The Bullish Case For The Housing Market | Jason Hartman

0:00Understand that the real estate game is not all about price. That's only one metric and that's the one the vast majority of people focus on. It's a multi-dimensional asset class. As an investor, you can earn money a lot of ways. Welcome to Thoughtful Money. I'm Thoughtful Money Founder in your host, Adam Taggart. And today we're going to have a great discussion on all things real estate. With Jason Hartman. If Jason is new to you, he's first off, just has a lot of boots on the ground knowledge. He's been involved in several thousand real estate transactions and his own income properties in 11 states and 17 cities. So he's actually been out there in the trenches doing this for many, many years. He's currently the CEO of Empowered Investor and Real Estate Tools. And just rounding out his whole CV here. He's an economist and market forecaster with 22 years of experience.

1:02He's hosted a whole number of podcast shows. You're going to find out real quickly. He's an absolute pro at this. And he is an ultra-high net worth thought leader on the intersection of demographics, economists, and sociology. Jason, thank you so much for coming on the channel. I'm so happy to have you here for the first time. Hey, Adam, it's great to be on with you. I followed your work for a long time. And I don't even know if you remember this, but you were on my show a couple of times. Many years ago, one time when you were partners with Chris. Yeah. And Chris has been on several times over the years as well. I discovered his work back in like, I don't know, 2005. I think it was when I discovered the original crash course early crash course day. On DVD. Yes. Wow. Well, look, thank you so much. I said, it's an honor to hear and our past across as well in the real world at a couple of different conferences. And I think the last time we saw each other, we said, you know, we should make this happen

2:03and then we're making it happen now. So all right, one thing to note too is folks who are, you know, long viewers of this channel have seen, you know, a lot of the recent interviews I've done with the Nick Jurley and Melody Wright, who are, I think, great analysts and they're also great friends. And you know, differences of opinion are what make a market or differences of analysis. And I'm going to suspect that you're going to have a little bit of a different take than them. We probably agree in some areas, maybe disagree in some others. I think it'd be really useful to kind of look at the areas where you disagree with them and just be able to drill down a little bit more on that and give viewers your just an alternative way to look at the housing market. I think the first thing everybody needs to do is they need to identify when they talk about the market going up down sideways, crashing, not crashing. What metric are they referring to? You know, are they referring to home prices?

3:03That is usually the one I think most people are thinking of. Our home price is going to go up down our sideways. But there's also sales volume, right, which is a very important number and sales volume is way down. I like to give the metaphor of a, you know, if everyone wants to just think of maybe they're a sink in their bathroom for a moment. Okay. If the faucet of the sink, the water coming out of the faucet represents new inventory or new listings coming on the market, it's at a trickle. I mean, there aren't many new listings coming on. The basin of the sink represents the existing or current inventory and that's about, you know, maybe it's about 65% full, if we called full normal inventory and overflowing, you know, the great recession of 2008, 2009. So, you know, that that's maybe one way to look at it. And then the drain represents buyer demand or what economists might call the absorption

4:05rate. How many properties are being absorbed by buyers? So what do we have? We have the basin of the sink about 65% full inventory is still pretty low historically speaking and compared to population and household formation growth. And then we have the faucet at a trickle, although it's turned up a little bit since the COVID era for sure, a little more inventory coming on the market. And then we have the drain that's plugged up. The drain is about 35, 40% plugged up, meaning buyers are just not buying at these prices because housing affordability is very, very low. It's the lowest it's been in about 40 years. And that is not good. That is not helping. Now, with all of this said, we still amazingly have seen prices rise on a national level, albeit very slightly. If we consider 5% or 6% being the normal appreciation rate, and that's certainly debatable, depends,

5:06you know, you can cherry-pick timeframes and studies and they all do it differently, you know, but, but if we call that somewhat normal, okay? We've only had over the last 12 months, about 1.5% increase in prices. And some markets are down. Probably the best market in the country is up about 8%. But some markets are down, you know, we see a lot of distress in Austin, Texas, Cape Coral, Florida, and a few others are pretty tough. Even parts of California are starting to weaken you and I both have done our time in that state. Yeah, I like how you say we did our time. Yes. We paid our news. We paid our taxes to the Socialist Republic of California, yes. So, so one thing I just want to get your confirmation on is prices, so we have, you know, what many people have been referring to is a frozen housing market, right? When it comes to the glory and transactions, right? And yet, prices are still going up right now.

6:11And that dynamic, I think, is largely due to the fact that on affordability has gotten to the point, to such a high point, that the only people who can afford to transact right now are the more affluent folks. And so you're having higher price tomes change hands. And so that is pulling up the average sale price for the house. But it's not necessarily a sign of health, right? But the market is increasing. It actually could be a sign of weakness in the sense that just everybody below the wealthy just really can't afford to transact right now. And of course, I'm pending with a broad brush. Would you agree with that? Yeah. I would, to an extent, you know, look, I always say that all real estate is local. Okay. It is a very localized market. But in addition to being local, it's segmented by geography, but it's also segmented by price range. So you're absolutely right. I agree with that completely. The interesting part of it, though, is that coming out of the Great Recession 2008, 2009

7:17era, builders basically put the brakes on their building activity. And the biggest breaks were in the entry level housing sector. So that sector is arguably the most underbuilt part of the sector. And I'll give you an example just personally, you know, I sold my home in Palm Beach, Florida about two and a half years ago. And I decided to just travel. And I travel, it was the longest traveling excursion in my life. It was almost two years. And then I decided to move back here to Scottsdale, Arizona, okay, which is where I am now. And I was looking and looking and looking at high end homes. And you know, there's not a ton of softness. It's spotty. And of course, Phoenix is kind of this cyclical market that's weird. But the interesting thing is that you just see that, yes, the rich are getting richer.

8:19But with the entry level homes being so underbuilt over over the last, you know, 15, 17 years or so, that is sort of creating this upward pressure on rents. And so, you know, when we talk about crashes or not crashes or whatever the discussion is, you know, rents would be another metric. Now what's interesting about the rental market is this. And I'm speaking to it because, you know, my company helps and I should just say, my company helps investors by entry level homes nationwide for rental property. That's what we do. I've been doing that for 22 years. Okay. And before that, I owned a traditional real estate company that Colville banker purchased from me, okay, in Southern California. And the entry level market is very much underbuilt. The rents would be facing much more pressure than they have been. Had we not delivered a record number of new multi-family units over the last two years?

