1527: Gift From Jerome Powell, Take Advantage of Mortgage Interest Rates

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 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 1527. 1527. I come bearing a gift. A gift for you. And it isn't even a gift from me. Well, the information is a gift from me, but the actual content of the gift is a gift from your rich uncle, Jerome Powell. Yes, Jerome Powell has brought you a great gift. And we talked about this gift yesterday. And as promised, I did some research for you. I spent several hours on this last night analyzing and agonizing because I want to make sure that your investment life is filled with joy and profits. So let's make it profitable for you. All right, here we go. I got some papers here.

All right, A stack of papers. Well, small stack. First off, I know that some of you might be curious, my HP12C calculator that I talked about, right? Remember I said it was $116? Well, I adjusted it for inflation. And today that $116 calculator, well, depends which way you look at it. Obviously with the time value of money and the net present value analysis. But based on the inflation rate, since I bought the calculator paying $116, basically back then it was like paying $277.92 based on the Bureau of Labor Statistics CPI U Index. But, but, but wait, there's more. Based on the Shadow Stats Index, which by the way, I must say, as much as I would love to believe the Shadow stats index@Shadowstats.com the founder, John Williams, of course, was on the podcast a few years back and I interviewed him and his index basically is the way inflation used to be calculated. But.

Even I have trouble believing this one, as much as I would like to believe it, I really would like to because he says that the cost of that calculator today would be $1801. That's the analysis of, you know, that that cost Difference based on inflation. Now, a lot of years have gone by, so maybe it is. And here's what I would like you to do. Just consider this. And I don't know about you, but in my home I have a lot of stuff. There is just a lot of stuff in my house. You know, I've always been a bit of an accumulator and I've tried minimalism and failed miserably at it. It's probably a good idea. I've entertained the concept. I've looked at some books, I've watched some YouTube videos, and it seems like a good idea, but somehow it just never works for me. So I have a lot of stuff. You know, when you go into most homes nowadays, American homes especially, they just have a lot of stuff. There's a lot of stuff. And if you look at an old movie or TV show, like I always say, you need to do, or even look at the depiction of an old movie or tv, you know, a show set in a prior time. Take the extremely popular Mad Men TV series and take that as an example. When you look around the environment in Mad Men and you look around the homes of these people in their, you know, homes in that era, what was it, 1950s, right, late 1950s, I think. And you just don't see much stuff. There's just not much stuff. And maybe that really shows us how life has changed, how the world has been flooded with cheap stuff, which would make you think inflation is low. But then if you walk outside of their home and look at it and you think, wow, I would really like to have a cute little Cape Cod style house like this in this beautiful suburban neighborhood on an acre of land or a half acre of land that back then wasn't even considered very large, that was just a normal yard in a lot of places. You know, you live in this nice neighborhood where there was virtually no crime and everything was good. And by the way, the mail was delivered right to your door. Remember, there used to be a mail slot in your door or a mailbox right by your doorbell button. Not anymore. Now you gotta walk down the street to get your mail. Even if you're in a high end area. That's a sign of inflation because the cost of postage has increased, but the service has reduced. So there's inflation everywhere we look. It's amazing, truly amazing. Okay, so yesterday we talked about the true cost of housing and we talked about how a $100,000 mortgage in 2006, what many consider to be the peak of the market last time around, at 6.41% was $626 per month. And today you could get for that same monthly payment about a dollar off. So I'm just going to call it the same because it's close enough for government work. For the same payment, you could get that mortgage for $70,000 more. So you would get 70% more house or 70% more mortgage for the same monthly cost. But the real question is, what is the value of that mortgage in constant dollars? So a $100,000 mortgage in 2006, adjusted for inflation, according to the Bureau of Labor Statistics, the official numbers, they say today that would be $127,000. In other words, that money has lost 27% of its value. So you could reverse that equation and think of it the other way. It works either direction, folks. Works either direction. So a $100,000 mortgage today is really like a $73,000 mortgage back then. Right? Adjusted for inflation. And I really wish this was on video or we were on a zoom meeting like at Meet the Masters. And you know what we have for our VIP ticket holders, by the way? VIP ticket holders and empowered investors. We got good stuff coming for you. We've got two follow up sessions for Meet the Masters coming