1832: Hartman Comparison Index, Dr. Lawrence Yun, NAR, Labor Shortage & Entry Level Homes Part 2

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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.

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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 1832. 1832. Glad you joined me today because wow, as what was it Bob Dylan who wrote that famous song lyric, I think times, they are a changing. You know, everybody's talking about the great reset. I think maybe we should be talking about the great transition. And no, I don't mean everybody changing their genders, which seems to be quite popular nowadays. I'm talking about the real estate market. I'm talking about the economy as a whole. You know, things are really, really changing. And folks, that is the time you must be aware and you must plan and act and you must increase your level of education and awareness as to the marketplace. But you also think need to think more creatively sometimes, right? We all get sort of stuck in the routine, stuck in a rut. Maybe it's not a rut, but it's just a good routine. Could be either one. And we got to think more creatively sometimes. So we'll talk about that in just a moment. We have part two of our guest, Lawrence Yoon today, the chief economist for the national association of Realtors for NAR, as they call it. And he will be with us in a few minutes. But first, hot off the presses, folks, hot off the presses. We have some new. Guess what, Guess what? We've got new. We've got new HCI data. You are the first to hear it right here. The Hartman Comparison Index, the index about the real estate market that answers life's most important question. Compared to what? That is life's most important question, folks. Challenge me on that one. Go ahead, challenge me. What question is more important to understanding anything in life? Any decision you make than the question, compared to what? Compared to what? So HCI Data. Let's do it. Okay, so looking at the screen here, let me put this up on the screen. So the first thing we must, must, must understand is that when people are buying real estate, the vast majority of them finance their real estate. So we need to understand that it's not about the price of the property. It's about the monthly cost of the property. It's about the mortgage payment. Of course, there are some other things that go on there. Taxes, insurance, maybe an hoa, but it's really about the mortgage payment. Right? That's the biggest factor. It's how much can someone afford every month on that property. And that's what we want to focus on now. The hci, the Hartman Comparison Index compares the price of housing to a whole bunch of other things. Because why would anybody be silly enough to just compare to, just compare housing to one other thing? I mean, that's just crazy. The US Dollar, why would you compare just to that? You got to compare it to a whole basket of things. A whole bunch of things. Just comparing to the dollar would cause grave, devastating mistakes. It would cause huge blind spots. People would be crazy to only compare to one thing. I mean, look, when you picked your, your spouse, your significant other, did you only compare them to one thing or all the fish in the sea, right? You know, you compare to a lot of things. When you bought your last new car or your last house or your last TV set or whatever it is you, did you compare it to only one thing? No. Hopefully you compared it to a lot of things. Because you can only make a good decision if you have a good enough basis for comparison. When there is a repair issue on one of your properties, do you just get one quote or do you compare to multiple quotes? Hopefully you get three quotes. Right? And by the way, a little tip for you. Try to use the word quote rather than the word estimate. An estimate means it can change. A quote means that's the price they're quoting you. So when you're dealing with contractors, get a quote, not an estimate whenever possible. It's not always possible. But just a little tip from an experienced person like yours truly. Okay, so let's look at the new Hartman comparison index data, the HCI data for mortgage payments. We're not going to go into the whole index. We don't have time. But we update this every quarter and our in house economist Thomas just updated it literally last night. And you are the first people to see it. So let's dive in and take a look. So mortgage payments compared to inflation, right? What is the real cost of a monthly mortgage payment? So we've got three. Well, we've got four columns here. One column is the year we go from 1970 to the end of the first quarter of this year. Right. So this is hot off the press's data. I'm so happy to be able to share it with you. Okay, so in 1970, 52 years ago, the mortgage payment on the median price house, based on the interest rate and the price of the house at the time, $127. By 10 years later, by 1980 it was way up at $639. And by 1990 it only went up $7 in a whole decade. So not bad at all. But 2000 it was up to 795. 2010 it actually went down to $721. And by 2020 it was 999amonth. And now it's $1,477 a month. So compared to inflation, adjusting for the fake official understated rate of inflation, are we paying more or less every month for a house today? Well, in 1970, since there was no inflation yet comparing it to itself, $127 by 1980, adjusted for CPI inflation, the consumer Price Index, which of course is highly manipulated. We'll get to that in a moment. 310. By 1990, the real mortgage payment was only $192, but people thought they were paying $646 in nominal dollars versus real dollars of only 192. By 2000 it went down to 178 per month. And I'll just fast forward to today. It's 195amonth adjusted for inflation based on the official government rate of the Consumer Price Index. Okay, fine, but what's a more realistic measure of inflation than the Consumer Price Index? Well, one guy who's been on my show before, John Williams, the founder of Shadow Stats, which keeps some great data on real inflation rates because what he does is he measures inflation the old way. Yes, we make money the old fashioned way. We earn it. Wasn't that the commercial for like Smith Barney or one of those scammy brokerages before I'm showing my age there, aren't I? Anyway, so Shadow Stats, inflation, of course, they really started manipulating, manipulating this index very, very heavily right around 1980, right at the end of this very big inflation that we had in the 70s. So 127, starting out 310. Notice that's the same as the official rate because he didn't have the manipulation in there yet. But by 1990, the real