What the Shift is Going On? | September Real Estate Market Update

All right, so once a month we come together and we talk about, you know, what's working, what's not working. We do a market update. I'm going to play two videos today. One I just listened to. I did shower, Stacy, but I was in the sauna earlier and I watched a video, 11 minutes where he just gives really good explanations of the data. The leading indicator data behind why housing prices will go down doesn't mean there aren't a lot of homes that are going to sell. So we can't sort of equate declining home prices to, you know, doom and gloom. Let's get out of the business. And then we'll do kcm, which is, is always really, really good. And then I'll share those slides with KCM as well because there's like three or four slides in there that are just really on point.

And.

And if we believe that prices will come down, you'll be able to use some of this data with current listings to be able to influence sellers to, to do the right thing on price reductions. Or maybe you're taking listings or, or whatnot. So there's multiple ways that we can use the information that we'll go through today. And as we're going through this, we'll have probably 15 minutes or so afterwards, after we're done with these two videos to just kind of mastermind around, like, what's working. And I want you to think about these things. What's working with your mindset? You know, in terms of staying in the game? This is the time where I believe that you can 10x your business over the next two or three years, but not if your mindset is complete shit. So if you're winning the mindset game, what are you doing that's working there? Maybe you started working out and just being physically on point is the thing that's driving you through every day. I know when I've been like, crap on my physical body, I have dragged myself through every day versus, like powering through the day. But then also, what's working tactically in the business? What are you guys doing that's working tactically in the business to get listings, to get price reductions? We still want to have a listing focused business if possible. All right, so let me. KCM was giving me a little bit of squirreliness here a second ago. Let me make sure it logged in. Okay, now it's a gateway timeout. Or I'm going to start with this video here. Let me move you guys over here. I'm going to share my screen we're going to start with this guy, Andre Jink. Jake, Jake, Jake. Does anybody watch him? Raise your hand. Have you heard of him? He's got like 2 million followers on YouTube. Nobody's heard of the guy. It's crazy, but he's really, really good. He gives a really good explanation for what's going on in the market. Three leading indicators that I think we need to understand. And he points out another research data economist guy on YouTube. So I think part of the game here in this market is to be an expert. You know, the last two or three years allowed us to not need to be an expert at all. You know, you didn't need to be an expert to look at, like, okay, last two homes sold for 300 years. Yours will sell for 350, right? So this is the kind of market where you need to help sellers make the right decisions and help buyers make the right decisions. All right, so let me share my screen. I'm gonna share sound. I'm optimized for video. If somebody can go to the chat, I'm going to try to make this big. And does that still look okay? Where's my chat?

Yes.

All right, cool. Let me hit play and make sure it sounds okay.

To a magic trick, which is weird.

All right. Does that sound okay?

Nope.

All right.