up and we're going to get those announced here. Probably we'll do the first one next week. And the Empowered Investor Network and your Property Tracker membership that was included with that. I think we're going to have an email out to some of you today and some of you tomorrow. I was working with our tech team today and they were putting the final touches on the social network, which is super exciting. I was in that meeting today. So look for an email that's coming to you real soon so you can get into Property Tracker and you can get into the Empowered Investor Network. So very, very excited. I think this is going to be one of the best things we've ever done because it will allow me, even if you're not watching the YouTube channel, to show you things. And you know, we just have our own social network where I can just, I can just show you these examples in print because this stuff is helpful to see in print. And maybe we'll do a demonstration of this on the the Meet the Masters follow on sessions for the VIP ticket holders too. Okay, so a $170,000 mortgage in 2006 would be equivalent to a $216,000 mortgage today by the official numbers of inflation, which are always understated, as we know now. Like I said, I think the shadow stats numbers are probably overstated. But it's complicated, right? Like my favorite relationship status. It's complicated. But suffice it to say that if you adjust this for inflation, it is cheap, cheap, cheap to have this house today because that $170,000 mortgage is really. Remember, the equivalent is $100,000 at the interest rate. In 2006, it would be $626 a month. And in 2020, that same $100,000 mortgage would be. Which is really $127,000 today. Because I hope I'm not confusing you. We're doing two things here, folks. Three things, really. We're calculating interest rate differential, inflation differential, and then time. Time as well. So 2006, $626, 2020, you get $70,000 more in mortgage, which is equivalent in $2006 to a $216,000 mortgage. You get that, right? You follow me? It's really a $216,000 mortgage. But since the interest rate is so much lower, you get that same mortgage or that same house for the same price as it was 14 years ago. This is what the media commentators never tell you. They might. They might adjust for interest rate, but frankly, I've never seen it. I have seen economists at like a breakfast meeting, I'll go to do this, or I've seen maybe a video on this type of thing, but you never hear it on cnbc, for example, or in the mainstream media. So understand that housing is less expensive than anybody wants you to believe it is. It is dramatically less expensive when you adjust it for inflation. Now, the next part of this research, I'm kind of drawing this out to keep you interested. Okay? There's a sequel. The sequel to this is to adjust not the mortgage amount for inflation, but the monthly amount for inflation and to take a deeper dive into the shadow stats calculations. Now, I want to talk to you about a property that I sold in Irvine, California. This was not a property I owned. I'm talking to you about this because I sold it for a client. It was the first listing that I took at a young age in my what's called now a farm area. And if some of you in real estate know what a farm area is, I don't know. Do realtors still do this? I hope they do. It's a really good marketing method. It's a neighborhood where you specialize and you try to get as many customers in that neighborhood as possible, as many clients. And so I sold this property back in 1986, and I was a kid and I took the listing on this property for my clients, Barry and Andrea. By the way, Barry is friends with me on Facebook today. Isn't that cool that you can connect with all these old, old people? So Barry and Andrea were my first clients and they owned a house at 305 Deerfield. They were not my first clients in real estate. They were my first listing clients in my new farm area that I was super excited about and later went on to make a fortune in that area and became the number one realtor in the Wynwood townhomes and garden homes in Irvine. So this property, and you can look it up on Zillow, 305 Deerfield, Irvine, California. And the tax records on Zillow only go back to 2002, but thankfully you have the Jason Hartman record. And it goes back to 1986 when he sold it for $125,000. And I double ended it because I actually was the selling agent also. And I was. I sold it to these wonderful Armenian clients. I had the Asic family. And Ara bought that property for himself and his new wife. And then that family went on to become great clients for me. I sold them a whole bunch of properties and sold properties for them over the years. It's so funny how different cultures are. It's really pretty awesome, frankly. You know, before we could do any business, I'd come over to their house and they'd make me drink some of this Armenian coffee. And I wasn't even a coffee drinker back then, but this coffee was so thick. It was like a chocolate milkshake, but it was hot and it was just super, super thick coffee. I'm sure it had like a ton of caffeine in it. I don't know, maybe it didn't. Sometimes that's deceiving. Do you know that the light roast coffee has more caffeine than the dark roast? You would think it'd be the other way around, but it's not more caffeine and light roast. So, anyway, I