1325: Senior Housing Investing, Appreciation & a Fed Induced Bubble with Ali Wolf

I love your podcast. I think you educate, you entertain, and I always learn something, even if it's not real estate related.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's, he's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode number 1325. 1325. Thanks for joining us today. I've got our client and the guest host for my Solomon Success show, Biblical Principles for Business and Investing on to help me with the intro portion of the show. And that is Rabbi Evan Moffik. Rabbi, welcome. How are you?

Hey, Jason. Great. I'm good. I can't believe we're at 1325. Just seemed we got to 1300 and boom, we're already a quarter of the way through 1300.

It's a lot of episodes, I tell you that. And with all my other shows, we've got well over 5,000 episodes. So folks, you don't need to listen to anybody else.

If you have a long commute, it could be Jason Hartman all the way, both directions.

You know what, it could be all the way for the next 10 years even if we never produce another show after this. But we're going to keep producing them for you because we love you and we love being with you and we get such positive feedback from you. And by the way, if you've got feedback for us, go to jasonhartman.com Ask Jason hartman.com Ask and you can tell us or ask us anything. We always love hearing from you. Jason hartman.com ask, engage with the show, help the community, whatever question or comment you have, believe me, someone else out there has the same question.

And the truth is you will get an honest answer as a client. I can say that if you go to some websites where they say ask us a question, you get a sales pitching response. That's what you get. You get one line maybe saying, oh, that's a very interesting question. We'll be happy to look into it for you. Now send us your money. If you, if you ask a question to Jason, he'll get you a good answer, a real answer, without any kind of sales pitch saying, you need to buy this, you need to buy that. Now, it might be a good idea eventually for you to buy something, but it's not a sales pitch. It's an actual question with a real answer.

Yeah, good stuff, good stuff. No, that's what, that's what we're here for. That's our mission to empower investors to be consumer advocates, to be your guide on your journey. And I just love hearing from clients that started investing with us 10 years ago and to see their success. And it's just an awesome feeling. I mean, look, I could have retired 14 years ago. I don't need to be doing this. I've got enough money to live, well, for at least my lifetime, if not a little longer, as long as I don't screw it up.

You know, but, but this is a mission, you know, it's fun. I really love doing it and I love empowering people. Our guest today will be a continuation of the Ali Wolf interview. She's the chief economist for Myers Research. We've had her on several times over the years and we did this really long 90 minute interview with visuals. By the way, if you go check out the YouTube channel, my YouTube channel, you can see the visuals on there that are being described here. But you don't have to. It just adds a nice dimension to it sometimes. If you have the visual. We'll get to that in a moment. But Evan, you posted in our content group just yesterday or the day before an interesting Wall Street Journal article. Tell us about that.

Well, it was an article about senior housing, which as we know, as you've talked about for years, is something that is always being talked about in the real estate investing market. And what this article essentially says is it's been way overbuilt and that there's a new trend which is seeming, I guess, much more historically true, is that boomers want to stay home. There's so much technology where people can stay and live in their homes. In fact, I see it all the time. I see many people in my congregation who sell a beautiful home that they have and they move into a ranch house. They plan to live there until they pass away.

Now, when you say a ranch house, you're just simply saying they move into a one story house.

One story, one story. And I think that that reflects meaning.

They, you know, they might have mobility issues with stairs.

Yes, People are afraid of falling on stairs.

Yeah. What we're meaning about that, go ahead.

For sure. But it reflects a wider trend whether people move to a one story home or not. It reflects this wider vision that people want to stay in their homes as they age and the technology is more and more there to put in railings so that they can walk easier to have home. I have people in my congregation who are involved in home instead businesses where they get caretakers to come into people's homes. People would much rather stay in their home than live in an institution. Now, sometimes an institution is the only thing that can provide care. But it has been so overbuilt what this article says and that it may be one of the biggest miscalculations in real estate in a generation.

I hate to say, folks, I hate to say I told you so, but I did tell you so. I just intuitively.

And you know, this is without.

