The REAL Real Estate Crisis Coming

The REAL Real Estate Crisis Coming

Hi, my name is John Peña with Peña El Paso Realty Group. Thanks so much for checking out the video. And in this one, we're going to talk about what is the real real estate crisis. Because as you know, the last year or so, maybe longer, people have been saying, oh,

there's going to be a housing crash. There's going to be a housing crash. I, for the record, have consistently been saying, no, there is not going to be a housing crash for these certain reasons, but there is a crisis in real estate.

And I want to talk a little bit about it today. Elon Musk, who I like, recently tweeted out something to the effect of commercial real estate is melting down home values next. So Elon is essentially implying that there is going to be a housing crash or a housing

bubble. Right. And so pretty smart guy. We should certainly, you know, listen to people that that have been as successful as he has.

But I think that he's wrong on the residential side of this. So let me explain really quickly why I do not believe there is going to be a housing crash or a bubble or anything like that. The loss in demand for commercial real estate is exactly why essentially residential real

estate is going to do just fine. So in a nutshell, covid, everybody couldn't work in the office anymore. Boom. Now everybody's working at home.

Guess what's going to happen with that office commercial space? It is not going to be good for for the folks that own those those properties. But we're going to talk about that later. So the fact that people now are working from home is exactly why there's such a strong

demand for homes, residential homes. Number two, this home sales volume is definitely down. There's no doubt about it. There are significantly less home selling this year than in the last couple of years.

But that's not because of some impending doom. That's because there simply aren't enough homes to buy. There's still plenty of demand out there, even with six, 7 percent interest rates. There just isn't the inventory to essentially support those those those home sales that

we're used to. Number three, this is amazing. Roughly 40 percent of of homes don't have a mortgage on them. That means four out of 10 homes in our country are completely paid off.

So why would those people why would those people sell their home? You know, like the only thing they're paying are the utilities and the property taxes on their homes. So the fact that so many people own their home outright is another reason why there

isn't going to be this big crash. Number four, 85 percent, more or less of home mortgages, homes that do have mortgages have an interest rate below six percent. I think it's like 80 percent have an interest rate below five percent.

Again, this is why there isn't a lot of inventory of homes, because if you have a three percent interest rate, why would you sell your house now and, you know, trade your three percent interest rate for a six or seven percent interest rate? It's just not going to happen.

Here's another one. The labor market right now is unusually tight, which is basically the exact opposite of what would typically trigger any kind of like housing or market crash. And another one, 2023 is trending to be an all time low for new listings.

Again, this is simply worsening the inventory crisis that we have. Right. However, none of this points to a crash or a housing bubble. OK, so again, housing bubble.

That's not the real estate crisis. The real estate crisis is, to Elon's point, in commercial commercial real estate is in big trouble. And I'll tell you why.

Because a couple of reasons. We already mentioned that covid basically shifted everybody out of office space back to the homes. Right.

So a lot of the office space, there's simply no demand for it anymore. And so who owns commercial real estate? Wealthy investors, syndicates, think people who basically pool their money to buy properties and essentially banks.

Right. So all of these people who have significant exposure to the commercial market, they're in trouble. Multifamily could be in trouble as well.

In El Paso, I'm not so worried about industrial and warehouse things like that because there's a strong demand. But here's the problem in general with commercial in commercial real estate. When you purchase a property, you don't get a 30 year fixed rate loan like you do when

you buy a house. What you typically do is you have a variable or floating interest rate essentially. And tons of people invested in commercial real estate the last couple of years, just like in single family, because homes and interest rates were affordable.

However, if you got that 3 percent interest rate a couple of years ago, it's not going. It hasn't increased. It's fixed. But commercial doesn't work that way.

In the next year or so, a lot of these interest rates are going to balloon. They're going to, you know, follow essentially what the Fed's done with the interest rate. They're going to increase, meaning that a lot of these investors and these owners are not going to going to be able to afford the new payments.

And it could be a mass exodus. So commercial real estate, no doubt about it, is in really, really big trouble in our country. That is a crisis because that is going to significantly affect banks.

Right. And as we all know, when banks fail, things go bad. For some context, Dave Burt, think the movie The Big Short that they made about, you know, the couple of guys who actually did predict the 2008 housing bubble.

He is predicting another real estate crisis, and this is in the residential space. This is so fascinating. I know I'm a real estate agent, but man, this is so fascinating. All right, here's here's another potential real estate crisis in residential.

The problem is that due to weather, dare we say climate change, there are areas of our country that are at significantly higher risk of flood and fire. OK, think wildfires in California, think floods and flooding in coastal areas, New York, L.A., Florida, Houston, anywhere that are that are subject to where maybe hurricanes or sea rise

might impact them. The problem with those areas and the homes and the homeowners in those areas, insurance companies, they're not going to insure those homes anymore. So this could be a massive, massive problem.

Now, of course, not for El Paso, where we're golden when it comes to that. But basically, if you add up all of the home values in our country, it's about 40 trillion dollars worth of assets, essentially. Dave Burt here is suggesting that we may have basically an 800 billion dollar loss

because if a home can't be insured, well, then that home value is going to drop significantly. Right. That's an impending real estate crisis. The fact that insurance companies are not insuring folks who are in these these high

flood risk, high fire risk areas, that's going to be a pretty big problem. And then number three, the other real real estate crisis is simply, I've said this before, a lack of housing, the lack of inventory. There simply aren't enough homes for for the people that want those homes.

And you could certainly make the case that there is a lack of affordable housing for people in those lower income brackets. So in a nutshell, the housing crisis is not that there's going to be a bubble like in 2008.

The real housing or real estate crisis is commercial is in trouble. Homeowners who live in flood and fire risk areas are potentially in trouble and basically homeowners throughout the country, especially those in lower income brackets, there's just a lack of available inventory and affordable housing that, in my humble opinion, is the

real real estate crisis. Thank you so much for tuning in. If you are interested in this type of information, please consider subscribing to the channel. If you're looking to buy or sell residential and or commercial real estate.

Also, please reach out to us at Payne and El Paso Realty Group, and we'll see you in the next episode.