I like to compare the economy to a magic trick, which is weird because people think they're not the same, but they actually share the most important thing together. Psychology. And here's what I mean. If I show you this deck of cards, which, by the way, is a completely ordinary deck of cards, I could, by shuffling it, make you think and condition you to believe that what I'm creating is complete chaos. Some cards are upside down and right side up. And this is the economy. And I can even prove it. So economists will look at this and they'll say, well, some cards are back to front, and some of these are front to back. So I know what's going to happen to the economy. But that was misdirection, because it shouldn't make sense that with one small move, I could take half the deck and just by reversing it, I could reverse the order back to normal. That does not make sense. And that's kind of how the economy works as well. For example, between the years 1996 to 2006, the real estate market conditioned people to believe that it could only go up forever. But then with one movement, the market crashed 30%. But because we love a good magic trick, it looks like it's kind of Happening again because between the years 2012 and 2022, real home growth appreciated by 4 and a half percent per year for 10 straight years. So again, conditioning us to believe that the real estate market could only go up forever. But now it looks like we're about to find out how that magic trick was done again, which probably didn't make any sense, but I like that intro, and I'm going to keep it. All right, so this is going to be a fun one. So. Well, I was inspired to make my video after watching EPB Research's video on why home prices haven't crashed yet. And in that video, there's a couple things I learned that really blew my mind, like the fact that home values will have a major correction, if not an outright crash, soon, thanks to three leading economic indicators that prove it. But the crazier thing I learned is that how well real estate does determines how people spend their money with something called the wealth effect. And so far, it looks like the correction has already started it. Typical house, for example, is now selling for less than the listing price for the first time in 17 months. And this spread of falling home prices is expected to reach over 184 cities by as much as 20% or more. And it's happening worldwide. Places like Canada, Australia and New Zealand are expected to lose 13, 18, and 21%, respectively, in 2023, according to research put out by Goldman Sachs. And foreclosures are already up 219% in the first half of this year as compared to the same time last year. So strap in. This is going to be a crazy video. We'll talk about where home values are most likely going. Spoiler alert. They're not going up. And how these falling prices will affect what's called the wealth effect, and how that will affect the recession. So with that said, let's get right into it. Hi, my name is Andre Jick. Hope you're doing well. Come for the finance and stay for the wealth effect. But first, what is the wealth effect? The wealth effect is an economic theory that suggests people typically like to spend more of their money as the value of their assets go up. That's when people like to borrow against themselves. So here's what I mean. With my own stock portfolio, for example, I can do one of two things. I can either sell all of it to pay for my lifestyle or my retirement. Or I could go to the bank and say, hey, Mr. Bank, you see this money? I've got money. Give me a loan. So they give me a loan at whatever Interest rate. Now, as long as the interest rate of that bank loan is lower than the interest rate of what I expect to make from my portfolio, which is 8 to 10% per year, as long as it's lower, that means I'll end up making money. So this theory suggests that as someone's net worth goes up, people like to do this a lot more. So one Nobel prize winning economist, Robert Shiller, decided to put this theory to the test and he published a research paper. And at the end of it, he said, believe it or not, there is very little correlation between how well the stock market does and its influence on the wealth effect. And that's probably because stocks are very volatile, right? They move up, they move down. People don't like to take that much risk with their portfolios. But he also said they found a very strong correlation between how well the real estate market does and the wealth effect. And this is beautifully explained by EPD Research's video. As home prices grow, consumers like to borrow against their house with something called a home equity loan. And a home equity loan is just a loan the bank gives you in one lump sum payment that you're then expected to pay back every single month. Now, your house basically becomes an ATM machine, which you can borrow against and then use it to pay for your lifestyle. And this strategy can keep on going indefinitely. As long as the value of your house keeps on going up, you can take out another loan to pay off your other loans or spend the money on whatever you want. Now, it's not necessarily a safe strategy, but it is something that people do all the time. In fact, if you look at home equity on Google Trends over the last 20 years, you'll see that when real estate was going up, there were huge spikes of people Googling home equity. And that's because it is the ultimate infinite money glitch. But this strategy can also work against you because if the value of your house goes down, then this wealth effect could shrink your spending power. That's when banks get more defensive, they start to loan less money, and the effects of the recession get even worse because of a slowing down of what's called the capital velocity. Now, unfortunately, no one has a crystal ball that can predict the future of home values. But at least according to Moody's, which is a company that rates the safety of loans, says that two thirds of the country's real estate is already overvalued. And also learned that there are three leading economic indicators that have been very reliable in the past in predicting where future home values will be which right now the data shows is not looking good. Let me show you. So here are the three leading economic indicators that show that home prices prices will have a major correction soon. And by the way, a leading economic indicator is just nerd for data that happens before prices start to move. And by themselves, these leading economic indicators don't predict future values. But that's why economists like to gather a bunch of these data points to get a general idea of where prices might be going. So again, credit to EPB research for putting this together. But the first leading economic indicator is the monthly supply of home homes. Now all this does is it measures the supply of homes that are available on the market and how long that inventory would last, assuming no new homes would hit the market. So here's the graph so you can see exactly what's going on. The black line represents price growth and the green line represents a new monthly supply of homes. A couple things to understand. When the green line goes down, it means the supply goes up. It's inverted in this case, so you can understand and see the correlation easier. And as inventory goes up, you can see that home values which are represented by the black line start to come down. And this makes perfect sense. As the market adds new homes, there's less competition for inventory, therefore prices go down. And the same is true in reverse. When there are less homes, there's more competition for every house, therefore prices go up. So let me show you some examples of how this leading economic indicator was able to reliably predict prices before. You can see in this example, before the 2007 drop, when the inventory went up, as represented by this green line going down, prices then followed. And then you can see it again in reverse during the 2013 and 14 price growth, supply goes down first and then prices go up. And then the same thing again in 2019. Now, if we look at what's going on today, here's what the monthly supply is telling us. There's a huge imbalance and there's a lot more supply. And prices haven't really had the time to adjust and catch up, which implies that prices are about to correct. So that's the first leading economic indicator, the monthly supply of homes. But we can't just rely on one of them. So here's another one. Now, the second leading economic indicator is the spread on the mortgage rates and the treasury yields. This is going to sound insanely complicated, so you might have to watch this part a couple of times, but let me show you what I mean. 30 year mortgage rates follow very closely what are called the 10 year treasuries. Now, Treasuries is just a fancy word for saying bonds from the government, right? And that's a pretty much guaranteed way to make money. Now, if I'm a bank and the interest rate on the 10 year Treasury 10 year bond is 3%, then if I want to loan my money to you, let's say I would never loan my money at 3% because with you I'm taking on a risk when instead I know I could park my money with the government and get a 3% guaranteed. So if I'm going to risk my money, I'm going to make a little bit extra something for myself. So for you, I might offer you a three and a half, maybe four or four and a half percent rate, of course, depending on how risky I think you are and how risky I think the real estate market is. And normally in a healthy real estate market, the spread between what I offer you and what the government offers me is very close together. But the wider that gap is, the greater the risk in the market is. And the greater the risk, the higher the odds that the real estate market would fall.

Fall.