I'm not going by data here, I told you before, this is my anecdotal impression. But you know, sometimes you got your finger on the pulse and you just know it to be true. Right. And I remember back in the late 80s, companies going into the business of senior housing and assisted living. And all through the 90s, this graying of America trend was not hard to predict. It's simple math. That's what I love about economic demography, the study of economics through demographics. And that's, you know, really why I took a liking to Harry Dent's work. Now, you know, Harry Dent has not been without his bad predictions, but he certainly had some good ones too. And he's been on the show many times and we'll have him back. But you can just tell, you know, that everybody today who is 50, if they're still alive, guess what, they're going to be 60 in 10 years.

Duh.

That's not hard to predict. But the concept of age has changed and the technology has changed. And I'm looking at another article here, by the way. I didn't tell you about this one before we started, Evan, but it says with the rise of technologies that help the elderly stay in their homes, a glut of senior housing looms. Developers and senior housing companies have spent billions of dollars over the past five years. Well, hey, they've been doing a lot longer than that to build facilities that provide housing, food, medical care and assistance for the elderly. But this wager on elderly care is falling short of expectations and there are concerns that it could. One of the biggest real estate miscalculations in recent memory. Some analysts suggest that is in part because venture capital and other companies are expected to invest about $1 billion this year in these other aging in place technologies that are starting to enable seniors to enjoy the living standards, similar living standards and access to care in their own homes. That is about to double the amount investors spent just three years ago, according to 4gen Ventures, a new venture capital company focusing on such startups. These are the tech startups that are providing the aging in place technologies. New products and services include sensors that respond to a range of medical conditions, facial recognition for identifying visitors, houses with malleable fixtures that can be adjusted as residents age. Now, let me just say something about myself. I went to the doctor just two days ago for an annual physical exam. And as I was talking to her, you know, doctors must be. In some ways it's made their job easier, but in some ways, they're probably annoyed by the super ultra informed patient like yours truly.

Because it's almost like a battle of wits. You know, you go in and the doctor who used to be considered this like, pillar of knowledge that was not accessible to all of the patients. Right. You know, they spoke in Latin just like lawyers do. Doctors, same thing. And you know, the. All these professionals, including the realtors. Look, the realtors all used to have command of all the property data because they controlled the mls. Not anymore. Right. All of this has been disintermediated. Right. With technology. And so I'm talking to my doctor and I'm thinking, you know, I diagnose so much of my own health. Of course, I use all the fitness tracking, quantified self products like the Apple Watch. I have a little $80 EKG sensor that is a tiny little thing about the size of a credit card that you put two fingers on, two thumbs on it. And it integrates with an app on my phone. You know, I have a blood pressure cuff. I test my own blood pressure.

So you have more data than they know what to do with.

Yeah, I've got. I've got one of those little things you put on your finger that detect your oxygenation level. Now, granted, I don't use all this stuff all the time. Two months ago, I decided I should test my. I think it's called the VO2 Max, you know, like my lung capacity. So I bought one of those things for, I don't know, $8 where I blow into it and it tests my. Yeah, I mean, look at. We can do all this stuff ourselves. And guess what's coming next, folks? Soon. Hey, look, you know what? Goes in, must come out, right? The toilet, okay? Soon the toilet will be hooked up to Google. I know, it's scary. And they will be diagnosing our waste for signs of disease or, you know, nutrient imbalances and all sorts of things. Things? Folks, it's not the same world. All of these assisted living people thought that 65 years old was old. Number one. That was a massive miscalculation. They thought that, you know, this technology wouldn't arrive. Now, if you want to keep track of your aging parent or grandparent, give them an Apple Watch or a Fitbit or, or anything like that and you can be alerted if they fall. You all know about that.

Do you remember those old commercials where.

They say I fallen and I can't get up? Yeah, I knew you were going to say that.

It's all changed. It's a whole new world. And guess what else? From the real estate perspective, here's the other thing that keeps people aging in place. And we've talked about it already on prior episodes, low interest rate mortgages. These folks are not likely to give up that cheap mortgage. Now this pressure will increase.

If and when. Well, it's not if, but definitely when. It's just we don't know when rates increase, when mortgage rates increase and these cheap mortgages become even more valuable. Guess what? There is going to be more incentive to keep that house and age in place because the mortgage is not portable. It doesn't go to the next house, okay? And it's a whole new world. Okay? It's just a whole new world.