mortgage payment, adjusted for shadow stats inflation, a more realistic measure, was only $137. People were paying in nominal dollars 646 and CPI inflated dollars 192. And just a note here, as we all know, mortgage rates have risen significantly, but still quite a bit lower than actual inflation increases. I mean, think about it. If mortgage rates go up by half a percent, everybody freaks out. But at the same time, in the same month, inflation might increase by 1.2%. So simply do the math. Mortgage rates increased much less than official inflation and dramatically less than real inflation. So these mortgage rates that we are calculating here are based on 4.68%. That's 4.68%. And they have risen since then to where you're going to be looking at a payment of about, depending on who you ask and who you get quoted from, it's going to be about 30 to $35 more per month in nominal dollars. So that's going to increase that payment to just over $1,500 in the nominal dollar number. And we haven't recalculated that for official CPI inflation. And of course, shadow stats, which dramatically lessens the impact of that payment. And the mortgage rate increases are lagging far behind the official inflation rate, not to mention even farther and farther behind the real inflation rate. So still a very good deal. So priced in real dollars, is housing cheaper or more expensive than it was in the past? Well, I'll tell you the exact answer. In 2020, it was the cheapest ever. It's more expensive than it was then. Now we are in possibly the great transition right now, okay? In terms of real estate and the economy, I mean, things are getting, they're getting kind of weird, folks. But we're going to be right here with you and we're going to help you sail through like you're in a nice, big, comfortable luxury yacht, okay? Because that's what you deserve. You're listening to the best advice out there. So it was 49 two years ago. Today. It's $58 now. It was $53 last year, $53 in 2010, $94 in 2000, 22 years ago. So the real cost of your mortgage payment has actually declined pretty significantly. It's not the cheapest it's ever been, but it's fairly cheap. It's fairly cheap, okay. It's, it's actually pretty cheap. Okay. It's much cheaper than it was in 1970-1980-1990-2000, you know, so it's quite cheap. Right? Okay. So that's one measure comparing to inflation, both real inflation and the official inflation rate of the cpi. Before we look at the next chart, which I want to show you, I want to remind you that we have an awesome tool for you. And we are hosting a small group wholesaling workshop, a mentoring workshop, a three day workshop in Jacksonville, Florida. I'm super excited about this. We have got arguably the nation's foremost expert, the most experienced person in the wholesaling world, who started doing it in the early 90s, leading this workshop. I'll be there. It's going to be a lot of fun. We're going to spend three days together in Jacksonville, Florida, which is a great city to do this in. Let me just share with you some stats. Now. This is one of the tools that we have available to you. My friend actually developed this tool. He's a great guy and he's been doing this for, gosh, since I think the late 1990s. Okay. And I'm not sure exactly when he developed the tool, but he's. He's had this tool for quite a while. It's a great software tool. Now look at this. Most people think that everybody is just sailing along and no way anybody's going to cut you a deal on a property. And properties are just super overpriced right now. Believe me, I feel that way too a lot of times. But when you peel back the layers of the onion, you realize that if you're an active real estate investor, there are things you can do to get really good deals. But it takes some effort. It takes some time to do it right, and it takes some know how to do it. And that's what we're going to teach you next month. We're getting this group together. We've got to get enough people to make it a go, you know, for Jacksonville next month, tentatively the weekend of May 20th. That's a tentative date. Okay. We got to get enough reservations. So we've got a few people signed up, but we need more people to greenlight this. Okay. But let me show you this tool. Okay. What this tells you is how many people are destined to be motivated sellers or don't want our sellers or troubled sellers. Look at this. If you're watching on the video, if not, I'll just give you the numbers. So in Jacksonville, Florida, there are almost 18,000 properties right now. I literally ran this two days ago. Okay. I ran the tool. 18,000 properties that are considered in trouble, they would be motivated sellers. Now, this takes some effort to go find them, to go get deals with them. Okay. But lots of my friends have been doing this for many, many years. Okay? So I've been around it for sure. So almost 9000 properties in Jacksonville have liens on them. 8928 to be exact, as of two days ago. Absentee owners of those properties that are also absentee owners, meaning they don't live in the property and they've got a lien on them. 5799 in Jacksonville. There are also over 5500 vacant properties and 2340 property owners that are currently in bankruptcy. In bankruptcy. There are 2165 of these property owners in Jacksonville that have judgments against them. And I know it's a small number compared to a normal market because the market is pretty, pretty robust right now, as we all know, and certainly not anything like the great recession. This number would have been vastly higher. But 343 properties. 343 properties in Jacksonville right now as we speak are in foreclosure. And 71 properties were recently inherited. So what do the kids want to do when they inherit the property? Well, they sell it. They want to get rid of it. In fact, they get rid of it a lot of time at fire sale prices. If you can learn how to get to these sellers in advance of these properties going on the market and being in the MLS and showing up on Redfin and Zillow. Right. You can score yourself some pretty good deals, but it requires some know how and it requires some involvement. Okay. This is a more active approach to investing. But in this great transition period that we're in, this could make a lot of sense for a lot of you. So sign up and join us in Jacksonville three days. Very small group here. Jason hartman.com/wholesale. Jason hartman.com wholesale okay, now let's look at the next chart on the hci. So this is the mortgage payment priced in gold and priced in oil. What really are people paying per month when they compare to something other than just dollars? Priced in gold or priced in oil? Well, if you wanted to pay your