The Next Real Estate Bubble – Is Economic Collapse Here
Doom doom doom! The world’s coming to an end! It’s collapsing! No for real, it really is it’s actually what real estate does every twenty years and today on Limitless TV I’m gonna share with you when I think that is actually going to happen, I want to watch this one. Middle of October 2007 I’ll never forget sitting with my real-estate power team in my office right over here and we had 25 deals we were in the process of closing with our deals with our clients and we were thrilled and excited and all of a sudden we get the call from a bank that said, hey your 6% interest rate on this house you’re about to do with this client we’re um we’re bumping that up to seventeen percent. The day of closing the bank comes back and says, we want an 11 percent hike in interest rate. There’s something going on that day was the first day of the collapse of 2007. And I got to tell you it rocked the planet. I mean we had banks shutting down left and right we had a whole swathes of homes going back to Fannie Mae and Freddie Mac. And real estate, the sky fell down and harder than it had since the Great Depression. Well guess what? It’s happening again. Why? because it’s always happening again. The sky’s always fallen in real estate every 20 years. I want to share with you a cycle because the question that I want to answer today is when is the next collapse gonna happen? Do you want to know? I can help you get fairly precise on the answer to that with today’s information. Now first of all, let’s just understand the basic way that a market moves. We know that real estate is always going up but we know it doesn’t move in this kind of linear line. It actually moves up more like this and what we have here is, you know what that’s called? that’s called a what? it’s called a bubble and bubbles eventually burst. Down here, we have something called a trough. Which means we have to go through a low period. Right now I’m gonna pinpoint exactly where we’re out in the market but I want to talk about 2007 and what we learned from it. First of all, go back 80 years earlier. What was happening before then? The Great Depression. The Great Depression was definitely one of the really really bad drops in history. And the truth is the kondratyev k wave cycle documents the fact that every 20 years real estate goes through a high and go through a low. Sometimes it’s a little less than 20 years sometimes it’s a little more than 20 years but for three thousand years just go ahead and Wikipedia this thing it’s amazing what has been tracked through the history of our world with this particular cycle. And let me share with you what’s actually going on. So let’s just talk about this idea of supply and demand. Now if you’ve ever taken a college course on economics and had a bad experience like me don’t freak out. I’m gonna keep it super simple today. Supply is what? need for houses. What’s demand? Population. There’s a correlation between population and houses. For example if I were to snap my fingers very powerfully and all the sudden double the inhabitants in America and go from 350 million people to 700 million people, oh I did it I just created a housing crisis! Why? we don’t got enough houses for all those people. That is demand dictating supply. Well right now here’s what you need to understand. This line do you know what it really represents? It represents the average cost, the average cost to build. So for example when the market drops below the average cost to build, can we afford new construction? We can’t. The commodity of a nail and a board and the things that you need to construct a house the shingles? they cost more than the market will bear. So what’s happening during these recapture periods is nothing’s being built. Almost nothing is being built and yet what’s happening with the passage of time to our population? It is expanding. Right now in America, we we keep making babies. We keep allowing immigrants to come into this fine country and what it means is we have more and more and more people occupying our country. This is happening in most places all across the world and as the population grows it eventually is going to put a burden that says, hey I can’t have my aunt and uncle living under my roof anymore and moved in with Grandma and Grandpa like when we had the crisis. Guess what? things are turning around. The stock market’s recovering people have good jobs the markets improving. And guess what? Go get your own dang house. Which means we now need to build something. We know if this line represents the average cost to build a home then construction really gets picking up when? Between here and this point right here. This is build. Time same thing right here, this is build time. Same thing right here, this is build time. Now we’re going to talk about this clock and talk about what happens. When we get to a point where, hey we’ve just started building look at what’s happening in the housing market. How long does it take a developer to take a raw piece of land, work with the city, put an infrastructure, get all their approval, put in sewer and electric and water, and all those pipes and then paving it out and putting in sidewalks and then they’re getting ready to parcel off land for spec building or speculation homes because remember population is saying we want homes and then they start building and they do phase 1 build-out and phase 2. Do you know how long that takes? That can be a three to five year process to get a development going. And you know what? Once you start you kind of got to see it through. And so what ends up happening at this start of this as builders will go find land and they’ll start that multi-year development process. Well along the way population is out the gate kinda like, oh we can breathe again there’s houses to buy this is really really exciting right now. So they start buying houses and buying houses. And you know what happens when you start buying houses? The value properties could go what? They go up and all of a sudden you get neighbors turning their heads like, dude yeah so-and-so moved out they bought a house they got it for 160 now it’s worth 180. aAnd then all the sudden 180 turns to 200 and all the sudden neighbors start turning into what? Investors chasing the market. The skeptics are still kind of leaning back. You know right here this is when your your community starts getting involved and then eventually the prices go up so much that the skeptics come out of the woodwork so like, fine my neighborhood made sixty thousand an equity I’m gonna do a house. You know when the skeptics jump in? Right here. And guess what? there’s too much real estate in the market and there’s not enough population to buy and so all of a sudden if we have more houses than we need, a house is only worth what? someone’s willing to pay. If no one’s willing to pay any more then actually what happens to the value of the home? It drops dramatically and we get a bubble burst. And what that means is this