The rebel capitalist show all right guys. It gives me a great deal of pleasure to welcome someone back to the rebel capitalist show. He is my good buddy out in florida. He is a real estate expert. So when i have a tremendous amount of respect for – and i am super excited to have him back on the show today and give us an update on the real estate market, so jason hartman welcome back to the rebel capitalist show buddy, hey george, it’s great to Talk to you again, it’s been too long. These interviews are uh getting few and far between lately it feels like – and i i miss talking to you – it’s uh – it’s it’s always great, but i tell you, i’ve been watching your content and it is just getting more awesome every day, uh. It really is, but before we dive in to um an amazing uh, maybe surprising thing for people on housing, affordability, that’s gon na shock, a lot of people, i’m gon na! Warn you uh. What does your t-shirt say? It’S pretty cool yeah, i’m just i’m, as you can tell i’m doing this remotely yeah, i’m just uh waiting for a friend of mine here and i’ve got the old, thomas jefferson, yeah t-shirt. You can tell this one’s had some some youtube. I got a little bit and everything the quote is good. Yeah there you go. I prefer dangerous freedom over peaceful slavery. That’S right! Maybe that’s right! Good, stuff, good stuff! All right give us an update man. What’S going on in the real estate market. What’S going on mortgage rates, i’m assuming it’s still booming in the residential areas and the starter homes? It is you know i’ve been doing this since i was 19 years old and i don’t know if i’ve ever ever seen it this busy. I’Ve been through many cycles and it is crazy george, i i mean who would have who would have thunk it right as the saying goes uh you know months ago, during during uh, maybe march, right uh, who would have thought this would have turned out this way, But the real estate market is just absolutely booming. I just interviewed a guy from stansberry research a few minutes ago for my podcast and uh. He was talking about all kinds of you know uh empirical data, but he shared an anecdotal story which i think is interesting. Um he has a a friend who owns an excavation company, in other words they’re. The ones that move the dirt around for developers and his excavator friend who’s been doing excavating for 20 years has purchased a whole bunch more equipment. He started his company with like one backhoe, and now he does jobs for big real estate developers, and he says he has never seen the type of land purchasing and land development at the fever pitch that he sees it now and uh. He just thinks that the housing market, almost regardless of anything else in the economy and he’s an analyst he spent 23 years on wall street um uh. You know he works for stansberry and um uh. He just thinks this market has another good. Two three years of boom times ahead and you know i’m going to share with you some data today that i think really supports that idea. But your your viewers and listeners can decide for themselves, and you know you always look at things with a good, healthy amount of skepticism and a critical eye which is important and that’s why your audience loves you and so feel free to do that today, as i’m Kind of going through uh, this and and my thesis george, is that housing, amazingly housing is actually cheaper today than it was back when my mother purchased her first home in wait for it. 1976
Five years after we went off the gold standard, it’s also cheaper than it was uh in in the fabled year that george orwell named a book after 1984, and it’s also cheaper than it was right before the great recession in 2006.. Now i know what you may be thinking jason. This is your last time on the show, because you’re crazy, i think they’re putting that in the comments right about now they are. They are folks, i’m not out of my mind and i i just wan na i. I also wan na say that, after doing this, so long and helping thousands and thousands of investors invest nationwide and and build great real estate portfolios, one told me today: uh his name is keith he’s a real cryptocurrency expert and you know investor and he’s a really Analytical guy he told me he said jason. You know my bitcoin is doing better than the real estate i bought from you, but i’ll tell you uh in the three four years since i’ve been investing with you, i’m up 300 on my real estate portfolio. So he’s quite happy, you know uh and uh, and so so we’ll dive into that and george. Maybe i’ll just share a couple of uh slides with you on the screen and you know i’ll i’ll go back and forth. So i won’t keep this on the whole time um, but uh. You know i certainly learn a lot from your show and uh and and the rebel capitalist uh content. You have is fantastic um, but i also learn a lot from all the guests that i interview on my show, whether they be steve, forbes or uh. You know brent, johnson or jim rogers, or you know all the a lot of the people you interview as well. Uh and uh, and so that’s been a tremendous thing um in terms of learning, but this is interesting business startups before we dive into real estate. They are at the highest level, they’ve been since the great recession. So a lot of people using this time to start new businesses and i think a lot of these companies as the companies that were started during the great recession will become uh. You know some some hugely successful enterprises uh, so uh, we’ll we’ll see a lot about that. But the question everybody keeps asking is: are we in a bubble? Are we in a bubble? That is the question i get asked all the time. It’S