9:21Literally, we have delivered more multi-family units, new apartment complexes in this country in two years than we've ever delivered in our entire history. So that has kind of suppressed the rental market and you certainly know that there's a lot of distress in the multi-family world. Right. You know, that already, and your listeners do. So it's kind of a weird situation. It really is a strange kind of market. All right. So when you talk about the builders, you know, pretty much just not building any more entry level homes after the GFC, you're distinguishing the most recent two years from that, right? In other words, that we're starting to see a pickup in more entry level units, whether it's in a multi-family or even just a single-family home. Yeah, even in single-family, because they are trying to satisfy the market, there's a lot of pressure on builders to cure the housing shortage problem. But yes, they are building more. And what's interesting about it is these builders are building bare bones.

10:25If you go to the Lunar website or the DR Horton website or KB homes, those are kind of the big entry level built, well, Lunar built some higher end homes, but they build entry level too. They are building some really bare bones houses, no garages, two bedroom, two bathroom, two bath, tiny little houses, very basic finishes, all be it nicer than any home you saw in Lakewood, California, or Long Beach, California where I used to live, after World War II, right in the baby boom. But we've all become spoiled as to our idea of what is basic anymore, right? So yeah, they are building some really lower end houses to try and meet that demand. And it begs the question, why didn't the builders build more entry level housing coming out of the Great Recession? Well, they didn't because there's just no money in it. The construction materials, the cost of labor, I mean, that has put enormous pressure on

11:30builders. And home construction is still a very primitive process, which I think is completely dysfunctional. We need to, as Americans, start accepting manufactured housing. And that's not your grandpa's double wide trailer. The manufactured housing today is quite nice. There are two story manufactured homes. It's just more logical to build a house in a factory and bring the job site and assemble it there, rather than doing it piece by piece. So it's funny, like with the promise of the era of robotics and AI, I would think that that would take manufactured housing to an even greater level of efficiency, right? And the tier point, I mean, yeah, there's higher end manufactured houses now. They look quite nice. You know, you can design it all before it gets manufactured. And then it's just all you need to do is have a foundation board and they basically bring the house to you and connect it. I could agree more. Yeah. I'm just curious.

12:31What is keeping that sort of, you know, manufactured house of the future bananza from happening right now? I think there are two major things Adam. Number one is there's a huge stigma. It's just stigmatized. It's just think it's bad. So to like nuclear energy, we thought it was bad for 40 years. We're now realizing, wait a minute, this might be the best greenest fuel source ever. It is the greenest fuel source ever. Nuclear is so safe and so powerful. Jane fond ruined nuclear power with her stupid movie, The China Syndrome years ago in the 70s. I mean, you might remember it. And, you know, that, that just idiotic activism. And we see that in other parts of culture today too, sadly. But, but yeah, nuclear power is far in a way the best source of power. So I agree. And the, you know, I'm not saying manufactured housing is the best thing ever. I'm just saying it's good for the entry level. And it should be accepted.

13:31The other part of it is, and this is changing a bit. And it's the financing. You know, whenever the banks are reluctant to finance something or Fannie Mae, Freddie Mac, the big, you know, mortgage agencies, you're just not going to get widespread building. And so that has changed. And I believe that was part of the last housing bill, which was a major change. You know, but it's not going to change things radically. I mean, it's, it's, you know, it's a step in the right direction. It's the biggest housing bill in decades. But it's still nibbling around the edges, you know, until, until manufactured housing is mainstream acceptable until construction becomes a high tech thing, rather than the low tech thing, it's always been, you know, I had a guest on my show with John Burns, real estate consulting a couple of years ago. And he said something really funny. He said, the biggest technological advancement in home construction over the last 100 years

14:31is the nail gun. Yeah. I mean, it's, it's just a very primitive asset class, you know, it doesn't make sense, you know. Well, so let me, let me just clarify a few things. To my understanding, rents are declining now. So if you look at the cost of shelter that goes into the CPI calculation, which is the biggest part of the CPI, that's actually disinflating right now, right? And there's a number of different factors for that, you know, probably not an insubstantial one is, is we've deported or incentivized to deport, you know, a couple million people. And that's worth it, in my opinion, I'll take the economic hit if there is one for that. Yeah. Okay. Yes. Let's, let's have our country back. That's my belief. Yeah. Okay. And, and I think we're probably on similar pages there and it's, it's nothing, nothing racist or xenophobic or whatever. They should have to apologize for having, being entitled to the country, their ancestors

15:39built. There's nothing. And also just no matter where you're coming in from, if you're coming in illegally, you're breaking a lot, right? That's right. Imagine that. Imagine that. We have that, that's, that's certainly not, you know, it's certainly not the only factor there. And, and theoretically, housing is, you know, the price of a house should essentially be the discounted cash flow of the rents that that house would be able to generate if it were being rented out. So I'm curious, you would expect housing prices to, to be coming down as rents are disinflating. Beyond the dynamic we just talked about of sort of the, the, the froze inventory and the rich only transacting. Is that the thing that's keeping it, keeping prices, you know, from disinflating right now or is there something else going on? Well, I, I believe, correct me if I'm wrong, but I believe you were referring to the owner's equivalent rent concept as part of the CPI.

16:41And that is a very weird equation. But in practice, you know, you're generally right. I mean rents, I mean, with your investors, don't you basically say this is what we think the cash flows are going to be and therefore the, the price you should pay for the houses around X. Yep, yep, absolutely. I mean, you know, for investors, it's an equation, but remember investors are about, you know, give or take 25% of the market, depending on when you're looking. So, you know, the, the largest share of the market is home buyers that owner occupy. But, but yeah, you know, the rents certainly matter to investors. No question about it. Okay. All right. So, one of the things that Melody mentioned last time I was talking to her was we've had this period of rage delisting, right, where sellers are putting their homes on the market. And of course, as you said, real estate is totally local. So this, this isn't every place in the country. But Phoenix and Miami are the two biggest markets for delistings.

