How To Slow Down Inflation? Will It Be A Recession Or A Market Crash In 2022? In this video Karan tells you how the U.S. got to a record high inflation rate of 9.1% then he goes in deeper to explain what inflation rate the people are really experiencing on the ground level. He goes on to share his insights on what the Federal Reserve is doing and will need to keep doing to prevent a Market Crash from happening. This is a crucial time to adjust your strategy if you are a First Time Buyer or an Investor in the Real Estate market. Watch this video to find out what your Real Estate Strategy should be Right Now!
Video Transcription:
Inflation has reached a record high of 9.1%. In today’s video I’m gonna share it with you what this means to the overall economy and how this is going to impact you. And what must happen in order for us to prevent a crash from happening. And lastly, I will tell you what your real estate strategy should be in this market. So let’s get started. Inflation, which is this number that we’re gonna look at today is the CPI stands for consumer price index which is made up of eight major groups. And that number, the most recent report put out by the US Labor Board of Statistics shows that it’s at 9.1%. And in that number, the largest contributor to that is energy, which is gas prices. On average gas prices in the country are around $5.50 a gallon. In California it’s around $7 a gallon. In some cases it might be a tad bit higher but if you’re living in California, I feel your pain. Now another large group, as you can see on the graph that makes up this CPI index is housing. Now under housing if you dug in deeper the Labor Board Statistic shows you that we had an increase of about 5.5% on housing costs. Now if you know what’s going on in the housing market you’ve been enticed to the housing market. You know that house prices have gone up almost 20% year over year. And the rates are sitting at around five and a half to 6% on a first time mortgage. So that number is not reflecting correctly there. Why is that? Because in this report, they’re not really looking at house pricing or prices or taking data from companies that aggregate house prices and rents around the country. They do something called owners equivalent rent. And it’s a survey that people go out to homeowners houses and ask them if they were to put their house on rent, what would your house rent for. Now a lot of owners are not professional real estate agents or don’t have relative information that someone professional tied to the industry would. So some of them just guesstimate and say whatever’s on their mind. So that number is not correct. If you are living in this country you’re probably feeling double that inflation right now. It’s not 9.1% it’s probably closer to 18% inflation because some of these numbers are, I shouldn’t say manipulated it’s not the right word, maybe a little bit massaged. So that’s what we’re really feeling in the market. And that is a scary thought because your dollar now is buying almost 18% less of goods out in the market. So let’s get to the board now and look at how inflation starts and how this inflation started in this country. And then I’m gonna talk about what we have to do in order to get a grip on this to get ahead of the curve. And then we’ll talk about what your real estate strategy should be. So if you look at how inflation, what inflation is, it’s when prices go up and people are spending a lot of money and their economy is growing and unemployment is at record lows, which it has been. So when COVID happened, you guys already know the story but I’m just gonna go over it again. So we can understand and try to make sense of what’s happening. Supply chain demand got distorted. A lot of money was flushed into the economy. And practically every industry started to grow, grow, grow and people started to buy goods, cars, houses and everything started to go up in price. Hence we have inflation on our hands. But the real issue here that happened in this country and possibly in other countries around the globe was money printing and flushing in money and stimulus checks to help a lot of people that were unemployed or couldn’t make their mortgage payment or just couldn’t make rents. And us as a country not really creating real value or creating real wealth. And that was the biggest problem and we’re paying for it now. So that sounds very at a macro level. Let me give you example on a very tangible level that applies to me. I’m in the mortgage industry, I’m a mortgage broker I do lending. So the last two years were probably the best years of my small little career being a mortgage lender. I made a lot of money and I was pretty much just picking low hanging fruit. What I mean by that is I was doing refinances for a lot of clients. I was, we were getting a lot of calls. We were really busy because the interest rates were very, very low. Now, I’m not saying that I wasn’t helping those clients. I really was. I was giving them a great rate. We have great service. You know, we have our costs are low. So I was technically helping those clients but I wasn’t creating real value and growing as a professional I wasn’t making my sales calls. I’m talking about my own domain which I am in the business of sales. I wasn’t going out to network events. I wasn’t planning