Warren Buffett: “A Storm is Brewing” in the Real Estate Market

Billionaire investor Warren Buffett is warning about a major storm that is about to strike the US real estate market. This 1.4 TRILLION dollar debt fueled tsunami has already started to hit the real estate market as we speak. However, this is just the beginning of the quote “consequences” Buffett sees of this real estate bubble. The real impact is set to start in just a few months. Here’s what Buffett had to say.

Over the last 15 years, the US real estate market has been fueled by massive amounts of cheap debt. Take a look at this chart of the US federal funds effective rate, a proxy for interest rates in the economy. We can see here that interest rates spent the better part of the last 15 years at 0%. These low interest rates incentivized the use of massive amounts of debt and pushed real estate values to sky high levels. Let me explain.

Imagine someone is buying an office building in your hometown. For a nice round number, let’s say the cost of this building is 1 million dollars. The buyer of this building likely doesn’t have an extra 1 million dollars of cash sitting in his bank account to purchase this building outright. Likely what this buyer is going to do is go to a bank to get a loan to fund the majority of the purchase price. In this example, our buyer here is contributing 350,000 dollars of the purchase in the form of what is referred to as “equity”. Think of this as just a fancy word for downpayment like when someone is purchasing a house. Our buyer then goes to a small, local bank to get a loan for the remaining $650,000. How profitable this purchase is for the buyer is dependent on many things, but one of the most important is the interest rate on the loan.

*Disclaimer: Neither this video, not any content produced on this channel should ever be considered investing advice or official financial advice. All content is made for entertainment and educational purposes.

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72 thoughts on “Warren Buffett: “A Storm is Brewing” in the Real Estate Market

  1. You left out the best part. What happens after the crash? When small banks struggle and the economy crashes, the trillion-dollar banks will be the ones buying everything at low low prices and consolidate even more wealth. This is exactly what happened in 2007-08. While everyone else got wiped out, the gazillionaires used their access to capital and zero interest rates to buy everything. This is exactly why the wealth gap has become so dramatic over the last decade or so.

    1. This is how I see all my “glass half full” friends, when I talk about all the crap happening around us. Well said.

  2. You did a really good job is laying this out clearly and completely. Your content is incredibly helpful and well done. Rock on!

  3. all they have to do is pass a federal law that prohibits companies and firms to buy residential estates, then release the estates that companies/firms already owns back to the banks gradually

    1. Financial books have been so helpful. I’m 54 and my wife 50 we are both retired with over $3 million in net worth and no debts. Currently living smart and frugal with our money. No longer putting blames on FED for our misfortunes. Saving and investing lifestyle in the stock market made it possible for us this early, even till now we earn weekly.

  4. Another crisis that harms smaller lenders and consolidates more power in the big banks.

    Never let a good crisis go to waste

  5. What people don’t realise is businesses not only have the option of just walking away, they can often sometimes renegotiate their purchase of property and reduce their debt if it makes sense to keep that business paying (many businesses choose to pay interest only and pay none of the principal back). This is termed a ‘discounted purchase order’ or DPO. This ofcourse only applies to businesses and not to individuals… Fair huh?

    1. I run out and grabbed all my life, grey and retired, great attorneys manage for me. Properties sit for either tax purposes or making money. Let the property depreciate and taxes pay the note , then becomes an asset and buy more and start over.

  6. Your explanation of the situation was excellent and easy enough for most 10 year old’s to follow. I’ve known about this upcoming debt tsunami for some time. Your video is better than most with it’s explanation.

    1. Finance are not difficult! What’s difficult is people not realizing they don’t deserve anything, they are average not special and if they want something they have to earn it.
      Grow up nobody owes you anything.

