1837: Interest Rate Shock: What It Means For The Housing Market, Eric Basmajian Part 1

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Thank you, Jason. I would not have as much money today if it wasn't for you. You know, Sissy and I both made a ton of money and you know, thanks to you and your guidance and your show and everything, it's been great.

And now cash flow for all your.

Clients on top of it. Not only appreciation, but cash flow. You made a lot of people rich, my friend.

You're a good man.

Thank you, Jason.

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

Welcome to episode 1837. 1837. And we have an exciting, exciting show for you today. We have Eric Basmajian. You are going to love this guest. We get into a lot of fantastic depth on macroeconomics, on the real estate market, on interest rates, very important stuff. And he will be with us in just a moment. But first, let me share a few things with you. So I am back from Las Vegas and Salt Lake City. I was honored to speak at a couple of big conferences. One was Clever Investor Summit. 2400 people live and 4700 people on the live stream. And I tell you, next time we do a live conference, which won't be too long. I appreciate that all of you have been asking about it. We just got a few other things going on here, folks, but we will definitely get back into the swing of live conferences. I know a lot of you attended our last one in Orlando and we always make them fun. You know, one thing these other conferences really should do is they should have a band. We've had live bands at several of our last conferences and that has been a lot of fun. You know, have some drinks, dancing, fun socializing, all of that stuff, but a lot of learning as well. But one of the many things I learned at this conference is I Learned how to do live streams. Well, you know, you learn by seeing other people do it. Well, you learn the most by doing it yourself, but you learn the second most by seeing someone else does it. Do it. Someone else does it. Okay, maybe one more coffee would be in order. But yeah, this group just did the live stream so, so well. And we are going to emulate that for our next event if we do live streaming from the event, because they really did a good job of it. But at these events, I got to present some predictions. Yes, more predictions for the year. We're deep into the year now. It's going so quickly. And, you know, we're all amazed at how quickly time passes. Right? It sure does. But these predictions are so important. You know, one of the things I learned yesterday, I've been reading a book on how to think like da Vinci. And Leonardo da Vinci actually invented the parachute before we could fly. Yes. Way back in 1485, long before anybody ever thought about the Wright brothers. He invented the parachute. What an amazing person. This was Leonardo. And you know, that's what's really important. Right. It's so important to try and see ahead to, as Wayne Gretzky said, that great quote from Gretzky, you know, skate to where the puck is going. And that's what I endeavor to do and endeavor to impart to you on this show. Really predict the future so you can make the right moves. And this week I'm speaking at two more conferences, this time in Dallas. And then of course, we have our collective mastermind event the weekend after that in Dallas as well. So I'm going to be flying back and forth to Dallas twice and talking about how we might really be at a turning point here in terms of the market and the economy in general. The likelihood is very high that we will enter a formal recession. But that doesn't mean there's a recession in the real estate market. No, those two things are not tied together. You can have a macroeconomic recession, you and have a real estate market that is still booming. But the real question here is, who cares? Yeah. I'm not kidding. Who cares? Right. Because if you invest based on my strategy and the strategy we're actually gonna talk about with our guest today with Eric here in just a few moments, it won't really matter because you adjust your strategy. You're a non binary investor. You don't take the binary bet of buy low, sell high. Right. You take the multidimensional bet when investing and you earn your return in lots of different ways. So the Turning point. Hey, if it's here, and it may well be, I mean, interest rates have almost doubled, folks. But the housing market continues to face a massive inventory shortage. Supply is very limited. The prognosticators of doom have been wrong, wrong, wrong. They've been wrong. Yes, they sure have. But they might eventually, like that broken clock, be right. You know, if you spend your whole career talking about doom and gloom and the looming recession, you know, once every 10 years you're going to be right. A broken clock is right twice a day, as the old saying goes. And the problem is, if you listen to these people, you will have missed out on the boom times for the rest of that decade when there's not a recession. Right? And