How Does INFLATION Affect The Housing Market (ESPECIALLY First Time Home Buyers) Ep 122

Hello, how to buy a homies. Well, thanks for joining. It's good to know a nerd. That's me, your real estate nerd. Today you're gonna hear my inner nerd get a little testy about everybody talking about this whole inflation thing. Before this year, you maybe never even heard of inflation, even though I nerded out about it and I put it on an episode in December of 2021. But I bet you know about inflation now. Yeah, you can't get away from this topic. So let's revisit it and we're gonna find out what you can do about it. The sensation that's sweeping the nation. Let's do this. Hello, and yes, it is I, David Sidoni. And this is the how to Buy a Home podcast. And I am your personal nerd information machine. Using all of my power hours of dork research and a lack of an exciting social life to bring you all the data and analysis that you need to eliminate your worthless rent, to help you live a more prosperous and secure financial future, and to protect you from the dangers of an unpredictable and constantly changing economy. Today we're going to focus again on that last part. I say again because I told you all about this in December. Have you noticed a change recently? That little thing they like to call inflation? So you know what sucks about being your super nerd and spewing mad math facts all the time? I'll tell you what sucks about it. It's that there's a cyclical factor to all markets. And in order to help you prepare for what's coming, there's no way that I can not sound like a crotchety old boomer. I am not a boomer. You 20 and 30 year olds out there think that I sound sus like I've got no clue what's going on since my old ass had it easier than everyone else. Cause things have changed. You don't know how it works. Well, get ready, homies. It's truth bomb time. I hate to be the bearer of bad news, but if you were born in 1990 and you went to college and you graduated in 2012 and then you got a job and you've been adulting since 2012, you don't know jack shit about market cycles. Truth bomb, homies. Remember? I love you. All truth bombs are here to help you. You know, I quit my job, quit my broker, and started this podcast just so I could help you guys. But sometimes my inner angry nerd comes out to make sure that you can understand all the global data and that you can be prepared for it. Okay? Now that that legal disclaimer is done. So you can't sue me for destroying your mental well being homies. You've been living in an adulting fantasy world. An economy that's only been going up and up and up for over a decade since 2012. This is not normal. I can't help when you were born and when you became an adult, but I can tell you that many of you listeners out there as an adult, you've never understood what it's like to be in a normal economy. You've never felt a stock market big drop. You've never seen a weak economy. You've never lived with a normal home loan interest rate or normal inflation rates. Since 2012, you've had a strong economy and jobs market for 10 years. So strong that a global pandemic barely put a blip into the overall economic conditions and it only happened for a few months. You've only known a stock market that never crashes and barely corrects, only just going up and up and up for over a decade. You've only been a renter and watching housing prices in a non stop increasing market for those same 10 years which usually those cycles are on a four to five years up and four to five years down. You've also only known stupid low mortgage interest rates. As an adult, do you know that the average interest rate on home loans is 7.77% since 1971. Today's topic, Inflation, it has been insanely low. And it was so low that you've never even heard about it. Did you know that inflation is so low that it's essentially been giving you a pay raise every single year? More on that later. What you need to know and understand is that for the last 100 years, the average inflation rate has been 3.5%. And from 202010 to 2020, that rate was only, wait for it, 1.75% for the entire decade. Yes, the entire decade that you've been adulting. So to all my millennials and gen zers out there who want to say the boomers ruined it for you, the truth is they robbed Peter to pay Paul and you've actually had it damn good for the last 10 years. And if you weren't able to take advantage of that before, during these glory days, well then let's figure out how to protect you for what's coming. Because it's about to change. One of the big ways it's going to change is the recession. And I talked to you guys about that originally back in 2019, but we want to make sure that we get a refresher on that. So I'll remind you guys again, but that's going to be the next episode. Today we're going to talk about inflation. Back at the end of 2021, I gave you that first inflation episode because we first started to see back at the end of last year that inflation was starting to come on the rise. This was an effort to use all of my real estate economic nerdy powers to protect you. So can I ask you a question? You might not like this question, gang. Were you in a position to buy the end of 2021? Listen to that podcast and all the rest of them. You still remain a renter today. If you answered yes and you were in a position to buy, what's happened? Mortgage rates have doubled and inflation is now at 8.6%. Gang, help me help you. I tried to tell you about this. So that's where you're at. There's not much more that I can do for you except say, reach out. Now, you missed that little jump, but you've still got a chance to get in. Now, I'm a super nerd who can educate you and help you fly your unicorn team in your town, but I can't make you engage. I get it. You had a lease that wasn't up until August. And so what you wanted to do is you wanted to make sure that you didn't break your lease because you'd have to pay, what, 2,000 bucks to break your lease. That would have been a stupid waste of money. Big picture people. The home that you could have bought in 2021 if you had to break your lease and pay that $2,000 now costs 10 to 20% more than it did in 2021. So that's, you know, on an average, $400,000 house, anywhere from 40 to $80,000. Oh, and I'm not done your mortgage payment right now because interest rates have gone up two