certainly one of the questions. You talk about a lot and you know there’s a lot of reason to think that we are, and i love uh the way you look at content because you always look at a long, historical history, and so this is a housing price chart housing price index of The last hundred and twelve years, it’s not a short view, it’s a hundred and twelve years since nineteen hundred uh up to two thousand twelve and of course you know, you’ve got the great recession in there. You see a huge run-up, uh post gold standard 1971. A lot of inflation in the system as we went off the boat nominal, fair enough, fair enough. Yes, good good point, not inflation, adjusted, um and and then you know, we see it go down right and if you look at a chart like this, you’ve got the case-shiller index compared to the consumer price index. We all know those are both maligned case-shiller maligned in the sense that it profiles, uh 20 markets for their main index. 75 percent of those are cyclical markets markets. We would not recommend for investment but and the consumer price index much maligned also, but it is what it is. You know we’ve got the official statistics which are understated. We both know that and your audience knows that too. So you can see the divergence here between housing prices and the cpi, and it would lead a lot of people to say we’re in a bubble. This is way out of sync. It can’t continue right. Even you look at the case-shiller index compared to uh the s, p, okay, and that’s out of sync right. If the, if the s p is a proxy for the broader economy, then uh housing prices are out of touch with the s p. Fair enough. I agree. The problem is people, so many times are looking at the wrong thing. They’Re. Looking at the wrong thing, remember, nobody buys a house based on a price they buy it based on a payment. They buy it based on a payment i’ll i’ll just share with you. A couple of things here in terms of our rich uncle jerome powell uncle rico. Philosophically i disagree with almost everything he does but uh he is my rich uncle, he’s your rich uncle and, if he’ll give us free money i’ll take it okay. So so that’s the thing – and you know as i’ve shared before on your show, uh, to understand inflation. We got to understand the difference between nominal and real price and value inflation. Is this insidious hidden tax? It destroys our purchasing power, but it also destroys the value of savings and that’s bad stocks, bonds, even equity in real estate. Inflation robs us of the the profits from those things, but thankfully it destroys the value of debt and it redistributes wealth more powerfully than anything else, because it redistributes that wealth from lenders to borrowers and from old people to young people. Why? Because old people have assets, they have savings, hopefully, and young people have debts, and so inflation destroys that debt. So here we go 1976, the median house price 44, 200 in 1976 and the interest rate 9.01. Here’S how that deal? Looked your your house payment for that median price house would be 354 per month now, let’s fast forward to 1984
The famous book that everybody better read, because sadly it’s coming true, george orwell – wrote 1984, i believe back in 1948 and he’s. Sadly, this is all prophecy right. It’S it’s becoming way too true. Uh – and you know, the language is maligned and words have double meanings and uh we’re being surveilled everywhere and it’s you know another discussion for another day. Eighty one thousand dollars is the median house price interest rate very high, coming off of the jimmy carter, stagflation era. Uh and paul volcker, uh, beginning to break the back of inflation. Fourteen point: six: eight percent: your house payment is now a thousand and three dollars. Okay. But let’s look at the difference with some inflation in there you actually got that house for 356 a month, less. Okay, less now i know what you’re gon na say – and you said it today and it’s very true: i’m not adjusting earnings in here. Earnings are not adjusted in here. Okay, this is just interest rate house price and inflation by the official stat. We did not put earnings into this, and earnings just like the mortgage. Payment are also diminished by inflation. Earnings are attacked by inflation, wages right, but look at 2006, because now interest rates are a lot lower. House price is a lot higher 235 thousand 000 and the mortgage, the mortgage interest rate much lower 6.78 percent. The payment is now 1532, but adjusted for house price interest rate and inflation official inflation rate. Your house actually got 414 dollars a month. Cheaper people buy a house on a payment, not a price you’re. Just talking about the payment and real terms went down right, the payment in real terms again, not adjusting wages. Okay, so you know that’s one thing to keep in mind and the wage growth has obviously been uneven right, uh from 1977 to 2018. Americans mostly didn’t have a real dollar pay raise largely because of outsourcing because of understating inflation, and you know shipping jobs overseas and so forth, right uh, but uh. But it’s pretty interesting so thoughts and questions and i’ll unshare this and then we’ll get to the kind of the conclusion of this. If you will uh but uh, you probably have some stuff you want to chime in with. Well, i think it’s it depends on what what question you’re trying to answer. You know, i think, and how you define cheap. So, if you’re defining cheap by a mortgage payment, then it makes a lot of sense and as a real estate investor, i think, to a certain degree. You should because you’re buying cash flow and and your