1849: Housing Market Crash on the Way? Why It's Different This Time

This show is produced by the Hartman Media Company.

For more information and links to all our great podcasts, visit hartmanmedia.com.

Hey buddy, just wanted to say thanks again for the awesome job you did Friday morning. That was great. Just started out our day perfectly and put a cap on our event. I just thought it was awesome, man. You did a great job. But even more than that, just appreciate your spirit in the room, man. Seem like you're just more alive and just more enthusiastic than ever about things you're working on and things the family's doing. So I just want you to know I appreciate you, man. Travel safe.

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 a 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.

Hello empowered investors and welcome to episode 1849. 1,849. And you know what that means. That means on Wednesday we will have a 10th episode show for you. Something where we discuss a topic of general interest. But today it's down to business. And what is the business of America and the world? Well, a big part of it is certainly housing. It's that place we spend most of our time sleep, right? We probably spend most of our time at home. And it is vitally important. It's made of commodities that the entire world needs. The entire human race needs these commodities and those commodities aren't indexed to any one currency. We all know this because we've been following the show for a long time. But today let's talk about a few different things and some interesting insights that very few people are talking about when it comes to the housing market and what we should do as investors. But first, I'd like to start with a question. Yes, a question for you. What do you think of this question Here it is. Why don't solar factories run on solar power?

That's a pretty good question, isn't it? And I would ask the follow on question to that. And, and that would Be. Why don't windmill factories run on wind power? Well, guess what? There's just not enough energy in these things to efficiently power the world now. Maybe it'll change, maybe the future will bring something different. And there are, by the way, I want to be fair. There are other reasons to use these alternate sources of power. One of them is not reshaping the economy with a bad green new deal that will cause energy poverty to so, so many people. And many people are already feeling massive energy poverty. Just remember the last time you filled your car with gas or you took a taxi or an Uber or Lyft and those prices were much higher than they were in the past. And by the way, Uber and Lyft, especially Uber, the guiltiest of all is now facing the reality of being a real business. Imagine that. Imagine that? Yes, imagine that. And what does that mean? Well, it means that real businesses make profits. They don't call themselves a business by raising money. That's not a freaking business. It's a scam. Most of the time, right? It's just a complete scam. It's a Ponzi scheme and Silicon Valley is a Ponzi scheme. Don't believe me? Look it up. Go to YouTube if it hasn't been censored already, and look up Silicon Valley Ponzi scheme and just understand the dynamics of that crazy ridiculous world where businesses are built not on fundamentals, but on raising money. And this teaches us a lot about real estate investing, doesn't it? Yes, it does. It teaches us a lot because as real estate investors, we have got to be sensible investors. The Silicon Valley Ponzi scheme is like investing in cyclical markets, investing just for appreciation and nothing else. Appreciation is certainly one of the ingredients that go into the cake. And that ROI cake is fantastic with appreciation, but we shouldn't have to rely on anything extraordinary happening to get a good return on investment. And when I say return on investment, I mean total overall return. No, not just the way the simplistic low information investors look at it as a cash flow only return. That is only one of many of those beautiful multi dimensional aspects of a real estate investment that we all know and love. Okay, let's go back to the slides here and look at a couple of other things. So the Simpsons.