mortgage payment in 1970, it would cost you 3.6 ounces of gold by 2000. That actually went down a little bit to 2.8 ounces of gold. In 2020, it was 0.5. It was half an ounce of gold. Could pay your monthly mortgage. So if you had some gold in your safe deposit box or under your mattress or whatever in your safe or, you know, in some Old shoe that you've got somewhere around your house, wherever you're storing your gold buried in the backyard, whatever, right? You could literally take one little gold bar and convert it to cash and you'd have two months of mortgage payments in 2020. Today, it's a little more expensive. You need 0.8 ounces of gold to pay your monthly mortgage. And this is brand new, hot off the press end of Q1. What about oil? In 1970, you would need 36 barrels of oil to pay your monthly mortgage. So if you own some oil futures or some oil stocks of some sort, you know, whatever, maybe you had some actual. You took delivery from the exchange and you had actual barrels of oil, which is highly unlikely, but good. Hey, people do strange things, right? They do take delivery of these commodities sometimes. They really do. Pork bellies, coffee, oil, orange juice, whatever. It happens. Trust me. Okay? Anyway, 36 barrels of oil to pay your monthly mortgage by 1980, only 17 barrels of oil by 2000. 22 years ago, 28 barrels of oil. Today, 17 barrels of oil would pay your monthly mortgage. So the only time. There are only two times on my chart that it's been cheaper to pay your monthly mortgage in oil, and that is in 2021. Last year it was two barrels less per month. And in 2010, right out of the Great Recession, it was only eight barrels of oil to pay your monthly mortgage. So priced in oil, is real estate cheap or expensive? It's actually pretty cheap priced in gold. Is it cheap or expensive? And I'm talking about the monthly payment. Well, let's just go back to that one and look. So it is almost the cheapest it's ever been. Almost. It was a little cheaper two years ago. Well, it was a little cheaper last year, too. It was 0.7 ounces. Now it's 0.8. It was 0.5 in 2020. It was 0.7 in 2010. And at every other time in history over the last 52 years, it is cheaper priced in gold today to pay your mortgage. And you heard me talk about oil. It's really not nearly as expensive as people think. But those foolish people out there who only compare the price of real estate based on the price of the house rather than the payment of the house. There's a guy on YouTube. I want to get him on my show. He said he'd come on my show. Are you watching me right now or listening to me? You got to come on because I got a bone to pick with you, my friend. I mean, I love your stuff. Okay, I just want to tell you that. But, but you know, there's a few leaps in logic, and one of them that he makes, and a lot of people make is they say. They say these totally stupid things. They say, well, the cost of housing versus income is really high. Okay, well, how many of those people with the median income are paying cash for their house? Here's your answer. None. So who cares what the price of the house is? What they care about is the payment on the house. Yes, Einstein, that's what they care about. The payment on the house. And the payment adjusted for inflation, oil, gold, whatever. The hci, the Hartman Comparison Index will tell you all of these things and a lot, lot more. Priced in haircuts. Priced in a whole bunch of things. You've heard me talk about it before. Okay, in prior videos, prior podcast episodes. It's pretty darn cheap. Even now. Even now. But wait, those interest rates, they are climbing. It's been pretty shocking what's happened to the interest rates. So maybe this will lead to the great transition. And next quarter when we update this again, we may see something different. So be prepared. Right? That's all I can say. Okay, next thing, I forgot to announce the contest or not. Contest? Don't call it a contest. It's a raffle, a giveaway. The giveaway winners of the $50Amazon gift card. And we've got them today to announce. So all you got to do is comment, make lots of comments on our YouTube videos. And Al Perun, I think that's the way you say that. Made a comment that said, great information. Thanks for inviting insightful guests on the show. Okay, so Al, claim your prize@jason hartman.com ask. Just go there and say you are the winner and we will send you a $50Amazon gift card. And for the Apple podcast reviews, loverboy303. Oh, behave. What a name. And that's also name of a good band, lover boy. Good band. They got some good songs. Okay, so the review is a nice five star review. Thank you so much. Best wealth building and learning podcast. I'm a veteran podcast consumer in the podcast space and Jason Hartman is always the first one to whom I tune. The easy to follow advice that he gives will help anyone get started or at least improve their lives. A true winner. I also appreciate his willingness to proudly display his conservatism. Many podcast hosts fear cancel culture, but Jason stands up for his principles. Yeah, I haven't been canceled yet. So anyway, thank you for that. Claim your prizes. You've got one month to claim your prize at Jason hartman.com ask. And by the way, Ashley is been really diligent about getting the winners listed in the podcast show notes. So if you might have won on a previous week, check the show notes, check the old podcast episodes and we'll have it all there for you. Okay? Hey, look, I actually have some more HCI stuff to cover, but I'm out of time. We've got to get to part two of Lawrence Yoon, the chief economist for the national association of Realtors. He's here with some great data. So let's go to Lawrence Yoon right now. But don't forget to check us out for the Jacksonville event. We'd love to see you there. Jason hartman.com wholesale and check out that event. Really consider joining us small group, three days. We're going to have a great time. We're going to share a lot of meals together, lots of insights. I'll be there to answer lots of questions for all of you. And our fearless leader will be leading us into getting wholesale property deals and people will do deals right at this workshop right on the spot that weekend. I've seen it happen before. It's incredible. Join us in Jacksonville. Maybe one of the best investments you ever made. Jason hartman.com wholesale now without further ado, here's Lawrence Yoon. Or will we ever get to an even level where, you know, you don't even say we're 2 million homes short of what we need. Talk to us about that for a minute because there was, there's been a lot written about that. I'm sure, you know, I'm sure you've spoken a lot about it.

