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 [Music] hello gold silver family alen Hibert here with another video and today I want to go through the real estate bubble and yes it is a bubble and I think you're going to be convinced of that with some of the data and charts that I'm going to present in this video so without further Ado let's dive in I want to start today with this tweet and chart that I saw not too long ago it comes from Nick Gurley this is the income needed to buy a house in the last 125 years and as you can see

it is taking off like a rocket so if you want to buy a house it used to be affordable and it has become increasingly unaffordable in recent years I mean this is so dramatic this is more than doubling in the last decade uh it's kind of incredible and if you do want to check out his calculations um you can look up this tweet and he does explain it um in a thread so this is very impressive and it did inspire me to do my own analys is which I'm going to share later in the video but first I want to share with you some three quick

facts about real estate finishing up the 2024 year and the data here come from Apollo and it's presented in a thread from the kobeissi letter number one US homes are getting smaller the size of new homes being built has declined by 12% since 2016 you can see that here dropping off a cliff the median new home is now about 2100 Square ft and it used to be as high as 2500 ft back in 2016 after years of elevated inflation people can't afford bigger homes anymore so very interesting Trend homes are

getting smaller number two the median age of all home buyers is Now 49 years old up from 31 in 1981 so you can see a very steady increase over the last four decades buying a home is now considered a luxury for most Millennials and as a millennial who still rents a home I can attest to this millions of Young Americans can now only barely afford to rent a home rent prices broke above a record $2,000 per month in 2024 wow number three 40% of us homes don't have a mortgage okay that sounds good in 2010 just 33% of us homes did

not have a mortgage at first less Mortgage Debt seems good this was my thought at first first however the reality is that most new home buyers cannot afford to take on a mortgage this is why existing home sales are down and I agree thinking to my own experience as I expect to buy a home in the future I'm planning on paying cash so I realize I fit into this group as well of an individual who doesn't want a mortgage so when the time comes I don't plan on having one we'll see so those are three

uh trends that we're seeing I do want to zoom in now and see what's been going on the last few months because something kind of weird is happening in the housing market so mortgage rates are creeping back up towards 7% they're increasing at a time when the FED funds rate is decreasing so the FED cut interest rates cut okay and 30-year fixed mortgage rates flew back up to 7% in an instant that's weird they normally move the same direction since the FED started lowering rates in September

about four months ago 30-year rates have flown from 6.1% to 6.7% and that may not seem like a lot but that's like a 10% increase in the interest rate so it's likely only going to get worse and here's why inflation rate expectations have risen because even though we got close to the fed's 2% Target which by the way is the bottom of this chart here 2% we got close the pace of price increases has recently stalled out above that level and even inched up to 3% so 3% is here and you can see that inflation came

down approaching 2% didn't really get close stayed above two and a half and it's heading back up towards 3% and by the way let's not forget this is official government inflation right and I think that every single one of us in our experience uh we would believe that the real inflation rate is higher than the official rate so even the official rate didn't get down towards 2% and of course 2% is high anyways uh so so inflation is much much higher and that of course affects the housing market

from bad to worse the FED on Wednesday and this by the way is Wednesday back in December so well well over a month ago month and a half the FED on Wednesday forecasted higher inflation over the next couple of years there was also a jump in the number of officials who said that the risks to inflation are weighted to the upside so when the FED admits that we're probably going to get more inflation in the future uh that's something to pay attention to because a lot of times they're sort in denial or

they like to steer us the uh the benign way but in this case they're sort of admitting that there could be problems on the horizon and if we look at the latest fed projections of the dotplot from the FED officials they're thinking that the FED funds rate is going to be down about half a percent lower than it is today however if you look at the FED funds Futures Market okay traders who are putting money on this they're thinking that rates are not going to be that low and if keep an eye on it over