Which makes sense because the greater the risk of something, the higher the odds that it would fail. I know that sounds insanely complicated, so let me show you the data and hopefully it'll make a little more sense. In this graph, the green line going down means a widening of the rate gap, which indicates more risk in the market. In this gap was able to predict a decline in home values. In 2007. You can see as it widened, home values eventually started to go down. And it was also able to predict the recovery when the gap tightened in 2010. As the green line goes up, which indicated the market saw less risk, prices eventually followed upward as well. Now, if that sounded like a different language, trust me, you are not alone. I had to watch that video a couple times and even pause it. But here's what really helped me. That green line you saw in that chart is not mortgage rates. It is not bond interest rates. It is the relationship between the two. And as the green line moves up, it means the gap tightens between interest rates on mortgages and bonds. But as the green line goes down, that rate gap or widens and that means more risk. Right now, though, there's a huge gap between mortgage rates and bond yields, which means, at least according to lenders, there's a massive amount of risk in the real estate market. And that means this black line should go down at some point. Now, how Far down it's going to go is the million dollar question. And I have no idea, but you get the picture. Now, here's the third leading economic indicator, and luckily this one is way easier to understand. The third and last leading economic indicator is, I think, everyone's favorite, which is the M2 supply of money. When the economy is flooded with this M2 or the supply of money, it provides liquidity to the economy. So you can think of this as a concept, kind of like watering a plant. The water in this case is money and the plants are assets. And generally speaking, the more money or liquidity there is in the system, the better off all assets are. You can see in this chart right here where the green line represents the growth of the of the money supply. When there's an injection of money, home values go up. And this has been true during all of these periods, highlighted in yellow. But right now, if we look at this M2 money supply, you'll see that this liquidity and all of this money has been taken out of the system. This is where we are now. And yet home prices are still all the way up here. They haven't had the time to catch up yet, but it typically takes anywhere between six to 18 months for the full effect to be felt. So all in all, here's what's going on. We have the monthly supply of homes going up, which means less competition amongst the buyers. It also means home builders will finally offer new incentives. We also have the spread between the mortgage rates and bond rates start to increase, which means that lenders are seeing more risk in the real estate market. And obviously what lenders think matters a lot because they have more data than the average consumer does. It also means banks could start to tighten lending requirements and maybe loan less money. And then of course, we have less money in the system and less liquidity. Now, by themselves, none of these leading economic indicators can tell us the whole story, but together they're painting a pretty clear picture of where they think the market is going. Now, if you made it this far, let me give you my personal thoughts. Now, personally, I own my house here in Las Vegas and I bought another one to rent out. But even though I don't consider myself to be a real estate person, as I mostly invest in stocks and a little bit of crypto, real estate still represents this single biggest asset in my entire portfolio. And that also happens to be true for most households in the us. A house will probably be the single biggest investment we will ever make. So how well real estate does has a huge effect on how we feel about our net worth and therefore how we spend our money, which has a huge effect on how bad the recession can get. And this extends to all areas of the economy, not just consumer spending, but also how businesses spend their money so they could start cutting back at the end of the day. I personally have no idea where home values will be in the future because I don't make my own predictions and I don't try to time the market. But if I was in the market to buy a house today, I would probably wait until the real estate market corrects or at least until interest rates got down to three and a half to four and a half percent. It's not advice, it's just what I would do instead. What this video is mostly trying to say is that the more you understand what's going on, the less you'll hopefully let this psychology affect how you start investing. Because even if you could time the market top and sell everything to wait and buy back in, it would be doubly hard, if not impossible, to find that market bottom and start investing again. That's why I don't try to time it. I continue to dollar cost average and invest little by little at a time. I'd love to hear your thoughts and as always, have a wonderful rest of your day. Smash the like button. Subscribe if you haven't already. Don't forget to grab up to $250 worth of free Bitcoin with this link right here. Don't forget to move it offline. Grab the money while the money all.

Right, let me unshare my screen here. I'm going to see if I can log into kcm. It was giving me an error here just a second ago. Go in the chat. Any thoughts on on that? I just thought it was really good explanation of, you know, those three leading indicators. And surprisingly, I mean I've sold a lot of homes in my career but I never really, I don't know, I never really maybe took the time to understand even just the way to explain that. And you can go back and like almost just take the words he says in terms of going back to your to your clients and explaining it. Yeah, I'll share it since I have it up, but it was posted there. But I'll share the link to this video. Andre and Graham Stephan. I like both these guys a lot. Let me put it in the chat here. And so the little asterisk below all of this is. And I've fallen into it a little bit. You can just get into a vortex in YouTube that will suck the life out of you and leave you nowhere. So this is like these guys put out videos. Just choose wisely who you follow. All their stuff is fact related. Graham and Andre and these are personal finance guys. But they, the Graham Stephan actually has a real estate background. So as much for personal finance as for anything. Follow a couple people but not more than that because it, it could become like two hours a day to keep up on all the videos that are coming out. Stefan S T E F A N or is it ph? Yeah, both. Both are really, really good. All right, so let's, let's get some comments in the chat while I attempt to log into see what the deal with KCM is. My kcm. Peterson, do you have a KCM account?

I don't.

Let me give you my login. If it's just something on my end, it's just let me text it to you here and why don't we mastermind a little bit here Mindset. What's working right now to keep your head in the game as there's just a lot of news out there, a lot of fear, a lot of uncertainty, a lot of doubt. Who can share to cover this awkward moment of not being able to log into MyKCM?

Lars, something that we've been doing with our group is master your morning. And so we created a WhatsApp group, basically having everybody plug in and there's accountability. We kick people out if they're not doing what they, you know, the commitments to the group. And there's, there's four requirements to the group. Number one is wake up when you say you're going to wake up. Number two is journal and read. Number three is workout. And I'm trying to get the whole group to get up to 20 minutes of cardio and doing all these things and then posting a photo in the WhatsApp group that they got it done. So I'm noticing some changes with people and they're start starting their morning off on a good note. They have high energy when they're done and it's, it's starting to build. Our group's getting bigger and it's a very positive environment and everybody is encouraging each other.

So that's awesome.

Say those four things again.

Number one is to wake up when you say you're going to wake up. And the whole point of that is to start with the win first thing in the morning. So the rule is you cannot hit the snooze button. If you hit the snooze button, you've already lost. So number one, wake up when you're going to say you're going to wake up. Number two is to read and journal, write things of gratitude as well as your goals. So within that, it's daily, weekly, monthly, quarterly, yearly, 5 year, 10 year, 20 year goals. And sometimes you can't get through them all, depending on how much time you have. So if you, if you start with the daily, weekly, monthly, maybe you finish that next time. It's yearly, 5 year, 10 year. So that's number two. Number three is to at least do 20 minutes of cardio at a minimum. And then number four is to send a photo to the group.

Saying that.

Saying that you completed those tasks along with your sweaty body.

Awesome. I love it. Who's. Who's got something along those lines? What's working to kind of stay in the game? And Stacey, I think the email is Lars at realestate B School. Hey, Lars. My.

My KCM is not working either.

