Bridger Pennington breaks down why the housing market won't crash despite rising mortgage rates. He expects prices to flatten over the next 18-24 months, citing tight supply, strong demand, and stricter lending standards that make it harder to get approved for investment property loans.
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Is there a housing bubble and is it about to pop? Here's my predictions for the next 18 to 24 months in the housing market. I just got quoted 5.18% on an investment property that I was trying to buy. We're going to use this property as an Airbnb, but again, 5.18%. A year ago, we were in rates around 2.5%, 3%. They've almost doubled in one year. Now, this has happened because the Fed has increased rates and have signaled to increase rates going forward for the next 24 months. So most of these mortgage companies are trying to price that in and they have jacked prices very high. And they're doing this because number one, they can. And number two, they're doing this because they're trying to price in rate hikes over the next 24 months. Now, what do higher rates do to a housing market? It doesn't allow as many sellers to qualify for mortgages or want to take on that type of a mortgage. Most people buy homes or cars in terms of monthly payment. What's my monthly payment going to be? And if I can afford that, I'll buy it. Which, by the way, is not a good way to buy anything in life. But that's how most people think. When interest rates double in a year, your monthly payment goes up significantly, pricing out many homebuyers that would have bought a house but now say, well, I don't know if it's worth it anymore. Now, across the United States right now, homes are up in the last 5 years over 54% increase in home price over the last 5 years. And experts and economists say we have millions of homes still in demand, still needing to be built. We have a major housing shortages, and this is what's driving up those prices. Couple that with COVID and very, very low interest rates, that's a recipe for a lot of people to enter the housing market. All these things seem to be boiling up to a big housing bubble pop. Now, let me tell you why I don't think that's going to happen. Here's the other side of the coin. Now, this is my personal experience. I was applying for a mortgage right now on this rental property. You would not believe the paperwork I have had to go through for the last 4 months To buy this home. It's absolutely insane. Since the 2008 crash and more recently since COVID Fannie Mae and Freddie Mac have gotten a lot stricter on requirements for mortgage pools. And they are the government-backed agencies that end up buying most mortgage pools in the country. And they want to see specific things on those mortgage applications so that they don't have another 2006 scenario where there's a stripper in Miami that's bought 7 houses with zero income and zero jobs. Ninja loans is what they used to call them, right? No income, no job type of loans. So for me, the last 4 months, I have submitted over 100 documents to get my loan. They want to see every single business I own. They want to see P&Ls. They want to see balance sheets. They want to see all of my bank accounts and transactions for the last 12 months. And I have something like 15 to 20 bank accounts. They want to see my crypto portfolio. They want to see every investment property that I own. They want to see statements and cash flows and payments on all of those investment properties as well. It has honestly been an absolute joke and a nightmare to get this mortgage. And I'm still not approved. I tried to— I'm trying to close the house last Monday. I'm filming this on a Friday. They still haven't approved me. It's been 4 months of waiting and maybe I'm not good enough. I have over a 730 credit score. I have businesses that do millions of dollars in revenue. I have incredible tax returns, but they aren't quite certain yet if they want to give me a loan. And I don't know why. And they actually don't know either. I've called them multiple times saying, what do you need from me? What can I prove? What can I show? And they say, hey, we just got to work through this a little bit. Now, even though it's been a massive headache to get this loan, this does say something positive about the US housing market sector. It says that lenders are doing their due diligence and hopefully giving out responsible loans that won't default as easily. Now, over the past 12 months, we have a 19% increase in the price of a home over a 1-year time period. Higher interest rates will for sure price some people out of the market. However, major corporations, business owners, and wealthy people, investors, are still gobbling up homes at a rapid pace. Number 2, we're still drastically short on this demand versus supply, millions of homes short. And number 3, increasing inflation makes investors like myself want to buy more real estate. So in my crystal ball, which is probably broken, do I see the housing market going like this over the next 24 months? No, but I do see it flatlining a little bit. I think higher interest rates will make this flat demand going down just a little bit. But still, we have a major housing shortage and still we have actually pretty good due diligence being done on loans as well that might flatten out where home prices are at. Now, I know this is tough to hear because a lot of millennials and other people are waiting to get into a house. They're waiting for a housing crash so that they can go buy a house. I don't think we're ever going to see 2012 home prices again. Look back in the 1970s. We had massive inflation. The average home price rocketed up. And even though there were pullbacks and recessions, they never ever went back to prices in 1970, 1969, 1968, ever. I think we're in a similar trajectory right now. Comment what you think below. And if you guys want to start a real estate fund, we have other videos on starting funds and scaling funds. Click on them here. You guys are awesome. See you on the next episode. Bye. Bye.