time you notice that the FED funds Market those Traders are actually expecting rates to go up and up and up over time so basically a more hawkish view I would bet that by the end of 20125 the FED funds rate is higher than it is today not lower so just my opinion we'll have to see and let's not forget about home buyers mortgage applications are incredibly low because of such high borrowing costs so this here is the mortgage purchase applications index and you can see that we are at a very low

level this is really the lowest sort of era that we've had um throughout this chart um throughout the time the data is available here so remember if you borrow $200,000 with a 30-year fixed mortgage at 3% your monthly payment excluding taxes and insurance is around $843 if that rate if the mortgage rate jumps to 5% the payment jumps to over $1,000 we are close to 7% and trending higher so I definitely agree with the principle behind this however I found these numbers to be not totally realistic I don't know how many people

are borrowing only $200,000 the people I know are borrowing 300 400 $500,000 and I do believe that the median home price is over $400,000 so that means half of borrowers are are buying houses that cost at least that much so what I decided to do was recreate these numbers with realistic numbers so what I did is I went to the Federal Reserve website and I dug up the median sales price of houses sold in the United States and yes we are over $400,000 most recently Q3 of 2024 and I also found the 30-year fixed

rate mortgage average in the United States and it looks like this and I put put them together in Excel and I figured out the monthly payment that you would make every month actually every week because we do have weekly data here so I figured out but what your monthly payment would be for every week throughout you know the last 50 years or so and I want to share that with you right now it looks like this this scary Red Line by the way the purple line is the median sales price just straight from the Federal Reserve website that's

what I just showed a moment ago this purple line that's the median sales price we're over $400,000 now but this red line This monthly payment line is what I calculated using that data and I assumed a 20% down payment and then you finance the other 80% and I ignored taxes and insurance and a very interesting Trend emerges throughout the 1970s your expected monthly payment went up a lot and then for the next 40 years it didn't really go up that much it went from like $800 or $900 to ,000 or $1,100 not that much

over 40 years and then all of a sudden it took off like a rocket again so this is sort of insane right and this is absolutely the sign of a bubble and you can see back in the uh 2008 Global financial crisis the real estate bubble that led to it is a fairly small increase in price right for the homes compared to what we've seen the last few years this is a much bigger price price increase so that's kind of insane and then you look at the increase in in monthly payments the Red Line This is

relatively small right the red line relatively small compared to what we've seen lately so if we were in a crisis back then what are we in now a double crisis a triple crisis I mean it's certainly much much bigger it's not going to end well it's not going to end well and so if you're wondering like how did things get like this well let's take a look at that exact same data the monthly payment but line it up with the FED funds rate so the story of the 1970s was massive inflation and the FED hiking rates in

these three cycles that followed the three cycles of inflation trying to get ahead of inflation but of course a rising fed funds rate means an increasing mortgage rate so then for the next 40 years or so we had declining interest rates declining fed funds rate declining mortgage rate and that sort of softened the burden of of home ownership but now we're in a rising interest rate environment and if you remember back in 2022 the FED started raising rates at the fastest rate in history so this

steep increase here is the fastest rate hike in history and that is why the red line is going up so much that is why the monthly payment to be a homeowner doubled in the span of two years doubled I mean that's absolutely insane and it's not sustainable but there is a solution to avoiding this pain any guesses what it is if you're a longtime viewer of this channel you probably know how you can circumvent this horrible red line and that's with the gold line so I took the exact same data this red line

and just divided it by the price of gold and really that asks the question instead of paying my mortgage in dollars like if I held dollars and then paid dollars what if I held gold and then just converted it to Dollars and paid well you're monthly payment measured in ounces of gold is this Gold Line and it's not Rising it's falling so in other words if you're a gold holder houses get cheaper for you amazing who would have thought me so anyways if you want to avoid the massive pain of this hold Real Money

Hold real money it will help you solve your problems with any financial crisis I don't know how many times I need to say it but I hope you enjoyed this analysis I hope you guys are taking care of yourselves and your family thank you so much for watching I'll see you in the next video [Music]