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Let’s talk about the real estate crash of 2021 and the reasons why I believe we’re going to see it happen soon. I want to give credit to Ken McElroy who originally inspired my idea with his own video which was a response to Meet Kevin’s original video about real estate. So let’s get right into it starting with the problem.
First let’s talk about delinquencies. What is a delinquency? Delinquencies are when you don’t make your monthly mortgage payment on time. Not to be confused with a default which usually happens after your delinquent several times after which point your loan goes into default.
If these defaults don’t get taken care of then that’s when it is sent to the collection agencies where you will see a huge drop in your credit score. To avoid that from happening besides obviously paying on time, people refinance their homes to make their monthly mortgage cheaper and more affordable. According to Black Knight, it’s also why we’re going to see more than 9 million refinance in 2020 which is the highest levels that we’ve ever seen. People are taking advantage of low interest rates so if you’ve been thinking about doing it, seriously consider doing it because you’ll probably benefit.
Even though October’s national delinquency rate was down 3.3%, the lowest since March of 2020, and even though we’re down 64,000 serious delinquencies which is an improvement, we are still up nearly twice as much as we were at the start of 2020, and we still have over 1.8 million serious delinquencies which is 5 times higher than they were before the pandemic started. Not to mention the period between October to November usually sees an uptick of delinquencies by about 4%. The cities that will be hit the hardest are Las Vegas, Miami, Orlando, New Orleans, and New York (highest delinquency rates in the country).
Before we see a decrease in real estate prices though, we’re going to more spikes in average home prices for a while in certain markets that are cheaper like Las Vegas but that’s short term optimism boosted by people leaving big cities like New York City, like Los Angeles, like San Francisco to buy in cheaper towns like here, so they can save money on taxes and work remotely in cheaper towns. This spike in prices will also be thanks to help from the government but all of that is short term. There’s only so much we can drop interest rates to prop up real estate before we can’t go lower unless we go negative – which the Fed stated they don’t want to do. But mostly, it comes down to two things. Jobs and government.
For starters, government – there is going to be a wave of forbearances due at the end of December. 39% of forbearance plans are going to expire and most of those plans are reaching their 9 month period. They’ll be allowed to extend an additional 3 months after that which puts us to March 2021 (plus extra month of delinqency) putting us between April / May timeframe where can see what’s going on in real estate. Logic is pointing us toward an increase in inventory levels that should in theory drop our prices.
The second factor is jobs. The world economic forum predicts 85 million jobs will be lost to automation which is huge and coupled with the pandemic and that’s a potential recipe for a very bad time for real estate, however, with the eviction crisis right around the corner, there will be a huge demand for rental housing, so that can potentially do very well.
To protect myself, I’m investing in inflation protected assets. A study by Charles Schwab (https://bit.ly/2JN9DmR) found that when inflation was above 4%, commodities and gold were the assets for investors. When it was 2% or lower, the S&P 500 was the #1 best investment. This is why I’m buying both digital currencies and stocks as we go into 2021 and I’ll wait until April/May to see where real estate will be before I buy investment properties and real estate in general.
*None of this is meant to be construed as investment advice, it’s for entertainment purposes only. Links above include affiliate commission or referrals. I’m part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.