Grant Cardone’s Bold Prediction: A Major Real Estate Correction on the Horizon

Real estate investor Grant Cardone is no stranger to controversy. Known for his outspoken views on the housing market, he often challenges conventional wisdom, particularly the belief that owning a home is a solid investment. Recently, Cardone made headlines again with a bold prediction: he foresees a significant correction in the real estate market within the next 12 months, one that he believes will be unprecedented in scale. 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."

Understanding the Implications of Cardone’s Prediction

While it’s uncertain whether Cardone can accurately predict the future, his assertion raises important questions about the current state of the housing market and what a significant correction would entail. To contextualize his claim, we can look back at the Great Financial Crisis of 2008, which saw home values plummet and triggered widespread foreclosures. During that period, foreclosure notices peaked at 2.8 million properties in 2009, and home prices fell by over 20% from 2007 to 2011.

Currently, the National Association of Realtors reports that the existing home price stands at approximately $419,300. If Cardone’s prediction holds true and the market experiences a 20% drop, that figure could fall to $335,440. A more drastic 30% decline would bring it down to $293,510, significantly impacting homeowners and potential buyers alike.

The Current State of the Housing Market

As we move into 2024, rising interest rates have already begun to slow the housing market. Existing home sales fell by 2.8% year-over-year in May, with current 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 appreciated steadily, sometimes by as much as 18% or more, allowing many homeowners to build significant equity. Notably, the July ICE Mortgage Monitor Report indicates that 76% of current mortgage holders have a mortgage rate below 5%. This low rate has led many homeowners to hesitate in selling their properties, as moving would require financing at a higher rate.

Despite these challenges, one crucial difference between the current market and the Great Financial Crisis is that foreclosure rates remain below historical levels. The Q1 2024 U.S. Foreclosure Market Report from Attom Data shows that while foreclosure filings are up 3% from the previous quarter, they are down less than 1% from a year ago. As Rob Barber, CEO at ATTOM, noted, "Homeowners continue to hold significant equity, contributing to a persistently hot housing market."

Florida: A Case Study in Market Weakness

One state that experienced significant turmoil during the last downturn is Florida, where the homeownership rate peaked at 72% in 2006 before plummeting to 65% in 2014. Currently, signs indicate that the Florida market is weakening again, with rising inventory and slowing home sales. According to Redfin data, home sales in the state have decreased by 15.2%, and the median time on the market has increased by 16 days. This trend suggests that buyers are becoming more hesitant to purchase at current prices.

Moreover, the number of homes for sale has surged by 39.2%, while the number of homes sold above the list price has declined. The increase in price cuts further underscores the challenges facing the market, indicating that sellers may need to adjust their expectations to attract buyers.

Cardone’s Perspective: Opportunity Amidst Crisis

Despite his concerns about the single-family market, Cardone remains optimistic about the multifamily sector. He believes that the current market conditions present a unique opportunity for investors to acquire multifamily properties as major institutions begin to divest their assets. Cardone argues that this moment represents a "true generational wealth distribution from institutions to everyday people," provided investors shift their focus away from single-family homes, which he claims do not cash flow or appreciate at the same rate as larger apartment complexes.

Data from Yardi Matrix supports Cardone’s assertion, indicating that over the next five years, approximately $525 billion in multifamily debt is due, with $146 billion maturing within the timeframe he suggested. If these properties hit the market instead of being refinanced, it could lead to a rapid decline in multifamily property prices. While multifamily rental rates have stabilized recently, some oversupplied markets have even seen decreases.

The Unknown Factor: Interest Rates

The future of the real estate market hinges significantly on interest rates. If rate cuts occur slowly and banks remain reluctant to offer favorable financing terms, Cardone’s prediction may indeed come to fruition, leading to an influx of multifamily properties on the market. Conversely, if interest rates decrease rapidly and banks provide attractive financing options, institutions may be more inclined to hold onto their assets.

So far in 2024, multifamily buildings have not been selling quickly. First-quarter data from RealPage indicates that overall sales volume has dropped by 25% year-over-year, reaching the lowest level since the pandemic. However, this could change if delinquencies rise and owners feel compelled to sell.

Conclusion: Are You Prepared for the Future?

As the real estate market navigates these uncertain waters, investors must remain vigilant and adaptable. The current high-interest-rate environment presents unique opportunities for income-seeking investors to explore high-yield investments, particularly in the private market real estate sector. Platforms offering access to short-term loans backed by residential real estate are emerging, providing retail investors with avenues to capitalize on these opportunities.

In conclusion, while Grant Cardone’s predictions may be contentious, they serve as a reminder of the ever-evolving nature of the real estate market. Whether his forecast comes to pass or not, the landscape is ripe for change, and those who are prepared may find themselves well-positioned to take advantage of the opportunities that arise.