Grant Cardone Sees A Massive Real Estate Correction Coming: Here’s Why It’s Different From The Last One

In the ever-evolving landscape of real estate investment, few figures are as polarizing as Grant Cardone. Known for his bold predictions and unconventional views, Cardone recently made headlines by forecasting a significant correction in the real estate market over the next year. Speaking with Fox Business, he stated, "We are going to have the biggest real estate correction we’ve ever had in the next 12 months. It will be a monster and it will hit Gen Zs in a way that they’ll never touch that asset class again." This assertion raises eyebrows and invites scrutiny, especially when considering the historical context of real estate corrections.

Understanding the Context of Real Estate Corrections

To grasp the magnitude of Cardone’s prediction, it’s essential to reflect on the last major correction—the Great Financial Crisis (GFC) of 2007-2008. During this period, home values plummeted, leading to widespread foreclosures and economic turmoil. At the peak of the foreclosure crisis in 2009, approximately 2.8 million properties received foreclosure notices, and home prices fell by over 20% from 2007 to 2011. In contrast, the current National Association of Realtors data indicates that the median existing home price is around $419,300. A correction of the scale Cardone anticipates would require a significant drop—20% would bring prices down to $335,440, while a 30% decline would reduce them to $293,510.

Current Market Dynamics: Rising Interest Rates and Stagnant Sales

As we navigate through 2024, rising interest rates are exerting pressure on the housing market. Existing home sales have declined by 2.8% year-over-year as of May, with mortgage rates hovering around 6.7%. This increase in rates has made monthly payments considerably more expensive compared to previous years. Since 2013, home prices have steadily appreciated, with some years witnessing growth rates exceeding 18%. Many homeowners who secured mortgages before the rate hikes are now sitting on substantial equity, with 76% of current mortgage holders enjoying rates below 5%. This situation has created a reluctance among homeowners to sell, as moving would necessitate financing at higher rates.

Foreclosure Rates: A Key Distinction from the GFC

One of the most critical differences between the current market and the GFC is the state of foreclosure rates. According to the Q1 2024 U.S. Foreclosure Market Report from ATTOM Data, while foreclosure filings have increased by 3% from the previous quarter, they are down less than 1% compared to a year ago. Rob Barber, CEO of ATTOM, noted, "Homeowners continue to hold significant equity, contributing to a persistently hot housing market." This equity cushion is a stark contrast to the widespread negative equity that characterized the GFC.

Regional Insights: Florida’s Market Struggles

Florida, a state that was particularly hard-hit during the last downturn, is showing signs of weakness again. The homeownership rate in Florida peaked at 72% in 2006 before plummeting to 65% in 2014. Current data from Redfin indicates that home sales in Florida have dropped by 15.2%, with the median time on the market increasing by 16 days. The rise in inventory—up 39.2%—and the decrease in homes selling above the list price suggest a market grappling with buyer hesitance and price adjustments.

Multifamily Market: Cardone’s Focus

While Cardone expresses concern about the single-family market, he is particularly focused on the multifamily sector. He predicts that major institutions will begin unloading assets, leading to what he describes as "true generational wealth distribution from institutions to everyday people." Cardone believes that this presents a unique opportunity for investors to acquire multifamily properties as institutions face maturing loans. Data from Yardi Matrix supports this view, indicating that approximately $525 billion in multifamily debt is due over the next five years, with $146 billion maturing within Cardone’s predicted timeframe.

The Unknowns: Interest Rates and Market Dynamics

The future of the real estate market hinges significantly on interest rates. If rate cuts occur slowly and banks remain hesitant to offer favorable financing terms, Cardone’s prediction of a multifamily market correction may materialize. Conversely, if interest rates decrease rapidly and banks provide attractive financing options, institutions may choose to retain their assets rather than sell. Current trends indicate that multifamily sales volume is down 25% year-over-year, the lowest level since the pandemic, suggesting that market conditions are ripe for change.

Conclusion: A Market in Flux

As we look ahead, the real estate market is undoubtedly in a state of flux. Grant Cardone’s prediction of a massive correction raises important questions about the future of homeownership and investment strategies. While the current landscape differs significantly from the GFC, the interplay of rising interest rates, market dynamics, and institutional behavior will ultimately shape the trajectory of the real estate market. Investors and homeowners alike must remain vigilant and adaptable as they navigate these uncertain waters. Whether Cardone’s forecast proves accurate remains to be seen, but one thing is clear: the real estate market is a complex and ever-changing environment that demands careful consideration and strategic planning.