    2. It’s been a rough year with losses from failed banks, real estate crashes, a struggling economy, and downturns in stocks and dividends. It feels like everything has been going wrong.
      What a terrible year it is…

    3. Companies very rich big corporations are spending money, but only on themselves. We invest in these buisnesses so tbh they probably didnt take many losses on that money spent. However are those really helping people when the people they bought from arent helping others themselves? Thats the hard part. What is tesla doing for people? Pepsi bought all those Tesla EV semis and Solar Panels atop their factories. What did that corporation do for the people? Did they fairly pay the workers and the people? Im not so sure that Elon Musk did his due Diligince. Nickle and Dimed the working class so he could take money from Pepsi. I just hope these big money deals are going to help everyone and that we all get a piece of the pie somewhere.

  7. The fact they called a $1,000,000 mortgage with a $350,000 down payment “affordable” is heavily concerning. My house I bought a year ago was $330,000 and I am struggling to pay the mortgage on that because they “audited my escrow account” and decided my payment had to go up a considerable amount to cover that. I am beyond tired of banks and rich assholes deciding they need more of my money when I am already struggling.

    1. 100 years ago, mortgages did not exist. The housing industry was created for one reason only; to make money. Those who fall for it deserve what they get.

  8. When it comes to commercial real estate, the pain is felt by those who have to deal with these “developers,” “management companies,” whatever it is you have to deal with it. They are just “keeping up with the market,” because they know that we all have to have SOMEWHERE to live, work, etc. We’re hostages to the wealthy (ex: Warren Buffett)

    1. Yep. First they figured out everyone needed healthcare, then that went sky high. Then college tuition was next. Now they are going after housing. In the first two examples the government actually made the problem worse by changing who pays the money, which made it worse by separating the buyer from the seller and allowing the seller to jack the price as high as they want.

  9. Asking a real estate agent whether you should buy a home right now is like to asking an alcoholic whether they think you should have a drink lol. Homes in my neighborhood that cost around $450k in sales in 2019 are now going for $800 to $950k. Every seller in my neighborhood is currently making a $350k profit. Simply unreal. In all honesty, deflation is what we require. The only other option is for many people to go bankrupt, which would also be bad for the economy. That is the only way to return to normal.

    1. Home prices will come down eventually, but for now; its best to offset some of your real estate investments and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes. If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.

    2. Personally, I can connect to that. When I began working with Laurel Dell Sroufe, a fiduciary financial counsellor, my advantages were certain. In these circumstances, I would always advise getting professional help so they can steer you through choppy markets and just give you indicators and strategies for knowing when to enter and exit the market.

    3. @Tom D Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her résumé.

    1. The cardinal rule is and should always be to buy within your means. Never buy close to the max you can afford, because ultimately, real estate is an investment, and it’s simply ridiculous planning to put yourself in a position to risk your investment. For a simple example to the average homeowner, if you buy a house, for example, and then buy a rental property, you need to be able to pay the mortgage for both out of pocket just in case. Period. Don’t waste money on things that depriciate like cars by getting something that stains your budget or requires costly monthly loan payments. Put your money into things that gain value over time. In 20 years you’ll be much better off owning properties than having spent too much buying a car that ends up in the junkyard eventually as scrap metal. Get your debts paid off.

  10. I am an instructor at two major Universities. I commend you on the great way you break down and explain these concepts. Keep up the good work. Thanks!

    1. I am not an instructor at two major universities. I’m not even two instructors at one university.

    2. @GeniusG Gaming Professors at unis have “Chairs”. The rest are instructors (in some countries and the U.S.) but the generic for the lot of them is “mongs”.

  11. In 2008, when the real estate market and banks crashed, it was mid to small contractors like me that took a disproportionate hit along with contractor supply companies. I could no longer pick up building materials and pay the bill at the end of the week or month. And in my case, being an electrical and HVAC contractor, I had to pay in advance to order material 1 to 2 weeks in advance to get it so that was cash up front for material I would not get on hand for 1 to 23 weeks and for most the only option was expensive credit as small to mid-sized contractors just do not have that kind of capital on hand and the customer does not either. Contractors go under, and contractor prices go up and work just does not get done, and as a result, the unemployment on the bottom base level of construction labor and even the mid and higher paying kraft level construction labor goes up drastically. Plumbers, Electricians, and HVAC techs go unemployed. They make up the upper middle class and are now unemployed. It was the wealthy that capitalized on it and we at the bottom were left to die. It will be the same now.