mortgage payment is going to be a component as to how much positive cash flow or negative cash flow. You actually have so that, but i think the way most people look at quote unquote. Cheap would be the value or the price, i should say, not the value but the price of the actual asset. And when you look at the price of the actual asset itself, then i i think we’re definitely in a bubble. I don’t think that there’s any way that we could argue that the actual price of the asset is cheap. You know the way i’ve been i’ve been thinking about this jason and i actually had this conversation with kiyosaki the other day and it’s, i think, we’ve kind of gone into a time where the property, which used to be the asset or well, let’s go back in Back in time, yeah the property was the asset and the debt was the liability, and i think now, we’ve moved into this weird bizarre world, where the property is actually the liability yeah, because that’s what that’s a mortgage, yeah and the debt is, is the actual asset. Yeah george – and it’s just it’s bizarre, it is bizarre and it’s due to the perverse financialization of the economy and i’ve been saying that same thing for 15 years you know most people think the mortgage is the liability and the property is the asset. I look at it. The other way around the property is the liability, and the mortgage is the asset. If i could just get a bunch of mortgages that would somehow produce income like rent right and not have a property involved. I would do that all day long. I will say, though, the property, even though it requires maintenance and management. It’S not. You know, it is also an asset of course, and i know this is kind of a snarky statement right i get it um, but uh. You know those packaged commodities. The ingredients that build a house, the concrete, the copper wire, the lumber which the cost of lumber has obviously skyrocketed and, and so many of the other commodities, the petroleum products uh. Those are those are cheaper now, but uh uh. You know, overall, that the trend is up right, um and uh, and the concrete and the labor all of that stuff uh. You know those commodities are not indexed to any one. Currency they’re universally needed, they’re, globally traded they’re not tied to any one currency. They have their own intrinsic value, just like gold and silver. They have intrinsic value, they actually are money rather than currency. I would argue yeah yeah, i think so too, and i think to sum up the way. I i see what your your slide deck, which is really interesting, is if you’re buying for cash flow. I think there’s an argument that the cash flow itself, along with the debt, could be cheap if you’re buying ex just the asset, though, because then you’re buying it to sell it right. If you’re buying it to sell it, then the the mortgage payment itself isn’t going to matter it’s going to be the nominal value or the real value of the house, so it kind of all depends on on what your angle is and what your objective is. It’S all it like everything else, the devil’s in the details – right, yes, you’re, very right about that and, if you’re buying, i would add to what you said. If you’re buying to sell it quickly, you uh could be playing the dangerous game, called the greater fool theory which right basically says no matter what i pay. Some greater fool will come along and pay more. You know and we believe people should buy and hold these rentals, because then you get the benefit of the inflation-induced debt destruction. We’Ve talked about before um, but you also get the benefit of these mortgage payments declining over time in real dollars and a couple of things. I want to point out here that actually make this equation a little worse than that i’m showing number one is that this is only the principal and interest payment on the mortgage. Remember the property taxes and the insurance expense are higher because those uh in real terms, yeah, well yeah they’re. I think i think they probably are higher in real terms, even because they are well at least um. I mean have property taxes as a whole, gone up as a percentage of of the house, and i mean you’ve been doing this so long or have you seen pretty consistent percentages as far as real estate taxes in some places they have but uh in all places. They’Re pretty much indexed to the price of the house, so yeah, i know their index of the price of the house was i’m talking about the percentage of the the price in some places and by the way uh a note of caution. If uh people are owning or thinking of buying properties in left-wing, controlled areas, democrat-controlled jurisdictions, whether they be states counties, cities doesn’t matter be very concerned, because most of these places are the business unfriendly places. Most of these places are the high density places, and most of these places are the landlord unfriendly places and they are going to see even more and more suffering and desperation from governments. You know what i always say: george, is you never want to live under a government that is desperate for money because what they do is they become predatory on their citizens, whether it be through red light cameras, speeding, cameras, parking tickets, increased property taxes? You know new fees for business startups and corporations higher state income tax, california, the poster child for left-wing disaster. You know they want to institute a wealth tax and to go back to your original question about property tax percentages. California, if it if it stays that way, but the likelihood is it’s going away prop 13, that howard jarvis, got through back in 1978, saw