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good morning well sometimes you get these these uh news bits and they're so dense like they're they're just hard to get through and so I'm going to butcher this today and come along with me for the ride because um I think it's worth looking into it's just you know my abilties is to translate that information to anyone is is limited if that isn't a ringing endorsement to keep watching I don't know what is let's get to it we have this fascinating fascinating article how the FED destroyed the housing market and created inflation in pictures now look I'm not anti-fed I'm not anti this or I don't really I'm I'm not I don't I'm I'm Blown Away by General economic theory being just blown just just not even not even being paid attention to by people that are supposed to know better it just it it that part blows my mind but um you know as far as ending the fed or anything like that I'm not I'm not there um maybe I will be at some point but let's look into this article so the first the first line the FED erroneously does not consider Rising home prices as inflation here's the result in pictures now this is this is key okay I got into real estate honestly because I I thought of it as um a I thought of it as a hedge against inflation and what I mean by that is I get paid I typically get paid on a commission of the sale of of price of a home okay that's how I get paid so I always thought that should inflation rise okay house prices would also rise and therefore it would it would clean out my inflation problem so any dollar I made was still infl decent you know at least still par with inflation that's the way I looked at it okay and I still do now you know if that's if that's wrong I I mean we'll find out um but I always believed I always believe that was a very right way to look at things okay now the the problem is is and as I've been in the business people don't look at infl in housing for some reason they pretend it doesn't exist and I I don't know why and but let me give you let me give you my best example of this um when a homeowner uh is thinking about selling their home they come to me and they call me and they say hey I'm ready to sell my house and we look at the comps and it turns out that they bought their house in 1980 and it was like 50,000 and now their house is worth oh 300,000 and they're they're just a ated they think that's fantastic okay and I'm just using numbers off the top of my head they don't look at that as like hey there's inflation there like a lot of it okay that's just and I'm not I'm not criticizing people I it's the same thing though for me like when people get excited about their house prices going up and then not realizing that their tax bill is also going to go up in at the same time it's just it's just weird stuff like that or or they don't care either way so anyway we have this chart okay and the the point of the article is again there's a a Detachment between what the FED believes uh is their mandate to uh keep inflation at 2% and what really goes on the housing market like they're not paying attention to the housing inflation okay so it says for 12 years home prices Oar which is owner's equivalent rent and the overall CPI Rose together that changed in 2000 with another trend line touch in 2012 then it was Off to the Races as the FED did another round after round of QE suppressing mortgage rates so we look at the top chart we see right here 2002 we've got uh things going a little crazy started in 2000 he's he's saying that it started in 200000 which is this a year by year so it's close it comes back to the trend line and then it just goes crazy okay it decouples all right so then okay so then he shows another chart and this is the K Shiller home price index where again you see this um this break okay between the home price index and average hourly learn earnings and CPI and the CPI of your primary residence so it says are how much your homes overpriced if the 12year trend of home prices rising with the average hourly earnings stayed intact the home price index would be 211 not 308 from that we can calculate home prices are uh to too high 21% too high roughly 40 I'm sorry that was divide by 2011 uh percent too high roughly 46% too high if you prefer home prices would need to fall roughly 31% alternatively if home prices stagnate for years wages may eventually catch up so like what what he's saying there is the red line would go up and and match this

one which I don't know I don't the wages is a whole another problem says that same house that cost 150,000 in 1988 now cost

because property taxes and insurance are not factored into and you'll hear people and and no no fault of anyone but they're like uh there's there's this uh animosity for people that say well we had it terribly in the 80s with you know in the early 80s with runaway with runaway uh inflation uh yes the argument is that at that time you would still be able to afford things because your wages were um you know similar or your wages were uh in line with you know what you could purchase and what they're saying now is that the wages are in nowhere close to to the expenses uh for at least owning a home so then through massive and totally unwarranted QE F foolishly hoping to create more inflation the FED suppressed interest rates to record lows and mortgage rates follow so there was actually a time where the FED thought that we didn't have enough inflation and that that was the time when it was not a not a good not not great so anyone with an existing mortgage could and did refinance at 3% below this increased affordability and we now have two classes of people courtesy of the FED winners and losers existing homeowners who refinance low and those who want to buy which is absolutely true as I sit here today I have people that will not sell their house because they're I mean they they''re telling me they will never sell their house because of the interest rate that they have um also it's led to some changes in how those people act so if they have a 3% mortgage um I'd say half of the people I talk to had plans in P place to pay off their mortgage over you know over a shorter period of time than 30 years now they're saying with money so cheap I'm not paying it off I'm just letting it ride I don't care I mean I'm never going to get a rate like this again I don't need to make you know I don't even extra payments I'll just keep the mortgage it's so cheap and so that's it's changing behaviors uh and then the people that want to buy are just looking at everyone else