So, Jason, with all of this knowing this about senior housing, that it's probably a bad idea to invest in sort of owning. I mean, I guess there's always a decent deal if you find a really good deal. But how could the an average person who knows a little bit about income property and is there any way we can benefit from the aging of the boomers? Is there some way that we can respond to this demographic trend and make a good investment?

Well, look, buy bread and butter housing, number one, because that's always going to be needed. It's always going to be insulated from whatever happens in the economy, the next recession, whatever. Number two, if you want to focus on this, try and make some of your portfolio single story homes, okay? So I know that's pretty simple, right? Single story is going to have a little wider appeal. But remember you, there's always trade offs with everything, right? With a single story home, you obviously have to lose some yard size because the pad is larger in the, you know, lot to, you know, if you build two stories, the pad can be smaller because you're going up, obviously. So single story homes are going to be obviously more appealing to the aging population. So, but listen, don't panic because it's not all about aging population. Yes, there are 76 million aging baby boomers, but there are also 80 million millennials that aren't even 40 years old yet, or they're barely 40 years old yet. So, you know, you've got enough market on either side. The one market you don't want to invest in is my generation, Gen X, because I'm like the lonely generation. With only 46 million Americans, there's like half number of Gen Xers as there are the bookends of our generation.

Well, I remember on an earlier episode you interviewed a really prominent demographer. I can't remember his name now, but he talked about how he learned about demographics when he saw Honda motorcycle sales drop off tremendously when Gen X reached a certain age. And they hadn't anticipated that because they hadn't realized how much smaller the Gen X demographic was. This was sometime in the 80s or 90s. It's hugely important to understand that.

That's a great point. And you know what else? Another one of those. I was thinking about it yesterday. Golf courses. I mean, golf courses are going out of business left and right. A lot of these new housing developments have been built on golf courses. They just plowed over the golf course and made it a housing tract. I just looked at one recently here in South Florida, and think about it. If it were 20, 25 years ago, you would have been thinking, oh, man, we gotta, you know, if you were a big developer, we gotta get some money into the golf course business. Because, I mean, look at the demographics coming at the golf course or the demand for golf rounds. I mean, let's find some land and make a golf course. That's gonna be a great investment. But guess what? Then you get to about 2007 and millennials are like, we don't care about golf. We don't give a damn about golf. In golf rounds between I think it was 2006 and 2016, the number of golf rounds were down by 35%. That is a staggering decline in 10 years if 35% of your market demand just evaporates. And guess what? It's only going to get worse. You got a bunch of impatient millennials who are used to looking at their Instagram on their phone every five and a half seconds. Do you think they can actually handle A game of golf for five and a half hours. I mean, it's just not appealing to that generation.

No.

So golf courses, elder care homes, assisted living homes, you know, these guys are gonna get their rear ends handed to them. And, you know, I predicted this years ago. I told you so.

It's true. It's true. You know, you gotta. It's so important to keep that in mind. And I think that's one of the reasons why these bread and butter housing, it essentially always works because there's always going to be some basic demand. And thinking about aging in place, I was thinking about there have to be workers who go and stay in somebody's homes or at least go. You know, they'll go from, you know, nine in the morning till five at night to watch somebody. They need a place to live too. Well, it's essentially a new kind of workforce. Housing.

Yeah, right. That's a new workforce. Housing, because those people don't get paid too much. So, yes, the caretakers you're talking about are caregivers. Now they call it. It's funny. It's funny how that name changed. You know, they used to call it a caretaker, now they call it a caregiver. It's the same person.

That's true.