Oh, they went down on us. All right, man, we're gonna, we're gonna roll with it. Let's see if it comes comes back online. The video on KCM is about 24, 25 minutes. I watched half of it this morning and it was good, but we'll, we'll figure it out. All right, so let's keep rolling with what's. What's working. I'll share one thing that's working with me, but I want to want a few more people to share. We can get into tactical real estate stuff. I mean, I think the game of real estate's pretty easy, you know, when you're playing it and when you're not playing it. I think it's all the other stuff that positions you to be in the right frame of mind and not completely overwhelmed where you don't have the ability to be in the game.

I'll just go with a simple one that I learned from you. I don't watch the news. I actually delegated that to my pastor. I told him, if I need to know anything, you got to tell me. So I just don't watch it.

Yeah, that's really good, man. I went 10 years without watching the news, and I'm trying to, like, get out of it now. I fell back into it in a not so good way. And it's the biggest life sucker. And I'll have you. It'll have you moving to some. Somewhere in Siberia. All right, who else? What's. What's working to stay in this game? Guys, I, I think this is going to be A, a multi year thing. This isn't going to be a little blip. I think there's going to be a reckoning in our economy. There's just some big stuff going on that has to work its way through. And so if that's the case, we need to sort of get ready for what, what might come and if it doesn't come, you're going to be ready. Anybody doing anything in their personal life or their personal finances to prepare or tactically in real estate.

Solaris for me, what's working for me in the morning. I'm actually part of that mastermind group that Sean's involved in. But what's working for me is I'm staying away from social media in the morning. I don't get up before the first thing it was check my Instagram feed, check my Facebook feed. I don't really check social media until like maybe like around 11 o' clock in the morning my time. I try to stay away from it just because, you know, I may read something that pisses me off and there goes my mindset. So that's what's been working for me along with journaling in the morning. 10 things I'm grateful for. 3 wins I'm going to tackle on that day and affirmations along with reading something that. To feed the mindset.

That's awesome. Really good.

Yeah.

All right, what else? Let's keep it, let's keep it going. I've got two that, that I'm going to share with you guys, but I want to. I'm writing down all the ones you're sharing, so I'm selfish. I want to hear more.

I have a few things I could add. Michelle in Charleston, writing notes, I mean.

Getting back to the old school, you know, part of the gratitude is being, you know, remembering those around us who.

May need a little bit encourag encouragement or perhaps sending a thank you.

But part of that morning of gratitude is sending it out to someone else too.

Oh, that's so good. Be an encourager. Stacy, what was that thing? You either sent me the kit or it was something you got, or maybe it was Jessica where it was like a kit where they send you all these notes and you have to write one a week or one a day.

Yeah, it was called Project 52. And so you got a box of cards and you got a journal with it and you were supposed to send a note every week and then write in your journal, like who you sent it to and why. A friend gave it to me as a gift and yeah, it was really cool.

Yeah, that's awesome. And Stacy's really good at that. What did you send me recently that made me tear up? I couldn't eat it. But Anders was happy because Anders is the only one in our house that's totally off the rails and is proud of it. This was great. So Stacy, Stacy's really good. You know, along Michelle's comment of just being an encourager and this was through send out cards. So just a personal note with like, I'm sure they were delicious cookies but I did not eat a single one of them. Yeah. Happy exp anniversary. Cheers to another year working together. Exp Honored to be in business with you. The best is yet to come. Stacey Peterson. And we've been through a lot together and that really touched me that she took the time to do that because I don't freaking take the time to do stuff like that. It is horrible and I just love when I see it in others. So that is such a good one. What else is working for you guys tactically or this? This stuff. Mindset. Mindspace.

I start every morning with the same routine. I get up in the morning with.

My wife before she goes to work.

Make the bed every morning, same routine. Call at least 10 prospects every day before 11 o'.

Clock.

That's my routine.

I don't do any showings or anything before 12 o'. Clock. And with the market shift, I've been starting to learn and focus on REO instead. Awesome. Remind me of another one. Oh yeah, go ahead.

Okay, so hey there. We do a mindset mastermind call on my team every, every Tuesday morning before this call. And we are talking about staying focused on your one thing goal and you know, your one thing. And it's that principle from Gary Keller's book, the one thing that says what's the one thing I could do such that by doing it everything else becomes easy or unnecessary. And you know, when I was at expcon last year in Las Vegas, they I went to a goal setting session and it was fascinating because the. I said, okay, okay, what's your one thing? Because the guy leading the session was a very high producing agent and I expected him to say something about real estate, right? And he said, well, my one thing goal this year is I'm going to climb this certain mountain because. And he said that's my one thing. Because I have to wake up early every morning to go train for that. I'm teaching myself who I'm becoming and who I am as a disciplined, tenacious person. Because I'M focused on this goal that teaches me who I am. I loved what he said earlier about starting your day with a win because it shows you who you are, that you are a winner and you're not someone who hits snooze. But I think when you know what your one thing is, and it could be in any category of your life that you set goals, but, but knowing what that one thing is that you need to stay focused on, that may or may not have anything to do with real estate, but it's really about who do I need to be in order to do what it takes to have what I want to have. That, that one thing goal will drive you. The other thing that I'm. That I'm sharing with people because I have people call me all the time asking if they should sell a property or hold onto it, especially when it's an investment property is. I ask them about. It's not just a financial decision. And so when we talk to someone who owns a property, it's not, it's not always about, you know, does it make financial sense to sell this property right now? Because sometimes people are going to take a little bit of a loss or what they perceive as a loss. It's not as much as they thought they were going to get if they sold that property. And so I asked a gal the other day, you know, when facing a decision, I asked myself this question. When I, when I say it out loud, how does it make me feel expansive or does it make me feel contracted? Because expansive might be just getting the freedom from not having to deal with the headaches of that property anymore. Or it might be that the freedom it creates for you to be able to move where you really want to live or to just. It's going to change your life in some way in order to do that. And to ask yourself, would I, you know, would I pay $25,000 to. To achieve that level of energy or do I want to stay stuck in the energy of having to hold that property? That's a headache for me. And is it worth it to me to, to lose that energy? Because that, that is sucking energy that I could dedicate to something that is highly profitable or that's. That's allows me to be more creative and in my flow. And so it's not always a financial decision if it's the right time to sell a property. It's also what is the energy that it's costing you or the headache or the, you know, does it not allow you to have your life look the way that it wants you to look. And even if you had to take less than you thought you would take to sell it, does it free you up in other ways that allow you to pursue the financial future that you want in a different way?