points. That's going to be $1,000 more a month. So on a 30 year fixed loan, thousand dollars a month, that's $360,000. So aren't you super glad you saved that 2,000 bucks and didn't break your lease? The angry nerd in me. There he is. I told you he was coming. For those of you who were ready then, and you're possibly still ready now, it is time to dump your rent. Stop waiting, go to howtobuyahome.com and reach out for some guidance for your next steps. Don't wait. Don't miss out. I'm not selling you a how to buy a home seminar. I don't want to be your realtor to make a commission. And I don't charge anybody a monthly fee to be part of my insider tips group. You're watching this YouTube for free, right? I don't have a Patreon. So please, for the love of God and everything that's holy or unholy, if you worship other things, come take advantage of this nerd and my passion project. I'm trying to start a revolution so you can take advantage of the opportunities that this market is offering and stop making your landlord rich. So whether you're ready to buy right now or if you're not ready to buy right now, let's discuss inflation. I'm going to help prepare you to take advantage the best that you can because we do have a changing economic landscape coming, if not already right smack dab in the middle of it. Inflation hit 9.1% this year. That's big. But as I record this podcast here in the middle of August, we did see a glimmer of hope that the July numbers came out and it dropped back down to 8.5. Now, that's even better than the 8.7 predictions that most analysts thought we were going to get to. So, yay, we got down, but we're still at 8.5%. The headlines for the new numbers were, is not good, but it's better than we thought it was gonna be, getting better from bad. So to get extra nerdy and extra detailed into the number that I gave you earlier about how inflation has been at 3.5% for the last 100 years, here's the way it breaks down. Since World War II, 1962, 2021, the average inflation rate was at 3.8% per year, moving somewhere between negative 0.4% and 13.5%. And then last year, 20, suddenly we started to see things change. We ended the year with an inflation rate of 4.7%. So the government, that meant that they were getting ready to move the Fed interest rate, and they've done so here in 2022. I'm sure you've heard a lot about that on the news. And if you haven't, good for you. You have a life. Congratulations, but thanks for joining me. And now you get to hear about it here. So, so far this year, inflation got as high as 9.1%. And like I said, it recently dropped to 8.5. So we're still sitting at 8.5% inflation, which is, which is way more than the 3.5% for 100 years or 3.8% for the last 60 years. Dr. Lisa Sturivant, the chief economist for Bright MLS, and hey, who's not going to listen to a doctor, right. She said in a statement that the CPI numbers, now that's the consumer Price Index, along with the strong job numbers that came out the end of July, are signs that the strategy of the Federal Reserve bank interest rate hikes could be working. She said, quote, the easing of overall inflation coupled with the strong labor market conditions could provide some optimism to the Federal Reserve that the rate hikes are working and that the elusive soft landing that is bringing the inflation down without sending the labor market tumbling. Well, that, that is a possibility, unquote. So that's the numbers. And I'm sure a lot of you are sitting there going, that's great, Dave. I need to listen to that old episode 67. So what the hell is inflation? Okay, here's the breakdown. It's an increase in the price of goods and services. That's it. There's a million other things people are going to tell you, but that's the basic. When economic factors shift, like supply and demand changing or a change in the value of the dollar, those are some of the things that cause inflation. It costs more to buy stuff. Now, what can get confusing is that when stocks and houses go up and cost more, that's not inflation. Inflation is when the price of regular old stuff, gas and groceries and all that, when that stuff costs more, that's inflation. There's a million different theories, but one of the factors about this current inflation that a lot of people don't realize. Did you know that 80% of all of the US dollars out there, all the dollars that were printed, 80% of them were printed between January 2020 and today. Let that sink in a little bit. Now, if you're wondering what that has to do with inflation, here's how it works. With more dollars chasing the same amount of goods and services, because it's not like people made 80% more stuff in years. So we've got more dollars chasing the same amount of stuff. That means the costs go up. And of course, we've had the supply chain issue affecting the manufacturing and distribution costs. So that cost to the consumer goes up even more. Combine that stuff along with all the dollars being printed and we've got some inflation. Now, again, there are multiple different definitions, calculations and theories on what actual real inflation is. They've got all these different names for them. You can hear all about that in episode 67, because I did that all there. But no matter what theory you buy into, there are some non arguable facts. Gas is up 60% since last year. We all know that, we all feel it. They say groceries are only up 6% nationally, but boy, it sure feels like a lot more than that to me. And then there's the big one that I'm sure you're all feeling because you're listening to this podcast. Rents are up now. How much are they up? It's whatever the percentage equivalent is to FU tenants. I don't have the exact data on what that is, but it's a big percentage. So inflation means that your purchasing power has decreased. So it's going to require more money to buy the same goods and services now than it did before. Well, the reason you haven't heard that much is because it's, it's not a huge deal. If your wages are going up in line with or more than likely outpacing the inflation, what's your pay raise per year? 3%? 4%? 