them fix property taxes, which i i have always theorized, that if it weren’t for property proper prop 13 and howard jarvis accomplishing That in the socialist republic of california, the california real estate prices would have never risen the way they have because prop 13 kept those property taxes in check and made it somewhat affordable, which is part of the cut which is part of the cash flow equation. Right. No question just like the mortgage payment yep, absolutely absolutely so yeah. So when we started the conversation, you said that that real estate is booming, but i know you take a far more nuanced approach than that. So when you say it, i i’m assuming you’re, not there’s some segments of the market that are not uh booming. I can’t let’s break it down a little further and kind of uh define which parts of the market are really booming and maybe which parts are are crashing. Yeah yeah good question good question so um when, when you had me on before, and we talked about my pandemic, investing uh course and so forth um, you know i back in february uh postulated that people would leave cities and move to suburbia. Now that’s like old news everybody’s talking about it, but back in february nobody was talking about it. Okay, so you know i i i was first for a very short time. My 15 minutes of fame it’s over anyway, so so certainly in urban cores, uh people are leaving like crazy uh. I just read an article yesterday about how tenants in san francisco uh have one thing that they haven’t had in a long long time, and it is leverage to negotiate with their landlords. Same is true with new york. City same is true with any high density area. So people are fleeing density, not only because of the cerveza sickness and the fear of contracting a virus and being in close proximity to people in elevators and mass transit, but also those same exact places are saddled with civil unrest and uh. You know their mayors frankly, in my opinion, should be indicted and imprisoned for not doing their job and protecting the property and the livelihood and the safety of the good citizens in these places whose businesses are being destroyed, windows being broken buildings burnt down. But you know they: they can’t break it up because it’s nothing more than a big joe biden campaign rally uh, but i hope you enjoy my snarkiness yeah. So don’t don’t buy property in the chas zone, right yeah? No, i i don’t think i don’t think chas or chad they’ve changed the name of it a couple times or portland or or new york or philadelphia or any of those urban environments are they’re very risky they’re. I wouldn’t yes, but so. Okay, the the outskirts of town, the residential areas, the starter homes, i’m assuming, are doing extremely well, yes, um, okay, but but you know, the cure for high prices is high prices yeah. So you said that that uh through this gentleman that you talked to a stansberry, he gave you that story about how his buddy’s never been better or never been busier with the bulldozer and moving ground for land developers to put in uh subdivisions and whatnot. So when i’m hearing that i’m thinking okay well, there’s your supply, that’s coming onto the market that might put a damper on future price increases or might just give it a bit of a headwind. Let’S say how long does it normally take for that supply? To start? Obviously it doesn’t happen overnight, so once they bring out the bulldozers once they bring out the land once the developers get through all the red tape and the regulation of the the local bureaucracy, how long does it take for that supply to start hitting the market? To start bringing prices or maybe to prevent them from continuing to to increase yeah great great point and um, you know that that’s the thing about real estate. It has a built-in scarcity, it’s slow to be produced, it’s got a lot of red tape and you can tell it’s coming. It’S not like you know. What’S the next iphone gon na be, we know one’s coming, but we don’t know what it’ll be, because it’s a big secret right and we don’t know what the price will be, and you know there’s all these supply questions but with real estate. We do know in advance right. We there’s a long lead time to produce the widget. If you will and and so uh you know it it it’s coming, but i i think we i i agree with my guest today on my podcast uh. You know, i think it’s it’s probably got a few years of tailwind behind it. Here’S another thing: that’s interesting, george um, one of our our team members who’s been working with us for maybe six seven years now, uh. I i actually put him on the podcasters. Go because he made me realize something interesting: he lives in san francisco and he and his wife have a rent controlled uh, like i think i’ve heard him on your podcast. Yeah, patrick, is his name and uh and his wife’s name is robin, and so they moved they rented this place in 1996, i think or maybe 97, but you know in the late 90s and um they’re, paying, i think, twenty four hundred dollars a month now that Property has appreciated in value like crazy over the years, and it’s it’s probably worth like. I don’t know i think it lasts. I asked him. He said it was worth like two million dollars now. Oh, my gosh and they’re still paying for one percent: rv ratio, yeah yeah, it’s it’s terrible for the owner, but here’s here’s the interesting thing that you know: government intervention always perverts the market. It distorts the market and it’s a terrible thing. But this is interesting because these insanely low artificial interest rates we have now are distorting the market but they’re going to distort it even worse in