Let me actually try to find that slide. So let me just bear with me as I scroll down some of the slides here.

Problem we this is, this is hitting us subconsciously as you scroll through your slides. So it's great. Happy to see it.

Okay, so here's the chart on housing starts and for only the listeners who don't have the visuals, what it shows is that it shows from year 2000 and I would consider year 2000 as being normal. And what do I can say year 2000 as normal? Because one looked through the newspaper articles and there was no discussion about housing market bubble or about any impending housing market crash. Housing was a very boring news event back in the year 2000. And you say, well, boring means normal. Then you see some. So you say 2000 as a reference point for being normal. Then what one sees is that from the financial crisis in 2008, it has been below year 2000 level by substantial amount. Even with the increases in housing start steadily from the Low Point in 2008, it has been consistently under year 2001. Try to tie up this number to say how short are we? Because America is experiencing job growth, population growth throughout the years and of course people need housing. I'm looking only at the single family units, but one could also find something similar in multifamily units because the rents are rising at double digit appreciation. In many metro markets we have a housing shortage not only for buying a home, but even the rental units. So we need to keep building, building, building. So two years ago when we did the study, it was close to about 6 million units where we were short. I think Freddie Mac did some different analysis, a little different methodology, and I think they mentioned that we were short about four and a half million. So one can dispute on the actual numbers, but housing shortage is clearly with us and it's going to take multiple years. I would say probably three or four more years, assuming the builders can ramp up the production before we truly get to the point where we say we have sufficient housing in America.

