WTF Just Happened To The Housing Market?! #GeminiCreditCard #CryptoRewards

What's up you guys, it's Graham here. And I gotta say this, I know this is going to be probably one of the most controversial things I've ever said on the channel and maybe I'm completely incorrect, but please hear me out so I can at least get this off my chest. Based on the numbers, I no longer think that it makes any financial sense whatsoever for most people to buy a house. In fact, I think we've all been sold this lie that buying a house is one of the single best investments you'll ever make. Because sure, even though this did make a lot of sense for the last few decades, at today's prices, I think this belief is going to mislead a lot of people. So before you click out thinking I've lost my mind, I'm going to break down the exact numbers behind my thoughts, show you every piece of data that I could find, and I'll show you by the end of the video why buying a house could be a huge mistake for a lot of you watching. And also a big thank you to the Gemini credit card for sponsoring this video. But more on that later. Alright, so in terms of buying a house, I'll be the first to say it. Up until a few years ago, buying a home was the smart financial choice. Like it's funny, since 2017, I was showing people exactly how to buy a house here on the channel. I'd break down exactly how to find a deal that gave you instant equity, I'd describe exactly how to shop around your rate to save a ton of money, and in 2020 that evolved into me saying that you should refinance your mortgage if that's going to save you on your monthly payment. But around 2022, give or take, everything changed. All of a sudden, there was no housing inventory. Home builders got delayed because of the shutdown. There was a shortage of building materials. What they could get, like lumber, shot up in price. And as a result, when a home did come on the market, it was bid up to brand new record highs because mortgage rates were at 2.75%. Like think of it this way. When you buy a home for $100,000 and a 5% mortgage rate with 20% down, your monthly payment's going to come in at $430 a month. But you know what else is $430 a month? A $130,000 home with a 2.75% interest rate, essentially suggesting that people are able to spend 30% more for the exact same home overnight because their monthly payment wouldn't be changing whatsoever. And this, of course, leads to the first problem. Eventually, those mortgage rates are going to have to go back up, like we've already started to see. Right now, we have a housing market with the highest mortgage rates since the mid-2000s. We have some of the lowest inventory ever on record because existing homeowners know that if they were to sell and buy an identical house down the street, their monthly payment would more than double. And this is only sustainable for so long until A, mortgages return back below 4% or B, housing prices decline. Which happens first? Now, in terms of declining home values, yes, it is true that year over year, home prices have actually increased by 0.3%. So if you bought a $400,000 home, today it's worth $401,000 and you've made money, right? Wrong. Like, here's what most people do. They look at their home price on Zillow, they see it trending upwards, and their first thought is, oh wow, great, it's worth $15,000 more than what I paid. This is incredible. But what they fail to consider is the amount of property tax, mortgage interest, insurance, repairs, maintenance, and opportunity cost of their down payment that went in to make that $15,000 of profit. And once you calculate the entire picture, you'll see a completely different situation emerge. Like, let's just take the example of a median priced home of $410,000. In this case, with 20% down and a 6.2% mortgage rate, you're spending $19,500 in mortgage interest, $4,100 in property tax, $2,000 in insurance, $4,000 in maintenance and repairs, and tying up $100,000 that otherwise could have invested elsewhere at a 4.2% return. This means when you add everything up, you're spending almost $32,000 out of pocket that you're never going to see again to own a home that went up in value $1,200 over the last year. Now sure, I know some people are going to counter this by saying, but Graham, you have to live somewhere and at least with owning a house, it's yours and you're not paying money to a landlord. This I 100% agree with. But what I find surprising is that today across all 50 states, it's reported that buying a house is 50% more expensive than renting. And when you break down that monthly payment, you begin to see just how big of a difference it really is. The same applies even if you own your home outright. A 0.3% return seems positive until you consider that inflation is 2.7%, meaning your real rate of return actually declined in terms of purchasing power by 2.4%. Look, I know I've made these cringy titles in the past because that's what people click on, but for anyone who's actually watched the content of those videos to the end, this is something I've been saying for years. The Calculated Risk blog pointed out that we could be following a very similar