Why do I bring up the Simpsons? Well, I saw this post online on Quora. How do you pronounce that website? You know, talk about a branding era. This website is really a great website where people post these questions, people answer them, they upvote them, they download them really interesting stuff there's. But not exactly the best branding methodology. Right. Anyway, this post was on there and I thought it was very insightful as to how far the world has fallen. Remember I told you in the past about an informal anecdotal metric I've used to gauge the health of the economy over the decades, and that is none other than Jason's ex girlfriend metric. Yes, it's a funny one. And what does that mean? Well, if we look at the economy and the health of it over the years, we judge the types of jobs people have, the types of money they make, adjusted for inflation, of course. And we see that many, many things have really, really slipped in terms of the way the world is nowadays. But let's look at the Simpsons. What can the Simpsons teach us about the health of the economy? Well, they can actually teach us quite a lot. And this also teaches us about the generation gap. And we're all familiar with the hay boomer meme and the way the millennials are upset about the boomers saying the boomers ruined the world and spent all the money. Raided the cookie jar, if you will. And that's not really fair to the boomers. The boomers made huge contributions to the world. They did a lot of heavy lifting. But granted, they can take their share of criticism as well. And when I say they, I'm glad I'm not one of them because I'm a Gen Xer. But the millennials are upset with their boomer parents, right? So if we look at the Simpsons, it teaches us a real lesson. Someone who turned 30 in 2020 is likely to have only about one seventh of the net worth of someone who turned 30 in 1990. Talk about a generation gap. Right? The difference is that in 1990, many 30 year olds were homeowners and most had little to no student debt. Can't say this about 30 year olds in 2020, can you? No, you definitely can't. So that is a huge difference. And a good example of that is the Simpsons. Right? Because think about the Simpsons. Bart Simpson was a classic loser, right? An overweight, dumb guy who worked at the nuclear power plant in Springfield. Right? Bart was an idiot. Right, But. Or Homer. Sorry. Homer was an idiot. Bart was a troublesome child. Right? And who was the smart one? That was Lisa. Right? Anyway, Marge didn't work. She didn't have to work. And they had a home. A nice home in a suburban neighborhood. They had a nice car and a nice life. And that was the life for many Americans. Millions of Americans, for a long Time. But then it really started to change. The economy became so financialized, the Wall street robber barons ripped off the world. Now the tech moguls have ripped off the world, and it has just sadly, sadly changed. Interesting observation, and I think it's a very valid comparison to compare it with the fictitious Simpson family. That really is based on reality, Right? Really based on reality. Okay, so let's look at housing affordability as we talk about the Simpsons and this life, right? Most people think, of course, real estate is highly overpriced, and that's because, of course, they're only comparing it to one thing, and that is US Dollars. That is a faulty way to do the comparison. And if you look at housing affordability over time, you see that it has fallen. And it's not as good as it used to be in some cases, but it's much better than it's been throughout a lot of times in history. So these people make funny, inaccurate comparisons. They really do. They falsely compare to one of the best, most affordable markets ever with the lowest interest rates in 5,000 years, when they should zoom out and look at a longer comparison. That would be a much more accurate way to do it by asking the right question, which is compared to what compared to what? Life's most important question. So today we're not going to look at the Hartman comparison index. We're going to look at another index from a good website, by the way. Dqydj. It's an acronym. Don't quit your day job. Okay? So here, this chart, if you're watching on video, you can see this chart on YouTube. If you're listening on the podcast. I'll just do some splaining. And the splaining is this. The chart shows that obviously median home price has risen dramatically. This is looking at it from 1993, where the median home price was dramatically lower, around 90,000 bucks. And then it went way up to just under maybe. How much was it then? You know, this chart isn't good at showing you this. Where housing affordability was low before the Great Recession. I'm going to call it about $220,000 at that time. But again, I might be a little off because I'm not looking at the actual numbers. I'm just looking at a chart that's a little bit. It's a little bit soft, frankly, in terms of its specificity, but now over $360,000. And of course, when you look at median home price, it depends what you're looking at, which calculation, which survey. I know some of you Listening will be saying, jason, but that's wrong. The median home price is over $400,000, or it's really $390,000. It depends on what you're looking at. And be careful, because you might be looking at median resale prices or overall median prices or median new home sale prices. So again, it all depends on the study, and it all depends on the exact category. All right, so here is the same chart over a longer time frame going back to 1972, and we see that house prices are, of course, higher than they've ever been, but affordability, and this breaks it down into percentiles. So based on the top 25%, the home price affordability, based on the other 75%, and then the overall median home price and the median affordability. Right. So that's it. But now I want to look at this chart and drill down more specifically on this. So let's go back to June of 2007. Now, this was obviously, we were right on the precipice of the Great Recession, and I'll never forget, I was staying at the Intercontinental Hotel in Bucharest, Romania, and I was suffering from heat stroke. Maybe not officially heat stroke. I don't know what the exact definition of that is, but I was exploring all day. And I mean, it was so hot in this city that is made of concrete that just retains heat and won't let it go. You know, you could be out in Bucharest at midnight and the place is so sweltering because of the way the concrete just retains the heat in that city. And by the way, this is one of the reasons that Al Gore misleads people in his Inconvenient Deception movie. Right? The Inconvenient truth, right, the inconvenient lie is that these temperatures taken. Are taken in city centers many times, and. And city centers without foliage and grass and trees and things that cool the air and provide shade and make the environment nicer. Obviously, they didn't exist in the same way in the past throughout history. So, again, there's a million ways to lie with statistics, folks. That was a tangent alert, because it has nothing to do with housing affordability. Okay, let's. Jason, get back to the subject at hand. All right, so June of 1972, Great Recession, Bucharest, Romania. I heard a news story that was one of the seminal stories about, was it Washington Mutual or was it just one of the big mortgage companies? I can't remember. But I turned on the news in Romania and I was seeing this news story about the. This bankruptcy and how one of these Big companies went under and I just can't remember if it was one of the big banks or if it was another one of the mortgage companies. Anyway, home price affordability. Now look, one is the ideal number for home price affordability. If it's under one, housing is very affordable. The way they calculate, if it's over 1, it's less affordable. So the home price affordability for the median priced home back in June of 2007 was 1.14. Okay, 1.14. Now today it's 0.96.