And here's the trillion dollar question on top of that, what housing are the builders building? Because we all know they're not building entry level housing. I mean there's a few examples of course, but not many in mass. There's just no building to the first time buyer market, is there? I mean it's figure of speech. I get it, there's a little bit, but not much at all. So the builders have found that they just can't make a profit given the high cost of construction labor, construction materials and of course whenever you sell something more expensive, you're going to have a bigger profit margin than selling something less expensive. So obviously the builders put their efforts toward the places they're going to have the least risk and the biggest margin. So do you kind of segment this at all in terms of, you know, entry level housing? Because the shortage is more pronounced there, isn't it?

Oh yeah, absolutely. The shortage is on the entry level homes. And that's where the intense multiple offers are occurring. The builders are building where there is a profit margin, you know, because they have an option of especially the Wall Street. As they are thinking about where to allocate capital, they want to allocate capital where they believe there's a profit margin. So if they think that producing electric car will produce profit margin, well, that's where the money will go. So from the builder's perspective, the money is flowing in to build a Larger size, expensive home, whatever they are building, even with the supply chain disruptions, high lumber costs, the garage door not arriving on time, they just tackle an additional cost and buyers are still buying. So from the time that home is completed, constructed right now, it's only taking two and a half months to find a buyer. Now it is not for the first time buyers, generally speaking, but it does loosen up the inventory in a sense that these new homes, newly constructed homes, are for trade up buyers. As they trade up, they are releasing their own all homes into the multiple listing service for potential first time buyers. So it loosens up the market, but without the new home construction, it simply doesn't loosen up. So even though it's more expensive home, bigger size home, it still helps the first time buyers indirectly through the chain reaction on the inventory.

I really fear and I feel like I'm the only one talking about this. I just don't hear anybody talking about it. Are we going to have a housing shortage for many, many, many years to come? I know you talked about how the builders will eventually build enough homes, right? But the problem is we've got tens of millions of people who have either refinanced or purchased a home in the last couple of years with these historically incredibly low interest rates. And I've always looked at the mortgage, Lawrence, as a huge part of the real estate asset, if you will. And I just don't think they're going to want to let those mortgages go when they can't be replaced at the low rates they've locked them in at for three decades. Does that lead us to just a continued housing problem where people don't want to relinquish these great mortgages they have? It seems like it may sow the seeds for a future problem.

We may have more of a lock in effect, that is to say homeowner, they said, well, house is a little small, we want to have extra bedroom. Maybe we want to buy before they suddenly realize buying means 5% mortgage rate and they have to give up the 3% mortgage rate they already locked in whether refinancing or not. And suddenly they say, well, it's not worth, it's not worth getting that extra home at higher mortgage rates. So people get locked in, but nonetheless, last time we saw mortgage rate move, say going from 4% to 6% move, how many people were locked in? And what we find is that there are so many life changing events. People find new job in different cities, people have children and they say house is simply too small. We have to get To a larger size home or the school district. People say we want to elementary school was fine, but for the middle school we want to change the location. All these life changing events really facilitate sales. So the lock in effect, at least temporarily. When we did some analysis, we are finding that that could reduce home sales by say 12% from what would be normal economic factors. So there is clearly a lock in effect. But it is more minor percentage, maybe about 12% reduction in home sales compared to what would happen without the lock in effect.

The only thing I would say to that is of course people's lives do change and that's what has traditionally and historically precipitated selling the home and buying another home. However, with these super cheap mortgages and the pandemic, people are working remotely so they don't necessarily have to move to a new city. They are schooling online and remotely so they don't have to move to a, you know, like school districts could become sort of obsolete, right. In the more modern zoom era as jobs have changed so much. So that could all happen. And I think this is actually going to cause a bit of a boom in the home improvement industry because people will be more likely to add a room, right? Add a second story where we can put the beautiful master bedroom upstairs and keep the downstairs house just as it was. Or add on or improve the house rather than selling it because we've got this great mortgage. Or they decide to keep that house as a rental property, whereas normally they might have just sold it, right? And now this requires the financial wherewithal to do it. But I think a lot of people are gonna have that given, you know, we're gonna see with 12% fewer houses going on the market in the future, by your calculations. And I think it might be even less than that or more than that, not going on the market. However you wanna say it, that's gonna cause upward pressure on prices, isn't it?