trajectory to real estate prices in the 1970s. During that time, home prices continued going higher in terms of a dollar amount, but real returns when accounting for inflation fell by 11% over three years, meaning home prices went up, but the net value declined. So why are rents all of a sudden so much cheaper than buying? Well, the truth is it's a bit of a double-edged sword because on the one hand, home prices are still high because of a shortage of inventory. There's still strong buyer demand for homes that are listed and mortgage rates are still high compared to where they were a few years ago. On the other hand, rents have become artificially cheap because homeowners don't want to give up their record low interest rate, so they're able to rent out their home instead at a price that no one else would be able to compete with because they have such a wide margin of profit. Like, here's another example. Imagine somebody buys a $500,000 house. At today's prices, that would cost them $3,000 a month with 20% down, so they'd need to rent for at least $3,000 in rent just to break even. Compare that to their neighbor next door who bought an identical home four years ago for $400,000 and locked in a 3% mortgage. Their payment is just $1,765 a month, so they could easily rent their house for $2,000 to make a profit, while today's buyer needs to rent at $3,000 just to avoid losing money. And that is where a lot of the data comes in. Nationally, the chart says that rents are up 3.5% to 4% from a year ago, so this seems like a clear case that buying is still better, except when you realize that new tenants who switched housing are actually seeing an 8.8% decrease in their rent once they moved. Or in other words, existing rents are increasing because tenants are often locked in to below-market rates where landlords are trying to raise their rent in line with expenses, but new tenants serve as the barometer for where the market is headed. On top of that, we also have the issue of home affordability, and here's where I put on my tinfoil hat, because this is where things get crazy. Although before we go into that, I just want to say that one of the most frustrating mistakes I see people make is not paying attention to the value of their everyday spending. Like think about it. 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Now in terms of housing affordability, like I said, this is the part that gets crazy. In 2000, the median home price is around $120,000, which was roughly 1.7 times household income. But by 2024, the median single family home was $412,000, equating to almost five times the median income. This is why for the first time ever in history, homebuyers over the age of 70 now outnumber those under the age of 35. This might be by design. Take college as an example. In the 1980s, the Department of Education was created. In this streamline, the government's role in allowing students to borrow money that was backed by the United States. In theory, it was a good concept. Give people the financial means to go to college, back those loans by the federal government, and the more educated our society becomes, the better we do as a country. Except there was an unintended consequence. The more they subsidized student loans, the more college tuition increased, and therefore the more they subsidized student loans even more, which resulted in even higher tuitions. And now we're stuck with $1.8 trillion worth of student loan debt. On top of that, average earnings of college graduates never actually increased enough to keep up with the rising tuitions, even from K through 12. Those funds are not used for students or teachers, but rather spent on administrative staff. Essentially, the more the government subsidizes education, the more that schools charge. Who would have thought? It's kind of like saying, hey, how much do you need? And then schools say, how much do you got? Now, why do I say all of this? Well, the reason is because the government does the exact same thing with housing. Any time you go and get a conforming mortgage, which is basically most mortgages out there, they're bundled together and backed by the federal government, who basically goes and says, if you can't find a buyer on the secondary market for these loans, we'll go ahead and pick up the tab. This ensures that there's always money out there to get a mortgage and buy a house, as long as you meet the minimum requirements for a credit score, down payment, and income, regardless of whether or not there's an investor on the other side to buy those loans. So is this another situation where the government guarantees larger loans, pressuring higher home prices, resulting in larger loans that pressure higher home prices? Well, in the UK, it was found that a Help to Buy program did nothing to fuel more construction, but it did result in rising prices exceeding the subsidy amount. Another paper in the United States found that homes that qualify for government financing see a price increase of $1.17 per square foot, compared to homes that don't, all things being equal, suggesting that there is some measurable impact on the market. Or take