Pub Talk: What Is a Housing Bubble?

Pub Talk: What Is a Housing Bubble?


What in the world
is a housing bubble? A lot of people talk about
it, but do they actually know what they’re talking about? That’s today’s show–
let’s dive into it. [WHOOSH] Hey, everybody. Welcome to the Investing
in Real Estate show. I’m Clayton Morris–
sitting fireside because it is freezing outside
right now and happy to talk about real estate investing. If you’re new to
the channel, this is the show where we talk
about buy and hold real estate. That’s the vehicle that we use. But we’re really talking about
creating financial freedom so that you can get more of what
you want in your life, which is maybe more time
with your kids, more time with your family, more
time to sit back and do the things that you really want
to do in life– work on cars. One of our investors who
works with us at Morris Invest loves to work on cars– wants more of that space in
his life to be able to do that. And that is what buy and
hold real estate affords you. It affords you that
financial freedom, that monthly passive
income that comes in. If you don’t know
much about me my name is Clayton Morris,
former TV guy. I spent 18 years in
broadcast television, and started investing in real
estate a number of years ago. And we started our
company, Morris Invest, to help hundreds of
people around the world be able to buy real estate,
have it done for them, so they don’t have
to worry about it. We’re able to rehab
the property, place great tenants in the
property, and they’re able to just cash flow. So I’m intimately
aware of and focusing on what’s going on in
the real estate market and studying the details– the ins and outs–
of what’s happening, what’s unfolding, in
the real estate market. Now, you’ve heard the
term housing bubble. You’ve heard it thrown around
over the past few years. Now, we certainly saw that
happen back in 2007 and 2008 during the great
housing collapse. That was certainly a bubble
that was finally burst. But a lot of people
throw this term around, and so in today’s
episode I really wanted to talk about what
exactly is the housing bubble so we have some deeper
understanding of it. So when someone brings this
up at a cocktail party– when someone says, yeah, I
don’t know about that investing in real estate right now. That’s probably– we’re sitting
in the middle of a housing bubble. Ask them, do they even know
what a housing bubble is? We’re going to put up some
definitions here on the screen, so you can really be armed
with this at your next cocktail party. The idea of a housing
bubble is simply a run up in housing prices. OK, that’s the
first part of this– a run up in housing prices. And it’s fueled by demand. Now, that’s the
first part of this– it’s fueled by demand. But– and here’s the real key– demand is not the reason
for a housing bubble. Speculation is reason
for a housing bubble. You have all of this
demand, this pent up demand for single family
homes, but then the speculators come in. And the construction
crews come in. And they start to overbuild. And they overbuild
because there’s this demand, so to speak. Now these speculators come in,
and they build way more houses than there is demand. And, suddenly, the value of
that property is not there. That’s when we have a burst. So a housing bubble
is one thing. You might be looking around
your Phoenix neighborhood suddenly seeing all of
these cranes popping up and building all of
these high priced condos. Well, the reason
those condos popped up is because a few years
ago, somebody got together, some investors got together,
and said, you know what? Let’s spend millions of dollars. We’re going to build some
high rise condos because we see some data that’s
showing that millennials are going to want to
live downtown Phoenix. And they’re going to want to
go out every night and party. Great, let’s put millions
of dollars on the table. Let’s get our permits
approved, and let’s start building these suckers. Cranes pop up. Buildings emerge. But that takes
years to do, that’s not something that
happens overnight. So that’s where they
think they see demand, then the speculators come
in and they’re speculating. They’re like, we
think that millennials will want to buy these condos. We think, but we don’t know. And that’s what happened
during the housing crash. It’s what happened in Orlando. It’s what happened in Miami. It’s what happened in Chicago. It’s what happened in New York
City, San Francisco, Phoenix, Las Vegas, Ground
Zero in Las Vegas. All of these people could get
houses with no income, no jobs. They could get a mortgage
because no one was even checking to see
if they had a job. Then all of these speculators
said, you know what? Anyone can get a friggin house. Anybody. Some people without a job. So all of this construction
boom in this country– cranes going up, apartment
complexes going up. But the people
couldn’t afford it. Or if they could afford it,
