HERE IS WHEN REAL ESTATE WILL CRASH

If you want to know when the housing market is going to crash, I'm going to give you the two things that you have to see in order to know that this market is going to pull back. And also it's going to tell you when it's going to pull back. So the first thing that you have to see in order for a market to pull back, and you see this at the end of almost every run up in any asset class, is extreme speculation. This means that people are buying properties for the sole purpose of making money quickly. That means, you know, you're buying homes to flip. You're buying a property on the basis that you're going to be able to sell it immediately or in short period of time for a significant profit. We saw this back in 2008 where people were buying properties, flipping them, and continued to do this over and over and over again, buying multiple properties, trying to make a quick buck. Today, what you see right now is people do buy properties with the assumption that they're going to appreciate, but they're not buying them to make a quick buck. They're not trying to get rich quick. They're buying them for a place to live for the next five to 10 years or something, or they're buying a rental property as an investment for the next five to 10 years for the cash flow. So I don't think you have the ingredients of speculation right now, but I will say that in the last crisis, as people start to speculate, this is something that gained momentum. So it's definitely something to keep an eye out for. The second thing that you must see before a crash is a imbalance of supply versus demand. Right now I think we can all agree that supply is very limited. The number of homes available in most markets across the country is very limited. The, the number of months of supply varies from market to market. But in many markets that are busy, you're seeing one month or less supply and you have extreme demand on the other side. So in order for the market to crash right before the market pulls back, you're going to see an imbalance where supply outweighs demand. Right now I don't think that you're going to have the ingredients for supply going up considerably. That would take many, many years for builders to catch up. And most builders predict that they're not going to be able to build fast enough to meet the demands of buyers. So the more likely scenario is that supply continues to ris slowly as builders continue to ramp up their efforts to build homes faster. And then what you'll see is demand has to pull back slowly and then maybe even sharply. And when you see that, you'll see supply outstrip demand. And that's when you know you could be approaching the end of a super run up in prices. Now here's what I think will cause demand to cool. But normally what happens is when rates start to rise, they start to go up slowly over time and the market can kind of digest that, that's okay. But if you see a spike up like 1 or 2% in a short period of time, that causes demand to cool off considerably and quickly. And that kind of feeds on itself. So the factor that I would say to be alert for is if you see interest rates spike up considerably in a short period of time, that's going to cause demand to drop. Now all of a sudden you have demand falling sharply and supply has slowly been increasing. And now you're in a position where supply outweighs demand by a few months and then it can get to a point where it's considerably outweighing demand, which is what happened in the previous crash. In 2007, 2008, right before the market collaps, you saw 6, 7, 8 months worth of supply in certain markets and demand had already started to cool off. So you knew that something had to give at that point. Now it's worth noting that the last crisis, the last crash, was caused by a credit bubble, meaning that underwriting to get a mortgage was basically non existent. Everybody was speculating, everybody could get a mortgage. And this caused the prices to continue to go up in a sharp fashion. And right now you have the exact opposite. Where mortgage underwriting standards have never been tighter, in fact, credit quality has never been better. If you look at the average credit score of a buyer, or their debt to income ratios, or all those things that lenders look at, we're actually required by law to verify certain things. So right now you have the exact opposite of what happened in the prior crash. So I think when people say, hey, I'm waiting for the next crash, they're thinking it's going to be like the last crash, but in this case it's going to be completely different. So when you see these two things combined, then you know you're about to see a pullback. Now I can't say whether that's going to be a crash. I personally do not believe it'll be a crash. But nothing can go up in a straight line. So you will see a correction in prices. Normally what happens is you'll see ebb and flow along the way. But sometimes if you see one of these corrections, you could see a 5, 10, 15% drop, some cases a 20% drop. And that's what's considered like a pullback. It's not a crash, but it's a pullback. And that's actually healthy for the marketplace. Like I said, nothing goes up in a straight line. If you look at any stock chart or the chart of real estate prices over a longer period of time, you'll see many, many bumps along the way. And over time, those bumps even out and properties continue to appreciate. But in the short run, you will see some turbulence. So these are the two things, hopefully that kind of clarifies it for people, because I know a lot of people are always asking, when's the market going to crash? Or I'm waiting for a crash. But you can't just say, hey, things are going to crash without having the ingredients for a crash. And those are the two things that you got to see before it happens.