you don't want to do that because that will absolutely cost you a fortune to listen to this bad, bad, bad advice. So we make sure that your bases are covered regardless of the direction of the market. Because remember, it's a multi dimensional asset class. And so, you know, is the market signaling a red light? Is it signaling a yellow light? Is it signaling a green light? And I say that light is still green and it's probably going to be green for another year, if not two years. So stick with me and we will sort that out as time goes on here, folks. Okay, I want to get into some headwinds and tailwinds for the market before we get to our guest. But before that, I would be remiss if I did not announce our giveaway winners from last week. And they get the Amazon $50 gift card. The $50 gift card right here. We will send that to John M. Who commented as we were talking about insurance and how to win with insurance claims. John's comments rather long, but it's very insightful and intellectual. We appreciate that. This is how we learn from each other's. A lot of times you can learn so much by just reading the comments on my videos. And he talked about how contractors, public adjusters and attorneys are the reasons claims are delayed. Well, maybe. But hey, would you rather have a delayed claim and a larger claim and a larger payout? That public adjuster could be very helpful to you. That attorney could be very helpful to you. But yes, I get the sentiment. The wheels of justice turn very slowly and it takes a lot of effort to get your money. Sometimes the money you're entitled to, but may well be worth it. So John, you won based on your YouTube comment, the Amazon $50 gift card. Claim it at Jason hartman.com/jason hartman.com ask. And by the way, some of you other winners have not claimed your prize. Every week we're announcing two winners. The Apple Podcast review winner this week is Alex Wke. Alex Wiki. It's like Wikipedia almost, I think. Anyway, Alex, five star review. Thank you so much, Alex. We appreciate it. But folks, you can make a review and it does not have to be five stars. You can win with any review. So worth a listen. Jason understands the market and has intellectual projections and brings on great guests. Take the time to check in to the content he has available here and on YouTube. Alex, thank you so much for the review. Go to jason hartman.com ask claim your $50Amazon gift card. Okay, so let's talk about some headwinds. Headwinds for the market. Now there are more headwinds and more tailwinds than we're going to discuss. But just briefly, you know, obviously rising mortgage rates. That's huge. That's a big deal. You know, these payments have increased quite significantly. But a lot of people are reading this wrong, folks. They are reading it wrong. And in those two speeches I gave last week in Las Vegas, I talked about how you need to look up. What do I mean by that? Well, this is especially true in the builder business. A lot of people have gone out and purchased new homes. And in the coming months, in the coming year, you are going to hear about contract cancellations where these buyers are being forced, not out of choice. These are just regular homebuyers, not investors who bought a house and they bought it and the construction cycle was too long for them to lock in their rate and rates went up pretty dramatically. As we all know, they're almost double from where they were a year ago, very significant increase in mortgage rates. So if they bought a $400,000 house and they locked in their rate at, I don't know, let's say three and a half percent and now they have to pay five and a quarter percent. Usually, these typical home buyers, these owner occupant home buyers, are buying as much home as they can afford. And now they're faced with the harsh reality that they can no longer qualify. So what do they do? Well, they might remain in the renter pool, which puts upward pressure on rents. Congratulations, investors and landlords. That's most of you listening right now or watching right now. And they might be faced with staying in the renter pool and not buying their first home. So very sad for them. But good for the rental market because it increases rental demand, puts upward pressure on rents or they might be forced into canceling the contract on this home and buying a less expensive home. Now, the way the media will falsely report this, and because the media is just stupid and, and most of the media is soundbite media, they don't go deep. They don't understand markets like I do after being the business for so many years and like you do with me helping you, hopefully. Right? So they don't understand markets because all that buyer does is they are forced to adjust their expectations. They're forced to stay in the renter pool, or they're forced to adjust their expectations downward. And guess what? The media reports that, oh, everybody's canceling their contracts. The market is collapsing. No, it's not. You're wrong. The media is wrong again. The