ahead because I had all this money coming in. I was getting lazy and I was just pretty much picking low hanging fruit. And that’s what happened throughout the country. And I’m sure what I experienced in my industry a lot of other markets also experienced the same thing where they were, they got lazy, money was coming in, money was really cheap to borrow. Now I’m not bagging other people saying there was no innovation happening. I’m a 100% sure there was. There was companies making great products and that was happening. But on a mass level as a country we were getting this money. This cash flow stock prices were going up on some stocks that were really not worth that much. And those people that were investing in those stocks were making this money and were spending all this money. So a lot of that stuff was artificial and that could be a problem for the long run. And we’re experiencing that problem right now. And that’s what cause this inflation and unemployment rate went down because we were creating a lot more jobs. So that’s where we stand right now. So now let’s move forward and look at what the government is doing and what they can do to slow this inflation down. Now they’ve raised the rates but they’re gonna continue to do so. There’s another rate high coming towards the end of this month. I’m shooting this video on July 15th. There’s I believe it’s the third week of July where the feds are gonna raise rates. There’s some people are saying that they’re gonna raise rates by 0.7%. So three quarters they’re gonna raise rates. And then this is another big factor government spending has to come down. We can’t have more stimulus money coming into the market because we don’t have a grip on inflation right now. If you looked at the numbers that Labor Board Statistics is printing out you’ll see that inflation is continuing to go up month, over month. So government spending’s gonna come down and with the hopes of if rates go up and we’re not they’re not pumping more money into the economy, government spending is slow. We’re hoping that consumer demand will slow down. Prices are already up so that’s gonna cause a lot of people’s bank accounts to diminish and the cost of borrowing going up, people are not gonna wanna lend. So we’re hoping that if all this stuff was to happen we’re gonna get a grip on this and hopefully bring the prices of goods down. Now, there are some external factors. China is a big one where there’s the largest importer for the US here. So a lot of our goods come from that country and they have there’s some issues going on there that can sort of also go into this formula. But a lot of it has to do with the printing of money and the supply chain that was distorted. But lots of it has to do with the value we’re really creating and the artificial money that’s being pumped into the economy. So the economy and markets is a system. It’s a system that works holistically. And when there is manipulation or overstimulation inside the system done from either outside of the system or inside of the system the system gets distorted or it breaks. So let’s take a little history lesson to see what’s happened in the past and relate to what’s happening now. So looking at the dot.com era time in the 2000’s, late nineties, we saw a market emerge information, age, digital age and a lot of new companies surfaced. And then we had investors that were pumping money into these companies, not knowing what they were investing because it was just a new market there weren’t policies and procedures were not in place to understand what these companies were really making could be making software, could be making hardware or just could be making . But a lot of companies were making a lot of money. And again, the valley wasn’t being delivered on a mass level with a lot of these companies. And what do we have? We had a crash and then the 08 crash. We had a a false play happening inside the lending business. And it was huge. A lot of mortgage brokers a lot of lending companies were just lending money. You just had to sign a piece of paper. People were not really being ethical at that time. Everyone’s making money. Everybody wants to make money. People are not falling directions, not follow guidelines. People are buying houses and the bubble just pops. And then now, which I just went over a couple of minutes ago, you have lots of money being flushed and not real value being created. Okay, now I’m gonna talk about what the feds are saying. They’re talking about a soft landing which what they’re saying is we can have a soft landing if we did all these things, which is raise rates government spending goes down and we can hopefully get a grip on consumer demand. We can slow down the demand for buying goods. Okay, that’s they’re talking about a soft landing but it’s a very crucial thing that the government continues their policies and does not ease off on what they’re doing because right now it’s continuing to rise month over month. And unemployment this is a big factor here for us to have a soft landing. When I say soft landing, what they’re saying is we’re still gonna see possibly a recession which we’ll have the next report coming out soon. And we will most likely see a recession happening which is defined as a GDP declining for two consecutive quarters, which we’re gonna experience. So