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WTF Is Happening To The Housing Market?! — Transcript

by Graham Stephan · 3,262 words · 495 segments · language en · Watch on YouTube

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0:00What's up guys? It's Graham here. And
0:01you better prepare for what's about to
0:02happen. Believe it or not, for the first
0:04time since the great financial crisis,
0:06the housing market is going through a
0:08total reset. Except this time, it could
0:10permanently change who gets to own a
0:12home and who gets locked out forever.
0:15That's because last week, Morgan Stanley
0:17warned that we're soon about to see a
0:18brand new housing market where mortgage
0:20rates stay higher, affordability fails
0:22to recover, inventory remains locked,
0:25and prices never fall enough to save the
0:27average home buyer. Meaning the crash
0:29everyone's been waiting for might not
0:31ever happen. And by the time they
0:32realize it, the opportunity to buy might
0:36already be gone. That's why we really
0:38got to break down exactly what's
0:39happening, why the housing freeze could
0:41get significantly worse throughout the
0:42rest of the year, and then most
0:44importantly, what this actually means
0:46for you. Because if Morgan Stanley is
0:48correct, the most dangerous phase of
0:50housing prices may have already begun.
0:52And the scariest part isn't what's
0:54happening today,
0:55instead it's what's happening next. Oh,
0:58and before we start, if you appreciate
0:59me financially doom scrolling on your
1:01behalf, it would mean the world to me if
1:03you hit the like button or subscribed if
1:05you haven't done that already. Yes, I
1:07keep saying it in every video. Yes, it's
1:09annoying. Yes, it does actually help out
1:11the channel. And as a thank you for
1:12doing that though, here's a picture of a
1:14zebra. So, thanks so much and also big
1:16thank you to SoFi for sponsoring this
1:18video, but more on that later. All
1:19right, so there's a bit of a backstory.
1:21In terms of what's happening in 2026 and
1:23what Morgan Stanley predicts for the
1:24future, we need to talk about the
1:26current state of the housing market. And
1:28that all begins with the housing freeze.
1:31See, Morgan Stanley periodically
1:32releases their home price forecasts
1:34about twice a year based on their
1:36analysis of the data trends and prices.
1:39And their latest findings were rather
1:41surprising. Like in terms of their
1:43newest research, they no longer believe
1:45the housing market is breaking in the
1:46sense that we'll see a 2008 style crash,
1:49but rather the housing market's going to
1:51enter a brand new reset where prices
1:53just keep going higher and then just
1:55stay there. After all, as of now, the
1:5730-year mortgage is almost at 6 and 1/2%
2:00which surprisingly is already at a
2:027-week low. Meanwhile, the median home
2:05price just hit $429,000
2:08which is up another 1.3% from a year
2:11ago. And to top it all off, housing
2:13affordability is not getting any better.
2:15In fact, it's only getting worse. All
2:17thanks to what Morgan Stanley is calling
2:19the lock-in effect. Look, it's no
2:21surprise. As of right now, roughly 70%
2:23of homeowners have a mortgage rate below
2:255% and half have a mortgage rate below
2:284%. This means there's no incentive
2:30whatsoever for someone to give up their
2:32sub-4% mortgage and exchange it for one
2:35that's going to cost them 50% more when
2:37they could just stay put instead. And
2:39that's exactly what's happening. Really,
2:40until rates drop back down, the housing
2:42market is frozen. Nobody wants to move.
2:45Housing can't be built fast enough to
2:47satisfy demand. And that means that
2:49everything else on the market keeps
2:50going up in price despite being
2:52unaffordable for the vast majority of
2:54people. In fact, housing turnover is now
2:57at the slowest it's been in 40 years.
2:59And this has remained completely
3:01unchanged for 11 straight quarters. That
3:03is why we have this weird paradox where
3:06demand is weak because homes are
3:07unaffordable, but supply is equally as
3:10weak because no one wants to give up
3:12their cheap mortgage. So, the two just
3:14kind of cancel each other out. And
3:16instead of a crash, home prices just
3:18keep going up higher where most people
3:20patiently wait for prices to drop. But
3:23unfortunately, that's not expected to
3:25happen anytime soon. All because of
3:27something that most people don't expect.
