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.
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.
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.
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
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
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.
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
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.
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 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..