that’s already happening but that’s all part of this soft landing. A crucial part is gonna be the unemployment rate. If unemployment rate starts to go up and consumer demand continues to slow down and consumer confidence continues to slow down and inflation continues to rise, we may not have a soft landing and can end up having a very harsh landing if that happens. So the next six months are gonna be a very crucial and interesting time to see what really happens. However, a lot of markets are responding positively to what the government’s doing right now. A lot of markets are saying that a recession is going to be a good thing because it will start to, we will start to see a more of an equilibrium and can get a grip on this supply demand chain that’s been distorted. And these markets, a lot of economists in this country are hoping that if that is to happen and we can and we’re able to do a soft landing then eventually no one really has a timeline on this. Then eventually the government can do what’s called quantitative easing which is when they slowly start to bring the rates back down and start buying more back more mortgage back securities, which in return flushes more cash flow back into the market, companies can start to borrow money on a cheaper rate. That is in a perfect world. Thank you guys so much for watching my content. If you’re getting real value out of this video please share with a friend or a family member that will get value outta this as well. And leave me a comment below to tell me how you like the content. And don’t forget to subscribe to my channel. Thank you. Thank you so much. I love you all. Now what you should do if you are an investor or a buyer or a seller in today’s real estate market, first if you’re a buyer or investor first thing first talk to your loan officer. You have to get pre-qualified run the numbers. Compare, if you’re a buyer compare those numbers to what rents are not on the month to month rent that you’re paying. If you’re in a month to month lease you definitely want to check where rents are gonna be in the next two or three months, because as everything else is going up rents are gonna go up too. So you wanna look at what the rents are gonna be and what your future mortgage is gonna be. Compare those two numbers and see how you really feel down here. Are you comfortable with that payment? What does your bank account look like? What is it gonna look like if you were to put this 10%, 20% and 5% down? Do you have money if hits the fan? Or if it’s not hits the fan do you have money for other things? Is this make sense to your personal situation? So you definitely want to run your numbers with the loan officer and see what your mortgage payment’s gonna be, what the future rents are gonna be and compare those things. Now, like I mentioned, the next six months are gonna be very, very interesting to see what happens. And real estate’s a lagging number. I’m gonna do another video next week where I’m gonna share it with you compare local data. We haven’t seen price drops on a mass level yet in this in the bay area overall but there are price negotiations happening in some cases the prices are coming down. And it’s not a crazy, crazy market where there’s like 20 offers coming on a house. Now we’re seeing more of a healthier number depending on what type of property is it anywhere from one offer to four offers on a property. Your chances of getting a house are much higher right now. Now, if it’s a transitory period, when I say transitory I mean like we’re gonna have this soft landing. The market’s just kind of adjusting. People are holding back. The rates are still gonna be where they are but where people are just adjusting to this new market. Well, then it may be a great time for you to buy a house because as the market adjust, as people adjust, you’re coming into this interesting market where people are holding back you take advantage and buy a house. Now nobody knows the answer to where that’s gonna be in the next six months, but we’re hoping we’re all hoping that it’s gonna be a soft landing. And we’re gonna get ahead of this thing, get a grip on it. And as a country we’re gonna prosper. So run the numbers. If you’re an investor and you’re looking to buy a property and hold, if your strategy is buy and hold then it’s still a great time to buy a property. Because now it’s a time where you can go out there and price and negotiate, get some seller concessions and get the best for your buck. If you’re a seller today you have to understand that it’s gonna take a longer time to sell your property than it did like four months before. So you want to have that conversation with your agent and ask them for local data and ask them how what are the days of market look like in your area? Because it’s gonna take a long time to sell your property right now. And you have to price it in a way and see what else is listed in your area because there is more inventory in your market right now. So you have to have a good pricing strategy for your house to sell in this market whereas anything was selling like three months ago. That’s all I have for today guys, if this video was insightful to you please don’t forget to share and leave a comment below because I’d love to hear from you. Until next time this is Karan Singh with Optimal Loans.