17:43Yeah. Okay. So, I think, look, I want to sell, but I'm not going to go below this price and like, oh my God, nobody wants this price. I'm, you know, either I'm offended or I think the market's just not pricing things right right now. Let me take it off. Let me wait six months. Let me put it back on to see if I can get something better. She has said that she feels like we're sort of transitioning from a rage delistor to kind of a distressed realistor, right, where the person's now, you know, eventually saying, look, I actually got to sell this thing. And maybe I'm not willing to bring my price down as a result. What are you seeing on the ground with this? The delisting trend is a trend of, you know, we have choices. We don't care. It's an apathetic kind of trend or sellers are saying, look, we put our house on the market. We didn't get our price. We have no distress whatsoever.

18:44There is no pressure for us to sell this house. So we're going to take it off and we'll put it on later. And hopefully then someone will meet our expectations. And the buyers are resisting these expectations. But look at them here. Here's one of the reasons that the dooms and the crash bros just keep getting it wrong. Is that there, as I always say, there is one ingredient you absolutely positively must have, have a housing crash. And we should define crash. Okay. So that means prices declining by 20, maybe 25%. That would definitely be considered a crash to me. Agreed. So, you know, if prices declined by 25%, that's crash. Okay. If you want to have a crash, you must have tens of millions. And by the way, for reference, there's about 140 million housing units in the country. You must have tens of millions of homeowners who become suddenly millions of distressed

19:46home sellers. There is just not enough distress to matter. Okay. So let's look at some distress points. And by the way, I should share a couple of charts and graphs with you, I think, because that'd be great. I've got some good ones on this. So just going back to our opening of our discussion. This one shows you that home prices year over year are up about 1.5%. Again, frozen, sleepy, boring, nothing to write home about. But, you know, think about it. What asset class could be this resilient that you triple the cost of mortgage money from the COVID era low and prices still go up? That's kind of amazing in and of itself. Okay. And then we talked at them about how demand declined. The massive demand destruction with the higher rates and already elevated prices. So we see this deficit of home sales that has happened now for three and a half years, where give or take about two million fewer transactions are occurring.

20:48And this represents a lot of pent up demand. Okay. And that right now are basically people who would like to buy, but it's just too unaffordable for them. Right. Absolutely. Absolutely. And that's what we want to create, right? Because all this money just flooded and prices went through the roof. And I mean, I'll give you the bull in the bear case on that. Okay. So on the bear case, if you want to say housing is not doing well, then you would say, well, COVID, the COVID era low interest rates pulled demand forward. And you would be right. That is true. Okay. To some extent. But that kind of dissipates after a while. Now we just simply have pent up demand in my opinion. Okay. And people can argue with me. So there are all these people waiting in the wings that haven't done anything. And here this chart shows you construction, residential units completed coming out of the great recession. You see the deficit here that happened for many, many years. Okay.

21:48And then this is why we have a shortage now. Okay. Okay. And sorry, just go back to that process. The 2014 to 2017 surge there. Would you consider that was an overage at the time? You mean here, starting about here? No, 2014 to 2014, right? To 2017. Here's 17. Okay. You're totally right. Sorry, I should put my glasses on here. Because I'm an old guy and he glasses now. Yeah. Me too. And sorry, 2004 to 2007. Oh, yeah. Yeah. Yeah. So some of that initial shortage was just burning off the excess. But then it went into true shortage. Yeah. You know, we'd have to go back even farther on the chart. And we'd have to adjust for what? Population growth is what a simpleton would adjust for. But the real thing you have to adjust for is household formation.

22:52That's much more important than population. Because population has about a 25 year lag. Okay. So I will become very bearish on the housing market in the mid-2040s. Okay. That's when I get really bearish because we're going to have a problem there. But looking back here, you know, you could definitely argue that this section of about 2003 to 2006 was overbuilding. And I would agree with you. Maybe here is kind of a stable line. And that's the long-term average, right? According to the chart maker. And here, you know, we started to see it ramp up a little bit and then COVID error got really big again. This goes up to 2021. Okay. Okay. But get it. I mean, you're making the point. Maybe the shortage isn't quite as deep as the chart, the downturn of the chart during those years implies, but it's still on that basis, a shortage. Yeah. You know, there are lots of opinions on the shortage for the first opinion is whether

23:54it's true or not. Your prior guess would say there is no shortage. Okay. But I would disagree with them. If you look at some of the big, you know, think tanks, Fannie Mae, Freddie Mac, I mean, they're not think tanks, but they all have economists and economics departments within their companies, Zillow, Zonda, my friend owns Zonda, Jeff Myers. And you know, all of these big groups, right? They argue that the housing shortage is between one million and about seven and a half million units. And I do have a chart on that. I don't have it handy though. It's not part of this slide deck. But that's what they're saying, the housing shortages. So look at my friend, Jeff Myers, he owns Zonda. It's a real estate software developers use. And he says it's only one million units. And you know, you could clear a shortage up like that with some strong building in theaters. Okay. Yeah. Let me, sorry, this is a tangential question, but you don't mind stuck on it.

24:56I'm trying to look it up in real time as we're talking here, but I think the data I've seen says that there's like 11 million vacant units in the country. Oh, I've got a chart on vacancy rates. By the way, if you want to look at that, it's okay. Sure. The question is just for whatever reasons that those houses are vacant, that's inventory that could be available to the market. Yeah. And that's bigger than the range of one to seven million units. Why do we have these vacant units? Well, vacancy is not the same as shortage. That's a different thing. Okay. So let's talk about Nick Gurley for a moment. I mean, he really got a lot of traction for one video he did, which specifically talked about Airbnb or short term rentals. Okay. And you probably saw this video because he got some big news exposure from it. And basically his argument was that as the rates went up and the COVID era moving trend

