1547: Urban Vs. Suburban, Everyone's Refinancing, COVID-19 Moving Trends

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Welcome to episode 1547. 1547. And I am here with Adam. Today, if you're watching on video, you'll see some charts and graphs. If you're listening to audio only, we will try and explain them to you so that they will have almost the full value in audio. But you can always go to our YouTube channel if you're only on audio and you can see these charts and graphs for yourself firsthand on the YouTube channel. Adam, welcome. How you doing?

I'm doing great. It's great to be back on the podcast. We've done some fluffy talks together, but it's been a while since we had the podcast.

Hey, coffee talk. Don't underestimate coffee talk. And by the way, folks, for those who don't know, that is our weekly live stream on Sunday mornings where you bring your coffee and join us now. This week's livestream we have my friend Mike is coming on and he is going to discuss a new trend, a pandemic or post pandemic trend, of hotel conversions, converting them to affordable housing. We've been watching that trend a little bit. It is interesting. Hard to make the economics work, but more to come on. And it is not the savior for the hotel business, by the way. I'll just tell you that right now. But on Sunday we will be talking about that more. And if you're not listening to this in real time, today is Wednesday. Then of course you can see the live streams archived on our YouTube channel. So you can always go back and refer to them there at any time. And we will be talking about opportunity zone scams. Boy, in the post pandemic world and in the world of civil unrest and race wars and riots and all this absolutely terrible stuff that is going on in urban cores around the country and actually around the world to some extent, these Opportunity zones are looking like less and less desirable all the time. So we will talk about that too. And we really talked about a lot of those scams when everybody was talking about opportunity zones. That's like the greatest thing. And I just never bought into it and I'm not buying into it now. And it actually has deteriorated in the world of high density urban flight to the suburbs and riots and civil unrest. And we'll be talking about multifamily investments. So that's on Sunday. And I just want to remind everybody to make sure you go to pandemicinvesting.com that is pandemicinvesting.com hey, pretty awesome that I got that domain name, isn't it? Yes, I did strike while the iron is hot. The iron is hot for sure. While the pandemic is hot. And get your free report. This is really a mini book and it talks about some of my ten commandments of successful investing, but kind of reworked and we added some new ones, changed them around a little bit for the current environment in the world of pandemic times. So you can get the free report or really it's a little mini book@pandemicinvesting.com, totally free. Adam, thank you for bringing some charts and some graphs today. We want to discuss these and let's go ahead and take a look what is going on in the world. You've been doing some great research, so thank you for that. Tell us all about it.

Absolutely. So you know, we've been talking about the flight to the suburbs and it's easy to just say, hey, people are going to move to the suburbs because density and this, that and the other. But where's the proof, right? So I went online, did some scouring and Redfin did a study in July with their, with the people who are coming to them looking for, for properties or for homes. They don't really do investment properties but for homes. And they found that the number of people searching for homes in an urban area was cut in half. It went from 37% to 19%. Now, granted, this is during the actual pandemic, but the fact is it happened. So that got cut in half from 37 to 19. The small towns actually stayed flat because for the most part, people, if you're being honest with yourself, you don't really want to live in a small town because that's like a tiny.

And by the way, Adam, Adam, you've mentioned that before. Have you had that experience? Now? You grew up in Houston. Did you live in a Small town outside of Houston or something?

No, I grew up mostly in Austin, and then I lived in Houston. But my in laws live in a town of 2,000 people. And the problem is everybody knows everybody and everybody's in everybody else's business. And it has a just very few things to actually do. The economy is, it goes boom and bust based on, you know, whatever the small economy is you get. You tend to have a lot of racial tension in the small towns between usually, like, the whites and whatever other race happens to be there. In their case, it's Latinos, and the whites don't get along. So just there's no room for a.

City, you know, that, that's. That's kind of. That's kind of interesting and counterintuitive. You'd think in a smaller town there would be less risk of racial strife versus a big city where, you know, you've got this, like, urban problem.

Yeah, well, your problem there is you're thinking about it in terms of just number of people. In a small town, you've got the group of people who've, like, their families have been there for 100 years or 200 years. And then there's the outsiders are coming in. And, you know, if you bring in 50 outsiders, that's like 2, 3% of the population. So suddenly they feel like they're being invaded. And so it's just right. I don't recommend, if you're gonna move to a small town, rent for several years before you. You do that. And if you mess. If you make one person mad, you make like 100 people mad. And that's 5% of the population or something.