Anytime there's a housing shortage, it always means that it will be a little more percentage growth in home prices. But there are so many factors influencing the home builders aspect. We also have to consider this terrible tragedy that Covid has inflicted globally. According to medical experts, they're looking at maybe 6 million people passed away from COVID in America alone, possibly reaching up to 1 million people passing away from COVID Now people can dispute was it really a COVID death or heart attack? Death and so forth, or a motorcycle accident or motorcycle. But if one looks at the death certificate issue, death certificate, everything, drug overdose, heart attack, everything, it has sharply increased in the past two years. So without a doubt people would say what has happened in the past two years. So you know, Covid and the people who have succumbed to it are people in their elderly age groups, 70s, 80s. So there may be some people who need housing adjustment. Say a widow may want to downsize, or maybe it's an empty home that need to go through estate sale. So we will begin to see some inventory also showing up from this terrible tragedy that has occurred from this ugly Covid situation.

How long does it take that inventory.

To show up though it's for estate sale through the lawyer process, it may take a little longer related to the people who want to downsize, we'll see how that goes. But the principal source of inventory increase will be the builders. But I think people also need to be mindful that America experience, based on medical experts, roughly 1 million Americans passed away from COVID And see, even if one was to shape that number to halves, disputing what's the true cost, that is an increase that requires some housing adjustment. And we have to wait and see. Housing unit does not mean one person because it is a household which could be three people apart.

Right. So if it's an elderly couple living in a house and one person passed away, then you still need a house for the one that's remaining. Or if they were in an assisted living or nursing home facility. Facility that doesn't really create a new housing unit as it's complicated like everything, right?

That's right.

Okay, good. Show us some more of your charts and data, if you would.

Okay, so let me also share one local variation. So this chart is the US map with 50 states and it shows the current status of their job market. The comparison is with March 2020, when America went through a lockdown or right before the lockdown. Some states today actually have more jobs compared to pre Covid days. One sees it in the Rocky Mountain states and essentially what I call the SEC college football conference from Texas, Florida out to the Carolinas, Tennessee area and the other state is showing minus, meaning that they are still short of job compared to pre Covid days. So if one is wondering which real estate market is the hottest and it just directly follows the job market. I mean sort of common sense, more jobs, people have income to buy a home. So the Rocky Mountain states have seen a substantial price growth. I think the latest Case Shiller price index in Phoenix is showing about 30% price increase from one year before. Florida market, substantial rise in home prices, but also rents. Rents in Tampa, Jacksonville rising 15% from one year before. So.

You know, you know, my, my ex girlfriend is looking to move to South Florida and she told me that she was just, you know, I mean she's got money, she's successful and she told me that she was looking at apartments. She just wants to rent first. Right. And there is literally nothing available at any price. It has been such hard work, you know, one apartment complex to another to another to another, looking at individual landlords, renting condos and things. Just an ultra tight rental market. Regardless of how much you spend. You know, she just keeps upping her price. Like I'll spend $1,000 a month more. Doesn't seem to matter.

Just interesting phenomena recently is the multiple offers on rent rentals. So I'm not talking about the investors wanted to buy, but it's more like people who want to rent a property and they said, well, work from home, maybe I want to rent a townhouse rather than an apartment complex. So they go and look for the rental unit and There are other 10 renters showing up to say, oh, we want that rental units. So now there's a multiple bid among the renters for units. And which is the reason why it.

Was multiple offers on homes for sale and homes for rent. Multiple offers. Either way, just shortage, shortage, shortage. Yeah.

And then one thing also that's exacerbating the inventory shortage is that given the strong rent growth, now we have the Wall street coming in and trying to pick up single family rentals and that is also taking away the inventory.

Yeah, yeah. So about 33% of all homes purchased nowadays are purchased by investors. Investors. And we've got these big Wall street style investors. Do you see them continuing to buy more properties over the coming years or is that maybe a phase and they'll sort of buy and then they'll just hold what they have. They've got in the aggregate hundreds of thousands, if not, I don't know, maybe even millions of homes. Now I'm not sure of the latest numbers, but do you see them continuing to just keep buying, buying, buying or how do you see that?

Well, the Wall street companies will back off once they see the rents beginning to decelerate. But right now it's an accelerating rent trend. So how do we make the rents decelerate? Produce more homes, construct more homes, construct more apartment. But as long as there is excess regulation in home building activity, apartment building, it just means the Wall street will just be in the market and essentially pushing out the first time buyers with their cash deals.