3:30And that would be the affordability
3:32trap. [music]
3:32Believe it or not, a few days ago,
3:34Harvard just released their own warning
3:36about the recent housing price
3:38appreciation trend. And it basically
3:40just confirmed everyone's worst-case
3:42scenario. That's the fact that the
3:44housing market is completely Okay, now,
3:46in all seriousness, even though Morgan
3:47Stanley is warning that the housing
3:49market is resetting financially,
3:51Harvard's research suggests something a
3:53lot deeper, which is that the current
3:56state of the housing market that most
3:57Americans grew up believing may have
3:59only been a one-time exception and not
4:02the rule, and that home prices were only
4:04ever designed to keep getting more
4:06expensive and more expensive and more
4:08expensive. Why? Well, just keep in mind
4:11that when all of this started after
4:12World War II, you had 16 million
4:15veterans all coming back at the exact
4:17same time. And Washington was genuinely
4:20terrified. So, how do you quietly
4:21reabsorb so many people back into quiet,
4:24stable, civilian life without things
4:26getting out of control? Well, you
4:28guessed it. The answer with this was to
4:30give them a house. The conditions, after
4:32all, were perfect. You had cheap land,
4:35cheap debt, massive government support,
4:38fast construction, rising wages, and
4:40millions of people coming home who
4:42needed jobs, families, and stability.
4:44So, the solution to this was what's
4:46known as the GI Bill. With this,
4:48veterans could buy homes with little to
4:50no money down, with low interest rate
4:52debt, and federally backed by the US
4:54government. Well, at the same time, the
4:56country was building suburbs, roads,
4:58schools, businesses, and entire
5:00communities around that new way of life
5:02to prevent the country from falling into
5:04disrepair. And it worked. As we've all
5:06seen, millions of people bought houses,
5:09started families, and adjusted to
5:10civilian life. But unfortunately, those
5:13conditions only lasted for a few
5:15decades. And today, we have the exact
5:18opposite. Mortgage rates are higher,
5:20construction is slower, zoning is
5:22tighter, insurance is more expensive,
5:24wages have not kept up with prices, and
5:27instead of housing becoming easier to
5:29access over time, it's becoming more
5:31dependent on whether or not your family
5:33already owns those assets to begin with.
5:36That's why Harvard's warning is so
5:37important, because homeownership is
5:39starting to behave less like something
5:41people earn through income and more like
5:43something passed down through
5:45inheritance. And if that's true, Morgan
5:47Stanley's reset isn't just about rates,
5:50prices, and inventory. It could be that
5:52our entire housing market is shifting
5:55from those who were able to work their
5:56way in to a system where you already
5:59have to help, already own, or you're
6:01forced just to fall further and further
6:03behind. So, in terms of what this means
6:05for the next few years, when prices
6:07might actually begin to come back down,
6:09and then most importantly, what you
6:10could do about this, here's what you
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7:53get back to the video. All right, so in
7:55terms of the overall housing market,
7:56what this means for you and then what's
7:58most likely going to happen next. There
8:00is one more part of Morgan Stanley's
8:02housing report that most people don't
8:04want to hear and that would be the new
8:06normal. Look, in terms of Morgan
8:08Stanley's research their message is
8:10pretty straightforward. Stop waiting for
8:12housing to become more affordable
8:14because realistically it's just not
8:17going to happen. Now that does not mean
8:18that you should go buy anything at any
8:20price or put yourself in a payment you
8:22can't afford but it does mean that they
8:25think you shouldn't be waiting on the
8:27sidelines for affordability to come
8:29back, for prices to drop 30% or for
8:32mortgage rates to fall back down to 3%
8:34because realistically it's just not
8:36going to happen in a very long time if
8:38not ever. That's why instead their
8:41advice is a lot more practical. They say
8:43that you should buy it when the numbers
8:44make sense for you on a monthly payment
8:47that is affordable, when you're not
8:49waiting for a crash once you've already
8:51built up an emergency fund. Or in other
8:53words, don't buy because you're afraid
8:55of missing out but don't wait forever on
8:58conditions that will probably never
9:00happen again. It's for this reason that
9:02they have five predictions for the
9:03future with the first being number one,
9:06prices stay high. In their view, housing
9:08is basically stuck. Prices don't
9:10collapse because there's not enough
9:11supply and homeowners aren't stressed
9:13enough to sell but at the same time
9:15prices don't skyrocket either because
9:17affordability is already constrained and
9:19people could barely afford it as it is.