Yeah, yeah, you got 5% of the population hating you because you got in a fight with one person. That's no fun. Okay, so, folks, the suburbs rule. It's the re emergence of the suburbs. That's the era where we are in. Okay, so in terms of the suburbs, 43% is the number here. So the questions were, what best describes.

It's up to 50% now.

Right, right, right. So the questions were, what best describes where you were searching for a home before the onset of the pandemic? And then the other question, what best describes where you're now searching for a home? Okay, and this is during the pandemic. Right. So I'll read the first question and the second one, you know, for those who aren't watching us on video. So in the beginning, it was 37% urban. Now it's only 19% urban. In the beginning, it was 11% small. Town held steady. Still 11% small town in the beginning, 43% suburban now 50% suburban in the beginning. In the beginning, the earth was out without form or shape. In the beginning, there was darkness, and it was rural areas. 9% now 19%. So rural did increase, and that's distinctly different than small town. People just want to be away from everybody.

That's massive social distancing.

Yeah, yeah, it really is. That's probably a little too much social distancing. So very interesting. Anything else to say about that?

No, I just think it was important to look at the big shift because, like I said, we've talked about the shift, but we haven't really had a bunch of numbers just because housing data tends to lag behind the economy. So we thought it was important to look at those.

It does now. This is a chart I recognize. I actually posted this in our content group before, and maybe you found it again or found it there. So it says, rural homes lead home price rebound mid pandemic. Okay. So I guess they're considering this mid pandemic. As I've said, third inning. I think we're in the third inning now, maybe the fourth inning. And part of that is really, I'm judging it by people's mentality and their mood toward it. People are starting to get really fed up with these lockdowns. And, you know, I think people just aren't buying it anymore. A lot of people think, you know, we've been had. This whole thing's a big myth. It's a scam. And while the virus is real, the reaction to it is, I mean, I think, overboard. So. Yeah, and especially with that CDC study where they reinterpreted the data, and this was about two weeks ago they released it, that, you know, I think only 4% or something. I can't remember. Forgive me. I did say it on the podcast before, but, like, a very small percentage of the deaths were actually attributed directly to Covid. You know, they were all other comorbidity problems. People that, you know, were super elderly were going to go anyway. People that were very unhealthy, that were at high risk for death anyway. You know, they just mark them as Covid, largely. You know, there's government payout, insurance, whatever. You know, it's a. It's a big scam. So tell us a little bit about this chart, if you would.

Yeah. So you, you know, we kind of usually expect home prices to go up, but in terms of the pricing rebound, Urban had a rebound of almost less than half of what the Rural area has seen, and the suburbs have done 50% better than urban. So they're coming back. They're all, every market is coming back in terms of rural, suburb and urban. But urban is trailing way behind. And that's why to me, it, it just goes back to that other chart. It's trailing because nobody wants to, nobody wants to live there. And you're having trouble finding buyers. And it, I'm sure if they did a study showing, you know, days on market, it would be even worse, you know, if you compare the change of days on market with these. But, you know, people are flying back in the housing prices in the suburbs. So if you're investing with us, if you're following our philosophy, we're buying in the suburbs, then if your property had gone down in value, your property's bouncing back up whenever it's time to refi, you're not going to have an issue getting your appraisal in at the right prices. But if you're in an urban area, might have a little more difficulty making that happen.

Okay, so here you see these numbers. Rural, 11.3%, Suburban, 9.2 and Urban, 6.7. Okay, that's the year over year change in median price. All right, so, okay, let's take a look at this one. National housing market summary for the four weeks ending August 2nd. We've got median sales price in rural, suburban, urban areas, then median sales price year over year and so forth. And it's interesting to see what happened, but you highlighted the home supply at the bottom of this table and basically, wow, these numbers are pretty staggering. Adam, tell us more.

Yeah, yeah. So the big reason I did this is I have so many clients, when I talk to them, they want to get into the $100,000 house, which, you know, I've been investing $100,000 houses, and I want to continue investing in the bread and butter 100 to $120,000 properties. But looking at this chart, you're going.

To see they're getting a lot harder to find.

