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This Chicago office building was sold for $68 million 10 years ago. Today it was sold for $4 million. Why? Because of high mortgage rates that continue to rise. Office buildings don't get 30-year fixed- rate mortgages. Instead, they usually receive 5-year loans that are reviewed every 5 years. And today, in 2026, over $1 trillion in commercial loans will be renegotiated at significantly higher interest rates. That's why we're seeing clearance sales across the country, where commercial buildings are being sold at 80-90 percent, and sometimes even 95 percent, discounts. But it's not just real estate investors who are feeling the pinch.
People looking to buy or sell a home are also feeling the pinch, as mortgage rates are set to rise again in 2026, making housing the least affordable it's ever been. We are already seeing the commercial real estate market cracking, but we are not yet seeing cracks in the housing market. And this is where many are asking the question of whether we will see it and when it will happen. So in this video I want to do two things. First, I want to start by talking about what's happening in the commercial real estate market so you can be better prepared and become better investors. And secondly, I want to talk about what's happening in the housing market. So if you're planning to buy or sell a house, you'll also understand what's going on there. This
way you can manage your money more wisely. So stay with me until the end of this video. There are two big reasons why the commercial real estate market is exploding while the housing market is not yet. The first reason is that commercial real estate does not get a 30-year fixed- rate mortgage. They usually receive 5- year loans that are subject to review. Almost every real estate investor refinanced their loans in 2020/2021, when interest rates were at their lowest levels in history. Today, these same loans are expiring, and interest rates are much higher. But the second and more compelling reason you should understand now is that office and commercial buildings are not valued based on what people think they are worth. They are valued based on how much money they
bring in, and they don't bring in as much as they used to. Let me give you an example. Let's say you bought this office building in 2020 before the pandemic, and it brings in about $400,000 in annual rental income from tenants who use the building. Now, there are costs to maintaining this building: property taxes, insurance, and all that. So, let's say your expenses are $150,000 per year, which means your net operating income-revenue minus expenses excluding the mortgage, which I'll talk about in a moment-is $250,000. Commercial buildings are now valued as a multiple of their net operating income. In the real estate world, this is called the capitalization rate. It's just a nice way of saying what the return on your money would be if you bought this
property entirely for cash. So, I'll just apply a capitalization rate of 5%. This means you take $250,000 and divide it by 5%. This gives you the value of that building. So, we take the net income of a quarter of a million dollars, divide by 5%, and this building is worth $5 million. Now, if you bought this building in 2020, put down 20% of the down payment, which is $1 million, and took out a loan for the remaining $4 million, your mortgage would be around 3.5%. This means you will be paying about $140,000 per year on the loan, but you have that money coming in from rent. Net operating income is $250,000. You pay the bank $140,000, which leaves you with about $110,000 in profit. This is what happened before, but now, in 2026,
everything has changed. Why? Because during the pandemic, people began to Now, yes, many companies are back, but many of them are not to the same volumes as before. Some work in a hybrid mode, alternating between working from the office. Some moved to smaller offices. Some are using AI to have fewer staff. And that's why we see many office buildings still 40-50% empty. So, instead of $400,000 in income per year, you're not making more, you're actually making less. You may only earn $250,000 in income per year. And your expenses haven't decreased. In fact, they have even increased because insurance costs are higher, and the cost of labor has increased. So your costs to maintain this building have gone from $150,000 a year to about
$180,000, which means your net operating income is now only $70,000 instead of $ 250,000. So now when we determine the value of this building, we take the $70,000 of net operating income, which is revenue minus expenses, and we divide it by, let's say, the same 5%. So $70,000 divided by 5% shows us that this building is now worth only $1.4 million. This is where the problem arises, or at least where it begins. Because now many banks will say: " Your loan term is coming to an end." We won't give you a $4 million loan so you can pay off that mortgage because the building is only worth $1.4 million. And if the bank still says, "We'll give you all $4 million, even though it's only worth $1.4 million," then another problem is that your mortgage
will now be at 7.5% instead of 3.5%. This means that if you are lucky enough to find a lender (because many will turn you down because you are " underwater"), they will charge you a lot more. And now, if you borrow $4 million, because remember, you borrowed $4 million here, then when you refinance, you have to pay that loan back. If you borrow $4 million at 7.5%, it will cost you $300,000 per year. But you only make $70,000 in net operating income per year. So you put down the entire $70,000 to pay off your mortgage, but now you have to pay another $230,000 out of pocket, which means you're losing money every year. And that's why we observe certain phenomena. First, we see more and more developers simply returning the keys to their banks. They