the future. And here’s what i mean by that all of the millions of people that have refinanced their homes and are continuing to refinance their homes or have purchased a new home – and you know they’ve got this 30-year mortgage at like 2.4 percent or 2.75 percent. It’S insane. I mean these rates are ridiculous, they’re, basically getting george the equivalent of a super cheap, rent, controlled apartment, and this is one of the things that i think makes the housing market rather stable, because these, these tens of millions of people they’re just gon na sit there And enjoy these ultra low payments they’re, you know during the great recession uh you know 12 years ago. Well, i’m just i’m following your line of thinking here, so it could prevent them from potentially selling in the future. If interest rates go up because then they’d have to sell and and they’d have to get a new mortgage at a higher interest rate, their purchasing power would go down, they’d be able to buy less house with the same income. So why sell is? Is that your your point right, it’s wise sell, but it also gives them the ability to weather economic storms, okay and we all know, there’s a storm coming. If it’s not here already. Okay, i mean you were one of the leaders and the the you know. The first thought leaders back a year ago, last fall a little more than a year ago to really profile and expose what was going on in the repo market. As it was collapsing – and i mean you know hats off to you for doing that, because just nobody else was talking about it, for you know pretty much except george gammon and um, you know, then it’s it’s just interesting, as i put on my tinfoil hat. You know we had the repo market collapsing. They tried to hide that problem, which was a real symptom of a much bigger problem. Right and – and you know it pretended economic collapse and then we rolled right into kovit and and they had cover for massive money, printing stimulus bailouts. You know et cetera, et cetera and all the you know tyrannical stuff. The government has done since then and uh. You know, but but but what they’ve given people that have purchased or refinanced a house is a giant gift of uh, really a lot of staying power that they can weather a storm because they’ve got like a bulletproof vest: okay people, let’s think that through, and so I i’m sure i’ve got some viewers right now that are saying okay. Well, it sounds like what uh jason is saying is that the government accidentally distorted the market in a good way and no we’re just looking at one good. That’S right there you go good for some, let’s think about the knock-on effects, because this keeps prices artificially high, which reduces the ability for people who are in a lower income. Or you know the millennials are getting out of college, the kids it it reduces their ability to buy a home, which i would argue, increases social unrest. I agree you are right, so there’s there’s no free lunch. You know you distort the market, you benefit one group and it’s going to be at the cost of someone else. It’S george. What we are witnessing right now is the biggest wealth transfer in human history. I mean it is insane. The chips are getting moved around the table and wealth is being transferred, it’s being transferred from lenders to borrowers, as it’s been ever since we went off the gold standard in 1971, when nixon finally cut the last tether to gold and and that wealth transfer has been Occurring and now we are seeing all kinds of new wealth transfers, and so what you just identified was certainly one of them um. I don’t want to forget to say something by the way um, as we were talking about migration trends a few minutes ago, um, you know what what i think we’re going to do is we’re going to see this in phases. So just forgive me for jumping around. I just don’t want to forget this because it’s important okay um, so you know people are leaving the urban areas right and rightfully so you know they just don’t offer much. They’Re, overpriced, uh, and – and so i i think, what we’ve witnessed now is phase one and phase one is simply take new york city is a great example. It’S simply people leaving manhattan, or you know somewhere in the city right and they’re, moving to other expensive areas. Certainly, the hamptons right, expensive, new jersey areas, connecticut all these areas have picked up a lot of new movers from the city. Now these are people, interestingly, that have tons of money to spend and when they go to these other areas, although still very expensive areas. Most of them um their money, spends better than it did in manhattan. Okay, even though the hamptons is still massively overpriced and too expensive. Okay, so is connecticut. You know a lot of these greenwich right or or some of the new jersey areas um, but a lot of them moved to florida where their money spends incredibly well, and they have this wealth effect where they feel like super rich coming into a market like florida. Right or maybe charlotte, north carolina, half back city, you know a lot of people from new york go to charlotte as well and and so um. I think what we’re seeing now is the phase one of people just moving to the outskirts in the bay area of northern california. They might be leaving san francisco but they’re going to silicon valley still very expensive in palo alto, for example, or los gatos right. That’S it’s cheaper than san francisco because you get a single-family home and you get some land and so forth, but it’s still very expensive. But what i think is going to happen – and this is a prediction i i’ve made – is that we’re going to see