26:02where this massive re, you know, kind of migration was where people were moving around the country to, you know, bluer, less liberal places, which was a good decision. They rented a lot of Airbnb's, right? And there were so many Airbnb's that were going to hit the market and they were going to crash the market. Now we got to ask ourselves, why was he wrong about that? Well, because he only talked about one part of that equation, Airbnb owners are in distress. And I agree. You know, I never liked short term rentals. I always thought that was a bad business. You know, if you look at hotel construction and since 2012, when short term rentals got so much traction, especially with Airbnb, but the RBO2, there were so many non-primary beds created in the country and in the world that, you know, people just didn't need all these beds, okay? And if you think about it, that caused, I would argue, the rise of a lot of new mattress

27:05companies, Casper, Tuft and needle, you know, I mean, like purple, all these new mattress companies came out of blue, you know, to home deliver mattresses, direct to consumer. And so we saw that. But here's why Nick was wrong, okay? He didn't account for all of the people that already owned second homes or would have just had a second home anyway, okay? Or ever wealthier people or people that are in the, you know, middle, upper, middle class have had a second home. That's not a new idea. They just kept it vacant. But when Airbnb got so popular starting really about 2012, when it gained a lot of traction, they said, hey, we can turn this into an income stream. So they stuck it on Airbnb and they still use it as a second home, but then it became a side hustle. They didn't need to sell their second home just because it wasn't performing well as an Airbnb. They still wanted a second home.

28:07I mean, I'm sure you know many people that have second homes and third homes and fourth homes, I sure do. Okay. I do, but just to insert a thought here, during the COVID era, right? All of a sudden, you know, creating your own Airbnb became, you know, sort of pitched to many as a, you know, it was oversupply. Get rich quick, whatever. So you had a lot of people who were, people who aren't naturally going to be a second, have a second home. They're not going to be a hotelier. They begin hoteliers. Yeah. Yeah, but they bought in saying, okay, I'm not going to use this as a second home because I'm not that rich. But if I can just buy one and then rent a doubt at the rates we're getting here in 2022 and, you know, the lockdowns are being removed and everybody had this sort of pent up, you know, well, I'm going to go travel. Yeah. But now, I'm going to move. I'm going to leave California and move somewhere and I need a place for two months while I'm looking for a home.

29:07That was a lot of bad demand. That's a lot of that too. But those trends are now over. And I think there's a number of people who have said, wait a minute, this thing was supposed to be put in cash in my money every month. I'm no actually having to put cash in it every month because it's not renting out as often as I expected or it's not renting out for as much as it was a two years ago. Right. Wouldn't that be, you know, as those people kind of throw in the towel, wouldn't that be bringing new inventory into the market here? It has been. They've been throwing in the towel for three and a half years now. Right. Right. So which I guess to your point, that's where we're seeing South Florida places like Austin drop a lot because they hit a very heavy Airbnb concentration. Correct? Well, my understanding is that Austin was pretty tough for Airbnb's from a regulatory perspective. But I could be wrong about that. That could have changed. I mean, that used to be the case. I don't follow the Airbnb market too closely. Too close. Well, my point is that Nick made it seem like, and I understand that selling fear is

30:13very profitable. Our minds loved look for fear because that's what kept us surviving for eons as humans. Right. We lived in a world of scarcity and danger and we had to be alert for that. So when someone puts a clickbait title on YouTube and says the market's going to crash because all the Airbnb people are going to sell, that gets a lot of clicks. Okay. That's, you can exploit people's fear like that. But he was wrong. Okay. Because only some of them sold, some of them kept them in second homes, some of them turned them into long-term rentals. It didn't happen all at once. They peel off slowly. You know, he made it seem wrongfully like one million new listings were coming on the market tomorrow. And that was just fake news. It didn't happen. Okay. So the inventory now, right now, and I'll show you a chart on it, is historically low. Yeah, it's super tight. Yeah, look at the inventory levels.

31:14Okay. Here. Here's inventory. Okay. So, you know, we're, we're, we're historically low. I mean, look, we're higher than the COVID era for sure. It has been rising at a trickle. The faucet of that sink has turned up a little bit, but it's still trickling. And, you know, the drain is plugged. So it's, it's rising a bit. But, you know, if you go back to 2015, our inventory is much lower than it was then, and our population was lower than, and our household number of households in the country was also lower than 11 years ago. So when you adjust for that, and you look at inventory per capita, it's even lower. So, you know, I, and I don't have a specific, you know, stat on that. I'm just making a general comment. Yeah. But, but yeah, it's just, yeah. So, so what is your outlook for inventory going ahead for the next couple of years?

32:17It all depends on interest rates, Adam. I mean, you know, I thought we would get some rate relief this year, but the Iran war probably pause that for another year. Okay. So I ultimately think we are going to see lower rates, hopefully for mortgages in the mid fives. You know, Trump would certainly like to see that. He's our first real estate president. Okay. As I always like to say, love him or hate him. But, you know, I am terrible predicting interest rates. I will be the first to admit it. I'm pretty good at everything else, but rates are centrally planned. I cannot, I cannot view them like a market economy. Okay. So, I can't speak for melody. I wouldn't try to. I think, I think part of her thinking is is, look, you know, the market was kind of holding on through the tougher years.

33:20And it was what sort of survived, survived till 25th. That's going to ride you our rescue and they're going to bring rates down and hopefully there'll be no, you know, price decline in the market or anything like that. And it is interesting that, you know, yields have continued to rise. And as you said at the beginning of this video, prices are still rising. Ever so slightly. Ever so slightly, but, but we're not getting the normal mathematical relationship. You would expect between home prices and interest rates. Well, I can tell you why and we haven't discussed this aspect yet. Okay, so here's another chart and inventory, you know, you can see inventory is pretty low historically speaking, you know, the COVID era was an anomaly. So you really have to date that out. Okay. That was super low. But just to go past this quickly, the existing mortgages, very strong credit scores, very little distress, high quality bar hours that have the existing mortgages.

34:20Okay, a significant majority of recent loan originations have been to borrowers with credit scores above seven 60. This is, and that was my point earlier, right? It's the affluent who can afford to transact right now. This is no great recession. Okay, this is such a different market than it was back then. Here I did a study on interest rate sensitivity showing how many new people can afford to buy the median price home at different mortgage rates. So we started with a baseline of seven percent, 55.1 million people in the country can afford the median price house rates come down 50 basis points, you get 2.8 million additional qualified buyers, 5.4 million at 100 basis points are 1% and in the magic range of 5.5% you get 7.7 million new buyers. Now they don't all enter the market, you know, maybe I don't know, I don't know how many will enter the market, maybe a third, I'm not sure nobody knows. But if these people enter the market, when you've got what give or take eight nine hundred thousand homes for sale, you can have bidding wars again.