Yeah, it might be a long time. I mean, that's honestly why when, when my wife and I went under contract on the three new constructions that we're under contract with, we were talking and we were like, when will the hundred thousand dollar house be back? And we're like, well, we could be sitting on money for a long time if we're waiting for those properties to come in. Just because, I mean, you look at this, and in rural areas, your home supply year over year is down almost 40%. Suburbs, it's down over 30%. Even in the urban areas, the home supply is down 20 over 20%. I mean, your new listings, they're up a little bit in urban because people are leaving. But in your suburbs, your new listing is down almost 4% year over year, and your urban listings are down 14. So the homes just aren't there. I mean, we. We're looking for inventory. People believe us. We're. We're looking for providers who are giving us good stuff, but they're not able to buy anything right now is the big thing. They're not able to buy anything. And so we can't. We can't offer a whole lot in the rehab properties.

Yeah. Okay, so what Adam is talking about is, of course, through our network on the website, you can purchase new construction properties, and you can purchase renovated properties or rehabbed properties. And it is getting really. There's a very short supply of inventory in every category, but certainly in the renovated properties, that inventory scarcity is very significant. So year over year, supply of houses in rural areas, down almost 40%. In suburban areas, down 32%. I'm rounding just slightly. In urban areas, even, it's down by 21%. And this, by the way, I want to remind everybody, this is as of August 2nd. Okay. So this is not March and April when people really just weren't even showing homes and putting them on the market. Now we've come into the season, people. You know, the market has definitely been moving and still very, very low inventory. New listings in rural areas, down 14.2%. In suburban areas, down 4%. In urban areas, up by 0.5%. And I think we're going to see that go up significantly in urban areas. Just takes a while for it to work its way through the system.

Okay, I'll give one anecdotal thing. There is. Whenever we bought our house here in this nice suburbs, it was a hot market, and people were, are you talking.

About the house in which you live.

Or investment properties that we live? And our, our Realtor came to us and said, hey, I have people wanting to buy in the neighborhood. We can't get them once they come to the mls, can you? You know, whenever you're walking around, driving around, if you see any pre MLS listings, let me know. And then it didn't happen for a long time. She didn't need us to do that. She texted me about a month ago and said, hey, if you see any pre MLS stuff, let me know. I've got people who are looking and can't find anything.

In other words, properties that haven't listed yet. Okay, yeah. Good. So now this next chart shows us that people are looking for larger homes. And I've said this before, in the pandemic world, the home is the center of the universe. People not only need one home office. Office, they need multiple home offices, and they need a room for a home gym. They need room for the kids to study, and they just need space from each other, you know, in the family. Right. So. So the home has really, really become the focus of life. The home is the center of the universe. That's what I've been saying for many, many months now. So this shows you. What does it show us? It shows us that the size of homes, year over year, change in home sales, sales up more for larger homes than for smaller homes. So much for the tiny house movement. Hi, Adam.

Yeah. Suddenly the McMansions are worth something again.

Yeah. Right, right, right. Okay. So the numbers, though, I mean, it's amazing how tiny some of these are. Right. Homes from 300. Right. A hotel room, 300 to 1500 square feet, up 2.3%. But from 1500ft to 3000ft, up 10%. So, like quadruple the amount. More than quadruple. Right. And. And for the big houses, 3,000 to 5,000 square feet, they're up by 21.2%. That is staggering. I mean, that is really hugely significant. Wow. Yeah, wow.

You're not going to find 3,000 square foot, many 3,000 square foot properties that are worth investing in, but, you know, you can find a lot of the 1500 square foot properties that you can invest in that actually can cash flow for you.

Yeah, even 1800 square feet sometimes. Yeah. So you can catch on to this trend. That's great, Adam. Thank you for bringing this to us today. We really appreciate it, folks. Of course, if you have any questions, 1-800-hartman or Jason hartman.com and then remember pandemicinvesting.com for your free book. And I'll be back with a couple more things, but I gotta say goodbye to Adam. Adam, thanks again.

Thanks for having me. Great to be back.