phase two and even phase three and maybe phase four of this migration trend. Okay, now we’ve seen a little bit of it now nothing’s all or nothing, it’s just a generalization, but the next phase will be these people sitting in their expensive place in greenwich, connecticut or the hamptons or uh uh. You know san jose or uh. You know uh palo, alto or whatever right then the next step is they’re, gon na say hey. You know we moved here: honey, right, they’re having this conversation, the spouse’s honey we moved here and you know we got more house and all i’m doing is having meetings on zoom um. You know why don’t we just move to dallas and have no state income taxes, or you know, uh, austin or or something like that and uh and and that’s gon na, be the phase two move and uh. So i think we’re gon na see a tremendous wealth effect where people with this massive amount of spending power, because they’ve come from these high equity, expensive markets and they’re trading their equity. And what they’re going to do is some of that extra money that they didn’t need to spend on a house. You know where they liquidated their two or three million dollar house and they bought a 600 or 800 000 house in a much less expensive city. They’Re. Going to look around and say well what else do i do now? Do i start a business with my extra money? Do i put it in the stock market? Do i buy crypto or gold or buy more real estate and buy more investment properties right or you know, maybe a second home. So it’s going to be interesting to see those knock-on effects that happen there of these. I think here already i’m already seeing that right here in phoenix: oh yeah jason. As you know, i don’t spend much time in the united states, but i’ve been in phoenix for uh what now maybe a couple months, helping out a friend, yep yeah and by the way i have to say everybody. George, is a saint. What he is doing to help his friend uh, you know, but yeah, so yeah you’re, not you, don’t have to go into it, but i thank you um, but anyway, i’ve been here and i’ve noticed the exact same thing, because i’ve got some uh people that i Went to college with that are real estate agents locally and that almost every single one of their buyer clients is someone that’s coming in from california yeah i mean you just nailed it right there, so i think we could, if we’re not starting, maybe we’re, even in The middle of phase two in some areas, right yeah, you know, i would argue – probably denver uh phoenix as an example vegas. I think too, maybe yeah. These things are hard to track because they’re so fragmented right. You know we’re talking about millions of people making decisions, and you know some of them. You know they move from san francisco to san jose. Okay, now they’re, not in a city they’re in suburbia, they feel a lot safer. Okay, they move from. You know la and one of the high density la markets to maybe orange county, where i’m from right, so they moved to newport beach, still expensive, uh, but not as expensive as some of these la areas uh but more suburban, and then they do phase two. Maybe they move to scottsdale right where you live uh, so you know it it’s uh. Some of them are doing all of the above now, and some of them are actually moving to rural areas, they’re literally moving to rural areas. Yeah. I think that that’s it. That’S really incredible insight. One thing i wanted to get your opinion on, and i i’ve thought about this occasionally when i’m trying to figure out the supply side of the equation with the with the real estate market, the united states, especially with the homes that you and i deal with. Personally, you know these starter homes and linear markets, the cash flowing properties, good quality investments, yes yeah, and let me just give you a quick story. I don’t know if i’ve told you this, i’m sure i have but i’ll. Maybe some of the viewers haven’t heard it when i was in saint barts, and i was there for the last uh three months prior to coming to the united states just to get out of the cerveza sickness, uh insanity, we’ll call it the mask, and i remember You sent me some real estate prices from st bart’s. They were shockingly expensive, but yeah yeah yeah. They they really are, but i was there at uh. A dinner party with our buddy, hugh henry yeah and uh, is over at his place and most of the guys that he hangs out with are kind of other hedge fund, guys or investment bankers. Whatever. I was talking to this hedge fund guy that that he likes to be very private, so i’m not going to say his name, but most people would recognize him from cnbc and whatnot and he’s also good buddies with jim rogers and we’re talking about real estate. So yeah, what do you do? I’M like? Well, i retired. In 2012, i got into real estate. I started buying in the midwest he’s like yeah wow. That’S exactly what i started doing and he starts going off on how great of an investment he thinks real estate. Is you know, or just in general? You know throughout history right, not necessarily right now and he’s like yeah. I was doing the same thing back in uh in 2012, 2013 and i’m like yeah. Well, i do the same thing i went out. I bought a few homes he’s like i bought a few homes as well and we’re like cheers man. You know tap the that the beers and i i’m like yeah, i in my mind i’m thinking a few yeah. Okay. 10. 20.