35:25It's, you know, it's going to happen. But we'll see, you know, we'll see. So there's the sync metaphor. Oh, here's why they got it wrong. Okay, this is the key thing once are you ready? I'm ready. Okay, okay. So look. When rates went up at the historical increase just over three years ago, with already elevated prices from the COVID air abitting wars. The rate was massively constrained. Housing affordability was the worst in four decades and it still is pretty much the, you know, it's right about there. And the payment income ratio with for new buyers entering the market would be about 36%. And that's not, you know, it's not impossible, but it's not easy either. Once you add student loan debt, credit card debt, a couple of car payments, right. And I do want to make the disclaimer at them that as we're talking here today, I am not analyzing.

36:30And this could be the doom of perspective. Okay, and probably should be because it would be the best counter argument to what I'm saying. I think I'm not analyzing every part of the person's life of the public's life. And I'm talking about the relationship of their home that they already own or want to buy to the mortgage and the price and their income, right. That's what I'm talking about. You know, their student loan debt is a problem. Their credit card debt is a problem, right. Those are outside of my analysis today would just take too long to dive into all that. And I understand that those pressures exist. Okay. Higher grocery prices, you know, everything else going on in life. Okay. But what they did is they looked at new people entering the market. And that really wasn't the right way to look at it. If you looked at it just that way, you would think, yeah, we're going to have a crash because nobody can afford to buy.

37:30But what they should have looked at is the existing homeowners that control the vast majority of the 140 million houses in the country. And here's what their picture looks like about 25% of them have a mortgage at or below 3%. About 65% have a mortgage at or below 4%. And they are in this section of the graph and their payment to income ratio is only 17%. They are so comfortable and so unwilling to let go of the great deal they have because they have discovered that their mortgage is a major asset. Not a liability. Their mortgage at such low rates is a major asset. One example of this that is very prevalent and understood in today's world is baby boomers who would normally they are empty nesters.

38:30They would normally sell their five bedroom house in suburbia and they would buy a condo and go on a cruise around the world. That's like a very sort of stereotypical scenario. Okay. They would downsize. But it's more expensive for that baby boomer couple to downsize that it is to just keep their big house. And you know what, their millennial children are quite upset about that because they need a big house. Your parents are hoarding the inventory. Right. So. So I'm glad you brought that up and I sort of discussed that the number of times in the past real estate interviews here. So let me just add so I totally understand the argument you're making here. Right. Of those folks who still own a home. Which is a large percent of homeowners. It's all homeowners, but it's a large percent of the total market.

39:34From what I've heard, you correct me if this is wrong. They are still feeling pressures, right. So they've got a low mortgage. Right. So that's an asset to them, as you say. And I get why you say that. But. So, you know, we have lenders have tightened their lending standards. So it's hard to get. Harder harder to get home equity loans or refinance. And the cost of home ownership have gone up a lot. And so you know, like, you know, example, I've idea that this is definitely reaching their own예 revenue line and the part of that that. Or that which is likely that that's are really at that point price. I can't really look at this where they found it. Their body there is a sense, since, since Covid, right. So getting, getting their garbage disposal fixed is more expensive than it used to be.

40:35Getting a new roof is more expensive, maintaining their landscaping, their property taxes. might still have a pretty attractive mortgage, but the cost of carrying this house is gotten a lot higher in recent years. How much pressure, is that putting on them, do you think? It's putting additional pressure, but remember, their incomes have also gone up. I mean, it's not like incomes are stagnant. The labor market unbelievably is holding up, you know, reasonably well. So their incomes are higher and inflation is inflation. I mean, it's part of life, right? But what's interesting about it is kind of my trademark strategy, which I call inflation-induced debt destruction, inflation is reduced the value of their debt massively. Right. When we had under Biden's mismanagement, when we had 9.1% official inflation rate, I mean, that's insane, right? That's almost like the Carter era, that or really the beginning of the Reagan era before Volker fixed it.

41:37But the real inflation rate was probably 17% at that time. If you have a $1 million mortgage in one year, you got $170,000 discount on your mortgage because inflation debased the debt. So there are multiple factors taking place at the same time. But yes, I agree with you. Home services have gotten more expensive. Property taxes have gone up. These municipalities, some of them are struggling and they're getting predatory on their victims, their taxpayers. So yeah, I agree, that's a pressure. Okay, and then I look at retirees. The boomers of the wealthiest generation ever, right? But that wealth is not evenly distributed. In fact, if you look at median numbers, it's pretty frightening how little people have saved for the next 20 years of their life. So I'm just wondering, I don't know, which is when I'm asking this question,

42:39for the majority of boomers who are pretty much retired now, who don't have a lot of retirement savings, but own a house, are they increasingly getting pressured out of the house by these rise and the general cost of ownership issues we've talked about? Well, I don't know what the incomes of these retirees are, of course, it's not evenly distributed. Thank God we don't have socialism, but yes, and I know you wouldn't be in favor of that. But like, so security checks have not been rising on what you and I believe to be the true cost of inflation over the past decade, right? Yeah, no. I mean, the inflation rate is understated, waiting, substitution, hedonic indexing. Of course, the government's ripping us all off. I mean, no surprise there. But, but you know, that's not a new thing that's been going on at least since the early 80s when they started changing the way they, you know, account for inflation. One thing I did want to say since the chart is on the screen at them is that we should ask ourselves what isn't this chart telling us?

