1775: Market Statistics, Altos Research, Housing shortage, National Inventory,Metropolitan Statistical Areas, Inflation Induced Debt Destruction

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My name is Jeremy. I'm a big supporter of Jason Hartman and grateful to Jason for a lot of what I've learned over the last four years. I can attest to him. We've had some good success using the strategies, being a little more conservative on some of the decisions, so we've purchased a couple of properties through Jason's network. I feel like I owe a lot to Jason.

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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.

Hey, it is Jason Hartman and I've got some market stats to share with you today. And this will be the intro portion for Creating wealth, episode 1775. Actually, not the intro portion. This is the entire show. I think we've got a lot to cover, folks. Are you ready? Are you ready? So market statistics, well, we're all kind of used to a crazy real estate market nowadays, aren't we? And we are going to take a deep dive and look under the hood to see what is really going on with the real estate market. And it's not always what you think. You really have to peel back the layers of the onion, as the saying goes, to use a cliche, and really understand what is happening deeply. So let's do that today. So first off, nationally speaking, and I'll make this a little larger for you on the screen. So on a national perspective, this is what the market looks like. Now. This is from our friends at Altos Research. We've got a show coming up with the Founder next week and it's great. So you don't want to miss that show next week. It's going to be an awesome show. But, you know, the national median price is $375,000. This kind of speedometer here gives you sort of a buyer's market segment. If it's 30 or under, sort of the medium market. And then the seller's market is over here. So we are in a seller's market. That would come as no surprise to many people. And a lot of people say, well, here's what I want to say first is that these names, seller's market and buyer's market, are really a misnomer because you've got to ask yourself, why is it a seller's market? Or why is it a buyer's market? Now, I have always talked about a third type of market, and I call it a broker's market. Most people think that the people that are in the real estate business love a crazy seller's market. That is not true, at least from my perspective. It is not true because it is difficult to operate in a market like that when things are moving so, so quickly. But it is a seller's market. And why is it a seller's market? Well, when you create a bunch of fake money out of thin air, which is what our central bank has done, and other central banks around the world have just created an incredible FL of currency units. And the value of anything is dictated by its scarcity and its utility. And currency ain't as scarce as it used to be. And so when you debase the currency through this lack of scarcity, you get the situation we're in now where it makes a whole bunch of things very dysfunctional, but you can profit from that dysfunction. And the reason it is a seller's market is because the money is so cheap. And a lot of people look at these real estate prices and they think it is so expensive. But that is also a mistake. They should be looking at the monthly payment, not the price. And historically, the monthly payment, even if you're still using the same measure of value, which is simply dollars, although that's a moving target, obviously, and you'd have to adjust it for inflation. The monthly payment is actually quite cheap historically, and most people buy on a monthly payment, not with cash. Now, if you're buying with cash, it does seem more expensive, for sure. But even then, you still have to adjust for inflation. So we won't go down that rabbit hole today. I just want to give you this update on the market. So here's some interesting things. Take a look at this. This is inventory. This is the inventory of listed properties, properties that are listed for sale you in the United States. So if we go back to 2018 here, these segments, this is the number of units listed. And you can see that on each 25 percentile of the market, they're about the same number of units, right? So. Well, exactly the same number of units. Sorry. And so here we've got by price, the bottom 25% of the market. We've got about 234,000 units or rounded off, 235,000 units listed for sale December 14th of 2018. And we've got the same in the lower tier and then the upper tier and then the top, the expensive properties. Right, but look at what this is like today. Now, you know, I mean, it's obvious by the line, but let's look at the exact numbers. So today we've only got about 103,000 units, folks. This is the entire country, a country of about 320 million people and depending on who you ask, about 120 million housing units. So of all of those housing units, if you're an entry level buyer, a first time buyer, you've only got about 102,000 units to choose from. Now think about this, spread that around. You've heard of the term MSA, Metropolitan Statistical Area. There are almost 400 MSAs in the United States. And then if you segment it by county, There are over 3,100 counties in the United States. And then there are even more cities and more neighborhoods. So just think about spreading for a first time buyer what that's like. Spread these 103,000 homes for sale around all of those MSAs, around all of those counties, around all of those cities, around all of those neighborhoods and you can have a lot of empathy for the shortage of homes that they're experiencing. Okay? No one could deny that there is a massive inventory shortage. Okay? So let's take a look at some square footage numbers. Right? This is the price per square foot on a national basis. Go back to 2018, the end of 2018. If you look at a 90 day