Yeah. Awesome. Awesome. Stacy, are you in?

Yes, I'm in, man.

Mine's still spinning. All right, so let's. Oh, Siri commented. She said that's what I figured. Let me share two things that I wrote down as we were chatting here because of like just the temptation with email or social or just the sort of life sucking thing that this is. And it really is in a lot of ways. I actually got a second phone so I got a little iPhone 12 mini and it was like half price and it has no storage, I have no apps on it. So I physically keep this phone in this office here on its charger. And even on a Friday or Saturday or Sunday, if I feel like I need to check something business related, I'll physically go into the office to check on it. And that could mean like at 6:30pm your Monday through Thursday or Friday, you're doing some sort of thing to check out of real estate. The other that I've been doing, which is really just as it says it is magic time. Going to bed earlier, working up to work on the most important task in my business every day, Monday through Friday. So I'm up at 5, which means I have to go to bed before 10. And I'm sitting at this desk just working on something that I never would have time to work on otherwise. It's a project that's going to move my business and my life forward. And I've gotten more done in the four months, last four months since I've been doing this. This is from a book called the Perfect Week Formula by Craig Ballantyne. And Stacy turned me on to Craig Ballantyne. But he's like the world's most disciplined man or something and he just puts routines and non negotiables and someone politely called me out on a direct message. But Richie, you could have called me out. You know, trying to stop watching news is pure BS psychologically, which I totally agree with. Awesome. So Stacy, if you want to share your screen, put the video on. You probably could do it at 1.25.

Because she's welcome to your monthly marker. Sorry.

I don't know if you can. I couldn't figure out a way to make it bigger.

Yeah, they don't have the like thing here.

Okay. Did you do the optimize for video.

And audio, how do you get it to one point?

Oh, here we go. Here we go. Of 2022. My name is Kate Resendeck and today David Childers and I are going to walk you through three of the most important topics happening right now in the housing market. We're going to be going over mortgage rate projections from the experts. We're going to talk about home prices and we're going to wrap up on affordability, something that's definitely top of mind for almost everyone right now. So I'm going to begin today with mortgage rate projections from the experts. And I think we can all probably agree that this year in the housing market has truly been defined by rising mortgage rates. This is a look at The Freddie Mac 30 year fixed rate going all the way back to January of 2022. And if you follow along with us, you've definitely seen this before. But what it shows is how much mortgage rates really rose from the beginning of the year all the way into mid to late June.

Ish.

