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Will a recession help you buy a house? - YouTube
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hi I'm Justin and welcome to the Landis
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look where we take an inside look in the
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world of real estate today we're going
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to take a look at real estates and
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recessions I keep hearing people talking
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about recessions people ask me about
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them I see it on social media there is a
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curved article about it and first of all
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are we in a recession does anyone know
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the answer to this question do you know
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what a recession is well we are not in
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one first of all so if you say yes we're
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in a recession you're wrong we are not
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in a recession and I mean I don't have a
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degree in economics I'm definitely not
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an expert at that but I do know that a
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recession is defined by two consecutive
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negative quarters of GDP growth like GDP
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growth in the United States in the first
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quarter and second quarter this year
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were 3.1 percent and 2 percent so the
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economy gross domestic product has
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actually grown now granted couldn't be
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growing at a slower pace and so it feels
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like we're in a slowdown yes but at a
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high level we are not in a recession GDP
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has not declined it is still it has
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still grow and so we are not in it
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however if we were in a recession or
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something that felt like a recession so
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maybe we have a declining growth what
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would that do to real estate I think
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that we're all super interested in that
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because I know I've gotten a lot of
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questions about it so I did a little bit
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of research and went back and look so in
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the last 7 recessions how many times do
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you think that home prices have dropped
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home prices always drop during a
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recession and process drops usually
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sometimes never I think you probably
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know it's not ever because then the
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Great Recession everybody knows that
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home prices did drop but in the last
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seven recessions home prices have
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actually only dropped two times so five
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other times economy is in a recession
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GDP is negative but home prices have
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gone up well it's because they're not
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exactly tied right so they're not
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exactly tied and you can have
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different forces that cause recessions
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the last perception was I don't believe
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it's a completely cause but definitely
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fueled by the housing market and so
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here's some interesting stuff about what
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happened last time that I think
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personally is probably unlikely to
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happen if we do go into recession in the
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next couple years so first of all I
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found this super interesting but the
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press you get around what happened in
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the housing market and why I caused the
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recession what was the worst part is the
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one word that I hear ever ever subprime
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right you're probably thinking in your
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head it was the subprime mortgage crisis
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and there was definitely an issue with
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the subprime mortgages but you know
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where there was actually a bigger issue
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it was with people who had high credit
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scores bought investment properties that
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were not good investments that were
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based on speculation because actually
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this is a cool step in the top quartile
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of people credit score so this is the
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highest credit score so say roughly 720
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to 800 of the total mortgages that
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people had in 2007 and those credit
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scores 43 percent or on investment
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properties 43 percent of the people with
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the best credit had investment
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properties and you better believe that
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in two thousand eight and nine the
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delinquency and foreclosure rates
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absolutely skyrocketed on those
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properties and why is that it's because
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no speculation they didn't have an
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actual need for those houses and so if
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the economy turns around or the prices
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go down or you lose your job are you
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gonna let it stop paying on your
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personal residence or an investment
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house that's empty most people the
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investment house that's empty
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I see way less and this is not based on
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stats this is just me seeing the market
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from last time to this time I see way
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less speculation this time around then
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last time and so I think that's pretty
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unlikely that there's going to be such a
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big amount of speculation that would
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lead to a big real estate decline there
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secondly we have really low supply right
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now and so the market has definitely
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stabilized this year
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slowed down whatever word you would use
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but the supply is still low in most
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price points and so it's not like
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there's a ton of inventory on the market
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that even if we
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you come into an economic recession that
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there's all these houses that are for
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sale and no one is there to buy them and
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that's also different than than last
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time so as we look at this and you think
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about hey if maybe you should I wait
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until prices go down would that be a
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good idea or should I buy now because
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five of the last seven recessions that's
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gone up let me show you a couple stats
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and then I'll ask you a few questions at
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the end that I think are really great
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clarifying questions to help you with
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that decision
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first of all you never know when the top
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or bottom of the market is until you're
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actually on the other side of it right
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you don't know that you truly have the
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top until you're coming down and you
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don't know you truly have the bottom
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until you're coming up so the market has
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still risen median sales price has
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increased year-over-year from this year
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to last year even though it has slowed
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down so we have not already seen hey
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we're coming from a pricing standpoint
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we're coming down the other side of a
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hill did you know that if you were to
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look say 2005 for example and you're