average of homes listed or seven day average, you know, it's about the same. Not a big deal. About 1 42, $143 per square foot. Look at this today and you're at about 1 85, $187 per square foot. Now this is national, so remember, another very misleading thing to look at, which is very popular in the media sadly, is the Case Shiller home price index. A lot of the reports that you hear, a lot of the data you hear is quoting Case Shiller. But Case Shiller, their main index only profiles 20 markets, just 20 out of almost 400 MSAs. So these are major metropolitan areas. And guess what? Remember how I've taught you over the years about how there are three major types of real estate markets, linear markets, cyclical markets, and hybrid markets. Well, in that case Shiller index, 75% of that index is cyclical markets. So it's heavily weighted toward the expensive, non prudent for investors, cyclical real estate markets, okay? Leaving only five, either linear or hybrid markets. And really now all those five markets, those other 25% of the case Shiller index, have become hybrid markets in between the linear and cyclical. So very, very dangerous to get your data from the wrong source because you will be very misled about what the market is doing. All right? And understand also that Altos is not profiling the same things that these other indexes profile. Right? All of these indexes do different things. And it's very important to understand instead of just blindly listening to the talking head on the news that says, oh, you know, the market is up, the market is down, or this or that or the other thing, what index are they using? What data are they using? Now what we're talking about today is simply listings homes for sale because their index here that we're talking about today profiles every listed home in the country. So what, what does this really do? It gives you a mind reading into the psychology of sellers. What are sellers thinking? It reflects their view of the future. Are they optimistic about prices? Do they think home prices will continue to appreciate? Now, sellers are always overly optimistic, right? Because every home seller thinks their home is better than their neighbor's home. It's better than the one that sold down the street. The one that sold down the street sold for $200,000 and that was six months ago. So mine is worth at least, least $300,000. And it's not as upgraded, it's not as large, and you know, it doesn't have a good, as good a location in the neighborhood, whatever. Right? But that's always the case. So we're just going to adjust for that, right? Naturally we'll adjust for that. But as we look at the stuff we're going to look at today, we really get some insight into what sellers are thinking. So next week is my founder interview with Mike, the founder of Altos Research. Be sure to check that out. It'll be on YouTube and on the Creating wealth podcast next week. OK, so let's look at some of these markets we like, we talked about nationally. But again, that doesn't tell us much because nationally is too weighted toward cyclical markets that are not the prudent markets, not the good markets in which to invest. These Are markets with high land values very low or poor or negative cash flow. They're not good places to invest. They're good places to gamble and good places to speculate. And look, sometimes gamblers and speculators win. I've gambled and I've speculated. I mean, I don't gamble like gambling gambling, but on real estate. And I've won many times. So I'm not saying you can't win doing that. But it is the small portion of your portfolio that's the 10% of your portfolio. It's not the prudent, solid, conservative 80% of your portfolio. And a lot of this also of course depends on your age and your risk tolerance and your time horizon. But these are the markets we like and we recommend. So let's look at one of them now. Jacksonville. So the market monitor for Jacksonville says that it is a seller's market, a very strong seller's market actually, with a 66 rating on the speedometer. Median price in Jacksonville, $306,000. Now compare that to the national median price of only 375. So even a linear market, or a market that's been linear at least historically like Jacksonville, is getting pretty expensive. Okay, let's segment the market because you can't talk about the country as a whole. That's ridiculous, as we've alluded to already today. But you can't even talk about one market as a whole. You've got to segment by product type, by pricing. So are you talking condos and townhomes? Are you talking single family? We at least today are talking 100% about single family homes because that is what we like to invest in. That's what we help our investors invest in in these different prudent markets around the country. The single family home is the most historically proven asset class in the entire world. And it's the most tax favored asset class in the United States. And it's also the most debt favored asset class in the United States. And when I say that, I mean good debt, mortgage debt, debt that works, that pays you to borrow the money and really creates that awesome opportunity of inflation induced debt destruction that I've taught you about over the years. So as we segment the market in Jacksonville and we take 25% 1/4 cuts of that market, what happens? What happens here? Looking at price per square foot in Jacksonville, segmenting the market on the upper end of the market, the top 25% of higher priced homes, they are $172 per square foot. The bottom $73 per square foot. And you see the lower tier of 119 and that, that upper tier, that would be the 50 to 75% tier. Right. At $132 per square foot. But that was back on December 21st of 2018. What does it look like today? Well, $238 per square foot versus 172. And at the bottom, 116 versus 73. And then of course, you've got the middle tiers there as well. So the price segments that have experienced the biggest growth in