43:41What dogs are not barking? And what's not barking here? We talked about the mortgage rate distribution, but we didn't talk about the fact that 40% of the country has no mortgage at all. Yes, that's a good thing. So there are, you know, you can't feel much distress if you only have to pay taxes and insurance. You know, it's, it's pretty hard to be in distress. I mean, true, but on a net basis, they are at least a little more stressed, right? Because they don't have the asset of the super low mortgage. You know, the inflation doesn't help, you know. It doesn't debase the mortgage they don't have. Fair enough, yes. Right, it doesn't debase the mortgage they don't have and the cost of ownership has gone up. So unless their income has gone up accordingly. And I think for those who have assets, you know, the assets have done a great job of keeping up. But like I said, like the majority of, at least retirees don't. So again, I'm not trying to paint the humor picture, but to me, I sort of look at the net of all this and just say, it seems like the current market conditions here

44:43is sort of a rising flame on the pot. But maybe I'm looking at it the wrong way. You know, look, I mean, there will always be people in trouble, there will always be people who are succeeding more than others. I mean, the fact is if we look at, you know, the charts of equity, right? So this is interest rates of mortgages. We talked about that. This is mortgage delinquencies and foreclosures. Okay, that they're basically a nothing burger. They've been rising a little bit, but compared to what? Compared to the rate recession, compared to the COVID era when we had moratoriums. I mean, they're still lower than they were in 2002, 2003, 2004. I mean, you know, delinquencies and foreclosures are historically low. Yes, they're slightly higher than they used to be, but there's just not a lot of distress in the market. And you've got to have distress if you want to have a crash. This is the equity cushion, okay? 82.6% of borrowers have at least 30% equity in their home

45:49and look at the negative equity. It's a tiny sliver. Yes, it's been growing slightly. Wait, that's amazing. It's not even almost visible in the past decade. I know, I know. Yeah, you know, these mortgages, I mean, look, coming out of the great recession or the global financial crisis, whatever you want to call it, you know, the lenders have been extremely strict and careful on their underwriting. And, you know, they just, they want, they want to know your income, your shoe size, your DNA before they will give you a loan. They're just not, you know, this is not what it was leading up to 2007, 2008, okay? 2009, I mean, it's just a completely different world. Here's the loan to value ratio, the distribution of them, okay? A record 76.6% of borrowers have LTVs under 60% so they've got 40% equity and 91.2% of borrowers have LTVs

46:52under 80%. You know, during the global financial crisis, there was a lot of talk about what they called underwater homes. So what is an underwater home? It means someone who has a mortgage balance higher than the value of their home, okay? They're underwater. They, if they, if they sold the lender would have to do a short sale or they'd have to bring in cash to the closing table. We had about, at the worst point, about 26% of the country was underwater in their homes at the worst point back then. You know what it is now? It's 2%. Well, and even if they're underwater, they still probably have a low rate mortgage. So you could be underwater and still sustain it. It's kind of like being in a car lease when you know you're underwater the minute you drive off a lot on your car lease, right? But if the payment is low, who cares? Right, you get to keep the car. You drive there.

47:53Yeah, okay. So that's super interesting. Yeah, here's a loan to value ratio of US mortgages. It's only on average, it's only 46.9%. I mean, look at, look at historically, go back to 2013 and it's just gone down and down and down. People have more equity than ever. And you know, you've got to have negative equity. You've got to have high payments. You've got to have high rates to have a lot of distress in the market. Yeah. So I totally get that. And I know that so you're me and thrust. Go back to that last chart for a second. This one? Nope, no one before. That one. And I'm not, again, I'm not trying to paint the negative case here. No, be negative, I love to. No, no, no, no. I mean, so this is the data. It is what it is. But to me, this shows the impact of high inflation, right? In that pandemic boom era, the low value ratio dropped really materially. But that's largely because...

48:54Price is inflated. Yeah, price is inflated. Which if you're a homeowner, you're like, okay, good, right? There's a lot of stuff that happens to side only that isn't great from that inflation. I agree. I agree. Yeah. Inflation destroys, I mean, listen, if you want to talk about Boomi stuff, I would be happy to talk about the collapse in our birth rates, the dating market, which is an epic disaster and how there's a loneliness epidemic, how immigration and Islam are really serious threats to the world. I mean, Europe is over. I was born in Europe and it's so sad to see it. I go to Europe pretty much every summer and it's just a... I mean, most countries in Europe are on the verge of civil wars. It's terrible what's going on. So there's a lot of stuff to be depressed about. If you want to talk about those things, it's just that the housing market isn't one of them, at least. Yeah, as you say, that actually might be really fun to talk

49:55through a lot of those issues. Because I think those are many of the most important issues of our time here when we look to kind of the benefit of our future generations are progeny. And I get your point there, which is, hey, look, there are real things to be worried about. But from Europe and housing market isn't one. I shouldn't say opinion from your analysis to housing market isn't one. So let's get to... I'll let you talk to this chart if you want to, but let's get to the source of your optimism here. So in terms of what could rescue this frozen housing market without disaster is rates could come down. So you had your chart before that shows that rates go down and you get all these new people coming into the market. That makes sense, right? Housing prices don't necessarily change. But I don't have as big of a nut that I get to make every month if my mortgage rate's going down. Well, what's interesting about your statement there is that what will likely happen

50:57if we see rates in at the 6%, you know, 30 year fixed mortgage rate or even hopefully, listen, my business has been slow for a few years now, right? Because we help people by investment properties nationwide. It has not been exciting, okay? Because it's nobody's excited about real estate right now. I get it. I totally get it. Well, with that and rising mortgage rates just make the DCF's worse, right? Right, yeah, I know. But if we get those lower rates and that's an if, nobody really knows, right? Or it's not really if it's when, I mean, we'll certainly have them at some point, then what will likely happen is at the beginning of that cycle or right before the cycle, the people who bought properties will be the total winners as they always are at the beginning, right? And then those low rates and additional buyers who can afford the properties as we showed on that prior chart or table, they will come in and start bidding up the market

51:58and then we'll see prices rise, you know, shortly after we hit those lower rates. That's what always happens in every cycle. Okay. What is gonna bring more inventory onto the markets? Will it be lower rates? Will allow people who are currently frozen or trapped in a low mortgage to be able to then do whatever they want to do? Yeah, you know, it's interesting to say, trapped in a low mortgage, but you're right. You know, that's called the mortgage lock-in effect, right? And, you know, I talked about that really in the COVID era and I predicted that that would happen. I did not give it that name, unfortunately, because that is a good name, the mortgage lock-in effect. And what's counterintuitive about it, Adam, is that the higher mortgage rates are, the better their deal is because the delta between what they have, that low COVID era mortgage and the existing rates is the value of their mortgage, right? When rates come down, their mortgage becomes less valuable.