9:21That's why their base case is simply
9:23more of the same leading to number two,
9:25the new equilibrium. With this the
9:27housing market has reset to a world
9:29where everything costs more and people
9:31just have to get used to it. And after a
9:33while a five and a half percent mortgage
9:35might soon start to feel cheap compared
9:37to 6.5% or a $2,500 mortgage payment
9:41might soon be cheap compared to $3,000.
9:45You get the idea. The buyers who are
9:47waiting for things to return to normal
9:49might just have to come to terms that
9:51that normal that previously existed is
9:54just never coming back. Like if rates
9:55fall, buyers rush back in, demand
9:58increases, and that supports price. But
10:01if rates rise, then buyers disappear,
10:03inventory gets constrained, and the
10:06market freezes again. So either way,
10:08it's a tough situation to be in. That is
10:11why we have number three, increased
10:12rentals. If Morgan Stanley's forecast
10:15plays out exactly as they anticipate,
10:17then rentals are really going to see an
10:19increase in demand because if people are
10:21locked out from buying, they're going to
10:23have to live somewhere, and that means
10:25demand shifts towards apartments,
10:27build-to-rent communities, and landlords
10:29who already own the inventory on the
10:31market. And that of course results in
10:33number four, the supply problem. In this
10:36case, even if affordability improves, it
10:38doesn't fix the root problem because
10:40it's not just rates, it's also
10:42permitting, zoning, insurance,
10:44construction, labor cost, land prices.
10:46It's the fact that millions of people
10:48want homes at the same time that
10:50millions of people refuse to sell them.
10:52Even the one thing that everyone's
10:53waiting for, lower rates, could be the
10:56one thing that causes more people to
10:58flood into the market causing prices to
11:00go even higher. And that's why we also
11:03have number five, the chain reaction.
11:05The reality is this doesn't just stop
11:07with housing prices. It also affects the
11:09entire economy because when someone buys
11:11a house, they also spend money on
11:13furniture, appliances, renovations,
11:16landscaping, moving services, insurance.
11:18And when all of that freezes, then
11:20everything else slows down. Like people
11:23spend less, they switch jobs less
11:25frequently, they don't start families,
11:27and everyone else as a whole starts
11:29falling behind. However, in fairness,
11:31not everyone agrees, and some analysts
11:33have a completely different point of
11:35view. So, in terms of what's most likely
11:37going to happen next, what they say, and
11:39then most importantly, what you could do
11:41about all this, we need to talk about
11:43the housing reset. Overall, in terms of
11:46this next year, Zillow's latest forecast
11:48actually calls for a very slight decline
11:50in some areas, like California, Florida,
11:53and Texas, which are already
11:55price-constrained. Well, other markets
11:57on the East Coast could see prices
11:59continue going higher purely because
12:01they're starting off from a lower basis.
12:03realtor.com also somewhat agrees with
12:05this, noting that they don't see any
12:07major price correction in the future,
12:09but rather long-term, they expect the
12:12typical house would be on pace to reach
12:14a million dollars by the time
12:15millennials reach retirement age in
12:17about 25 years. And to the most extreme,
12:20we have CoreLogic, who anticipates that
12:22year-over-year home prices are going to
12:24nationally increase by another 5.1%
12:28from all the pent-up demand. In fact,
12:30that the market activity is increasingly
12:32limited to those with enough equity or
12:34cash to ignore mortgage rates, which
12:36only widen the gap for those trying to
12:38get their foot in the door. However, in
12:39terms of the largest pool of data, the
12:41lender Fannie Mae just revealed their
12:43three most likely scenarios. And in
12:46terms of prices, they expect in a
12:48worst-case scenario that home values
12:50rise 5.3% through 2030, with a base case
12:53of 13.6%
12:55and an optimistic case of 21.6%,
12:58even though short-term, the Mortgage
13:00Bankers Association expects prices to
13:02remain fairly flat for the foreseeable
13:04future. That's why the general consensus
13:06seems to be that we should all expect
13:082026 and 2027 to be a lot more of the
13:11same. We're talking sluggish sales,
13:14prices stay flat or increase 1 to 3%
13:16depending on the area, and then when
13:17interest rates do eventually come back
13:19down, we might begin to see some more
13:21activity, but that could also push
13:23prices up even higher. That's why
13:26long-term home prices are expected to
13:28regain their average 1 to 3% a year.