digress. So Ara and his family bought and sold several properties from me over the years, but this was the property they bought. Okay, the first one and how I met them. And so they bought this property for $125,000. Now, if you look it up on Zillow today, Zillow will tell you that it's worth, according to their zestimate, $587,000. Now the question is because, by the way, back in 2002, it was 255. Okay, that was after the dot com crash. So it probably went down quite a bit there. So $587,000 versus $125,000. So the question is, has that property beat inflation or has it underperformed vis a vis inflation or outperformed inflation? Well, it depends on what inflation number you're looking at. According to the BLS, they would say that that property has beat inflation actually rather substantially. Now the other thing we've got to take into account is the property hasn't sold since 2017. So the Zestimate could be wrong and many times it is. But let's just assume it's right. So they say according to the bls, the official inflation index. And this is why you probably shouldn't believe the official index because they say that indexed for inflation it would be $294,000. Remember the BLS has a very much vested interest in understating inflation. How do they understate it? Weighting, substitution and hedonics. Now the consumer price index does not include real estate prices per se. They have what's called, and we should probably do an entire episode on this, they have what's called owner's equivalent rent, which is their overly complex equation to basically try and fool us and understate inflation once again. But in the owner's equivalent rent. I don't know what they'd say, but they say that the Property should be 294,000. Now here's where it really and why it's hard for me to deal with shadow stats. I know the inflation rate is higher than the government tells us. That's easy. Okay, that's easy. In fact, it's probably 50% to double what the official rate says. But shadow stats would tell you that that index for inflation, this house has massively underperformed inflation by a huge margin. Because shadow stats tells you that the inflation rate since 1986 for 125,000 today would cost you $1,892,000. And the property is not that expensive. So you know folks, I think the truth lies somewhere in between. By the way, let me give you the Shadow stats number for that $100,000 mortgage in 2006 that we were talking about earlier. So here we've got this $100,000 2006. Today it's $127,000 according to the BLS. And by the way, I doubt any of you believe that because think about it, just look at a car for example. Look at a nice hundred thousand dollar Porsche or Mercedes or something like that. Well, that car today is going to cost you more than $127,000. Okay, in 14 years. Now, the car today is better than the old car. But that's where they would fool us with hedonic indexing, which, by the way, on its face is not a lie. Because hedonic indexing means how much pleasure do we get from the product or service? So it's a pleasure index, meaning if the car advanced a lot and it's so much better today, if it's twice as good as the car from 14 years ago, then the inflation index will only count it as though you paid half as much, even though you really paid the full price. You didn't get to go to the car dealership and say, hey, this car is hedonically indexed. So, you know, don't charge me so much. They don't do that. Here's the problem with hedonic indexing, and I've said it before, I'll say it again. Hedonic indexing basically says that we as consumers are not entitled to progress, that we don't have the right to progress. Because if you hedonically indexed how much better life has gotten in terms of convenience and quality since the invention of the electric light bulb or indoor plumbing and running hot and cold water or the invention of the wheel, you could do that. You could hedonically index everything, and it would make inflation look so insanely low that you would think everything is free. But we are entitled to progress. We just expect that technology will keep improving. And it does, so far. You know, it always has. Right? But the way the inflation calculator would work through hedonic indexing is they would want to take away our right to progress and impute it into an index that makes it look as though everything we buy today is so incredibly cheap. And it's not. Remember, you might have more gadgets and goodies and more stuff in your house like I do. I got too much stuff in my house. But you don't have very much land. You're living in a crowded place most of the time where your neighbors right on top of you and you have to walk two blocks to go get your mail. When your mail used to be delivered to your door, and the postage stamp back then cost a nickel, and now it's 48 cents or whatever it costs for a forever stamp, which is never forever because people lose them, they don't redeem the stamps. It's like that gift card you didn't redeem, right? It's of no value if you don't redeem it. So this is the kind of monkey business that goes on, folks, and that's what we have to understand. But there is one thing that is without question, and it is the fact that Uncle Jerome Powell, Federal Reserve Chairman, has given us all a giant gift, a gift that increases the spending power we have when it comes to real estate by 70%.