period of time is called liquidation. So 2007 I was buying homes at Phoenix and Vegas for 80,000 to $100,000 that we’re selling at the height of the market for 250 or 300 thousand dollars. And then the market goes into this recovery. This is where there is a huge tension of population. People still making babies and saying, oh my gosh we need a house, we need a house, we need a house. No one’s building, no one’s building, no one’s building. And eventually boom it starts happening, Because there’s a delay in a developer needing three to five years, they cannot forecast when the bubble will pop. So when it does pop, many builders get hit really hard because they don’t know how to time the market and then they get spanked. They’re just looking for jobs, they’re looking for ways to earn money. But the greedy really get hit hard. So this is helping you understand the fact that we build bubbles and they burst and we go through troughs and it’s natural. It’s normal. In fact this type of economics is really a cleansing. What it does is it weeds certain people out of the market that didn’t know how to time it. We’re an intelligent and understanding how to run their business and work with the market and it’s a 20-year cycle I mean this cycle happened when I was in my mid-20s. Right now I’m in my late 30s and I’m asking this question and I’m getting asked his question when is the market going to pop? Well I’m not gonna be like the Mayan calendar that tells you when the end of the world is. But I’m gonna show you how to know when it’s gonna happen and how you can get as close as possible. Right now in our specific market, construction is happening everywhere and there’s very few homes at all in the market that are available for sale. Everything’s in that, in that, mega building mode and right now if I list a home for sale it’s a market where I can sell and I can get my price but that’s not gonna last forever. That’s gonna change. So right now what we’re feeling is the pent-up demand right here where there’s not enough inventory, population is saying, we need more houses. And then we’re gonna get into this zone right here. This is what has to come next and I want to tell you how to know when we get there. This is the danger zone. This is when you want to be very careful in your investments this is why I go into very certain specific markets and I know when to time and I know and to come out. Because what will happen is, remember you can measure where you’re at and what your rebuild cost is. For example, it costs two hundred thousand dollars to build a home but I can sell it for 280. Guess what? There’s $80,000 dollars more above what it costs to build and the bigger that discrepancy, the more you got to be cautious. If it costs two hundred thousand to build a house and right now, that house is worth two hundred twenty thousand, there’s a very minor discrepancy. That’s gonna put us closer into the market in this zone and this zone and this zone and the markets going to go up and up and up. And you’re looking for a wide gap. Now if you want to cheat on what that is, right now you can actually just survey the builders on what are you building and what selling for. And the bigger the discrepancy, the more you want to look at when it’s time to get out. The second factor that you want to look for is volume of houses in the market. Right now in my area there’s so few homes in our entire county. I mean it’s a few hundred homes that’s it. When that few hundred turns into five hundred, turns into one thousand, turns into two thousand, what that population is telling us is we no longer want the houses that you’re building and that’s gonna create a discrepancy. When the market turns from a from a seller’s to a buyers market and there’s too much inventory that’s when this process has likely already begun. Right now if I were to pinpoint exactly where we’re at, in Utah because even though we’re experiencing something that the rest of the nation is, the entire United States is made up of 350 sub markets and they all move slightly to a different pace. They’ll all roughly crash together. They’ll all roughly rebuild together and I look for the outliers where the market took the deepest plunge and I’m gonna buy up all of those homes. Because I’ll get the nicest and newest for the cheapest price and then I’m gonna recycle them into the marketplace and find a way to make them available to people again. People aren’t in a position after that kind of loss to buy but they are to rent or do a lease option a rent to own and so the investors help clean up the economy. And I’m getting ready for a big massive clean-up on Aisle 23. Right now in the marketplace, we are somewhere right here nearing the end of the red zone. Prices in our median have come back strong. 30, 40, 50 thousand dollars. We’re still low inventory. So now what I’m waiting for is I’m watching an inventory and I’m waiting to watch it increase. And as it increases and there’s less people buying homes, that’s what’s gonna put us in this zone. Which means we’ve got some time left in the market that could represent a few years and my guess is it probably does represent a few years before we then head into our next big drop. And if you understand what’s happening in the market you can go into markets with me and I’ll show you the most intelligent places to buy. The places where you’ll insulate yourself in pricing points where your bubble feels more like this as opposed to something really big and dramatic and you want to be my best friend and me your best friend to go and buy as much real estate as possible especially in this zone right here. This is one of the sweetest times. If I were to draw this a little bit more accurately it looks actually on a micro scale, it looks like this. Building building building drop. Building building building drop. This drop happens very quickly and this is where we like to be in the market place as investors. If you’re timing the market. It’s not the only time you can make time you can make money any time in the market but friends those are the two factors to look for an understanding when is the market really gonna burst, when is it coming to an end. And just look at those two things, what’s the discrepancy between building price? You know you’ll have you’ll builders approach you if you’re an investor that’ll say, put up the money I can build it for 200 it’ll be worth 300. That’s a warning sign. The second one is, uh-oh growing inventory and not enough buyers. Get out. Well the economic collapse is coming and I hope you’re as excited as I am. Right? The economy gets to renew itself, it gets to move forward. And there’s always an abundance of opportunities. There’s people who need help. There’s homes that need to be saved so they don’t dilapidated and get lost. And you’ve got an opportunity with me to jump in on that next big major opportunity to help a lotta people out and create some really beautiful abundance by helping our economy restructure, rebuild, and get back online.