53:01Think of it like the bond market, how interest rates are opposite of bond prices, right? So when the bond market rallies, you know, we see that are opposite in the rates, right? So that's basically what happens. All those existing mortgages should be viewed like bonds, right? So their mortgage gets less valuables, rates go down and then the lock-in effect starts to evaporate and people will make decisions and move. So yes, more inventory would likely come on the market, but a lot more buyers will also be on the market to gobble up that inventory and those people that are selling will likely be repurchasing because rates will be desirable and lower at that time, you know, unless they just completely exit the market. And I know you have talked about one thing on your show, by the way, which is aging and then dying baby boomers. Okay. I'm gonna have to look at your thoughts on that. I mean, that's, well, we're starting the process now, but that's a 20-year trend, right? Yeah, it's a long trend, but it's gonna happen.

54:04And I did some analysis on that and I have some charts somewhere, can't easily find them, but I presented them on my YouTube channel and my podcast before. And that of course happens slowly and gradually, okay? And so yes, baby boomers will be forced by death to let go of their properties. Those properties will certainly come on the market. That's just the cycle of life. And I predicted in the mid-2040s, there aren't gonna be in many buyers there to absorb additional inventory. And I think about 20 years from now, we certainly could have a significant real estate problem of like Japan does, where they have too many houses or Italy, same thing. So we'll see who knows what immigration will be or maybe people start having kids for a change, which would be a nice thing to happen, but we'll see. Yeah, so just ask me to just gut speculate here.

55:05So not gonna all of this, just curious what your gut says. How material do you think that will be and how long do you think it will be? In other words, will this be like a decade-long process, a 15-year process of just, the additional inventory coming on from boomer deaths, just dampening the market for a long time, or do you think it's just for, you know, is it less of a marathon and more of a sprint time-wise in your opinion? It's a marathon, it's a slow process because they all die at different ages and they all are different ages already, okay? So, you know, really- That's what makes it relentless is you get new, you know, the whole like 10,000 baby boomers were retiring every year. You know, it's gonna be 10,000, you're gonna be dying every year, just this consistent, persistent, yeah. Yeah, and, you know, we'll see, we'll see if any of these longevity sciences start to matter

56:09and, you know, I don't know, it's just uncertain. But the baby boomer phenomenon of their estates selling their homes really starts to hit in about 2032, 2033. And so then it will just kind of roll out from there for the next 10, 15 years. And, you know, there are some experts who believe the housing market will actually reach kind of an equilibrium around 2032, where it's a balanced market, where we will have built enough new inventory and, you know, some, remember, it's not just about building new inventory, some homes do become obsolete and are just torn down. So, a little small part of the inventory is eliminated to not a huge part, but, you know, in Detroit, the old housing houses like crazy, okay? Right, but most of the ones that are torn down generally, somebody's rebuilding a new home on that, not in every case, but... No, you're right, but that counts

57:10in terms of new construction. You know, we can count that pretty easily because we know they need a permit and that's all. Yeah. Understood pretty well. Okay, well, we'll definitely have you back on as we get closer, Jason, to give us an update when you feel like you have a little more data. But I like the fact that I'm not crazy on that, where I think that demographic wave is going to be material and probably for a good period of time. Yeah, and I think I might have misspoke earlier, just in case I did. I'm at 10,000 boomers first retiring a day and then dying a day. I think I might have said year by accident. Right, right. Oh, yeah, I know it's definitely per day. Per day, yeah. There's about 76 million baby boomers, so that's a lot of people who have to talk about, yeah. And just to finish at them, I know we've got to wrap up, but this one chart that I didn't explain yet, this is just showing renter and buyer demand in the boom phases. And, you know, the other thing we didn't talk about is how the baby boomers, you know, generally don't own entry level houses.

58:12They own higher end homes. Okay, and by higher end, I just mean not an entry level house, you know, they own a bigger family home or whatever. And here we see the the Gen Zers known as the zoomers or the millennials who are older. And by the way, the millennials are not kids anymore, you know, the oldest millennials about 44 years old nowadays. So they're definitely adulting, if you will. And so the Gen Zers are coming right into their prime rental demographic age. And the millennials are already well into their prime home buying era, you know, of their life. So this has gotten much later, you know, first time buyers, when I was younger, they, you know, you'd buy a condo when you were 26, I had all kinds of girlfriends in my 20s that were like 25, 26 buying their first condo in Irvine, California, by the way. And now, you know, they're 40 before they're buying their first home. So it's a different, no question about it.

59:12Well, I don't know if you know this, but I'm not sure if I told you yet today, I moved to Reno a year ago and have just bought a home as a first time home buyer at 55. Wow, wow. Yeah, that's amazing. Yeah. But you've been investing in other stuff. So at least you've been in the markets, right? And you've been building your wealth through investments. Yes, I could have bought a house a long time ago in retrospect, I absolutely should have. Yeah. There were a lot of, you know, I think one of the issues I had is there's a lot of analysis that I paid attention to that helped me sidestep and not get into the market you know, for the 2008 real estate bust. And Nick Gurley just bought a house too. A few months ago. He did, yeah. I think it had Lanna maybe. Yeah, and Atlanta, I think it's going to be a rental thing for him. So does anything that's going to drop by 50%?