Jacksonville on the per square foot price in relation to their prior price would definitely be the entry level pricing, the higher level pricing. And hey, that upper tier hasn't done too bad. Okay, so but they, they've all sort of correlated with this, right? It's not very out of sync in any one category, is it? Okay. By the way, for those of you watching live, please click the like but button. Be sure to subscribe to the Creating wealth podcast and review us. I never ask for reviews. Shame on me. I really should be asking because to he that asketh, it shall be given. Right. Okay. So we really appreciate that. Okay, so Memphis, let's take a look at Memphis has just been a perennial great market. I've owned several properties there. I just sold some of my properties there. Not because I'm negative on the market at all. I think Memphis is fantastic cash flow, very renter oriented market. And it has been a huge market, just a machine. So many of our investors, hundreds and hundreds of people I've helped invest in this market over the years. Okay, so it is a 59. So it is in the seller's market territory, but not as strong as Jacksonville. All right. Ocala, Florida, another market that we really like. This one is stronger at 64 on the market monitor. That's a 64. So definitely leaning into the seller market territory. Birmingham, Alabama, another nice linear market that we like that's got a 59 on the scale. And that is the end of my intro portion of today's podcast. So if you've got some questions, put them in the comments and I'll answer those real quick. But I just want to go back to this inventory stuff for a moment and give you a Compared to what? Because that is the important question. Compared to what? The inventory back in 2018 was still very low historically. All right, the overall inventory to be considered a normal market in the US should be about 1.3 to 1.4 million homes. Okay, 1.3 to 1.4million. And as you can see today we are Very, very low at just over 400,000 homes. So inventory quite low. And I think this will persist for quite a while. It's gotten just a little better recently. And by the way, it's, it's hidden behind, behind this pop up. But you can see that as the inventory really, really declined and everybody came out post lockdown and they started to buy and buy and buy it, we saw just a huge slump in inventory right here and it's gotten just a tad better and now it's gotten just a tad worse. But overall inventory very, very low and there is literally no sign of that changing in the near term. Ultimately, maybe the home builders will catch up with the demand and there will be more supply, but the problem is what type of supply. They are simply not building entry level homes because there's no profit margin in it for them. And that's what we recommend for investors is that you buy the entry level bread and butter homes because those have a much wider market share. Think about it. If things, certainly if things continue to go well, I don't want to say continue because we do have an economy no doubt built on a house of cards, it's largely fake economy propped up by money printing, smoke and mirrors, the financialized Wall street sector, etc. Etc. Etc. Don't get me started. But if they keep the printing press going and if the market continues the way it's going, right, if that continues to happen.

We are simply going to see all of the renters that you want to rent your homes will be the typical type of renter, people starting out in life, first time buyers, people at the lower end of the socioeconomic spectrum. But if things get bad, right, if there is a crash, a correction, undoubtedly there will be a correction. There's always a correction. There are always cycles in the economy. Austrian economics has taught us that many, many times. If that happens, then you will catch people moving down the socioeconomic spectrum just as we did during the Great Recession. We saw people doing strategic defaults and selling their homes on strategic defaults, getting bailouts from their lenders, loan modification, loan modifications, short sales workouts or foreclosures. As we saw that, those people shifted into the renter pool and they became renters. And you get people moving down on the socioeconomic ladder. Either way there is going to be demand for higher quality entry level homes. So here's the segment we like. I remember going to a real estate seminar many years ago. I was probably, I think I was 18 years old when I attended this real estate seminar. And I remember the speaker up on stage saying something that is still somewhat true, but maybe not quite as true today as it used to be. He said, you do not want to buy properties in yuppie areas. Remember that old term, young urban, professional yuppie, right. There's all kinds of acronyms for, you know, dinks, dual income, no kids, right, whatever, right. Sinks, single income, no kids, right, whatever. There's, there's all these acronyms out there. But he, he said if you see someone jogging, don't invest there. Right? Because that, what the implication was that you were in an upper middle class neighborhood, you know, someone's jogging around, you know, into fitness and so forth. Right? Now that is not as true as it used to be. What you want is not always like the lower kind of workforce housing. You want one step above that, but still below the median price for that market. That's sort of this ideal kind of sweet spot. Not to say that you can't make money, you going below that or above that. Certainly there are always opportunities and everything is an individual case by case basis. But if I had to generalize, that's the sweet spot. Is that that sort of below the median price for that market, but near it, not at the lower end, not at the, not at the really lower end of that market because you just don't get quality tenants when you're in that market, but below the median price or just under that median price for that market.