You know to me that that’s a big number, how much was a few for you he’s like? Oh, i, like around 4 000 [ Laughter ], i’m going to do the sound effect machine for that. So my but here’s my point i know back in 2000. Let’S say: 12 11 to maybe 14, so much of that housing stock was bought by the black rocks or the the huge private equity funds. And i don’t know if there’s any statistics on how much they still own. But i’m thinking in the back of my mind that they’re doing the same thing that you always do compared to what right: they’re asking themselves that question and if, let’s say they’re, getting a six percent return or cash flow from their their portfolios. But we in this weird bizarre world who knows what happens but let’s say over the next few years that interest rates on the 10-year go up to, let’s say five or six percent. Well then, in my opinion, because they’re really not real estate, guys they’re private equity, guys or hedge fund guys, you know they’re gon na roll out of their real estate investments, they’re gon na sell they’re going to liquidate and they’re going to roll into what they prefer, Which is something in the financial economy like a 10-year treasury or something like that or a corporate bond, and that and that might not affect the high-end market, but it may affect our market because they bought exactly what we like to buy right. The these starter homes in linear markets. So what what do you think about that uh? Have you got any statistics on how much they own, how much they’ve sold or anything like that sure so invitation homes is probably the biggest at least last time i checked, and i think they have about 60 to 80 000 homes right now and um. Here’S the thing, george: in terms of the rental property market, there are about 16 million single-family rental homes in the country, okay, that are rented they’re owned by investors, okay and even though those institutional investors uh, you know the the numbers they talk about: 4 000 homes, 80, 000 homes. You know that’s a huge number to us in terms of the overall marketplace: it’s a drop in the bucket these. These guys do not pay uh. You know they’re they’re, not that big of force in the overall market. That’S one thing, but they’re they’re not, but in in local areas they are, i was. I was reading an article the other day, uh that this one, i can’t remember the name of it, but with this one, big private equity group between like 2012 and 2013, bought 90 of the homes that went up for sale in like one or two zip codes. In uh atlanta you’re right, but ninety percent of went up for sale. In what period of time i mean i get two like it, like 2012 2014, just like a two year period: okay, all right, um! Well, you know, i i mean i, i don’t deny that they’re a force in the market, but they’re a pretty small force overall, and what you got to remember is the what i talk about. I teach a concept uh, that’s just sort of named in a cutesy way. It’S not really quite accurate, but it’s i call it the the three dimensions of real estate and what i mean there is that the uh, the rental market and the housing price market are uh, inversely correlated, okay and usually, usually yeah, usually yeah. What were you talking about lately tell me about that. What do you mean? Well, i looked at a chart the other day, and i correct you if this isn’t what you’re referring to, but i was looking at a chart of the vacancy rates and the occupancy rate. So vacancy rates for um for uh, rentals and occupancy rates for people buying homes and the occupants are not i’m sorry, not the ownership rate. I’M sorry not the occupancy rate, so the home ownership rate was going up was increasing and the vacancy rate was going down which which which and i the chart that i saw that i think went back to the early 70s. It never did that there. There was always uh, you know if, if the, if the vacancy rates are going up, then that most likely means that the ownership rates are going up as well, they’re, never moving in opposite directions right and the only thing that i could conclude by that is, that Supply is just incredibly incredibly tight. Well, yes, supply is incredibly tight, no question about it um and what what happens uh, you know in i mean the market right now is so over. It’S it’s just on fire. It’S very hard to operate in this type of market. By the way you know people listening to me as a real estate guy, i know there’s gon na be you know you get a couple comments, always from someone who just doesn’t get it right and um. They say well, this guy is just promoting real estate. So that’s. Why he’s all rah-rah? I don’t like this type of market. I think this type of market like look at there are three types of markets: there’s a buyer’s market, a seller’s market and a broker’s market. Okay, this kind of market for us operating a referral network that people buy properties through it’s a pain in the butt. I mean it’s, it’s very difficult to operate in this type of market. I do not like this type of market. I much prefer a little bit more, even keel market where there’s like a balanced amount of supply and demand, because you know right now: we have clients that just get disappointed. You know they try and try to buy a property. There’S multiple offers they get disappointed and they just decide this real estate thing’s. Not for me, you know now most of them will stick with it because they know there’s you know money to be made, but um it’s it’s hard to operate in this market. We do not like this type of market. Okay, i just want to put that on the record, but um uh. You know a conversation i had with my friend nancy back in 2005 15 years ago, uh, okay. So here’s why i tell you this i’m at the car wash in irvine california, where i lived at the time. Well, i lived in now i lived in irvine at that time and uh and so um. I see my friend nancy nancy works for the one of the largest apartment