a look at California. They gave out $300 million in down payment assistance, and it was completely gone in 11 days. Now, on the flip side, I get it, homeownership promotes stability. Most people's only means of saving is by paying down a mortgage, and after 30 years, they hopefully own it outright. That's why it makes sense for the government to want to assist people in buying a house, but it also serves as an artificial backstop to preserve existing equity, for better or worse. Although before we talk about when it's a good idea to buy a house, I want to share a quick message from the US government. Have you or anyone you know been diagnosed with housing unaffordability? Are you sick and tired of starter homes selling more than you could afford on a salary that hasn't increased in more than five decades? Well, thankfully, it's not your fault, and we're here to help. Instead of solving the root cause of the issue, including but not limited to zoning restrictions, constrained supply, asset inflation, excess capital, labor shortage, and low interest rates, it's easier to ignore everything and just give you a larger loan instead. How about this $3 million two-bedroom home in Venice Beach that sold for $700,000 a year ago? Call us, we'll give you a $2.9 million loan, no questions asked. Or what about this overpriced $1.5 million townhome in San Bernardino that's not worth the seller's asking price? Well, that's not your problem, as long as you promise to make the payments. We'll give you whatever you need, backed by the faith and service of the US taxpayer. And best of all, if the payments are too high to afford on a stagnant wage, we'll give you a 40-year loan instead. That way your children can deal with it. Call toll-free 1-800-SUBSCRIBE, and we'll send you a completely free, no-obligation DVD on how we plan to tax the people who make slightly more than you do. Because we live by the motto that if we don't know what we're doing, the best solution is to raise taxes. Finally, before I talk about the situations where buying a house actually does make sense, because I've not completely lost my mind, I want to address this comment. But Graham, what about all the hedge funds and corporations that are buying up all the housing? Okay, here's the truth. This Wall Street buying homes narrative really seems to have started with this Twitter thread, which made the claim that BlackRock is buying every single family house they could find, paying 20-50% above asking price and outbidding normal homebuyers. However, when you actually go and investigate these unsourced claims, as it turns out, the neighborhood in question was a purpose-built rental community built by DR Horton, and their business was intended to be a fully-occupied rental community flip. That is how they created a 50% profit margin. Separate from that, though, we also have plenty of other stories like this, a fifth of California homes are investor-owned. By the sound of it, this is an absurd number that's surely to blame for high housing prices, right? Well, not so quite, especially when you realize that those numbers were significantly higher than they were back in 2004, 5, and 2011, when investors purchased nearly 1 in 3 homes for sale. Second, the term investor is also extremely broad and very misunderstood. Like a person buying their first rental property, or inheriting a house from their parents and renting it out, is treated the exact same way as a billion-dollar conglomerate buying a thousand single-family homes and renting them all out. So let's break down this term a little bit further. Of the 26% of homes that are currently sold to investors, half are mom-and-pop landlords who own less than 9 properties, and only 11% of that half are mega-corporations. This means when you go and buy a property, 75% of the people that you compete with are other owner-users, 12% are mom-and-pop landlords, and just 2.8% are corporations who own more than 1,000 units who, chances are, are not competing with you to buy that single-family home because, let's face it, they're not going to make any money from that deal. The thing is that a lot of people don't think about is that an investor has to make a profit and that usually requires them to buy a property that needs a substantial amount of work to rehabilitate or at a price that's well below market value, which is usually not at the expense of negotiating or competing with other owner-users. Investors are usually buying the properties that require large, substantial renovations, floor plan adjustments, ripping out kitchens and bathrooms, and spending 4-8 months just to make it livable. It makes no sense for an investor to ever compete on a turnkey property with an owner-user because even if they did get it, they would end up losing a lot of money. There's no upside. In fact, when you look at the data today, investor purchases are actually declining because it's unprofitable to buy and rent at today's prices. But sure, maybe it's those landlords who are going and raising the rents and making it unaffordable for everyone else, right? Well, across the United States, it was found that less than 50% of