buyer above them that was buying the $500,000 house, they had the same problem. Now, this is a lot more work for those home builders. And it might, it's true in the resale market, too, but to a much lesser extent because those are shorter escrow periods where they can lock in their rate a lot of times, although many stories about lenders not honoring interest rate locks. And by the way, I personally just got burned by this myself, and I'm thinking I need to sue a lender. But we'll see. I'm not sure that is such a hassle and so expensive to do because justice is a huge hassle and it's hugely expensive. But I might just do it. So I'll let you know more to come on that. But a lot of these lenders are simply finding ways, these sleazy scumbag lenders, to dishonor rate locks. That's just reality, folks. These are weasel, sleazy lenders that are finding every excuse in the book to screw over the borrowers and not honor their commitments. Anyway, back to the story. The people above move down and the people above them move down, and it's simply a sliding down on the socioeconomic ladder or the house price ladder. It doesn't mean that people aren't still forced to make some decision. They're forced to stay in the renter pool or go out and rent something else if they gave notice in that rental, or they're forced to simply buy a less expensive house. That's what happens. It's not like the market collapses. It's just a lot more work for everybody because everybody's moving around. They're moving the, the pieces around on the chessboard, but the same result still happens. They still end up with a house. Right? So the market does not collapse. That's the way the media Will report it, get ready. It's a lot of false narrative coming at you. Just like the war in Ukraine, just like everything else, right? Just like big tech, just like, you know, health issues and you know, I won't even mention the word. Anyway, it's a big scam. Everything's a scam nowadays, okay? Slowing interest in remote work, now that was the big thing. A little less interest now and the subsequent migration, that trend's going to start to kind of taper off a bit. Okay. But again, it's such a huge mega move that the tapering won't be any big deal. Inflation in commodities and everything else, slowing birth rates, higher death rates, by the way, huge wealth transfer. I'll talk about that in the tailwinds and then political pressure for rent control. Now that one actually you could argue both ways. Definitely, definitely. You could argue that both ways. Okay, we got to get to our guests here, so let's quickly look at some tailwinds. What's going to make the market boom? Well, we all know there's been a huge lack of construction except for entry level homes. So massive pent up demand for from the younger generations. These people want to buy a house, they really want to get into the market. And if not, look, they're moving out of their parents houses. Finally these millennials are moving out, right? I mean Heck, they're 40. It's time to move out, folks. All right, and the stock market, the equities market is totally overpriced. We've seen that market. The harsh reality of sensible investment and capitalism is coming into play. And the market is starting to reset the prices in the equities market. And so those investors will shift to the safer alternative of real estate, of income property, much safer investment, international flight to safety for American assets. With all this geopolitical uncertainty around the world. And I'm not just talking about Europe, I'm talking about everywhere around the world. America, always the brink struck, always the safe bet. So really, really good for American assets and foreign direct investment or FDI with American assets, enormous wealth transfers. People aren't talking about this one enough. I've talked about it a bit. We need to talk about it more because it's hugely significant. Enormous wealth transfers from baby boomers to millennials. That is going to be a huge, huge mega trend in the financial markets. And of course the real estate market. Soaring commodities prices, all of these commodities, all of these ingredients to a house are just, there's just massive upward pressure on those prices. I know there will be little things up, up and down. The lumber price goes up, it goes down. Oil price goes up, it goes down. Metal, you know, raw materials, concrete, glass, steel, copper wire, yada, yada, yada, I get it. But overall, the big trend, the trend we need to watch and we are watching, is that upward pressure on those prices. And I think that will continue for a long time and that will also push the price of real estate up. Upward pressure on prices there, whether it be for rent or for sale. All right, without further ado, let's get to our guest. Let's go to Eric and, and let's discuss some really important stuff. You're absolutely going to love this guest. He's going to be here with us on Wednesday as well. We took a deep dive into a lot of important issues. So here.

