2021 Housing Crash Response to MeetKevin

2021 Housing Crash Response to MeetKevin

Hey guys it's Ken McElroy. So a lot of people are 
asking me to kind of weigh in on some of the other   gurus out on YouTube and so I do follow a lot 
of them and one of the kids that I follow and I   call him a kid because he looks like he's under 30 
years old but it's uh it's Meet Kevin and I like   uh his content generally I like it a lot actually 
I I love his facts I love how he's analytical and   and I think generally he looks like he's a great 
guy and he's a hustler and I appreciate anybody   like that but I just watched his video called the 
coming housing crash in 2021 and while I agreed   with most of it there was a bunch of things I felt 
like he might have left out so I just want to add   some things but I want to commend Kevin because I 
think he did a great job on the videos he's done.   I don't necessarily agree with him on where he 
thinks that the housing market's going to go   but I’m going to articulate a few things that I 
think are really really important or maybe that he   didn't talk about in the crash video of 2021.

And 
maybe I didn't articulate enough in my crash video   of 2021 and just to be clear I really believe 
that we are gonna have a serious housing crisis   and I think we're right in the beginning of 
it and I’m going to go into the reasons why.   So I want to start with mortgage delinquencies 
because this is something that Kevin didn't really   talk very much about. Mortgage delinquencies are a 
massive indicator even though the cares act rolled   out these forbearance programs and we have lots 
of people that are on these forbearance programs   the real issue I think is that we have over two 
million people that are over 90 days delinquent,   okay, so that's a massive indicator there's 
four million people delinquent that is which   is way higher than mortgage delinquencies 
were before COVID. But there's four million   right now so there's a couple websites that I 
really want you to look at. One is black knight   k-n-i-g-h-t. I love this website because they 
take all this mortgage data whether you're in   forbearance or not in forbearance they're looking 
at housing they're looking at apartments they're   looking at houses they're looking at all 
the single-family stuff and they have   great data and great resources that's one.

The 
other one is the mortgage bankers association.   I would look on there because those are the folks 
that are collecting the dough. And don't forget   if you don't pay your mortgage then the mortgage 
doesn't pay someone else. It does affect someone   else and nobody's really talking about that 
right now. So the mortgage bankers association   is another great resource another another 
great website that you need to watch. What I   really like about the black knight resource 
is that they have these you know different   graphs and things like that and the one thing I 
wanted to show you serious delinquencies – 20%.   An additional 370 000 borrowers became 90 days 
past due in July now they also ran out of stimulus   money on employment money in July as well and this 
is up over 1.8 million from pre-COVID levels.

And   it goes on and on and on to talk about all the 
different graphs and all the different stuff   but the really cool thing is if you guys are real 
estate investors you can go in and actually see   these are the markets with the largest delinquency 
increases and these are the markets with the   lowest. And so you can kind of track by market 
because as you guys know mortgage delinquencies   in some cities are better than others and it's 
just going to be that way and so they track it   by market. So as a real estate investor you can do 
a deep dive on all of this stuff so I’m going to   come back to mortgage delinquencies in a little 
bit because I really believe that it's going to   add massively to the inventory which is super low 
which I’m going to talk about in a second. The   next piece that Kevin talks about is evictions. 
Now he talks about evictions but I went through   this in 2008. I experienced it firsthand we had 
massive upheaval in 2008 on the mortgage side and   the financial side and on the eviction side.

Now 
I get the luxury of owning about 10 000 apartments   and so i’s plugged into a national network I’m 
plugged into the national apartment association   I’m plugged into the small owner’s association 
for the folks that own smaller properties   and I’m plugged into the national multi-housing 
council. I’m members of all those things   including the urban land institute or uli.org. 
These are all great resources but one of the   things that I want to show you today and one of 
the statistics I think that Kevin was way off on   was on evictions. If you go to the 
AspenInstitute.org you'll see that the   COVID eviction crisis is an estimated of 30 to 40 
million people in America that are at risk. That's   a significantly higher number than Kevin mentioned 
in his videos. And I will tell you right now   that before COVID we already had a 
rental housing shortage. We already had   an affordability shortage because rents have 
gone up so high.

We already had markets peaking,   we already had concessions emerging, we already 
had occupancies dipping all over the country in   various cities. Some cities were doing just 
fine and others were flat or negative already   pre-COVID. So just to talk to you a little bit 
about apartment shortage or housing shortage   I pulled up the national apartment association 
which I used to be on the board. They're based   in Washington D.C. It's naahq.org. You can 
go on and take a look at this for yourself   or the national multi-housing council which is 
nmhc.org. These are great organizations that track   rental housing. Right now they're tracking rental 
payments and delinquencies by city by submarket.   Great data.

This is part of the data that I’m 
going to use for you today but I want to show you   that this is an article that came out in 2017 and 
this is the article the united states needs 4.6   millions of new apartments by 2030 or it will face 
a serious shortage. Okay this is just three years   ago. We obviously did not deliver this. These 
30 or 40 million people that are facing eviction   obviously they're not all going to get evicted but 
there's going to be a large percentage of people   that are not going to be able to stay where they 
are what's going to happen. It's going to put more   demand on the rental housing. So what we have is 
we have a housing crisis. We have a housing crisis   because we have people that are going to lose 
their homes and we have people that are going   to get evicted.