say, "We don't want to continue this, so we'll just give you the keys back." Secondly, we are seeing emergency sales. Developers sell these properties at huge discounts: 80, 90, sometimes even 95%. And third, we're seeing an increase in foreclosures as developers say, " We just can't keep losing this much money every year." It seems like every day there's a new report about how much more expensive everything is becoming. Groceries are more expensive, gas is more expensive, but this is where my sponsor Upside can help, as they will help you get extra cashback simply by using Upside for purchases in addition to the cashback from your credit card. Upside is a free app that
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promo code MINDSET, you'll get an extra $0.25 per gallon off your first fill-up. So if you want to learn more, the link is in the description. So, the first industry to suffer is real estate developers, who lose money or the properties themselves. But there is a second industry that is suffering losses-the banking sector. Because banks don't like to lose money, and if they give you a $4 million loan and the money isn't returned or they're only given the keys, the bank is left with a loss on that property. That's why people are worried about the cracks in the commercial real estate industry right now: it's not just developers who are suffering, but also banks. We have been saying for several years that about half of all
commercial real estate debt should be reviewed within the next 24 months. But the reason I'm making this video today is because it's already happening for real. A few years ago, we said: if 2025 and 2026 come, and interest rates are higher, not lower, then developers will be forced to give their keys back. And today, mortgage rates are rising again, and that's exactly what we're seeing now: the commercial real estate market is suffering even greater losses. And if we continue to see more defaults, it wo n't just be developers who will suffer, but also banks. We don't know when, but the reason this is worth paying attention to is that if defaults increase, banks will be hit, which could cause a crisis in the banking sector. Again, I say this because
investors should pay attention to this: of course, this creates opportunities, as some banks will suffer and then recover, which will open up investment prospects. Other banks-no. Other real estate deals will appear on the market. But you should understand this because any crisis in the industry creates opportunities for someone else. And now we see that developers are suffering, as well as banks that issue loans for the construction of these public and office spaces. But it's not just about office buildings. We are also observing unique processes in the housing market. As mortgage rates rise, housing affordability declines and fewer people buy homes. That's why we're
seeing such a significant slowdown in the number of housing transactions, which means realtors are suffering. We are currently seeing a correction in the real estate industry. During the pandemic, we saw everyone, literally everyone, rush to become a realtor. Today we are seeing the largest reduction in the number of realtors since the housing market crash of 2008. We are also seeing a significant drop in the mortgage lending market due to mass layoffs in the industry as fewer people take out mortgages or refinance. But we have not yet seen the housing market completely crack. We see cracks in the office real estate market. We don't see this in the housing market, but we feel the pressure. Take a look for yourself.
Let's say you need to borrow $400,000 to buy a house. If you $1,686. Now fast forward a few months ago: if you could get a mortgage at 6%, it would cost you $2,398 per month. That's $750 more each month for borrowing the exact same amount of money. Now fast forward to today: a mortgage will cost you 7%, and sometimes more. This means that borrowing the same amount of $400,000 will now cost you $2,661 per month. That's why people are starting to worry. House prices in the country are not necessarily falling, but we are feeling more pressure as housing affordability falls to its lowest level in history. After all, not only do you need to borrow more money to buy a house, but the interest rate on
these loans is also higher. Of course, these higher mortgage rates make buying a home more expensive, but at the same time, it's harder for people to sell their homes. Currently, six out of seven mortgages in the United States have a rate below 6%. Most people have mortgages at less than 5%, and many have mortgages at less than 4%. This means that many people own homes with mortgages at 3.5% and say, "Yes, we would like to move." We want to improve conditions. We want a new house, but we don't want to lose our mortgage payment, because if we buy a new one, not only will it cost us a lot more, but the mortgage interest will be higher. We don't want to give up on this. We'd better
stay in this house for a few more years. That's why I say: we see cracks in the office real estate market. Developers are already feeling it. Banks will be the next to feel it. We are feeling the pressure in this housing market. Yes, housing availability is low, but we are not seeing significant changes in the market yet. Owners are starting to lower the prices of their homes to find buyers because they understand that housing has become unaffordable and properties are hanging on the market longer. Today, homes sell in an average of two months, whereas a few years ago they sold in just two weeks. But the main question