And then since then, you can see that there's been a lot of volatility or fluctuation in mortgage rates over the past few months. So why is that? Well, you've heard us say that that inflation is the enemy of long term interest rates. And that's certainly something that we are following right now. We know that the Federal Reserve doesn't call mortgage rates, but they're certainly making moves right now to ease inflation. And you know, when that happens, mortgage rates tend to respond. So we're watching all of the different economic factors that impact mortgage rates and how that's playing out over time. It's certainly something we're keeping our eyes on. And you know, one thing that we can do in the meantime is we can turn to the experts to say, what are the projections for going, you know, everyone wants to know where our mortgage rates headed. Well, if we look at these projections from Freddie Mac, Fannie Mae, MBA and nar, these are the latest data we have as of August of this year. And if we average all of their projections together over the next four quarters, what we can see over in that right hand column is that mortgage rates are projected to essentially stabilize over the next year. So, you know, really looking at this, trying to figure out, you know, what's going to happen with mortgage rates, this is a great place to look for information and maybe a nod to the experts feeling that, you know, the Federal Reserve is going to get inflation under control. If that's the case, then, you know, mortgage rates, we do hope, stabilize at this point, that's certainly what we're looking forward to and hope that the experts are correct in these projections as we continue to watch all of the economic drivers around us. And you know, I think as we, as we look at this, you know, low to mid five projections, maybe even by, by next year at this time, dipping into the high 4% range, you know, that could bring a lot of predictability for buyers. And I think that this next quote really kind of says that. Well, this is from Lisa Sturtevan, housing market economist that we follow. And she says after the end of summer lull and as mortgage rates stabilize, we may see a return of buyers and a relatively strong all housing market. So that could be great news. You know, if mortgage rates do stabilize, we may see more buyers coming back in the market. We certainly know that rising mortgage rates have caused many buyers to step out of the home buying or selling process. But with these projections at hand, should they play out, you know, we could see stabilization in a very strong house market, certainly something we are keeping our eyes on and we are watching to see what the experts say as well. So another topic that's on everyone's mind is home price appreciation. We actually surveyed about 400 agents over the past month. And we know, we asked these agents what is the number one question that your buyers and sellers are asking you right now. And one of the top ones that definitely rose to the top of the list was what's happening with home prices, where home price is headed. So what I'm going to do today is break down today's home price appreciation. Because this is a really complicated topic. I'm going to do my best to explain it because what we're hearing right now is home prices are appreciating, but we're talking about deceleration. And then we're seeing in some markets, you know, sellers bring their list prices down. There's a lot of confusing information out there and I want to do my best to share this with you. So what we're going to start with is this quote from Mark Dandy, chief economist at Moody's Analytics. And he said, I don't think national housing prices will decline in a meaningful way, but there will be some price declines across the country. So what does that mean? Well, on average, nationally, we project that home prices will continue to rise. We're seeing that in expert projections. But at the same time, we also know that there are some overheated markets throughout the country, especially out on the west coast, where there will likely be price declines. You're probably seeing this in some of your markets right now. And so what I want to do today is bring context to this to show how home price appreciation is still expected going forward based on today's buyer demand and low inventory. But what does that mean in the grand scheme of things? And I think this chart, this graph that you've seen us use before really helps to articulate this. This is a depreciation is slowing, not depreciating. And that's where deceleration comes into play. So let me walk you through this. This is the percent year over year home price increases for 2022 so far. And this is data from Prologic, latest data was just released. And so what you can see here is that year over year, January, February, March, home prices were still accelerating at a pretty rapid pace. Record breaking home price appreciation at the beginning of this year. But what has happened since then, we've come up that high of 20% year over year home price appreciation and it's starting to cool. And that's what you can see. May, June, July, that's the deceleration in prices. So what this means is year over year, July, let's say July of this year compared to July of last year, home prices are still were still 15.8% higher on the national average compared to last year. But that's a slower pace than that high of over 20% that we saw at the beginning of the year end of last year. So the pace of appreciation is slowing that deceleration. It's not depreciation where we would have negative price growth. But here's where it gets confusing because in some markets we're also seeing that, you know, homeowners are dropping their list price, for example. So let's say you have a client whose home could have sold for $400,000 three, four months ago. Well now that home would only sell for $370,000. You know, in that case it feels like depreciation. And that's because home prices are measured in a couple of different ways. So year over year, what you're seeing here is continued appreciation at a slower pace. But month over month we are certainly keeping our eye on that because that's what your clients are looking at. That's what they're feeling if they're thinking prices are going down. And so, you know, we're going to keep our eye on this home price appreciation. You know, we still know that there are plenty of buyers out there, there's is still low inventory. We know the prices are projected to continue rising but at a slower pace. So we're going to keep our eyes on all of this. And truthfully, what this means is that, you know, a year ago the listing price was the floor of the negotiation. You could list a home, you could maybe list a little higher than what you thought it was worth. And then, you know, buyers would still come in multiple offers, bidding wars, you know, bid the price up for a home. That was the floor of the negotiation. What's happening now as the market starts to shift is that the listing price is probably more of the ceiling of the negotiation. Buyers have a little bit more negotiating power. We're seeing changes month over month and that's what we're keeping our eyes on. So home price appreciation is slowing, not depreciating on an annual basis. And I think this quote from CoreLogic really helps to articulate that. That's annual home price growth slowed for the third consecutive month in July, but remained elevated at 15.8%. That's the graph that we just showed you. As 30 year fixed rate mortgages neared 6% this summer, some prospective home buyers pulled back, helping ease overheated and unsustainable price growth. We know the past few years have been an anomaly. The price growth over the past year in particular was unsustainable price growth. Looking ahead, CoreLogic expects to see a more balanced housing market with year over year appreciation slowing to 3.8% by July of 2023. So by July of next year, CoreLogic is projecting that homes will still be appreciating in value, but at a much slower pace. That's that deceleration continuing. And this is much more in line with what we're seeing from the home price expectation survey and what they are saying for continued price growth higher this year and a little bit more towards a normal range next year and beyond. You know, leading up to the pandemic, the average or typical home price appreciation over a typical year was about 3.8%. So that's what experts are starting to see as they look forward. However, what I also want to walk you through is many experts raised their home price forecast this year. So this is very typical. And what you can see here, these are January forecasts for 2022 home price appreciation. That's what you see in the middle column compared to the latest forecast. And those are in the right hand column. So what usually happens as you start a calendar year is the experts project out what do we think home price appreciation is going to be this year. They're looking at buyer demand, They're Looking at supply, inventory, all the different things that drive home price growth, and they project out for the year. Well, as the year goes by, experts tend to reforecast based on what's actually happening in the market. And so that's what you can see here, is that this year, experts, even though prices were decelerating, reprojected a higher home price appreciation for the 2022 calendar year. And that's what you see here. So, you know, we're hearing all these different terms, we're seeing these home price forecasts. Trying to make sense of it all is very confusing. But what experts really thought at the beginning of the year was that, you know, we probably, they thought we were going to see more inventory coming into the market. Mortgage rates hadn't really risen as much as they have to soften buyer demand. And so as the year progressed and they realized, you know, inventory is still pretty low, buyer demand is softening. What's going to happen here? They reforecast up. And that's what the green column is showing you from each of those experts. So what does this look like for 2022? We bring this graph to you often to show you the latest home price projections for the year. And the average of all seven forecasts that we follow is showing 11.3 annual appreciation for 2022. Now, what we have to remember is that the majority of that home price appreciation happened earlier this year. It happened at the beginning of the year, and we're seeing that softening. But experts still projecting by the end of the year, 11.3% home price appreciation for 2022. So why is that? Well, that's because inventory is still historically low. And if we look at this data from calculated risk, this kind of helps us compare where we are today versus where we were over the past few years. So if you look at that blue bar on the left, you can see that inventory is 26 point higher than it was the week ending September 2nd of last year. So year over year comparison for the last week of August and into the first couple of days of September, 26.3% more inventory. So that is, you know, creating more opportunities for buyers. It has helped with the softening of home prices, for sure. But compared to the same week in 2020, inventory is still down 5.4%. And compared to 2019 prior to the pandemic, inventory is still historically low, down 42.2% from where we were that same week in 2019. So that's what's continuing to drive upward pressure on home prices. Inventory is still low still have buyers in the market. Yes, we've seen a softening, a cooling, a slowing, but home prices are projected to continue rising primarily based on this inventory data as well. So really, really important to be able to get this information out to your buyers, to your sellers so they understand where our mortgage rates projected to go, what's happening with home prices. You know, working with you as a trusted expert in this process to make sure that they have the data and the facts on what's happening today. And of course, anytime we're talking about mortgage rates and prices, we know that that impacts affordability as well. So I'm going to turn it over to David to walk you through the latest on home affordability.