1:00:16Well, so okay, so here's here's how I wanted to conclude here, which was, you know, differences of opinion of analysis or what makes the market, right? Somebody thinks a stocks a sell, somebody thinks a stocks a buy. You know, what I'd love to do if you're open to it. And if they are open to it, I haven't talked to them about it yet. But it would be, you know, you've mentioned Nick and Melody a couple of times. I think it'd be really helpful to perhaps have you guys on just as a panel and. Let's have a debate. Yeah, absolutely. That'd be great. And not an in your face debate, but just a respectful, well, Ari, I'm looking at this data. Okay, I'm looking at this data and then just a good faith discussion between the two of. Yeah, absolutely. All right, which data do we think really wins the argument here on this particular point? Sure, sure. And just in case, you know, I'll have some boxing gloves handy if we need them. Yeah, no, no, no. First is a referee. I'm kidding. I'll make sure that this isn't happened. No, but also, I think one thing this channel has done that has been really appreciated in the past

1:01:17is to have these quote unquote debates. But they're really more, like I said, sort of, you know, good faith discussions against between analysts and intellectuals who are just trying to get to what they think is the truth, right? And we're all trying to divine the future. Nobody knows it with exactitude, but to have good minds kind of, you know, hold up a question and kind of beat it from both sides is really helpful in helping the audience determine which argument they think is more compelling. I could agree with you more. And, you know, when you debate something with someone, it really makes you think and question your own beliefs. And that's very important to do, you know, you can't live in a bubble. It's a, that's a dangerous world to live in your own bubble and your own eco chamber. And, you know, social media does that to us so well nowadays because it serves as what we want. And now the AI chatbots tell us what we want to hear and it's sycophantic, you know, it's just a, you gotta get out of your own, your own eco chamber. So, you're an eco chamber.

1:02:18And this is no different than a lot of the topics that come up about the markets here on this channel, which is there's what your analysis says the market should do. And then there's what the market is actually doing. And a lot of times they don't correlate very well. And the question you get to ask yourself is, is, okay, has the market not started pricing in the factors that I've been looking at? Or is the market telling me that my assumptions might be wrong here, right? One of the great things I think you will bring you the discussion. I know both Melody and Nick do go out in the real world and look at a lot of data, but you're out there just doing transactions and have been doing transactions in was it 7000 or 11000 or whatever. So you get a really good sense of the heartbeat of what is. Yeah, absolutely. I mean, with my, if you count, you know, I don't consider myself to be in the traditional real estate business. I'm in the investment business, which is a very little small cottage industry.

1:03:21But when I was in the traditional real estate business, if you combine all of those transactions with the thousands of clients we have in the investment side, I mean, I've been involved, you know, my companies have an over 10,000 transactions now. Yeah, well, over 10,000. So, yeah. I call that having your finger fully on the pulse of what the market is doing right now. Yeah. In a lot of different areas. All right. Well, thank you for being open to that. I'll go, I'll go chat with Melody and Nick and see if one or either, or when or both want to come on for this discussion. Folks watching, if you would like to see this happen, let me know in the comments section and depending upon the volume of the comments that will depend upon the priority that we put on doing this. But Jason, it's been great to have you on the channel for the first time. I appreciate the data driven approach that you're taking here. And your openness to be able to share your data with other people who might have other data in different conclusions and try to see, you know, where the truth lies more in which end.

1:04:24For folks who would like to follow you in between now and the next time you come on this channel, where should they go? You know, my podcast, The Creating Wealth Show, has been running for 21 years. And you can just look up Jason Hartman on any podcast platform. Look for The Creating Wealth Show, my YouTube channel, same thing. My website is empoweredinvestor.com and I'm on all the social media platforms, of course. And the thing I'd just like to say at him in kind of closing is that understand that the real estate game is not all about price. That's only one metric. And that's the one, the vast majority of people focus on. It's a multi-dimensional asset class. As an investor, you can earn money a lot of ways. Okay. And so I just want people to keep that in mind. But even when we talk about the price metric, I don't think we have a lot to worry about as you could probably tell from our conversation. Yeah. And, uh, you know, at the end of the day, everybody wants to pay a lower price or whatnot.

1:05:24But then of the day, people want to generate as healthier return as they can. And so that's why it's really important to, you know, really try to get a sense of what reality is because that's going to determine what your return's going to be. All right. Well, in conclusion here, folks, I've really enjoyed this discussion with Jason. I'm sure you have two. Please join me in thanking him for taking the time to come on the channel here by hitting the like button and then clicking on the subscribe button below. So what was that little bell icon right next to it? Housing is often one of the, and it's not for a lot of people, the most important financial decision they make in their lives. And if you are wrestling with a, housing related decision and, you know, want to know how to make the smartest call given your financial situation. I highly recommend that you get the advice to be good professional financial advisor. If you've got one, just providing that kind of advice to you. Great stick with them. Don't mess with success.

1:06:26But if you don't or if you'd like a second opinion from a good financial advisor that takes into account a lot of the issues that Jason and I talked about today, consider scheduling a free consultation with the advisors that file for money endorses. These are the firms you see with me on this channel, Week in and Week out. To do that, just fill out the very short form at thoughtful money.com. Only takes a couple seconds to fill out the form. These consultations, as I mentioned, are totally free. You get personalized financial advice. There's no obligations involved. It's just a service that these firms offer to help as many investors and homeowners or potential homeowners like you. So to do that again, just fill out the very short form at thoughtful money.com. And the firms will be in touch with you swiftly. Lastly, just want to remind folks that the thoughtful money fall online conference is now going gangbusters in terms of being able to register for it. And we are still offering the lowest price. We're going to offer for it right now, the early bird price discount. So to get that, just go register at thoughtful money.com slash conference.

1:07:30The conference is going to take place on Saturday, October 17th. If you cannot watch live that day or can't watch the whole thing that day, no worries. Everybody who registers is going to be sent. Replay videos of the event that same day, the night of the day of the conference. And if you are a paying subscriber to the thoughtful money sub-stack or newsletter, you actually have been sent a code that will give you an additional $50 off of that lowest early bird price discount when everybody gets the lowest price they can. So if you want to just sign up for the newsletter for a single month, which costs $19 and then use that to save $50, well, that's a $31 profit that you pocket. I'm happy if you do that. Again, I want everybody to get the lowest price as possible. So if you don't already subscribe, become a premium subscriber over at thoughtful money.com slash newsletter. Thanks for being patient throughout that, Jason. Such a pleasure to have you on here. I really enjoyed this conversation. Appreciate your openness to potentially having a discussion

1:08:35with some folks that might have opposing views. And I just appreciate everything you do to help educate both home buyers, but investors and aspiring wealth builders in general. Okay. Thanks, Adam. Happy investing. Thanks, buddy. All right. Everybody else. Thanks so much for watching.