13:31Mortgage rates tend to settle around 5%.
13:34Although keep in mind, just because home
13:36prices are going higher in dollar terms,
13:37doesn't mean that they're going higher
13:39in terms of value. Like even if a home
13:41goes up 3% in a year, if inflation is
13:455%, then you actually lost 2% in terms
13:49of value. And that's something everyone
13:51should keep in mind. In fact, some
13:53economists believe that we might not see
13:55a housing crash, but we could very well
13:57see inflation eating away at the
13:59appreciation of properties to the point
14:01where eventually incomes catch up and
14:03everything balances out. Or at least
14:05that's the hope. So, in terms of what I
14:07actually think about this, and then most
14:09importantly, what you could do about all
14:11this starting today to give yourself the
14:13best chance possible of coming out
14:14ahead, here is what you came for.
14:17Overall, I tend to think that Morgan
14:18Stanley and Harvard are correct. Really
14:20from all the research that's out there,
14:22unless we see a massive economic
14:23depression that wipes everybody out that
14:26no one sees coming, it's unlikely that
14:28housing prices are going to be crashing
14:30anytime soon. Instead, the market is
14:33just quietly resetting to a much higher
14:35and much more expensive new normal. And
14:38everyone who's waiting it out to see
14:402019 prices again is unfortunately
14:43probably out of luck. But, that doesn't
14:45mean that everyone should just give up.
14:47So, in terms of how to approach this
14:49going forward, number one, don't wait
14:51for a housing crash. Now, that's not to
14:53say that markets can't dip because some
14:55markets absolutely will fall in price.
14:58But, it is to say that you shouldn't be
15:00waiting for a 30% crash that'll probably
15:02never happen. Instead, if the numbers
15:05work for you today on a home that you
15:07could comfortably afford, even if your
15:08income drops, that you intend on keeping
15:11for at least 7 to 10 years, and the
15:13numbers work out in your favor, then by
15:15all means do it. Number two, you should
15:17refinance if rates drop. Again, if you
15:19buy something today that you could
15:21genuinely afford, and rates do
15:23eventually drop, and you could refinance
15:25to save some money, great. By all means,
15:27go for it. But, don't expect this to
15:30happen, because as we've all seen, rates
15:32have stayed significantly higher for
15:34much longer than people have expected.
15:36That then leads to number three. There's
15:38absolutely no shame in renting.
15:40Realistically, if you could rent the
15:42exact same house for much less than it
15:43would cost you to buy it, and you could
15:45invest the difference,
15:47I just tend to think that's the smarter
15:48move right now. The way I see it,
15:50renting is not throwing away money when
15:52it's costing you less than what it would
15:54cost to buy without tying up your down
15:56payment in an illiquid asset. In a lot
15:58of markets, renting just makes
16:00significantly more sense. Even if
16:02society says, "Oh, you should be buying
16:04a house." Just make sure to run your own
16:06numbers, and not the ones that worked
16:08for your uncle back in 1994. After all,
16:11for decades, we've all been told that
16:12buying a house is the single best way to
16:15build wealth long-term, that everyone
16:17needs to do it. But, as Harvard
16:18explains, that was built and designed
16:20around a very specific moment that no
16:23longer exists anymore. And today,
16:25homeownership is not necessarily a
16:27requirement for building wealth
16:29long-term. So, whether you buy a house
16:30this year, rent for the next five, or
16:32just keep saving for the next 10 years,
16:35just make sure you don't get dragged
16:37down by the noise. Make sure to run the
16:39numbers, and no matter what, always hit
16:42the like button and subscribe if you
16:44haven't done that already. So, with that
16:45said, thank you so much for watching,
16:47and as always, if you want bonus content
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17:02that sounds good, feel free to join.
17:04We'd love to have you. Thank you so
17:06much, and until next time.

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