So thanks, Kate. Let's talk just a minute about affordability. This is a topic, I think it comes up in a lot of cases mainly right now in the media. People said, you know, homes even affordable right now. And I want to break down affordability from a couple of different angles and reports and things that we use so many times on the monthly market before and give you a look at that, but more importantly, help you communicate this to the clients that you're working with. So we start here. Let's start with the first place. The Housing Affordability Index that NAR releases. You release that every month. This is a look if you're familiar with the monthly market report and follow this and listen, you've seen it before. Housing affordability right now is lower than it's been going all the way back to the early 90s. This is a look at the going back to 1990 and housing affordability. The way you read this is the higher the bar is, the more affordable a home is right now. You see the red bar below the years that we show here going all the way back to the 90s and what stands out the years after the housing crisis where in a distressed properties dominated market, the high of that market, the Housing affordability index read 197. Right now we're at 98.5. The way you read this is 100 reading of the Housing Affordability Index is really a kind of even reading. That means the average individual, the average household in this country can afford 100% of the average mortgage payments. So it's even, right? You make enough money to afford an average home and that is even affordability. And we've got a lot of COVID from interest rates over the last several years and seen great affordability. And right now the average household can afford 98.5% of the average mortgage payment. So less affordable. You could maybe even say unaffordable. You may see that some places. And that's where that comes from. It's certainly not an apocalyptic scenario by any means. In housing affordability. Now, that's based upon three things. It's based on prices of homes, based on interest rates, and it's based on wages. That's how we come up with the Housing Affordability Index. So based on where this is heading in the future, what do you believe about prices, interest rates and wages in this country that'll help you give expert advice in this affordability category? Because a lot of people are asking those questions. You know, if we continue on this, NARA came out with this very interesting point about mortgage payments. Compared to one year ago, the monthly mortgage payment rose to $1,944 from $1,265. That's an increase of 53.7%. So, you know, homes less important right now and mortgage payments have been increasing. You know, if you look at this graphically, this is what this looks like going all the way back to the last reading of June. That's the most recent information we have in the statement that I just gave you from nara. No doubt, as people have gone through the pandemic, the meaning of home changed. And they said, you know what, we're willing to pay for what we want. And we're seeing that right now in rising mortgage payments across the country. You know, another thing we want to look at, we start to break down affordability and understand that is we want to look at what is the average mortgage payments or income committed to a mortgage payment. And right now that sits at 25.4%. That assumes a 30 year fixed mortgage rate with a 20 down payment on a median price home with media income. So, you know, go back to the kind of the affordability equation. At the median income, median price home, somebody is dedicating 25.4% of their income to a housing. Why is that important? Well, you know, if you look at this, 25 is typically what is recommended. We're slightly above that. Again, we go back to, not an apocalyptic scenario, but above that. And so if you hear that word affordability coming out, you can give context to that, what that means. You know, as you think about housing, one of the greatest benefits of buying a home versus renting is you benefit from a refinance as rates in certain times. I'm certainly not suggesting somebody should buy a home based on just the opportunity to refinance, but it is something that we Want to remind people of that. If you can buy now and as prices rise, which is certainly what is projected and if there, there is an opportunity to financial road and that is very, very important for those homes. You know, this is all about incomes and qualifying incomes, you know, and looking at what people are making, what the price of the home is, certainly further break this down. If you look at median household income versus qualified income, what becomes very, very clear is this is not the same across the country. If you go look to the west, the, you know, the qualifying income, what you need to make to buy a home is, you know, in the west, certainly significantly higher than what the median income is. So how do you read this? West homes are less affordable in the south. They're sort of neck and neck. In the Midwest, median income is higher than the qualifying income. So bringing in your local information, what you're seeing happening in the market is critical, critical in this conversation. But, but being able to be educated, being able to bring the truth about affordability to folks is what we have to do. If you look at this graphic here in the US sort of neck and neck, the median income in the century, $91,952 versus a qualifying $12. So certainly seeing the rise in interest rates less than the buying power of consumers relative to housing across the country. So we want to stay on top of that. Our research team is saying on top of that so that you have the best information on affordability out there. So what can you do in a scenario like this? I want to sort of wrap up with a couple of things to give you a couple of resources and what you can do. Three things I think you can do right now or coach people that maybe are struggling with affordability. First, you can expand your search area criteria. You know, somebody that maybe was looking at buying a home near the city center or in the town may need to look a little bit further out or look to where things might be more affordable than in the area that was their first choice. So that's one thing you can do. Second thing you can do is help someone explore alternative financing options. You know, if you're an agent today that doesn't have a great lender partner, I'm going to encourage you to find a great lender partner in your market that can help folks understand this is what you qualify for. This is the products that are available in the market. This is how you can manage that debt. Based on what we've seen rising prices and rising interest rates. And it's critically important to explore those Alternative financing options. And this is no way telling people you should go out and buy something with the intent of refinancing. We just said not at all. But understanding what's important to you and how do you structure that debt? What are the options out there to help you that more affordably? Third thing you can do, you can look for grants in your area, gift funds. You know there, there are sources like downpaymentresource.com great, great organization that you can go in there and say, what are the down payment resources? What are the resources that are available in my community for those that are looking to buy? And those are arranged by a number of different ways. But you know, a lot of times, first time home buyer, down payment credit or grant or something like that, look for those options, look for gift funds. Are there areas where people can use gift funds and get into a home and combat rights and affordability? So I think there are things we can do and we can give great advice in this, understanding this topic, being fluent in it. I'll wrap up with this. Ali Wolf from Zonda said this. It's critically, critically important. You know what Kate said, what we're talking about here with affordability, we're in a place where strategy discussions and planning are critically important to make sure we can thrive during these challenging times. Stay nimble, stay informed. And remember, housing is traditionally one of the first sectors to slow as the economy shifts, but it's also one of the first to rebound. You know, we've done a lot of work on recession and that topic continues to come up as, as we see the economy slowing. But staying nimble, staying informed, like we do here at the monthly market report is key. So how do, how do you best educate the clients that you serve Right now? I'm not going to offer this. It just came out. Our fall buyer and seller guides are now available. You can print those, you can use them in electronic format. You can get those in the hands of those that are, you know, maybe saying, hey, we're thinking about putting our home market or you know, we're thinking about buying now that we've seen, you know, more inventory come back on the market. What about all those people that over the last couple years that gave up their search for a new home because they felt like it was impossible if they said, you know, we lost out on bidding wars, we lost out a number of different ways. Being able to educate them and deliver to them. This is what's happening in the market, is what our job is. Buyer and seller guys do that and put them in the hands of those you're working with. You can use them in open houses. You can use them in a lot of different areas. So go check those out. Go download those today. As always, as I wrap up here. Thank you. Kate kicked off today and brought a great, great bit of information.