And to wrap up today. I just want to cover a few more things with you that I had hoped to cover while we had Adam on. But just a few more interesting charts and thoughts on where the economy is going. Now, again, if you are listening on audio only, I will try and describe the visuals that I'm looking at to you. So let's go ahead and dive in. This is a chart showing the quarterly mortgage originations by type. And by type, of course, they mean how many are purchase money loans and how many are refinanced loans. And as you can see, the mortgage market is absolutely on fire. You know, I've owned a couple of mortgage businesses throughout the years and I'm a little bit envious because these people in the mortgage business right now are just absolutely making a fortune. And the service is terrible because Redfin was out with a survey saying that 57% of all their listings have a bidding war situation. They have multiple offers. And this is of course, the complete opposite of what so many people were predicting. They were predicting that the market would crash, and they're still predicting that. And many have been predicting it for the last 40 years. Many have been predicting it for the last whatever number of years they've been out there in the marketplace. The doom and gloomers, they always seem to be wrong. But regardless of that, most people consider a good market to be a seller's market and a bad market to be a buyer's market. And of course, that is a very incorrect perception and an incorrect analysis of it. Really. In any market you can make money, you just need to adjust your strategy. So adjusting the strategy is key. And that's one of the things I love about the income property asset class is it really does because it's multidimensional versus so many other investments that are these one dimensional investments. This asset class is multidimensional. So it caters very well to us adjusting our strategy as economic times and economic demands and economic opportunities change and present themselves. So again, on this chart you can just see that the refinance business is absolutely staggering. It is through the roof, over $1 trillion. That's with a T $1 trillion in excess of 1 trillion. About 1.1 trillion in total mortgage originations in the last quarter, and more than half of them being refinances. So the entire country is trying to refinance their properties right now, but even before that, very significant. So if you compare that with say 2015, we are running more than double that pace in terms of the refinance market and the purchase money market as well. So again, the refinance market, people refinancing for a lower rate, sometimes for cash out on that refinance. And the purchase market, of course, that means they're buying a new home. And these are residential mortgages. So one to four units, over four units would not be reflected here. All right, let's take a look at the next one. And here, this is just a history of Manias and bubbles. And this chart really deserves a lot more time. I'm just gonna touch on it here today and we'll come back to it maybe on the Sunday Coffee Talk live stream that we do on Sundays. So join us for Coffee Talk. And that's talk is Tok Talk. So if you join us for Coffee Talk on Sunday mornings, we go through a lot of this stuff. Our last coffee talk was 2 hours and 17 minutes. So we really cover a lot of stuff, take your questions and do all that. And of course, those live stream sessions are all archived on the YouTube channel, so you can see all of the past ones there. And these are live, unedited. Yes, we make mistakes. Yes, we sound stupid sometimes, but hey, it's all there in the raw. No editing whatsoever. And here, looking back to 1960 on this chart, you see these manias and bubbles. And we could look back hundreds of years and we could talk about John Law and then Mississippi and Louisiana land deals and all this crazy stuff. We could talk about the tulip mania in Europe and how that spread. And people, people made and lost fortunes on none other than tulips. Yeah, I mean, they're nice flowers and all, but really, people, even very smart, seemingly rational people make a lot of dumb decisions sometimes, folks. They really, really do. People who are highly educated can be caught up in very bad decisions. So I guess the lesson there is don't rely on the experts. Become your own best advisor, which is really commandment number one of my commandments of successful investing. Thou shalt become educated so you can be your own best advisor. Yes, you want to hear from the experts, but you also want to just use some good old fashioned common sense, right? So Walt Disney had a giant run up until the 70s, until about 1970, and then it just absolutely collapsed. And then the next mania was gold, and it had a huge run up. Nixon closed the gold window. And of course, that was an inflationary. He took his trip to China, so that was like 1971 to 1973 there. And then of course, he was impeached and he resigned before being kicked out, before getting the boot after the Watergate scandal. And gold went absolutely crazy in the 70s. And right at the end of that decade, you saw gold at an absolute crazy, feverish pitch. And then it was just down, down, down for what, the better part of 20 years? Right? And then we saw Japanese banks, they had their huge run up in the 80s. And of course we all know what happened to Japan. By about 1989, it just completely collapsed. And then we saw the Nasdaq, otherwise known as the dot com bubble, but really before that, the NASDAQ had a big run up as we came into. You might remember Netscape, right? The first Internet browser. And back. Maybe you'll remember the word mosaic, right? And all these old software companies that we don't even hear of anymore. But of course, Microsoft had their run during that time. They largely missed the Internet revolution for a long time, but they finally came around and got their act together. And then we had commodities manias and then the Fang stocks and that's the bubble we're probably in right now. So anyway, this