owners in the country, irvine apartment communities owned by donald bren, okay – and i you know, i said the normal thing to nancy: hey nancy: how how are things at iac, irvine apartment communities, how’s? The how’s the rental market doing and she says we are not having a very good year and i i said why and and she says well: everybody’s buying houses from you, they’re they’re, not renting you know, and so they’ve had to uh increase incentives, lower security deposits. The rents soften the rents offer more. You know one month, free two months, free if you’re, so the vacancy rates were going up because the ownership rates went up right right, exactly and so uh. Usually when, when you know, people have three choices, they can buy, they can rent or they can be homeless right and when i said that at one of my live conferences, someone yelled out, no, they could live with their parents. Okay, that’s a fourth option, fair enough and – and i could tell that – was uh someone who got one of the boomerang kids that moved back in right and and and so you know – uh when, when housing affordability gets really really constrained, okay, people don’t buy. You know they they they’re forced to stay in the renter pool and that puts upward pressure on rents. Okay, when housing affordability is really good, they all move out of the rental market and into the ownership market, and so then, as investors, our rents soften a bit. But our prices go up and that’s the beautiful thing about income property, it’s a multi-dimensional asset class. So as long as we understand what’s going on, we adjust our strategy. We either sit tight and we enjoy the increased cash flow. The increased rental income or we enjoy capital appreciation, either way it’s fine right or the last eight years. You’Ve got both yeah yeah. Well yeah. You got both exactly exactly so so uh that that all right, that’s that one well, i sure appreciate the conversation. It’S been enlightening and fascinating, as always buddy for my pleasure before you. Let me go, though, if you’ve got a minute, i just want to show you the last slides to give you the expectations. Yeah, i’m sorry, another one yeah so sure so uh. Let’S just share the screen here again and i think you’ll like it remember. We left off in 2006 in our in our analysis, okay, so here we have today we’re fast forwarding 14 years from the last chart, okay and i’ll just for memory, because we paused this a while okay, we looked at 1984 2006. Okay. Now, let’s look at today. Okay – and this is by the way you know from last quarter – okay, so it’s not completely current, but um. The median price, 313 000 everybody’s thinking, housing’s really expensive, it’s more than it was in 2006. Okay, there’s a bubble: housing payments. Are you sure, i’m going to correct you, but look at the interest rate as of july 30th, 2.99 percent that is so artificially low? It’S absolutely insane uh you and i both know. George. Your shrewd audience knows that we are, quite literally in an era of negative mortgage rates where, even if you never rent out the property with real inflation and real tax benefits, because the interest is deductible on the mortgage, you are getting paid to borrow the money on A vacant house – okay, but you’re, never gon na keep a vacant house you’re gon na rent it okay. So it’s much better! But regardless of that, here’s how it looks now that mortgage payment is now only 1319 rounded off and in the last 14 years your house payment has gone down by 657 real dollars. The only thing not in this analysis is wages. This is, this is a comparison of housing, price interest rates and inflation. Okay, the house got cheaper. Okay, the house got cheaper now i thought we’d go way back to 1976. That’S the year. My mom bought her first house and it’s a bicentennial year. It’S five years after we went off the gold standard, the 17, the 70s were typified as a very tough decade. Stagflation jimmy carter, the misery index, blah blah blah. We’Ve heard it all right so uh from 1976 to 2020, the house got 299 dollars cheaper per month. The house payment, the payment – yes principal and interest only does not include taxes and insurance. Okay, so is there a bubble? If so, when will it pop? Remember it’s much more complicated than this. This is simply the housing payment uh discussion. There are more things to it. There’S everything george teaches you on his on his channel. You know: there’s the repo market there’s the great reset, there’s everything under the sun, okay – and you know i’ll – leave that to your other great videos, george, but uh at least that’s an analysis of real dollar housing payments and i hope it’s helpful yeah. I think that was very insightful. It gives us a different angle on, on a i mean, a kind of a rubik’s cube that we’re all trying to figure out right now and uh real estate is applicable to everybody uh, whether you’re a renter, a buyer seller owner. It doesn’t matter so yeah. I appreciate it man well for my viewers, who want to find out more about what you do. Where can they go uh just my name, jasonhartman.com jasonhartman.com uh. You can find my humble little youtube channel. That george has helped me with. So thank you for that george, but i’m on youtube as well uh. But my big thing is really my podcast. The creating wealth show and uh on any podcast platform, itunes or whatever just type jason hartman and look for the creating wealth, show all right. Buddy we’ll see you soon can’t wait to do it again. All right. Thanks again happy investing to you and all your [ Music ] viewers, you
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