Okay. If you are wondering where interest rates are going, that is the trillion dollar question, quite literally. You are in for a treat today. We have Eric Basmajian, founder of EPB Macro Research with us and he is an expert on interest rates as well as many other things in the economy and the marketplace. And we're gonna take a deep dive today with some good intel for you. So let's welcome Eric Basmajian. Eric, good to see you.

Hey Jason. Pleasure to be on.

Yeah, good to have you here. So interest rates, I mean, people are getting pretty worried. It is I think surprising to some, including yours truly, how bold the Fed has been in their rhetoric about increasing rates. Given all of the turmoil that's going on in the world. What are your thoughts?

Yeah, so just to roll back about the way that I look at the world, I'm looking for inflection points in the economy. That's mainly what I do at EPB Macro Research. I'm looking for inflection points in long term economic cycles, what we'd call secular economic trends and cyclical trends. So when I'm looking at the world, I'm trying to find out where is the next inflection point and how can clients position for what's on the other side of that inflection point. So what we have going on now is we have a Federal Reserve that was very slow to tighten conditions. We had a big rebound in economic activity coming out of the COVID low and inflation started to run much hotter than they expected for longer than they expected, mainly to do with some of these supply chain issues. And then you threw oil prices on top of that, food prices on top of that. And what happened was the Fed should have started tightening policy somewhere between 12 to 18 months ago. But they waited too long and now they sort of panicked.

And the problem, I would agree with that assessment completely. It feels like they're trying to make up for lost time and. Exactly. It's too shocking for them to do that.

Exactly. So whenever I'm looking at any economic data point, I'm always looking at what's called the rate of change or the magnitude or the speed of the change. Anyone that's a calculus expert will understand what I'm talking about in terms of the second derivative. What happened here with the Fed is they panicked and now, exactly like you said, they're trying to make up for lost time. But now they're pushing this rate shock onto the private sector and it's one of the largest rate shocks that we've seen ever. And this is going to cause a lot of problems here, Jason, because it's going to filter through to the housing sector, which is a key variable. And I'm going to share my screen here. I got a chart that really highlights this. Can you see my screen here?

I can.

So this is a composite index that I create that I publish to some of my clients. This is a private borrowing rate composite. So what I do is I take various private borrowing rates. So things like 30 year fixed mortgage rates, 5 year adjustable mortgage rates, short term commercial paper and BBB corporate bond rates. And I graph the 18 month change and the chart is inverted. So when the line is going down, interest rates are going up. So it makes sense with the economic cycle. And this is updated as of basically yesterday. And what you can see is over the last 18 months private borrowing rates have spiked 157 basis points. And the only other two times that's happened was in the depths of the financial crisis when spreads were blowing out and ahead of the 2000 recession. So this is what we would consider in cyclical analysis a long leading indicator. So what that means is it obviously comes down and it troughs before the recession and it starts to rise before the recession is over. So what the Fed did was they waited too long, they panicked and now they've pushed a record shock in interest rates onto the private sector. Historically that doesn't end well, mainly because the flow through mechanism here is through housing. Right. So just, just 12 to 18 months ago, people were able to borrow at 2.5% on a 30 year fixed. That rate's getting close to 5. So that's going to slow activity in the housing sector rather dramatically and that has a high multiplier effect on the rest of the economy.

Okay. So let's, before you move on to the rest of the economy, because housing is such a big part of it, as we talked about off air before, let's take a deeper dive into what you just said. Sure, you'd think it would be slowing the housing market, but Eric, I tell you, the inventory is so low. And here's the sort of toxic soup that I think the Fed has concocted that we may be eating for a long, long time to come, and that is that these artificially low interest rates we've had are going to cause people that refinanced. These are tens of millions of people, homeowners that have refinanced or purchased homes and they have locked in these rates for three decades. They're not going to give those up. They're not going to relinquish those mortgages because those mortgages literally now, I mean, I've been saying for almost 20 years that the mortgage is a huge asset. But now, and especially in the years to come, if rates go higher, people are going to realize that mortgage is the asset, it's not the house.