chart, really, you could write a book on this, okay? But these are prices in real US Dollars, which of course means adjusted for inflation. And that's why I like charts like this. So just an interesting thing I wanted to share with you. Now this is interesting, and we're going to come back to this too in my pandemic investing program, because what I want you to see on this chart, this basically shows the share of GDP based on three big sectors of the economy. When you look at the US gdp, the gross domestic product, which is a measure of the production, the productivity of the entire economy in the United States. And here you see the share of it. And what I think is important to look at here is that when you look at agriculture, industry and services, you've all heard this, but we are largely a service based economy. And this chart only goes from 2000 to 2017. So this is one of the real problems with charts and looking and doing research and so forth. You know, you never get them for quite the time periods you want, but, but you take what you can get. Anyway, the point here is not to be totally current with this chart because it hasn't changed much. But the point is to note that the service sector of the economy up to the latest date of the chart is more than 77% of the entire GDP. Industry a little over 18% and agriculture below 1%. Now here's what makes this interesting, or one of the many things that makes this chart interesting is that when you want to add value to something, you've all heard the term in business, a var, a value added reseller, where they take a product and then they add value to it and they can massively increase the price of that product. Well, that's true of an individual business, but it's also true of a nation. And one of the things that makes the US economy so robust comparatively to the rest of the world, not comparing it to itself, not Arguing with the doom and gloomers that say, oh, the dollar's going to collapse and the US is over. They've been saying that for decades. They're still wrong. Maybe they'll be right someday. But you have a lot of opportunity to add value in the services sector because that value is very, very much based on what's in the mind of people and what they can think of. And you can have a lot of value with your mind. Whereas with agriculture, for example, which is less than 1% of the GDP, with agriculture you can't add very much value, right? The value comes from the human mind. And if you look at a country like Japan with pretty much no natural resources except the human mind and the ambition of Japanese workers. And I'm not talking about the last few decades that we've had, I'm talking about the long term of Japan, right? Coming post World War II. Of course they got help rebuilding from the US and so forth. But Japan, even now, I think you could still call Japan an economic miracle because a country where with virtually no natural resources except the people did incredibly well for itself. Not the second largest economy anymore, bumped out by China, but China has dramatically more people and dramatically more resources and a much better piece of real estate, right? So that's the difference. You can add a lot of value in the services sector. Now in the COVID world. The other thing to consider about this chart and the way it's divided up, the services sector is of course multifaceted. So some of these services have fared extremely well through the COVID era. The digital type of services, software, E commerce consulting, any type of thing where you're able to work remotely and you're a knowledge worker, those businesses have fared quite well. Whereas services, where you're providing services with your hands, hair salons, nail salons, massage restaurants, a lot of these services, very tough, very badly hurt. A lot of the small mom and pop retailers, obviously very badly hurt during the COVID era. Movie theaters, you know, different kind of service obviously, but you know, movie theaters, very badly hurt. So it's really very unequal in its distribution. But the area where you have the largest share of gdp, the services sector and of the services sector, where you have the most lucrative opportunities in things like software as a service, financial services, the amount of capacity to see monumental increases are just really quite unlimited. It's pretty amazing what you can see here. And other economies that are more agrarian, they just don't have this type of opportunity because you just can't add much value to agriculture. And you can add more to industry, but even industry is a lot more limited because it's dependent on a lot of physical things versus digital things and intellectual things. Right. So it's just sort of interesting to see how that pans out now. Now I want to take you to a couple of other charts and we'll do this in a future episode or a future video on the YouTube channel, maybe on our Sunday livestream, even this Sunday. But this looks at the gross metropolitan product, the GMP, of various areas. And I want to interplay that with a chart I just talked about, because when you look at the amount of money moving and the number of people employed in those various sectors, it becomes a pretty interesting picture. So you see the gmp, the largest GMP being New York, New Jersey. And that's been very hard hit by the pandemic and by civil unrest. So that is a huge amount of money, a huge amount of wealth that can move out of that area, that is moving out of that area to these other more suburban markets. Giant wealth transfer happening right under our nose. And this chart shows the change in real gross domestic product in the United States from the preceding year based on the metropolitan area. So we're going to dig into those more on a future episode or maybe on the Sunday livestream, we'll even dig into that. Anyway, I hope you enjoyed this episode. And if you need us, reach out through Jason hartman.com if you're in the U.S. of course. Call us at 1-800-hartman and until tomorrow, happy investing. Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.