Grant Cardone Sees A Massive Real Estate Correction Coming: Here’s Why It’s Different From The Last One
Real estate investor Grant Cardone is no stranger to controversy. Known for his bold opinions 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 stark prediction: he believes a significant correction in the real estate market is imminent. 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 Potential Correction
While it remains to be seen whether Cardone’s predictions will come to fruition, the implications of such a correction warrant serious consideration. To understand the potential scale of this correction, we must look back at the Great Financial Crisis (GFC) of 2008-2009, which saw home values plummet and triggered widespread foreclosures. During that period, foreclosure notices peaked at 2.8 million properties, 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. A 20% drop would reduce this figure to around $335,440, while a 30% decline would bring it down to about $293,510. Such numbers illustrate the magnitude of the potential correction Cardone anticipates.
Current Market Dynamics
As of 2024, the housing market is already feeling the effects of rising interest rates, which have slowed sales and increased monthly mortgage payments. The current mortgage rate hovers around 6.7%, significantly higher than the rates seen in previous years. This has led to a year-over-year decline of 2.8% in existing home sales as of May.
Since 2013, home prices have appreciated steadily, sometimes by as much as 18% or more, allowing 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 created a reluctance among homeowners to sell, as moving would mean financing a new home at a higher interest rate.
Despite these challenges, one crucial difference between the current market and the GFC is the relatively low 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% from a year ago. Rob Barber, CEO of ATTOM, noted, "Homeowners continue to hold significant equity, contributing to a persistently hot housing market."
Regional Insights: Florida’s Market
Florida, which was severely impacted during the last downturn, is showing signs of weakness again. The state experienced a peak homeownership rate of 72% in 2006, which fell to 65% by 2014. Recent data from Redfin reveals that home sales in Florida have dropped by 15.2%, with the median time on the market increasing by 16 days. This trend suggests that buyers are hesitant to purchase at current prices, as evidenced by a 39.2% increase in the number of homes for sale and a decrease in homes sold above the list price.
A Shift in Investment Opportunities
While Cardone expresses concern about the single-family market, he sees potential in the multifamily sector. He believes that major institutions may soon release assets, creating a unique opportunity for everyday investors. Cardone argues that this could lead to a "true generational wealth distribution" as larger institutions offload properties that may not be as profitable in the current climate.
Data from Yardi Matrix supports Cardone’s perspective, indicating that over the next five years, approximately $525 billion in multifamily debt is due, with $146 billion maturing within the timeframe Cardone suggested. If these properties hit the market instead of being refinanced, it could lead to a rapid decline in multifamily property prices.
The Role of Interest Rates
The future of the multifamily market largely hinges on interest rates. If rate cuts are slow and banks remain cautious about financing, Cardone’s predictions may materialize, leading to an influx of multifamily properties on the market. Conversely, if interest rates decrease rapidly and banks offer favorable financing terms, institutions may choose to retain their assets.
Current data shows that multifamily buildings have not been selling quickly, with first-quarter sales volume down 25% year-over-year, marking the lowest level since the pandemic. However, this could change if delinquencies rise and owners feel pressured to sell.
Conclusion: An Opportunity Amidst Uncertainty
In summary, while Grant Cardone’s prediction of a massive real estate correction raises eyebrows, it also highlights the complexities of the current housing market. The potential for a significant decline in property values, particularly in the multifamily sector, presents both risks and opportunities for investors.
As the market evolves, savvy investors may find ways to capitalize on these shifts, particularly in high-yield opportunities that arise from changing economic conditions. Whether Cardone’s forecast comes to pass remains to be seen, but one thing is clear: the real estate landscape is poised for change, and those who stay informed will be best positioned to navigate it.
For those looking to explore high-yield investment opportunities, platforms offering access to private market real estate investments may provide attractive options, especially in a high-interest-rate environment. As always, potential investors should conduct thorough research and consider their financial goals before diving in.