Caregiver is the more appropriate name. So I just thought it was kind of funny how that changed over the decades. But, you know, the other thing about that is there's another element of technology that makes that possible. An app on your phone or maybe an automated alert from an Apple Watch that senses a change in heart rate, a fall, whatever it is, can now summon these people in real time instantly. So, yes, we always had in home care, that's not a new thing. It's been around virtually forever. But now the accessibility and the efficiency at which that occurs is much better. And remember, my opening speech at Profits in Paradise was all about information and real estate investing. The bits, right. We think of our business as real estate investors as we invest in atoms because we have a very material thing. But the bits, the information, the bits and the bytes, very important. And that's another example of something that disintermediates and diminishes the need for assisted living facilities is the fact that the information is so quick and the systems and the supply chain of getting that care to someone in need is so efficient where you can just summon it on your iPhone app. It's like Uber eats. You know, someone can just come over. Maybe it'll be an Uber or Lyft driver in the future, who knows? Because those drivers, here's another prediction, folks. You saw them go from just driving, that's how it started. They were a taxi to then they started doing package delivery and then they started doing food delivery. Let me tell you something, they're going to start doing a lot more. That mobile workforce of ride sharing drivers are going to do a lot more. Who says they can't come over and help grandma up if she falls and see if she needs, if we need to call the paramedics? You know, makes sense. I mean, these people are in most cases at least background checked. You know, they're all available out there. That whole workforce can be summoned on demand. Who says that that person can't be at that house in two to four minutes to check and see what's going on? Who says they might not use an Amazon key type system the way, you know, the Amazon delivery people are using, where they actually can enter the house with an electronic lock? You know, maybe the Apple Watch or whatever that device is that senses the fall, automatically signals the electronic lock to make it openable to certain parties in a circle of concern. I mean, it's just. There's no end to the possibilities, folks. There's no end to it. All right, Evan, we gotta get to our guest. Let's talk to Ali Wolfe. You ready?

Looking forward to it.

Well, this is what we had talked about a little bit earlier. You were talking about maybe some markets needed a little bit of a correction. Maybe we've seen a big gap between wages and what has happened with home prices. So the stat that you can see at the top of this is since 2015, collective wage growth on a national level is up 13% compared to 25% when you combine home price appreciation and inflation. So the problem with do mortgage rates matter? Well, they may in this case because we've seen such a divergence where it's really hard for people to make the payments work given where their current incomes are and where home prices are.

Okay, so I gotta stop you here. This is really interesting. So this basically what you're showing the audience. And again, if you're watching the YouTube channel, you can see this visually. And Ali, we need to explain it for those who aren't watching the channel. You're saying there's a 13% growth in wages since 2015, but what is needed if you take wage growth or, well, just price growth of property, Property appreciation. Right, that's been a 25% growth since then, Is that what you're saying?

Yes, that's home prices plus.

Right.

Inflation and what I hate about things like this, just so you know, although it's not going to be that inaccurate because the rates haven't been dramatically different. But I think you need to compare wage growth with mortgage payments, not prices. Because nobody buys a house based on a price. Hardly ever. They buy it based on a payment. Here, though, since 2015, yeah, the rates have gone a little up and down, but they're not like dramatically different. So here, it doesn't matter. But folks, if you're looking at home price appreciation from 1980 to now or 1990 to now, and you're saying wages have only done this versus home prices doing that, you would be very misled by something like that because you have to look at the interest rates and factor them in to know what the actual payment impact is. Not the overall price, the sticker price of the house.

Right.

And we don't have this slide here, but we also have affordability. So we have affordability over time, which is exactly to your point. You can look at the 1980s, and that's going to look at the income in the 1980s versus the home price in 1980s and adding in mortgage rates as well. So we can chart that out and it shows you the same trend, which I think is just another way of saying it, but it does show that Even compared to five years ago, 10 years ago, 20 years ago, affordability is clearly the biggest issue for the homebuilding industry and for the housing market in general.

Good. Okay.

What we've seen is the graph. What it's going to show you is just the percent of communities that are taking price cuts. So going back to the idea of a correction, you can see in markets like Dallas in 2016, you had 20% of all of the actively selling communities doing a price cut, 20%. Now it's almost 35%. So you are starting to see sellers have a certain expectation. The reality is maybe you can sell your home, but you got to do a little bit of a haircut. And that's what this is capturing.