and saying how are you able to afford this I mean everything everything is more expensive now including home prices and I don't see how I can buy a home for my family what is the deal here so then he goes to say yes this is a crash existing home sales are down 35.8% in 2.5 years existing home sales are back to a level seen in the mid1 1970s if there's a decline next month and that is highly likely existing home sales will drop to a 12E low real estate tutors keep telling me there is no crash what the heck are the above stats chopped liver and egg salad sandwich prices have not crashed but transactions have crashes are rare but we're in one now from a transaction perspective now see he's playing a little bit with this this idea of a crash I've seen people play with the idea of a crash so what we have to Define we when we're talking about a crash we have to Define what what are we talking about in this case he's not talking about a home value crash that is it's not like a $200,000 house is all of a sudden worth 150 now that's not what he's talking about what he's saying is there's very few transactions and as as a real estate agent right now I can tell you that there are very limited transactions and when the transactions are down but the prices are up which is maddening maddening as a real estate agent because you should if you if you're you're taking the demand should be T taken away right now uh from the marketplace due to the high mortgage rates uh that's that's that should lead to um lowering of home prices and you're not seeing it so then um we look at then he was looking at like well what's the future holding and this I've always been suspect of it says mortgage applications ground to a halt dropping to the lowest level since 1996 the purchase Market slowed to the lowest level activity since 1995 as the rapid rise in rates pushed an increasing number of potential home buyers out of the market yes this happened okay but to me in just my experience in the in the in the real estate space look I have three lenders that I can call in in and they will pick up the phone right now and they will get somebody approved for a mortgage if if it's possible and they will get it done by the end of the day the idea that you that it's it takes 15 days to get approved for a mortgage a pre-approval letter is ridiculous I can get one in about a half hour if as long as my uh potential buyer goes and and and and puts in all their information that they need that that's not a big deal and honestly to me this the the mortgage application um is not is not the rate is not really beneficial as far as the statistic for me if if rates go down you'll see more applications it's it's it's bound to happen it's just a question of what that number is to me uh psychologically when rates started to hit 7% 30 fixed on a conventional that's when things started to get slow and um it looks like it's going to get you know even worse here coming up and so it'll be even slower but I wouldn't I wouldn't I I think there's plenty of people that would buy houses if they could them right now I I don't think I think what's holding them back is the high mortgage rate not the application process and I and I do think that they could change that in a day what about the winners good questions the refi winners refinance at 3% or below they put this put extra money in their pockets every month to spend and Rising wages further stimulated ability of the winners to buy goods and services thus the FED is still paying for its asine push to create inflation meanwhile the housing market is dead and will remain Dead with mortgage rates approaching 8% so what what he's saying is is um the rising wages because this is a response to inflation and a tight employment Market which I I think it could be argued that the fed's trying to slow down the the the employment Market which would stagnate wages um that would be not great but the idea that it's putting extra money in the pockets in the pockets of the 3% mortgage holders every month to spend and that it's in itself is causing its own inflation because they can buy cars they can buy things is fine okay I'm not going to argue that thought I would I would add however that many many buyers or first-time home buyers and their young people probably between the ages of about 25 and 35 all with um student loan uh repayments that had been suspended for three years and I suspect that many of those who are in theory um putting extra money in their pockets every month to spend are actually just waiting for the point in time which started uh in October for many that they need to pay their student loans back which have been on highs for the last three years so so the idea that there's extra money out there I think it it could be or it could be there's not actually a lot of extra money out there and once these student loans have to be repaid um or if they're I mean who knows it's such a political football right now um you know if they do have to be repaid it's going to cause some problems in theory my opinion it says that's another good question for uh this is about rent for 24 months or so economists have been predicting an ease in rent inflations and that's what I've heard and I totally agree with what I've heard um the price of rent has gone up 4% for 25 straight months not to worry Paul Krugman says this is is lagging Paul Krugman is a regime Economist who is who just lost his way lost his way and it's sad um but he makes he makes good money and I guess that's what's important um yeah so what about that we're going to get this and why were we going to get lower rents that's a big question why were we going to we were going to get lower rents because there was more rentals under construction than any time in history and so here you look at this and it's um on October 2nd he said when I asked when will housing when will record housing units under construction ease rent inflation and he said that's really a tricking qu trick question for better question remove the lead when from the sentence so will record housing units under construction re ease rent inflation and the answer is I don't know nor does anyone else although people claim to be Clairvoyant my opinion if anybody cared was we're not in a shortage of units and that the more units we make will just cause a collapse in that Market at some point in time down the down the road I don't know okay here we go it says I saw the theory that rent would collapse as soon as housing units get completed so many times I almost start believing it myself so he's not of