They're immobile. Right.

The problem is you can't take the mortgage with you to the next house, right? So therein lies the housing shortage that could last for 30 years. Am I wrong?

So what I look at is I am a analyst of economic cycles. So when I'm looking at economic cycles, we have what we call coincident economic data. That's what's happening in the economy right now when people are going out and they're talking about what they see in that housing market that's coincident with what's happening at the moment. Then we have what's called shorter leading economic data, which gives you a one to three, sometimes a six month lead time of what's going to happen to that coincident data. And then we have longer leading economic data which can give you maybe a 12 month lead time. Right? So what I just showed you with those private borrowing rates was a longer leading indicator. And that just happened, right? It just happened. Basically this month we've had the biggest shock. So that's going to take a little bit of time to flow through to housing activity. So what we really want to monitor here is the sequence of events because that's really how you understand what's going on, right? So what happens? The Federal Reserve tightens policy or they guide that, they're going to tighten policy, private interest rates or private borrowing rates spike. That's what we've just happened. So what would happen Next in the sequence, Next in the sequence is we'd look for things like applications for new home purchases. That's an index that's published by the Mortgage Bankers Association. You can go and find the index for purchases. They do have a refinance index. Also I like to look at the purchase index that's been declining pretty sharply for the past several weeks in response to the higher mortgage rates. We're recording this on March 25th. Today was the pending home sales report. Pending home sales contracted for the fourth consecutive month. Now that would lead existing home sales by a couple of months.

Okay, but here's the problem with that. That can be very deceiving because in order to have a home sale you have to have home inventory. So the.

It'S funny to me that people will talk about, well, home sales are down, kind of implying that that's because, oh, the market's slowing down because everybody's fearful, they're raining in their horns, there's a recession on the way, you know, whatever. Right. That's the typical thinking. But a lot of times the sales are down because there's no inventory to actually sell, which means you're in a red hot market because everything's just getting gobbled up instantly and there's nothing to buy and people won't put their homes on the market. So which is it? Right?

That's another good point. We can look at applications for new permits for new construction as well.

And then, and then lag that by how long would you lag that? People differ on this, by the way.

So applications for new building permits in my, in my analysis tends to lead the broader economic cycle by 6 to 12 months.

Okay. And now with supply chain shortages, you might even add.

30 to even 50% to those timelines. Correct. I don't know if those are today's timelines.

So you raise a good point and I want to address that. So what we're seeing is we're seeing a slowing of that or we're seeing a slowing of activity in the earlier leading indicators which is going to flow through to the coincident data. But your point is, is this slow down in activity because people don't want to sell their home or is it because people are backing off because of higher borrowing costs and worse affordability?

My response to that would be in business cycle analysis, it doesn't necessarily matter because what we're looking through is the flow through of how the housing sector impacts the rest of the economy. So if you have no new home sales or no new construction and you have no existing home sales. How is that going to impact employment in the construction sector? How is that going to impact hours worked or hourly earnings in the construction sector? This is another important point. The same thing is going on with the auto industry, right? We've seen auto sales plunge with the chip shortages.

Meaning there's a car shortage.

Exactly. So you're correct in suggesting that auto sales have slowed, not really because of demand, just because they can't fulfill the supply. But let's say they can't fulfill supply for 3 months, 6 months, 12 months. At some point, an employer cannot pay an idle employee. Right. So if this shortage or if this slowdown because of the higher borrowing cost and worse affordability ends up creating a slowdown in activity and we see that flow through to eventually less hours worked in the sector or a reduction in employment, that's when you start to get a, what we would call a vicious economic cycle where it starts to feed on itself. The opposite of a virtuous economic cycle.

Got it. So that would be a deflationary cycle, right?

Correct. Correct.

Okay. However, can you have that, Eric, at a time? And I could show you a chart that would blow your mind about the construction cost index, as these materials are just so expensive now, Maybe it's transitory, but I don't know.