So this includes the entire market. It doesn't segment by price or home style or anything like that. And what's interesting about this kind of stuff is when you look at new home sales, 10% of the market, as you pointed out earlier, the builders are just not building affordable housing this time around. They're building to the higher end, the higher price point. When I say that, I don't mean really high end, I just mean. And of course they are doing that like Toll Brothers, etc. But they're not building cheap bread and butter housing anymore. Whereas before the Great Recession, you know, you saw lots of home builders building hundred $130,000 houses. Now you don't see any of that. It's been a completely different cycle post Great Recession in terms of the kind of new home inventory. So when you throw new homes into the mix, that's going to throw the stats off, or if you're only talking about new homes, it's really going to throw them off.

Right.

And what I'll add to that is that's been true for pretty much this entire expansion, which is crazy. It's been 10 years that it's been mostly the higher price point. But at least we've been talking about affordability and attainability so long that you do have LGI Homes and you have Express Homes, the Dr. Horton Division. You have different builders that are finally saying there is a huge part of the market that we can capture at our, you know, the tiny share of the overall. We've seen that and we've also seen a shift towards more attached product. So we have seen even markets that you wouldn't expect, Columbus, Ohio, for example, that is now seeing a bit more attached product as they're saying affordability is our number one problem. And this is the best we can do with where land prices are today.

Yeah, good. Okay.

All right. So this is just going a little bit more on just the price situation. I'm calling it the evidence of a price ceiling which shows the year over year change in the case Shiller Home Price Index. This is the index that a lot of people like to follow. It's not necessarily the best, it's lagging. It looks at same sales of homes, so it has to match up a home that is sold once and look at when it sells again. But it's basically telling you the whole story that we've been talking about is that there still is home price growth, but compared to this time last year when it was 6.5%, now we're seeing closer to 2, 2 1/2% growth.

This is the main case Shiller index that only profiles 20 metros, right?

It is, yeah.

Okay. This is so darn misleading.

I hate this index, but it's misleading, but it's accurate. I think today there's a lot of different indicators that will show you that price growth on a national level has definitely slowed but is still growing. And we can show again, I don't have it with me today, but we have price growth this time last year versus price growth this year for different markets across the country. And you'll see some Vegas, Phoenix maybe still growing 5, 6, 7%, but you will see a lot of markets that are growing 2%, 3, 4% this year.

And I mean, if you're just looking at stats and you're not in my business or in the business most of our listeners are in, you know, it's fine. The problem is when you have 400 markets and you only profile 20 and 75% of those 20 are kind of the high flying cyclical markets that are largely overweighted in the index. But the other thing listeners need to understand is that when you compare the same home, I like the idea that it takes the same home and then compares it when it sells again. Right. But the one flaw that you get in this is when you have a very, in a certain market, when you have a very active rehab market where investors are buying these houses, doing significant rehabs and they're doing the fix and flip, there's a huge disparity there between what it sold for last time and that can skew it in the favor of making you think there's more appreciation than there really is. So I just, the only reason I'm pointing out out all of this stuff is I want people to be more aware. I want them to be aware of how the stats and the, the macro view can be a little bit tainted. Right. You know, you got to just understand there are these factors that, you know.

They'Re mitigating factors everywhere in life. But go ahead.

All right, so, so this goes back to the opposite and I know most of your listeners are not new home focused, but you can see the year to date. This is the same graph that I showed you for the existing home space. Now for new home and you actually are seeing that there's growth over 18, 17 and 16 for new home sales so far this year, including the spring selling season.

And these are prices. So yeah, new home sales prices are sales.

Yeah, yeah.

And listen, Ali, our listeners would love to be buying more new homes, but the builders just aren't building for the bread and butter rental market this time around, sadly.

Yeah, I know, I understand that. Well, I'll show just this, this is going back to overall sales rate by market. So just to see the markets that are so far outperforming the rest of the nation, this is the spring selling season this year and you're actually seeing some of the markets that took a little bit longer to come back in this cycle. You're seeing, they're starting to see a lot More growth. Austin's just kind of always dominating. It dominates on every list. Minneapolis, they've done a lot of changes to what they're allowing builders to bring to the market. They're also just becoming more of actually a millennial hotbed, more than you would think. So a lot of growth in Minneapolis, D.C. took them a while, but they're really coming back. And you can see the spread. San Antonio, Salt Lake City, Indianapolis. But what's interesting to me of the markets that are doing really well this year is to compare this list to. To the list that was doing really well last year.