Just in the interest rate calculation alone. And if you add the inflation calculation to that, then it's not just 70%. Well, what would it be? It would be. It would go to $216,000. So basically, you've got an extra. An extra $116,000. I'm. Pardon me, I'm thinking, because I'm trying to make sure I express this the right way. You've got an extra $116,000 in buying power, more than double what you had in 2006, because we have to adjust for the lower interest rate and for the amount of inflation that has taken place since then so you can buy a more expensive property for the same amount of money. It's absolutely phenomenal. And this is how we look at things properly. Now, let me share one more thing with you. One of our clients, forgive me, I don't know who sent this. I don't have it in front of me right now, but sent me this fantastic newsletter called the Lumber Market Report, published by Random Lengths. These trade associations for the lumber business. Random lengths of lumber, I guess.

Funny name, right? This newsletter is truly phenomenal. So thank you for sending this. I gotta find out who sent it and get the name of the person here. But it says that framing lumber prices climbed further into record territory as acute supply scarcities remained in effect. Frustrations mounted for many buyers, in other words, buyers of lumber who continued to struggle to cover immediate needs. Recent lumber production statistics put the imbalance between supplies and demand in clearer focus. Through May, Canadian Production was running 15.9% behind the same period one year ago. And British Columbia production was down 25.2% year over year. Folks, remember I've taught you about the theory of packaged commodities investing or. Or assembled commodities investing. And these are the ingredients of a house. Lumber, copper wire, petroleum products. Now, petroleum products are cheap right now because, you know, people aren't driving or flying right, but, you know, what's the likelihood? That'll have some downward pressure for a while, but it's not going to last forever. But other prices, like lumber, are in an acute shortage. This newsletter says acute supply scarcities. So this is hugely significant. Remember, when this happens, that means the value of the houses you already bought through our network@jason hartman.com properties. The properties you already bought and own or you're going to buy soon because you're going to go visit that site right now. Hint, hint.

They'Ve gone up in value. They've gone up in value. And that's what it's all about is this packaged commodities investing. So very important principle. Last thing for today and then we'll wrap it up. One of our most popular webinars was the asset protection webinar and we are running that again so you can go check that out this week@jason hartman.com asset and I just want to tell you I got this phenomenal chart from our asset protection attorney who does that webinar. And a lot of you were on the Meet the Masters extension class last Saturday and you saw his new presentation where he's got a more advanced asset protection program. This chart though is very, very enlightening. And what he does, which I think is just phenomenal is he takes all 50 states or if you're Obama, there's 57 states. He takes all 50 states and he categorizes them from one to five stars in terms of their estate planning and asset defense possibilities. And this was pretty surprising to me because the desirable states on this chart, the most desirable states, they've got five star ratings plus not only do they have the five star rating, but they have an additional star sometimes for some really special features. And there are several of them that are really, really desirable, not just the ones you might think of. And what we're going to do is we're going to make this chart available to anybody who attends the webinar. So if you go to jasonhartman.com asset you can register for the webinar. And we've got that running this week and this weekend. So check that out. You know, even if you've already attended it, I mean some people are attending that multiple times because it's just really, really educational. So check that out. Jason hartman.com asset you'll want to take advantage of that. And by the way, I went and found, because I mentioned this on Saturday to our attendees of the more advanced asset defense and estate planning session that we did for Meet the Masters. So I went back and I found an email because I had told them about how an attorney was pitching me on doing business with him and it's a Florida based attorney and he basically said that, you know, what he would do is he would offer. And by the way, this guy was referred by a good Friend of mine. So, you know, I really listened to the referral, and, you know, he called me up and pitched me, and he. He said, what I'll do is I will do a. An evaluation of your situation. I'll look at the properties you own, the businesses you own, and, you know, I'll look at your different entities and all this kind of stuff, and I'll just evaluate all this, and it'll take me about a week. Now, listen, I've been around the block enough. I'm old. I know what's going on. What that really means in real life is probably that he'll intake my information, have a secretary intake my information, and then he'll look at it for 20 minutes and then come back to me, have a phone call and recommend the strategy. Get this, get this. This is commonplace, folks, this kind of thing. It's absolutely outrageous, but it's commonplace. He said, it'll be $15,000 for the consultation fee. And I said, wow, that's expensive. And then I said, well, okay, so that doesn't actually, you know, get me any entities or any estate planning, right? And he says, no, it's just a consultation. You know, I'll. I'll evaluate it. I'll talk with some of my associates about your scenario and. And consider everything to do. And I told him, you know, my. My trust needed to be updated for. Because if I happen to kick the bucket, you know, where's the money going to go, right? You got to get that all figured out in advance, right? So he says that. And I said, okay, well, say I want to move forward with you and have you form an LLC for me. And he said, well, each LLC is $2,500. And I thought, oh, my God, that's so expensive. It's outrageous. And believe me, if you want to have a reasonable approach to this stuff, to this estate planning and getting your assets managed properly, you know, we've had a few attorneys over the years. We like Garrett Sutton. His price is very reasonable. He kind of specializes in one particular area, though. And, you know, this. This other attorney who's on the webinar really looks at a pretty broad spectrum of stuff, and his prices are so reasonable. Really, you should check this webinar out. Okay, Jason hartman.com asset and take advantage of that and learn about this stuff, because it's the one area of life where you really got to do stuff in advance. Okay? So my homework is to do some more inflation calculations and go down this rabbit hole a little bit further, and we'll talk about it more on a future episode, maybe even tomorrow. And we will be back tomorrow with another episode. So until then happy investing. If you need us reach out 1-800-hartman or jason hartman.com and we will talk to you tomorrow.

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