that opinion however the data shows no discernable correlation no matter how you shift the lead or lag times the chart looks totally random so perhaps rents a baate perhaps not the data itself provides no reason to believe anything which is kind of interesting regardless please note the floor year-over yent has a floor of about 2% except the great in the Great Recession and the housing crash so if you look at the chart you've got your 2% and I got to check something real quick before I keep going okay um and then so and he says 34% are screwed well don't worry only 34% of the nation rant and besides rant is lagging sarcasm aside the FED blew huge asset levels and did not see that as inflation nor did the FED see the three massive rounds of fiscal stimulus would cause inflation so he's got his chart of the real income and spending note the three rounds of massive fiscal stimulus in the co pandemic this triggered the most inflation since the 70s economists debate how much excess savings Still Remains uh and so this is the Fed caused inflation okay that's what happened the FED never saw this coming never saw a housing bubble in 2007 and has never once predicted a recession heck former Fed chair Ben bernacki did not a housing bubble and denied a severe recession that had already started absolutely and why would he why would he acknowledge it they they were the ones that cost it and so he says expect more inflation everywhere adding to the inflation misery Biden is doing everything humanly possible to stoke inflation with EV mandates natural gas mandates Union pandering student debt forgiveness and regulations some of which is blatantly unconstitutional as a result inflation is not coming down as fast as the FED thought now let me let me depoliticize this just a little bit I'm not I'm not interested like look if you want to argue about the head of the FED Jerome Paul was the head of the FED under Trump okay now let's let's look at this one thing though the FED has a mandate of 2% inflation okay per year they they don't even come close ever um they just change the numbers to make it look like they do okay uh but then the FED has the FED is not supposed to be a political position the FED is supposed to have an analytical position but the FED can only do so much and the FED has not been able to and will never be able to be able to reign in government spending okay which causes inflation and so like if the FED act came out tomorrow and said you know you guys in Congress you guys are causing this this this inflation it's it's actually your spending that's causing this problem that guy would get sacked that guy would get fired tomorrow he it's not it's he's not able to control anything that Congress does okay so while he's pursuing this this quote unquote Noble goal of you know fighting inflation or I I don't even I mean they're supposed to keep inflation at 2% they just they just never get it's just it's ridiculous anyway there's no way that they can control the spending in Congress and until they can which they never will be able to uh you're going to have this disconnect between the fed the policy of the fed and the actual what's going on in government it doesn't matter if it's EVS today or or anything it it's just the way Congress is set up so looking to buy a home this is where it tied in the real estate part if you're looking to buy your first home and need to finance good luck uh think about all the things people get when they buy a home appliances Furniture carpet cabinets Landscaping paint wallpaper Etc now look I'm laughing because no one's buying wallpaper right now wallpaper has not been going going

well anyway and carpet who wants carpet in there no one's wanting carpet now will that change can you save this video for 10 years from now sure but right now people aren't looking for carpet and they're definitely not wanting wallpaper the the the 100% of the people I work with but maybe maybe somewhere else it's different it says housing normally brings the economy in and out of recession but this it's activity that will not happen as long as interest rates stay high it may weigh on economic activity for years if you're one of the winners congrats but that extra money the fed put in your pocket every month May Stoke inflation for a long time this is at the expense of everyone else the longer the FED holds rates High the longer the housing transaction crash lasts but cutting rates will further expand the housing bubble as ass bubbles in general and Bubbles are destabilizing this is the fed's tight rad dilemma of its own making foolishly hoping to make up for lack of enough inflation calculated by not factoring in home prices or asset bubbles I mean he makes a very very compelling case that the FED is not paying attention to real estate which is a major driver of the economy or if they are paying attention to it it's in how to like mitigate like in commercials like commercial sales are just going they're just they're just terrible right now commercial real estate agents not not happy people um you know office space not great not not a spice where people are real happy uh defaults more should be coming much of that because there's no really fixed 30-year fixed interest rate or mortgage rate in commercial it's not really like that um and so anyway um I just wanted to bring that to you and now look it's dense look you can disagree with me on any number of points that the that the writer um brought up I'm okay with that I just wanted to bring it to you because I don't think enough of this is being put out to the general public or E if it is being put out maybe it's not it's not really clickbait it's not like 10 ways to redo your living room uh which is you know if that's what you want from a real estate agent that's I'm not the not that guy so with that I'm going to head on out thank you for watching thank you for listening if you did like the content man I would really like to get to 200 subscribers I saw some I saw some real estate agents yesterday on YouTube that are horrible people I mean they're not interesting in any way they are the absolutely stereotypical crew and they're just miserable and I can't stand them and they have 2,000 subscribers I mean come on I mean please if you if you know someone that like this content please share it uh leave a like help me out a little bit because you know I I can I'm okay being not as popular as someone with you know know the status quo but man it's it's it'd be nice to just have some some more numbers so with that I'm going to head on out thank you bye