landlords raised rent by more than 3%, with the other half raising rents by less or even nothing as the economy begins to slow down. That's why when you really get down to it, the actual reason housing prices are so expensive is simply due to a combination of prior, artificially low interest rates, restrictive zoning that makes it cost prohibitive to build any more units, subsidized loans from the government to incentivize people to buy a house, and a surplus of demand from everyday people who've been ingrained to believe that buying a house is the American dream. But fine, even with all of that said, when is buying a house a good financial choice? From my perspective, that really comes down to two factors. First is emotional. I will admit, there is something nice about owning your own house, calling it yours, doing whatever you want, and not being at the whims of a landlord who gives you 60 days notice to leave because they want to move back in. You could remodel it however you like. Once paid off, you own it outright, and you could eventually pass it on to your kids. But at today's prices, you are paying a premium for the privilege of being able to call it yours. But second though, in terms of buying a house, we also have the finances where it does make sense. The reality is, the longer you plan to stay in your home for, the more it makes sense to buy instead of rent. Like in the past, I usually found the break-even point to be about 3-5 years, meaning if you plan to live in this house longer than that, it made more sense to buy it than rent it. But at today's levels, it might take you 15-20 years or more to break even between the cost of buying and renting once you factor in closing costs and all the overhead expenses associated with today's prices. In fact, what I found funny is that I plugged in the real numbers for a home that's right down the street from me in Las Vegas. And this calculator says that buying only becomes cheaper after 28 years, basically when I've just paid off the house in full. And that's even accounting for 3% inflation and 3% rent increases. Now inevitably at this point, people will say, yeah, but mortgages will eventually come back down when the Federal Reserve lowers interest rates, and then you could refinance to save all the money. Sure, this could certainly happen, but it could also take a lot longer than you expect. And relying on a refinance to save the day and justify a home purchase is incredibly risky. Or what do I know? Maybe mortgages go back down to 2%, home buying demand surges, and prices skyrocket again even higher than they are today. Or baby boomers exit their homes, helping supply much-needed inventory back onto the market by 2035. The reality is home prices move very, very, very slowly. It's a lot like turning around a large tanker ship, where you make a one-degree correction, and over time you eventually see it turning. That's why if you are in the market to buy a home, do so very cautiously and intentionally with the full understanding that your monthly payment is going to be a lot more than just your mortgage. If you plan to stay there, hunker down, raise a family, and keep it long enough for it to make sense, go ahead, buy a house. If you want to take the risk that mortgages will eventually come back down and you could refinance in the future to save the money, go for it, buy a house, as long as it still makes sense either way, no matter what happens. But if that's not you, and you only plan to live in the house for the next 5-7 years, maybe even 10 years, then I'd strongly recommend to compare the cost to that of renting to see which makes sense for your own specific situation. It used to be years ago, where if you bought a house, and you overpaid for it, and you had to move, worst case you'd usually be able to rent it out and break even on your monthly costs. That's just not possible anymore, and today, you'd just be stuck with it. Anyway, that's my rant. No, I don't think national home prices are going to crash, but unless mortgage rates drastically decline, the math today heavily favors renting to a point that's impossible to ignore. On top of that, even if the Fed does lower interest rates to 2% next year, mortgages could still remain above 6%, because they're tied more to long-term bonds and investor expectations about inflation, not just the Fed's short-term interest rates. The reality is, if people think inflation is going to be higher, or people lose confidence in the US dollar, lenders will have to keep their rates higher. And that's why mortgages don't always fall when the Fed cuts rates. This happened from 2000 to 2003, and again from 2010 through 2013. Just saying, our overall economy says a lot more about mortgage rates than the Federal Reserve does. Or maybe I'm just totally off base here, but let me know down below in the comments. I just think you should do the math, take everything into consideration, and then determine what is right for you and your finances. I'll tell you for myself, unless I get a 30% discount on a home's price, it makes more sense for me to rent than buy, and that's something I never thought I would say.