I hate to even use that word. It's been so. It's been so abused by.

It really has. Yeah.

Yeah. What do you think?

Okay, so great point. So can you see this here?

Yeah. So this is personal income.

So this is real personal income, excluding transfer payments. So I take out what comes from the government in terms of stimulus payments, and this is just what's earned in the economy.

Right.

And this is adjusting.

No stimmies.

No stimmies. And this is adjusting for inflation. So real dollars, this is what we would consider to be close approximation of the standard of living.

Right.

How do people feel in real terms?

Right.

And what I did with this chart is I drew a trend line from the previous economic expansion from 2009 to 2020. And what we see is that because of the higher costs that have been pushed onto the private sector, whether it's construction costs or whether it's food cost or gas prices, what we're seeing is a rapid decline in real personal income. And this gap, the gap between the black line and the red line, is basically how far below people's expectations they are. So in economics, there's an important concept of long run income. So, Jason, if I was sitting there in 2019, when I go to make A big purchase. Let's say I'm purchasing a home or I'm purchasing a car or something like that. I'm not looking exactly at how I'm doing today. I try and make some extrapolation of where my income curve is going to.

Be in the future. If you're optimistic about the future, you're going to spend more.

Exactly. So in 2018, 2019, people were making purchases based on where they thought they would be in 2021, 2022. And what's happening is, in real terms, or adjusting for inflation, about 80% of the households are falling dramatically below those expectations. So this is going to at some point, and I believe that that is coming now, especially as these private borrowing rates have increased. That's going to result in a huge pullback in spending on these durable goods that are seeing the higher costs.

Okay, so let me play devil's advocate on this one for just a moment. Do you need as much income when the household savings rate is higher and other charts would show household income being higher? But I have a feeling you're going to pull up a chart that refutes that, which is fine. But here's what I really wanted to get to. When interest rates are so low, they're making the same large durable good purchase cheaper and cheaper because of the interest rate. Right. So automobile and house. Now, certainly the rates are going up as we've started the show with, but there's still historically pretty good. And I don't know, maybe the Fed is really just taking away the punch bowl just too quickly. So go ahead.

So this chart here is basically the same chart as I showed before, real income, but it includes all of the stimulus payments. And you could see those spikes in the charts where the three stimulus payments were. And what's actually quite amazing is that inclusive of everything that the government has thrown at the private sector, we've still fallen below the previous Trend line from 2009 to 2020, when you adjust for inflation. So the inflation is damaging.

But that only happened recently and before it was way above the trend line.

Correct.

So you mentioned the savings rate. Right. So the savings rate was massively elevated as of the last report. It dropped 6.4%, which was the lowest savings rate since 2013.

Okay, so that's now old news, but it was the news for a while.

That's right. That was the last report. We'll get the new report in a couple of days. So the savings rate has come down quite substantially. And what we're going to see in my analysis when you say the interest rates are still quite low. Everything that I do is rate of change. So is the interest rate rising or is it falling? Because when we look at economic growth, we're looking at it in a rate of change basis. It's not, is growth 2% or 3%, is it growth slowing or is growth accelerating or decelerating? So if interest rates were 2.5% 12 months ago, there was a level of economic activity that was associated with those 2.5% rates. Now, if rates are 4.5, 4.8, there's going to be a new level of economic activity associated with that higher rate. And that activity is going to be lower, not higher.

Yep. Okay.

So directionally, the cycle is going to be losing momentum.

Right. And so the other part you have to look at, and this will go to the bear side of the equation, the bearish side, which is that, of course, the real inflation rate is a lot higher than the CPI rate. And I'm sure you use the CPI in your charts, right?

I do. That's correct.

Yeah. So real inflation, the real standard of living is even lower than what you're pointing out. Would you agree. You'd agree that the CPA CPI is understated, I'm sure. Right. Yeah.