And I don't even Know if NAR does any projections or much research on the rental side, but do you have any data on rent projections? How much you think rental go up this year? I mean it's gone up extremely high, but how much more are we in for this year, next year, etc.

So the rent data is a little trickier. You know, Census tried to keep data on the rents. There's a consumer price index component where they try to compute what the rents are which is rising about 8% above one year ago on an annualized basis. And the data from COSTAR which measures all their apartment and part they are seeing rent growth in the double digit percentage rate. There is a divergent rent data, but one consistency is all are accelerating. And my guess from ordinary person, ordinary renter. So whatever rent they are paying now, they should expect next year probably about 6 or 7% growth in rents.

Right. Wow, that's incredible. Okay, keep going.

So let me do one more chart because I think I'm reaching the time limit. So let me see what the interesting part would be. Maybe I just start with the NAR membership, which is quite interesting.

That's an economic indicator. By the way.

There is a labor shortage across America. Help want to sign at a restaurant. Help want to sign in the construction site. Everywhere. Because there's not enough workers. But one area where there appears to be possibly a surplus of workers is people want to become Realtors. The housing market has been good, but every time there's more Realtors coming in, it just makes the business environment more much, much more competitive. Say a newly minted Realtor, their first client is their uncle, which means that their uncle is no longer available to other Realtors who have been in the business for many years. So it's very, very competitive. But I only want to illustrate this to say that from consumers perspective, you have many, many choices in terms of which professional you want to work with. From the Realtor's perspective, I want the professional to recognize that it is a competitive industry out there. They already know it, but it could be even more competitive with so many people entering the business.

Yeah. So NAR membership is interesting because it is I believe the largest trade lobbying organization in the world. And you've got almost 1.6 million realtor members now. But comparing that to, you know, you know, 2012 or so, you had about a million. So your membership is up 60% since then. That's a huge jump. What does NAR membership tell us? Is this a proxy for the real estate market or the economy? Do you tie it in that way. I kind of do. I think it's a bullish sign when everybody's becoming a realtor. You know, that's a sign of faith that the market is going to continue to grow. What do you think?

So that's the expectation of the new members who are coming in that market will continue to grow. But the reality measurement is that the membership is actually a lagging indicator of a housing market condition. So the fact that we had an exceptional housing market the past two years, this is drawing new members less poor. We have higher interest rates. I do expect home sales to come down, not prices, but home sales to come down this year. It means that the membership number may turn negative two years from now is more of a lagging indicator rather than a leading indicator. Because it's not about the realtors optimism that drives the market. It's really about the consumers. Do they buy more homes or do they not buy homes? And with interest rate rising, we will see some cooling in the market.

Yeah, well, let's hope so. Let's hope the home builders catch up a bit so we have more inventory. I think that's what everybody wants. And the thing the government needs to do is they need to back off on building restrictions. They make it, need to make it easier for developers to do their thing. And you know, I would say instead of incentivizing first time buyers, how about incentivize developers to build things? You know, that's what needs to be done. What else do you want to just wrap it up with, if you would, knowing that our audience is mostly investors and they're looking to buy rental properties and build a portfolio of investments that they can ultimately retire on or have financial freedom with.

Well, you know, you made a good point. I completely agree that we need more supply. More supply. Because during this housing market boom, what we have seen is that homeownership rate did not increase, but we had increased home sales, increased prices because the real estate investors were in the game. And the real estate investors, they are constantly on the lookout for opportunity. And they saw an opportunity from the housing shortage. Housing shortage will not dissipate overnight. It's going to take multiple years. So in terms of the home price growth prospect, it will continue. Maybe not as intensely strong appreciation as before, but the rents. Rents will also rise. And just one final comment is when one looks at say the REIT sector, which is essentially buying commercial buildings and they're collecting rents, they look for some price appreciation. And what happens during the high inflationary period like we are entering is that most of the financial return is associated with rent increases and not necessarily price increases. So rents are accelerating and is currently in an accelerated trend.

Right. So you don't have to see price increases if you have rent increases. I talk about that in a technique I have called the Three Dimensions of Real Estate. So that's absolutely true. Lawrence Yoon, chief Economist for the national association of Realtors, thank you for joining us today. We appreciate all the charts and research that you've shared. Thank you.

Thank you.

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