It's going to be putting more 
pressure on rental housing. So rental housing   over the long term is going to do very very 
well. Single-family prices are not going to   do very very well because the inventory levels 
are going to increase over the next 18 months.   In 2008, home ownership was at its highest 
point in a long long time, but after 2008   10 million people got displaced from the fallout 
of 2008.

And what did those people do? They went   into rental housing. That's why we have this big 
run in rental housing. That's why we've had this   big demand in rental housing. It increased the 
demand which increased the rents which increased   the values all of those things, pushed the values 
up. It was a result of 2008 and the fallout from   the housing crisis that created the rental demand 
and we still weren't out of the woods as you saw   from that article. So the percentage of the four 
million people that are going to lose their homes   and the percentage of the people that are going 
to get evicted, they're all going to move around   and they're all going to move into rental housing. 
And the biggest issue governments have right now   it's actually homelessness. That's the biggest 
issue we face.

And by the way that was already   going on. It was already going on in Portland it 
was already going on in Seattle it was already   going on in San Francisco and a lot of other big 
metros and people were moving as a result of it.   And they were moving as a result of the 
government situation around those things   that was already happening. And so it's only 
going to get worse so like so many other things,   COVID has been an accelerator for things that were 
already in motion. So let's talk for a moment. How   can housing prices be soaring? Because what's 
happening is inventory is super low right now.   At the end of July inventory was only 1.5 million 
across the whole country or basically three months   of inventory.

That's it. It's the lowest ever 
recorded. And why is that? That's because people   don't want to move right now. I wouldn't if 
I had financial uncertainty. There's no way   I would be moving. I’d be trying to figure out 
how much savings do I have? Do I have a job?   What's my burn rate? Do I have to take care of 
my family? Am I going to have any income next   year? How much equity do I have in my home? All 
of those things. People are taking an assessment   of their personal financial situation right now 
and they're hunkering down waiting to see when   this whole thing's going to be over and that's why 
listings are low right now. That's why inventory   is low right now. Low inventory high demand high 
prices. So in in July as you can see we had a 24.7   price jump just in the month of July during the 
pandemic. So if you look right now you can see   that never before has the United States 
ever experienced such low inventory.   That's why prices are jumping right now, 
but that's all going to change as evictions   roll out, as mortgage delinquencies turn into 
foreclosures, and people move into rental housing   and the inventory jumps up and the pandemic's 
over.

America

And people are trying to sort out what   they want to do next and they're going 
to list their houses, scoop their equity   and figure it out later. So one last question. 
When it comes to housing prices we all know that   housing prices have jumped over the last 10 
years. In fact, right now they're just north   of 300 000. The highest price inflation adjusted 
ever. We also know that we have the lowest amount   of inventory ever. So my question to you is 
do you really think it's going to go higher?   And maybe you're right maybe I’m right. I don't 
know. But I think given all this pandemic and   given the fact that there's all these businesses 
closing and all these mortgage delinquencies and   all these evictions pending and all these 
people that are on unemployment right now,   I think that we've peaked but maybe I’m wrong.

So 
just to summarize I think that this Coronavirus   recession is a housing crisis on two levels. One 
on the mortgage side and two on the eviction side.   In addition to that we have a lot of people 
that may never go back to work to wherever it   is they were working. We know this. We're seeing 
bankruptcies, we're seeing businesses closed all   over the place.

Another great website that I look 
at is called EPI or economicpolicyinstitute.org.   Now it's just a think tank. I understand that, as 
are a lot of these. They just take data, they put   them together and it's something for you to look 
at. But I love this one and just two days ago   they said that we're still at 11.5 million job 
deficit. Still remains okay. When we started we   were somewhere between three and four million 
so this is call it seven million more people   seven to eight million more people that are still 
– may or may not go back to work. But I want to   show you a couple other things. One this is a 
report that came out from CNBC. 5.7 million small   businesses are at risk of closing. This is another 
one.

This is Yelp. Now as you guys know, Yelp just   rates businesses. This is a very interesting – 
55 percent of businesses closed on Yelp have shut   down for good during the coronavirus pandemic. 
That's 55 percent. Yelp has no skin in the game   they just report businesses and they rate them. 
That's all it is. So nobody's really talking   about this small business issue this is a tsunami 
of closings these are people that own businesses   these are people that employ people. These are 
real paychecks people are getting. To pay rent,   to pay mortgage, to pay car payments, to pay gym 
memberships and those kinds of things. That's   what this is. This is a massive number that's not 
really being addressed right now. And it's going   to shake itself out over the next 18 months as we 
get this vaccine, and as people go back to work   and as things go back to normal. There's millions 
of businesses that are just not going to make it.   And you've already seen the news with a lot of 
big ones have already filed bankruptcy and already   going out of business permanently for good.