that worries everyone is: will this pressure turn into real cracks in the housing market? The answer will depend on what happens next. Will interest rates continue to stay high for longer? And what will happen to the economy? After all, if housing prices remain at this level, it is normal if the economy grows. Because if incomes increase, housing does not necessarily become cheaper, but it becomes more affordable. Why? Because people's incomes have increased so much that buying a house for 400 or 500 thousand dollars no longer seems like such a big problem, because people have the money to make such a purchase. But we don't know if that will happen. And this is exactly the question that everyone is trying to solve now. Even developers are trying to
figure it out. Developers are engaged in the construction of houses, which can take from 12 to 24 months. Therefore, they have to forecast the state of the economy to decide whether it is worth building houses today. Developers are losing confidence because they fear that high mortgage rates will persist longer, hurting the economy and exacerbating the housing market crisis. So, perhaps it is not worth investing all the money in building new neighborhoods or houses, since we do not know whether they will be able to be sold at a profit. Therefore, it is important to understand what will actually happen in the housing market. Will housing affordability win? Or will the economy win? Because if house prices remain
high while mortgage rates rise, housing affordability will become an increasing problem. And yes, this could eventually lead to a collapse in the housing market, cause new difficulties, and hit the banking sector. However, an alternative option is also possible: the economy will outpace unavailability, meaning jobs and incomes will grow, people will feel richer and be able to afford housing, even if it does not become "cheaper." Why? Because people will become richer. We don't know exactly what will happen, but that's the dilemma of the housing market right now. So, if you're thinking about buying a house, I'll emphasize: your house is a liability, not an asset. So instead of
trying to guess the right moment, buy a house you can afford. Buy a home for which you have the funds for a down payment, moving expenses, and monthly payments. A down payment means you have at least 20% of the cost. Moving expenses mean you may have to pay for movers, repairs, and furniture for the house. And a monthly payment means you can afford the cost of the house, plus property taxes, plus insurance, plus mortgage, and you have money left over to save and invest each month. If you can do this, then don't try to guess the market moment, buy a house that will give you memories, because a house is not meant to make you rich. Your investments are designed to make you rich. So, in this video we talked about how we
see cracks in the office and commercial real estate markets. Why? Because the commercial market doesn't have a 30-year fixed- rate mortgage. They usually have 5-year loans. And today, many of these loans are being reviewed. And today they are being reviewed at much higher interest rates than during the pandemic. The second problem is that many of these commercial buildings are generating less profit, as many office spaces are still half-empty. So, we discussed the example of this property, where the building is now "underwater" (loss-making). And because of this, the developer either loses money every month, or is sued for foreclosure, or is forced to sell the property at a huge discount. And that's why we're seeing all
three of these things happening right now, hurting real estate developers. And what's worth paying attention to is whether we'll see problems with the banks that hold these loans. Again, we'll see what happens. And this is what we will observe in the coming months and years. So I will keep you updated on this situation. On the other hand, we see pressure, not cracks, in the housing market. And I mean, if you wanted to borrow $400,000 to buy a house, it got more expensive because mortgage rates went up. But we do n't see any cracks in the housing market yet. Yes, home sellers are starting to lower prices. Yes, homes are staying on the market longer, but we are not seeing any
fundamental cracks yet. But if the housing affordability problem continues to grow, if mortgage rates continue to rise and affordability lags behind the economy, it could cause new cracks. How long? Well, we don't know, but it's something to keep an eye on. On the other hand, the Trump administration wants the economy to stay ahead of these cracks, meaning that incomes should stay ahead of So, yes, houses are expensive, but people are earning more and getting richer, so they can afford more houses, and that's what the? Well, we don't know, so I always say: your house is a liability, treat it like a liability, buy a house if you can afford it, not because you think it will make you rich. If
you found this video helpful, the best thank you is a recommendation, so please share this video with a friend, family member, colleague, or other investor. This way, we can continue to spread such financial knowledge. Thank you. It's official. The Federal Reserve wants to reboot our economy, starting with the US dollar. Why? There are two major cracks in our economy right now. The first is our economic growth, because our economy is not growing fast enough. I'll talk about this in more detail in a minute. The second is inflation. Because