they were getting five year adjustable rate mortgages
that were collapsing under the weight of the thing. And everything just collapsed. Now, that’s what
a housing bubble is, when all of a
sudden you’re seeing this demand, speculation,
and then exuberance. It’s like a gold rush. So the third part of it is
really exuberance, excitement. It’s like the California
Gold Rush back in 1800s. What? There is gold in
them there hills? OK, you know what? I’m going to run out, and I’m
going to move to California. I’m going to set up camp
and try to find gold. Well, who ended up
making money during that? It was the people
that were selling the equipment for those
people to move out west. So this crazy demand,
this speculation– the speculators coming in– and then this exuberance, this
sort of irrational exuberance about the housing
market, getting super and over excited about it. So that’s the housing bubble
portion of all of this. But the housing bust– the bursting of
that bubble, that’s the second piece of this. So we could talk
about there being a housing bubble, which I don’t
really see right now at all. And then we have the
bust of that bubble. That’s where the bursting
of it, the exploding of it. That was the collapse
of the housing crisis back in 2007, 2008. So what happens during a burst? Well, remember those
first few things have to be in place first. We have to have the demand. So there’s a demand
for housing, there’s the speculation that
comes in, and there is the irrational
exuberance about everything. The way that it bursts, then,
is that speculation drives up the prices artificially. And the exuberance is
getting the best of people, and they’re looking
around saying, I don’t care that that
house is $700,000. I want it because I
know next month it’s going to be worth $750,000. And the speculation is driving
this irrational exuberance. Prices are being
artificially inflated where there’s no value. There’s no intrinsic
value in those properties. And that’s when
you have a burst. Suddenly, something
shifts in the marketplace, and those people who
were artificially paying more for the
property than it was worth, either they lose their job
and they can’t afford it, or the bank decides
that they’re not going to support the value
of that house anymore. And now they’re completely
underwater in this property. Something could dramatically
shift in a neighborhood. That’s when you have a burst. So you have these
artificial prices increasing in Florida
and all over the country during the collapse. Then you have this
irrational exuberance. And then you see this bursting
occurring because people then are thinking, well, I just
got to get into this house. It’s going to go up
$50,000 in six months, and that’s exactly
what was happening. But now the fundamentals
are different. Now, we have a whole video
we’re going to dive deeper into whether or not we’re
facing another housing bubble right now in 2018. Should you be concerned? We’re going to look
at some of the data. And I think you’re going
to be excited about what this data shows us. So that’s going to be
in another video we’re going to share with you. So there are two different
mechanics at play. There are– that is, the
housing bubble itself, speculation fueled by demand,
and then you have exuberance. And then you have the
bursting of that bubble. And it’s very different
than just the bubble itself. So the bursting is what we
want to be worried about, and I think you’re seeing some
really different things right now in our economy. We’re going to dive more deeply
into the housing market in 2018 right here on our channel. I thank you so much
for subscribing. Please leave a comment
in the thread below. I would love to know
your thoughts– are you experiencing some of
this demand in your market? I know in New Jersey
we’re seeing some prices kind of going through the roof. But the new tax law has
started to tamp that down a little bit because
you can’t write off state and local taxes in New
Jersey and in the blue states anymore. So some of those
prices are probably going to drop in some of those
really richer neighborhoods. That may drive all
kinds of demand towards the Midwest where I
like to invest in real estate. If you would like to book
a call with our team, and you’re ready
to take the plunge and become a real
estate investor and pick up your
first property– I’m talking like
$50,000, and you’re ready to make that plunge. And you have the house
renovated for you and a tenant placed
in the property. That’s what we do all day long. You can book a call with
my team at Morris Invest. Just click on the link right
in the description below. We’ll jump on the phone
for 30 minutes with you, and we’ll get a sense of what
your goals are financially. Where you want to
go, and where you want to create passive
income in your life. I’m Clayton Morris–
we’ll see you next time. Now, go out there, take action,
become a real estate investor. It’s the number one way to
build wealth in this country.