So I’m 
going to give you five things that I really want   you to look at over the next 12 months. The first 
one is I really believe that prices are going   to go down as inventory goes up and what I would 
encourage you to do is really dig deep into these   numbers. Really look at the mortgage delinquencies 
by your city, by your state, by your sub market,   and this should help you make really really good 
decisions in the future.

For your buying decisions   or your rental decisions. Number two, evictions 
are a real thing. There's gonna be a number   of people that will never be able to pay their 
rent as a result of their financial situation.   It's gonna depend largely on where they live, 
where they work, how much they're paying for rent   right now. The CDC has all the landlords locked 
down through 2020. no evictions. That obviously   is going to roll up into delinquencies on the 
mortgages on those particular properties that   people are renting from. So that's just 
going to add to the mortgage delinquencies   on the houses and then the commercial side and 
drive prices down even further. In addition,   those renters are going to get displaced. And 
yes, while they might not have good credit,   they will find a place to live. They will roommate 
up they will move home. In fact, 3 million   people moved in with their parents and their 
grandparents from the pandemic alone. 3 million.   So the total number right now of adults that live 
at home totals 32 million people. So right now we   have 32 million people living with their parents 
or their grandparents.

So obviously they're going   to do that instead of going on the street, but 
still I still believe that we're going to have a   homeless crisis as a result of that because not 
everyone has that option unfortunately. Three,   you need to watch your mortgage defaults. I 
know we talked about mortgage delinquencies   and how they jump, the inventory numbers, and 
that's going to drive housing prices down. But you   need to watch the mortgage delinquencies. Mortgage 
delinquencies are already happening on commercial   buildings, retail buildings, malls, office space, 
multi-family, and residential already. All you got   to do is go look for those numbers. It's all 
over the internet. There are people defaulting   all over the place. I have friends in retail 
in malls and they're getting annihilated,   hotels they're getting annihilated. No one can 
service operating expenses and debt when they're   not getting any income. It just can't happen. 
You either have cash reserves to pay them or you   don't, and some lenders are working with you and 
some are not, so watch your defaults by market.   Back in 2009-2010 I personally bought a 
whole bunch of properties from banks.

I   bought a massive property in San Antonio, Texas. 
680 units from Bank of America, that was 50%   vacant, and it was devalued by almost half what 
they had loaned on it. So these mortgage defaults   are coming. That's how you want to buy real estate 
and then you want to ride it up the next wave,   but you don't want to get caught catching a 
falling knife. You don't want to catch a piece   of real estate before it falls all the way to 
the bottom. Four, I want you to pay attention to   migration patterns. People are moving all over the 
place and there's all kinds of reasons and we can   do a whole video on migration patterns, but if you 
want to really take a look, just go look and see   where the moving trucks are going. No one can get 
a moving truck right now. U-Haul’s packed, but   one thing U-Haul does do is they track. Are they 
going from New York to Phoenix – that's trackable.   That's a data point. People know that they're- 
if a truck's being dropped off in Phoenix, they   say that's where they're going.

You can start to 
see those statistics. You can also see that with   the out-of-state driver's licenses. So as people 
move and they trade in their driver's licenses   and they change their life to a new location, 
they usually upgrade all their personal data.   That is all data that's all tracked, so you got to 
pay attention to these migration patterns. These   moving companies are a great way to do it – to 
try to see where everything's going because it's   going to help you to make sure you can mitigate on 
the cities and the sub markets that are going down   and the ones that are going up.

I’m telling you 
people are moving all over the place right now   and it's causing small bubbles in some areas and 
depression in others. Be very very careful here,   but just pay attention to migration patterns 
and try to get as much information as you can   on this before you buy or invest in the next sub 
market. So fifth and final, I really want you to   take a look at these business closures, okay? You 
really need to look at this because if let's say   for example that you own property in and around 
American Airlines as an example, who already just   announced that they're going to lay off 18 or 19 
000 people immediately, and it could go up to 40   000 by October, just a couple months away, 
so obviously that's going to have massive   economic downturn in that particular area. 
You're going to have a massive economic downturn   those people are people that go to coffee shops, 
they go to dinner, they go to lunch, they rent,   they they own homes, they drive cars, they do 
all of the things in a community that they would   normally do, and now potentially they're going to 
move or go on unemployment or find another job,   okay? So all this stuff is happening all over 
the place and I personally have witnessed this   over the years through the different cycles.

As 
as employers come and go they shrink, they merge,   they go out of business, they relocate, it always 
has a financial impact on a on a neighborhood,   on a sub-market, on a town, it just will. I’ve 
seen it on military bases when military bases go   away and they close them or they relocate them. 
It kills an area. This is no different – this   is exactly what is about ready to happen. These 
business closures are something that not a lot of   people are watching right now, but you really need 
to take a close look at this in your sub market   and see and just determine how much financial 
impact might you have. So I really appreciate   you guys watching, I want to thank Kevin for 
being a good sport, I really enjoy his videos   and um if you guys like this please hit the “like” 
button and subscribe and send it along to some   of your friends. I really enjoy doing these 
guys and so I’ll see you in the next video..

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