Hi everyone. Do you ever wonder why mass inflation is still a threat to rich countries? Some countries are privileged to have stable currencies. As the reserve currency of the world, the US Dollar has enjoyed an enviable position that most countries would die to have. Except for the 1970s stagflation scare. The US has cruised along without many inflationary hiccups in its recent history. Some countries haven't been so lucky. At one point, Venezuela was one of Latin America's wealthiest countries. In fact, its wealth was so impressive that by the 1950s it became a magnet for migration from countries like Italy, Portugal and Spain. Oil was its primary export, but it had a growing steel and mining industry as well as its currency, the Bolivar was one of the strongest currencies in Latin America. In this regard, Venezuela was indeed exceptional because Latin American currencies tended to be very volatile. However, in the 1970s, Venezuela's economic model began to change. In the middle of that decade, its oil industry was nationalized. From there, the Venezuelan state began to embark on massive spending ventures and relied on high oil prices to finance such largesse. But when oil prices plummeted, economic realities set in. Government programs do not come cheap. Eventually someone must pay the bill. In 1983, the Bolivar underwent its most significant devaluation to date, ending a relatively unblemished track record for the nation's currency. Although many believed that this was a temporary setback, things never went back to normal in Venezuela towards the end of the 1980s. In the early 1990s, the country attempted a series of market based reforms with limited degrees of success. That said, the government could never contain the inflation beast. In 1989, inflation stood at 84%, poverty was growing and the Venezuelan populace was growing restless. Eventually they took to the streets with some protesters resorting to acts of violence. The government response was rather brutal, leaving hundreds of people dead. Known as the Caracasso in 1989, this crackdown was a major turning point in modern Venezuelan history. Venezuela's otherwise robust democracy started to be called into question. To make matters worse, a rising lieutenant colonel by the name of Hugo Chavez launched two failed coup attempts against the government in 1992. Although Chavez was imprisoned for his actions, the damage was already done. On top of that, none of the country's structural economic problems, such as inflation, were ever really addressed. Inflation reached near triple digits 100% in 1996 and continued eating away at every day Venezuelans savings. By 1998, when Chavez threw his hat in the country's presidential race, Venezuelans were completely infuriated at the political system and pulled the lever for the former lieutenant colonel who marketed himself as the anti system candidate at the time. Unfortunately, Chavez's rule did not fundamentally address Venezuela's economic problem. In fact, his administration arguably made the situation worse, especially with regards to inflation. This goes to show that there is strong institutional inertia in politics. And even when so called reformers come onto the scene, they're unable to roll back the policies their predecessors put in motion. Chavez's successor, Nicolas Maduro, has also failed to tame the country's inflation scourge. According to recent figures from the statistics website Statista, Venezuela's current inflation rate is hovering around 2,300% to 6,000%, which is considered hyperinflationary. From a big picture view, inflation has been a hallmark of the Venezuelan economy for the past few decades. Here's some perspective. The last time inflation was below double digits was in 1983. In effect, the average Venezuelan millennial has never witnessed a year with inflation below 10%. Here's the thing about economic upheavals. They can wreck even the best of nations and they usually can't be controlled, regardless of who is in charge. There's a lesson here, and Jason has taught you this many times. You can't control the political or economic elements, but you can take advantage of crises and benefit from them. While I doubt that inflation will reach Venezuelan heights, you should always remain vigilant about the U.S. s economic climate. Currently, there are debates about whether the US's inflationary spell will be transitory or more durable. Jason tends to believe in the latter. Nevertheless, you should never lose your cool and think the whole world is doomed. To the contrary, inflationary moments provide a host of new opportunities for real estate investors to thrive in. And they can do so by using Jason's favorite four letter word, debt. In this case, he's referring to mortgage, not consumer debt. Consumer debt is a big no no in his book, but taking on a mortgage is a different story. You see, this kind of debt is an asset. When inflation hits first you acquire an income property, then you rent it out to a tenant. In doing so, the tenant picks up the carrying cost of the mortgage. Meanwhile, the mortgage's real value depreciates due to inflation. This infuriates the banks but creates a great opportunity for you. So learn from Jason and take advantage of his inflation induced debt destruction strategy. It's a great time to be alive. For more information, visit Jason hartman.com.

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