5%? Well, reports show that amid record inflation and a labor market with two open positions for every worker, the annual salaries have been increasing 4.8%. That's the highest pay bump in decades for employees. And that highest bump ever is still not enough, according to many companies, to keep their employment going. So that means more pay raisers are probably on the way as we get to the end of 2022. And that's going to be something that's very important and something that you employees and laborers and people with jobs are going to need because inflation's at 8.5%. So let's say they stay at the average 4.8% increase. Okay? Everyone gets excited because they got the highest increase they've gotten many, many years. 4.8% increase. But if you take into account that there's 8.5% appreciation, you actually received a pay cut of 3.7%. For those of you playing at home, that's 8.5% minus 4.8. Yeah, that's the bummer about inflation. You've never had to think about it because it's been at 1.75 for the whole decade. So your salary increase that you get every single year, you actually should have a formula where you take into account the cost of living, your inflation. So typically a 10% pay raise is really more like a 6.5% raise. When you factor in inflation, which has been at 3.5% for all those years and years. This year, if you're only getting a 4.8% raise, you actually lost 3.7%. Yes, I understand. I already said that. But guess what? It's so important I need to say it twice. Go to your boss if your annual pay bump is 10% or less and provide them with all this information, data, and use that as your reasoning behind a higher pay increase this year. That's a good strategy. And if you're going to do it, you better do it fast because the recession's coming. If the recession hits and you're lucky enough to keep your job, well, they're not going to be as stoked to give you a pay bump when they're going through a recession. So do it now. The job market's still hot and they know that you might have opportunities to go out and get a higher paying job elsewhere. So ask for that pay bump now to prepare for the recession. Remember, we're here to help you prepare. What you're going to find if you do the research on your own, is that there are differing opinions on how long this will last and if the government programs and the new laws that just got passed, are they really going to help this inflation? The reason why you need to be curious about that is because you need to figure out what can you do to prepare and how long do you need to prepare. Unfortunately, none of us have a crystal ball, so we can just take this information and do our best with it. One of the other nuggets that I found when I was researching this is a theory that large corporations are helping to drive inflation and that the things that we used to do to stop inflation are probably not going to work the same because of what's happening with these large corporations. The Boston Federal Reserve, they've got three economists that argue in a new article that there's a new type of inflation that we're in right now and the old system of raising the Fed interest rate, it might not be as effective as it was in the past. They discussed something called the cost price relationship in a concentrated economy. Whoa, nerd stuff. What they're saying is that with more larger corporations, we have more corporate concentration, with the larger corporations acting as the main supplier of the goods and services. We've got less companies in each industry. When these larger corporations face higher production costs, they do their best to pass that cost onto the consumer. Now what these economists argue is that since 2005, things have changed. We become a more concentrated, with larger companies controlling things and less competition out there and that enables them to raise the price a lot faster. That's what the economists are saying, because we've got fewer companies. So if this theory is correct, the usual government fixes for inflation, the things that we're counting on right now, the Fed raising the interest rates to the banks, they're concerned it might not work as well this time. They're suggesting that unless we focus on stronger antitrust laws on these corporate concentrations, unless we start breaking up these monopolies that no one's labeling as actual monopolies, that we could end up having to find other ways to adjust for inflation. This time. I looked at some of the data and there's a certain good that many of us are buying that's gone up a lot. But when the stock reports come out, the companies show $13 billion in profit or $60 billion in profit. Big oil. Big oil. So if you're asking how long this is going to last, I don't think anybody really knows. It's a new world and there are new giant economic factors happening all the time. We're 10 years into this upswing, this fantasy land we've been living in, and that ain't normal. We're post pandemic. We've got a new giant corporate culture that sells us most of our stuff. And the government printed 80% of all the dollars out there in the last two years. Dude, I have no idea what's going to happen. And anyone who definitively tells you that they know what's going to happen with inflation, they are selling you something right now. If you're still here in this episode, that means that you're interested in how housing is going to affect inflation. So I'm going to tell you three things. Number one, the price of everything is going up, including rent. And one of the only monthly payments that you can fix that you can lock in for 30 years, that's a mortgage payment. So yeah, you need to save up to buy a home. Buying a home and locking in that payment can be your best shelter in the long term against inflation and any other economic turmoil that happens. Rents always go up. A gallon of gas wasn't five bucks 30 years ago, but imagine you could pay 20, 22 prices for shelter for the next 30 years. Or you can just keep renting. Number two, how does this whole inflation thing affect you? A first time home buyer? Well, I already told you guys and I don't want to make this podcast extra long, so go back and listen to episode 67 right now. Go, go now. 67 if you're a homie, you don't need to hear number three, so you don't have to stick around. You guys know what I'm going to say, so go to episode 67 right now. That's how I explain how inflation affects housing and how you can use a home to shelter yourself. So go. Just go right now. 67. Go. You know what number three is? If you listen all the time, you know what I'm gonna say. You can do this.