Awesome. Let's finish strong here. We've got five minutes left. I will post the images of all of those slides. There's like four or five really good ones. Look at behind Kevin. I see me. That was interesting there. Kind of mess with me a little bit. So I will post all of those images in real estate B School and Game Changer so you guys can have them. This is the kind of market where it's just squirrely. You've got sellers and buyers that are reading headlines. They don't really know how they'll impact them because we're going through the same thing. Right. We're kind of sucked into the vortex. And so any final comments here? I would just, I would just say unmute yourself if you, if you have one. I would just, you know, like we've been talking about, guard your heart, guard your mind, take care of your physical body, invest in your most important relationships. So keeping current matters is probably the best investment you could possibly make. I think it's like 29 bucks a month. There's no like affiliate or anything like that. I would just go to Keeping Current matters dot com. You get a blog with it that has like, I think it's every day they write an article with all of those really awesome images and you can just like one click them with all of your contact information onto all your social media platforms. So I would definitely do that. Yeah, really good shareable content and infographics and all of that stuff. And you can brand all of it as well. So it's really, really, really awesome. Yeah. And then I'll just pick up on Andrea's comment about, you know, one thing. You know, the one thing is the thing that gets you to the next thing. Right. So, you know, maybe for a season you don't want to feel like you're taking a step back and you're, you know, having to lead generate for three, four hours a day because maybe you got away from in the last two years and it feels like a step back. Only the agents that are willing to commit to the things that create business are going to be the agents that really kick the crap out of whatever comes our way. And we will have folks getting out of the business because any sort of shift Gets the best of people that aren't playing the game at a high level. Dues become due and they just don't have the money to stay in the business. And then the market will come back. There's that awesome graph from the book Shift by Gary Keller where there'll be less agents when the market swings up in a few years and you know, we get back to 6 plus million homes sold per year, but there's still millions and millions and millions and millions of homes that are going to be sold. So don't let it get to you mentally. Unfortunately, I'm not going to expcon. I hate it. So good. Last year I'm going on my annual honeymoon the week after.

Hey Lars. Yeah, just want to share. This is probably a no brainer for everyone in this call and we're a little bit newer to exp, so we have already made inroads, literally taking what you're talking about in these calls weekly. And we're doing a Mastermind monthly with local agents from any brokerage. We just invite everybody and we're literally doing nothing. It's not rocket science. We just bring what you guys talk about here and we bring what KCM posts and we share it with, you know, 25 to 35 agents a month and it's like blowing their minds, like access to this information that none of them are getting any of this from their brokerage. So regardless of where you all are in your agent attraction strategy, I would recommend just holding one mastermind a month and just literally bring this information. And I'm already, I've already gotten recruiting conversations because people are just like, whoa, like you guys are talking about like next level stuff. I mean, I'm getting none of this from my broker, so it's just kind of like low hanging fruit.

Yeah, that's, that's really, really good. And I appreciate. Chris. This is not the agent attraction call, that's the Thursday call. But still, you know, if you're not in exp, most of this call, most of the people on this call are with exp, but this is the production mastermind. And for anyone that you know in B school or in Game Changers, you know, invite your people to this, to this call. Anyone is welcome to this call because there are so many agents that are struggling right now. If, if the worst thing you do over the next, you know, if all you do over the next year is invite as many agents as you know to this call, the good that will happen as a result of it, either they, you know, come closer into our world or it just. It just helps them play the game of real estate at a higher level. I think that's the way we get through this is just to band together. I love that. Aaron, one of his quotes skills, pay the bills. Really cool. All right, guys, we are at 1 o'. Clock. Much love, much respect. I forget what we have next week. Do you know it offhand, Stacy? I think it's either getting paid. We got two more left in September. Getting paid what you're worth and becoming the CFO of your business, both are going to be unbelievably awesome. So do not miss any of the production masterminds the rest of the month and then October stacking up again to be an even better. These are just getting better, so they're really, really awesome. All right, everybody. Yeah. Jim says getting paid what you're worth is next, so this is going to be amazing. As the industry is changing structurally, you need to make sure you can present yourself to buyers and sellers and get paid. All right, love you guys. We'll talk soon. Be good. Thank you.