Right.

Which is a lot of the way.

What you're talking about is sales growth, not price appreciation.

Exactly right.

So in that chart, for example, the leader was Austin with 19% growth in sales.

Right.

In Minneapolis, number two, 16% growth in sales. Washington, D.C. 14% growth in sales. And then on that list also you've got Salt Lake City, Indianapolis, Houston, et cetera. Okay, go ahead. And then what's. What do that comparison.

So it's just so interesting to me when you look at this list, this is the top 10 best markets so far this year, at least for the new home space. And you pull up the same markets compared to last year, and the only two that you see an overlap of having a lot of growth in sales would be Indianapolis and Phoenix. So last year we were talking about Charlotte and Denver and Atlanta. And it's not to say those markets are not still strong and they still don't have growth. It's just they were growing. Charlotte was growing 17% this time last year. And you've definitely seen that pullback to the lower single digits. So a little bit of change, but not necessarily a problem for those markets. Denver, Denver is a little bit more concerning depending on the price point that you're operating in. Denver seen a bit of a pullback, but that's mostly affordability driven. So the whole point of going through that segment was really to build up. Why are we talking about a change in policy right now? And the reason that we would even be talking about some kind of rate cut is because we're seeing the economy is slowing and whether or not it's tariffs or whether or not it's uncertainty or whether it's not. We've just had a long expansion and businesses are finding it hard to be profitability profitable today. There's a lot of different factors that could lead to that. But historically, when you look at rate cuts, we see it happens during or after a recession, or you see it in an effort to pump up an economy. And so right now we're hoping that if the Fed, and it'll be likely that the Fed does cut rates later this month in July, that's their insurance policy. They want to pump it up, they want to prolong growth. And that's half the time that happens, and half the time it's too late and things start to turn down. And you can see that here in this graph. This basically just shows you different times that the Fed has cut rates. Fed has cut rates. This is the 1990s expansion, which is the second longest on record. You saw they cut rates, stimulated growth, they were able to raise it, and then a couple little cuts before the final cut, before a downturn. So it'll be interesting to see where we are because as we showed, there is some slowing in the economic data. But the question is, will a 25 basis point, if that's what they end up doing, so that's 0.25%. If they cut rates that much, will that do anything to the market? And I think a more significant, serious and concerning question is why can't the economy withstand rates as low as they are today? Because you can see on this graph, we've really never had this before, any kind of prolonged period where the short term rates are as low as they are.

Okay, so when you say we've never had this, we've had the short term rates very low for a very long time. This is the longest.

Yeah, okay. Interesting.

Yeah. And almost to me, I'm trying to coin this as my thing, but I could see the next downturn being called the Fed induced bubble. Because when you have rates this low for this long and you're yield seeking, you're going to try to find different ways to make money. And maybe it's creative and maybe there's things that's going to come out of the woodwork. And maybe I'm just being alarmist and I don't know and there's nothing actually going on, but I think this has allowed for some risk taking that maybe we should be aware of.

And you know what is very sad about that, Ali, and all of us critics of the Fed, and I'm talking critics conceptually, that there is a Fed, okay, that there is a central bank and the market's not just allowed to kind of regulate itself, especially being a private company. And you know, there's a lot of people that are very critical of all the way the system is. What's really sad about it is that because the yield is so low it punishes savers and it rewards debtors. And so these older people that have done the right thing all their life, they've saved up money, they've delayed gratification, they, they didn't spend when they might have wanted to enjoy life a little more. They saved for retirement, they did the right thing. And now they're forced in this position where they've got to invest in riskier, speculative assets. They can't buy, you know, CDs and ladder them, they can't buy bonds, they can't do the conservative stuff that this class of people used to be able to do in the older old days because there's just no yield.

It is, and it not to go into wealth inequality, but it does create. If you're not investing in the stock market, think about all your friends who were invested in the stock market over the past 10 years and all of the average Americans who maybe didn't know that they should be doing it or didn't know how to do it. And then how you just see that huge gap between the people that I guess were a bit more investment savvy and those that were looking to do some kind of safe. They don't want to take on too much risk as they're saving for retirement. So it creates a big challenge in the overall population.