I mean, it's an impossible task that the CPI is challenged with because the CPI of someone in New York City is going to certainly be different than the CPI of someone in Idaho. The CPI of my grandmother is going to be different than my cpi.

Of course, everyone has their own personal cpi.

Exactly. So it's an impossible task. But of course, home prices are not in the CPI because they're considered an investment asset. The same reason that stock prices aren't in the cpi. But people do have to buy homes. So we're looking at how far our dollars go and the standard of living measured in real terms, whether you use the CPI or inflation rate, that's closer to your personal basket, there's no question that the rate is coming down.

Yeah. Okay. And I agree with you, the standard of living is declining. So we can definitely agree there. The other part of it is, when you look at a chart like that, that's sort of just the general population as a whole. But in an era when we have this, I think terrible, and really it's going to lead to civil unrest, this concentration of wealth. Can the upper middle class and the wealthy just drive growth regardless of, you know, let them eat cake? Right. I mean, I don't think this is healthy, mind you. I'm just. Just saying it's reality, right?

No, you're exactly correct. And it's not healthy and it's a sad reality. But aggregate consumption is driven really by the top 10% of income earners.

And when we look at the housing market, there's almost no first time buyer market anymore. I mean, when I got into the real estate business years ago, when I was 19, literally my first year of college, I mean, there was a such thing as the entry level house and homes for first time buyers. Now that whole segment of the market, builders haven't built that in probably 15 years. That's right. So the consumption in the housing world is all what would have been considered second, third and fourth homes.

Correct. There was a data point that I was reading just this morning from Pew Research, and it's the percentage of 18 to 29 year olds living at home.

Home, right.

And in 2010, if my memory serves me correct, that was about 43%. And that was an all time high since the Great Depression. And that would make sense, Right? We just had a financial Crisis. But from 2010 till now, or at least before COVID Let's take. Before COVID Let's take Covid out of the equation. So 2020, February 2020, from 2010 to 2019, we had what was considered a recovery in jobs. Right. There was several million jobs that were created. A lot of them supposedly went to this younger cohort. Explain to me how the percentage of young people living at home increased and was higher in 2019 than it was in 2010. And then of course, today, after Covid, it jumped even further. So demographics drives the demand for housing.

Housing.

Right. If there are less people or less bodies, you can't really sell more houses, right?

Absolutely.

There's this notion out there that the millennials are just as large of a cohort as the baby boomers and they're going to drive the housing market going forward. That's a narrative. That's not reality.

So what is the reality then, in your eyes?

The reality is that the cohort that supports population growth and this is a chart that speaks to the global economic situation.

See, you know, I was going to answer your question that maybe a moment ago by saying, well, it's just cultural. You know, Millennials are slow to grow up. Right? You know, that's one argument. Or they like their parents better than my generation, the Gen X generation did, or the baby boomers before me.

Can you see this chart here?

Yeah. Real GDP per capita.

Okay. So this is real economic growth per person. This is the best measure of the growth rate in the standard of living. Okay. And with this chart, this is a 20 year annualized growth rate. So this last Data point here, 1.2%. What that means is over the last 20 years, real economic growth has increased at 1.2% per person. Right. And that's an average though.

That is not pretty.

That is not pretty. But what is really alarming about this chart for the people listening on audio is this nonlinear or parabola type decline that we've seen. So from 1960 to basically 2000, for that 40 year period, we sustained real economic growth per person of well above 2%. It was two and a quarter, two and a half, as high as 2.75% for as long as 20 years. After the 2000s, we saw growth basically collapse. Now this parabola has fallen all the way to 1.2%. And as you mentioned, Jason, the income is skewed, economic growth is skewed. So if we have people whose standard of living is growing at 10, 20, 30% per year and the average is one, that means that there's a significant portion of the population that's below zero. And if your standard of living is declining, you're not going to be able to move out of your parents home, buy the new house, have household formation, start a family. And that feeds into demographics. So this is the 15 to 64 year old population growth rate.

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