting right now is cheaper throughout almost every single market in the country. Really good deals are very difficult to come by, and I'm just not seeing that much opportunity right now in the market. That's why I'm taking the approach that if I'm looking for a place to move in the next 2 to 5 years, I'm most likely going to rent a place instead—at least until the cost of buying versus renting evens out.

I'm also constantly looking for good deals or potential investments, but I've seen nothing that really makes sense given the risk of the market. Just from what I'm personally seeing, the returns are way too low. Commercial real estate has barely even budged, given that treasuries are already yielding about 5%.

I'm just in line with a lot of other investors holding cash on the sidelines, taking a wait-and-see approach, just to see what happens. Personally, I tend to think that a lot of these real estate predictions are just random guesses, and inevitably, a few of them are going to be right. But if you're going to ask me for my guess on what I think is going to happen, for whatever that's worth, I tend to believe that interest rates are going to stay higher than most people think.

I think they're going to stay higher for longer than most people think, and over the next few years, the housing market should begin to normalize, but it might be a very slow process. So on that note, let me know what you guys think of this down below in the comment section. I will do my best to read as many of your comments as possible and reply to the ones that I could get to.

So let me know what you think. Also, make sure to hit the like button, subscribe, and don't forget that you can get some free stocks worth all the way up to a few thousand when you make a deposit using my paid affiliate link down below in the description. Enjoy! Let me know which stocks you get. Thank you so much, and until next time!