And the same thing, of course, could be said as the real estate market. It's just easier to quantify the stock market.

So I understand. Yeah.

Yeah.

Okay, go ahead.

Okay.

Well, just talking about the Fed as we talk about then for your investors and as you think about the homebuilding industry, for so long we've been so focused on what is the Fed doing and what is that going to mean for mortgage rates. And you've seen that. Yes, in the past. You can follow this. There are times that the federal funds rate, which is the rate that the Fed can hypothetically control, you're seeing that as it goes down, you see a similar trend in rates. But as we've gone through this prolonged period of zero interest rates and as we've started to slowly raise, like I said, nine times throughout this cycle, we haven't seen the accompanying change in mortgage rates. And when I do presentations, I often have people say, well, that doesn't make sense because why are we not seeing that? They move in lockstep. And the answer, and I think, Jason, you probably know, is that it's not really the focus of the federal funds rate, it's really what the bond investors are doing and how that impacts the treasury yield. Because these are more competitive investments and they tend to move together closer than the federal federal funds rate.

I'm glad you brought this up. So the bond market controls the mortgage rates. And of course I've said this a million times, but people just, sometimes I don't think they want to hear it. Understand, the Fed does not control mortgage rates. The Fed does not control mortgage rates. They influence them obviously, but according to your chart, not that much. And then that was a very telling chart that you just showed.

Yeah.

So what's interesting is I was trying to say, well, why is everyone so obsessed with the Fed and mortgage rates? Like, is it just because people don't know better? Why is there that focus? And the answer I found is the bond investors are going to take and how you said influence, that's the right word. The bond investors are going to take Fed action into consideration because they say if the Fed does this, what does that mean for the economy? And then bond investors are trying to forecast out what's going to happen to economic growth. And so they are influenced by Fed policy, but really they're the ones who are determining what's going to happen with the fixed rate mortgage. And what's awesome for your listeners is every day you can open up the Wall Street Journal, you can see where the 10 year treasury is, you can know what the historical gap between the two and you can forecast out where rates are today. And so it's a really useful tool when you actually step back from Fed policy and say, oh, just look at the 10 year treasury and you have a pretty good idea of sentiment and mortgage rates.

Very good.

But I think what we should notice though is that this graph, if you're looking at on the online version, the Blue is the 10 year Treasury. And when we were talking about the fourth quarter slowdown, this is when the 10 year treasury hit 3.2 and that's when rates had gone up to right about 5%. What we've seen since then is the 10 year Treasury. Last I looked today it was 2.1 and mortgage rates are 3.75. And again, we're excited about this because we've seen all of those stats on affordability and a price ceiling and what it means. But we also need to think about why would the 10 year treasury be going down and it is growing down because investors are saying, well, there is some slowing domestic growth, there is some trade tensions, we're seeing China slowing, Germany slowing, Turkey's in a recession. All of those factors say to investors, well, I'm a little bit nervous and if I'm nervous, I want to put my money somewhere safe. The government bonds and bills are considered safe. Bond price goes up, bond yield goes down. So it's not that rates are down because everything's great. It is actually that rates are down because there's a little bit of unease. But you could also argue that it's down because again, if you're yield hungry and you're an investor, you're not going to Germany, you're not going to Switzerland, you're not going to Japan because those are negative yielding. You're going to go to the US where at least you can get a little bit of return for your money.

Yeah, good point.

And then finally, just for last thing on rates is what could make them go up. Well, if you see when we started about auto sales and we started about the housing market and we talked about Capex spending, if you start to see those numbers start to trick back up, investors will say, okay, things are starting to look better. If China's numbers come out better, if you see inflation, if we get a rate cut, there are different things that could make rates go up. But I think as an industry we need to remember that when rates go up, it's not a bad thing. It's actually that the economy and the outlook look good, which is counterintuitive. And I know that it hurts our industry to some extent. But there also is some positive when rates go up.

Oh sure there are.

Yeah.

Everybody thinks, oh, it's good when rates are are down. It's good when it's a seller's market.

Not necessarily.

There are benefits to other the other side of that equation too. Of course.

Yeah, yeah, totally agree.

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