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like hey market seems like it's getting
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high I can see a recession coming or I
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can see a slowdown coming I think prices
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are going to come down and you would
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have been right about that
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but you know when after the peak of 2007
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it was until prices were back down to
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2005 it was 2009 so if you said hey in
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2005 I'm gonna wait because I want the
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prices to go down and get a better deal
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it would have been 2009 until you got
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the same deal 2010 until you got a
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better deal and so from a pure
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investment standpoint if you're thinking
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hey I just want to buy an investment
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property I just want to buy investment
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yeah that would have been a great
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decision if you're thinking about this
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from I'm actually living there I'm
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paying money to a landlord or I'm paying
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down my mortgage that's five years
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that's a long time if your situation was
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that hey I could have afforded a house
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in 2005 it would have been great to live
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there living there
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would have been better paying down my
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mortgage would've been better than
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paying the landlord obviously lots of
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factors go into that but that's a long
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time to wait and what if that's the same
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situation here man that can be a long
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time to wait till prices are actually
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lower another thing along that is for
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real estate your gain or loss is only
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realized when you actually sell so even
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people who bought in 2007 in most parts
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of Atlanta it's actually turned out fine
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if you didn't have to sell the house you
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had to sell the house two thousand
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eleven twelve thirteen fourteen
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something like that yes
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that was a loss that was bad but if you
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didn't have to sell the house you're
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doing fine
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if you had the ability to hold it and
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need to live in it or hold it and rent
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it out and wait in most places the
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markets back and in a lot of places if
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you bought a house in 2007 man you're
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thanking your lucky stars that you
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bought anything in any of those previous
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years because prices have gone up so
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much so let me leave you with this if
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you're kind of on the fence about how
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you know should I buy a house now or
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should I wait in one of your big factors
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is what's happening in the economy is
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there gonna be a recession what's
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happening with prices let me ask you
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these two questions and I'll tell you
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where I heard them heard them from Gary
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Keller Gary Keller is the founder and
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CEO of Keller Williams number one real
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estate company in the world and here are
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his two questions to ask yourself if
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you're worried about the market or
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trying to time the market first of all
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do you have a reason to buy a house so
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for the all the people in 2007 the
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hangry kept credit than bought houses
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speculatively they did not have an
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actual reason to buy a house speculation
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is not a reason so what would be a
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reason to buy a house it would be hey
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I'm getting married we want to have a
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place of our own
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our family's growing we need more space
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I know I'm going to be in Atlanta for a
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while I want to put down roots and start
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building equity it can even be I have
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money that I want to invest in real
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estate and I can get an actual cash flow
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on it a positive return I'm doing this
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for investment
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and it's an actual investment
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speculation those are two different
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things so first question do you have a
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reason to buy a house should you buy a
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house do you have a reason that you
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would actually want to do it or need to
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do it and secondly can you afford it
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once again back to the speculation of
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2007 people could not afford to hold
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those houses they were just hoping that
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the market was going to keep going up
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and that's why they got foreclosed and
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so can you afford it you know that's a
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deeper question because that doesn't
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mean hey can I afford it if I have a
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hundred percent commission job and I
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have the best year of my life every
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single year then the answer is no you
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probably can't afford it but hey can I
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afford this house if there is a little
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bit of bump in the road or maybe I don't
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get a big as bonus next year or
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something like that because we go into a
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recession or the economy's not quite as
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good can you afford to hold the house
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either yourself or could you rent it out
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and afford it or could you take on a
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roommate and afford it because here's
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the thing those two questions answer is
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this the right time because if you need
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a house for a certain reason in your
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life then obviously there's a value to
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that and secondly if you can afford it
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you don't have to sell it in a down
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market so you're not gonna be forced to
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realize the loss even if the market goes
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down you'll sell it when the market is
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up well the timing is good because you
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have the ability to hold the house so
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let me leave you with those two
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questions again do I have a reason to
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buy a house and can I afford it if the
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in search of those two questions are yes
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Gary's point is why try to time the
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market because you have a reason to buy
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it you can't afford it none of us have a
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crystal ball under Abel it's time to
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market so there's a little my little
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take get off the soapbox on that I hope
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you found this interesting if you have
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any specific questions and if you need
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help thinking through can you afford a
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house do you have a good reason to we
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would love to have that conversation
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with you we'll see you next week thanks
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for listening
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you
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