    1. Exactly! as a wife of Master Electrician Contractor with 30 guys on the payroll and bonded with government contracts but got hit harder in the Great Recession having to layoff and losing all our savings and 401k to try to keep the business afloat. My husband decided his health and mental well being was more important and changed careers investing in many different sources of income from commercial real estate to e-commerce and freelance electrical on the side. We learned along time ago to not have all our income eggs in one basket. These past 20 years with the economy has been so toxic.

    2. Important to document what less capitalized contractors experienced during the great recession of 2008. I don’t remember any economists describing what you went through as a result of lack of credit access. Why was there no federal relief program like PPP available to most businesses during the Covid pandemic not offered immediately after 2008?

  12. A crash in the stock or real estate markets has less of an immediate impact on people’s standard of living than inflation. That the market is so negative at the moment shouldn’t be shocking. If we are to survive in this economy, we need assistance right away. The ETF and stock markets are still quite volatile, just like the property market. Now all that’s left of my $370,000 portfolio is ruins.

    1. Many people are still getting fantastic returns on their investments during this time. Simply maintain a strong sense of reality or ask for professional assistance.

    2. You will need a reliable FA to help you through the current market turmoil. I’ve been talking to an advisor for a while now, mostly because I lack the knowledge and energy to deal with these ongoing market conditions. I made more than $320K during this slump, demonstrating that there are more aspects of the market than the average individual is aware of. Having a Financial consultant is now the best line of action, especially for those who are close to retiring

    3. @Elizabeth Galvin That does make a lot of sense, good for you though, unlike us, you seem to have the Market figured out. Who is this consultant?

    4. I’ve spared myself the hassle that a disorderly market brings. Because of my line of work, I am unable to manage my portfolio, so I simply mimic the trades of LAURA MARIE RAY, a Financial consultant I watched on Bloomberg Business News. These days, the best approach to enter the market is through reading, researching, being patient, and getting advice when necessary. After that, everything went smoothly.

    5. @Elizabeth Galvin Laura pears to be a true authority in this field. I looked her up on the net cos I really need this, and found her website, went through her profile and I can say she’s superb. Dropped a message hoping it gets replied.

  13. I’m about halfway through and gotta say, this information is very well presented in a way that makes it easy to follow and understand. Well done! 🌟 New sub earned

  14. This man knows business and money, earned his through hard work and smarts. He even made his children learn the value of a dollar and find their own way in life.
    Unlike other rich spoiled adults acting like children.

  15. GOOD CONTENT!!! Very interesting from the start. These are difficult times and, frankly, I appreciate the sensitivity with which you discuss global finance.
    Business and investment is the best way to make money and I do not dare to doubt the profitability of the cryptocurrency market. Benefit from a weekly income of 7,600 euros even during this period of recession and high inflation. Eric does an excellent job and is the ideal person to lead the investment activities.

    1. Although the potential profitability of the cryptocurrency market is recognized, having a certain level of experience is essential to succeed. After trading for 2 months on Binance with consistent losses, it may be beneficial to improve your trading strategy with research, analysis, and risk management techniques. Seeking advice from experienced traders or using educational resources can also provide valuable information for developing a more effective approach.

    2. What a coincidence!! . I began working with him a few weeks ago when a friend introduced me to him. The rates he charges are fair for his weekly earning endeavors. I appreciate Eric’s services on his part.

    3. I did some research. Cryptocurrency is currently one of the best and fastest investments. Are they accepting new students? I’m interested, how can I contact him please?

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