So that means it's more affordable by a fairly significant margin than it was in June of 2007. So that's 15 years. Housing actually got more affordable when everybody who doesn't get it, all the low information investors, all the armchair economists, all of the uninformed, unwashed masses who don't listen to the show.

They are just uninformed. Right? Housing is actually more affordable than it was 15, 15 years ago, even now with higher interest rates. Okay, but let's go back again and let's look at the 25% number. How is it for those people, right? How's affordability for them? It was 2.28 in June of 2007, and by the beginning of this year, 1.96. So again, more affordable than it was almost 15 years earlier. Okay, now this chart, by the way, does not go to current day, so interest rates are a little higher. So it's going to skew those numbers a bit, but not really that significantly, believe it or not. Okay, all right, so the 75% number,.64 today, 0.53 or not today, but beginning of the year, more affordable with a median home price being $357,000. Now this is the next thing I want to talk to you about though. This is another very interesting chart for the bears for the Crash bros out there who think the real estate market is about to crash and who, by the way, are wrong. And it will eventually crash, but it's not coming soon. You're gonna have to wait a while, folks. So keep on waiting, because the crash ain't around the corner. I'm just, I hate to break it to you, this is the health of consumers or the lack of health of consumers, right? So let's compare it to physical fitness. Now, I got an updated scale. You know, I used to have the scale that measured body fat and a couple of other things. But then a few months ago, I got a new one and it measures like a whole bunch of things. It's really Cool. Bone density, hydration level, all kinds of things. So if you haven't updated your bathroom scale, get a new one. Because for less than 40 bucks, it is an amazing time to be live. In some ways, as cynical as I am, I know a lot of you are complaining because I don't say that saying. My, my, my cliche saying. I used to always say before the pandemic, it's an amazing time to be alive. I used to say that all the time. But I used to be happier and I used to be more optimistic about the future. And you know what blew it for me? Covid. Well, I got Covid, but that wasn't that bad because I borrowed some medication from my horse and I got better right away, lickety split. Wow, it was incredible. I only took my horse's medicine three times, and it really helped. I took it once to get over Covid, and like the next morning, I felt great. And then I had the brain fog. Now, some of you I know, especially my competitors who are listening to the show and stealing all of my great ideas, are still saying I have brain fog. Yet on your shows, I see you copying me all the time. So you.

Yeah. Oh, scummy competitors with no original ideas. Anyway, and then I took it once more because I was around a lot of people. I was on that speaking tour I did a couple of weeks ago, and, you know, I was feeling like I might get the bug again, and I didn't want to get it, so I took it as a preventative and I guess it worked. I don't know, maybe I wouldn't have gotten it anyway, but who knows? You can't hear the dogs that don't bark. Okay, so let's look at the health of consumers. How are they doing? Well, let's look at history so we can answer the question, compared to what? Now, if you're watching on videos, you can see that the sort of orange, kind of a burnt orange colored line here represents bankruptcies. Now, what's interesting, and we got to talk about employment or unemployment, as the case may be, because the labor market for people looking for work is incredibly strong. I mean, folks, you know what? You gotta do me a favor. You gotta do the world a favor. Everybody listening, Especially in the western world, we have listeners from 189 countries. Some of you don't need to worry about this in your country, but in the the west, you got to worry about this. You need to go have more se.

Yeah, a real estate and economics podcast that goes and tells you to have more sex Have a good time, folks. You got to have more kids. We are running out of people. The world has a people shortage. Can you imagine how bad this is going to be in 25 years? If you don't have some more sex today, it's going to be a problem. I mean, the population is in decline in the Western world. Countries will disappear from the map. You know, I kind of wonder how that'll unfold. And by the way, this is a tangent alert. I'll get back to the chart here in a moment. Don't panic. Don't panic. I'll get back to it. But tangent alert here. It's kind of interesting. And, you know, this is one of the best reasons to stay alive and to try and live a rather healthy lifestyle. But not too healthy, because you got to have a little fun. After all, Billy Joel said, I'd rather laugh with the sinners than cry with the saints because the sinners are much more fun. Only the good die young. I just love that song lyric. It's great. Anyway, how will this unfold? You know, it's interesting geopolitically. In fact, remind me to ask Peter Zion this question when he comes back on the show. I think he's coming. Ashley just booked him back on the show, and I think he's coming on in just a couple of weeks here. But I gotta ask our geopolitical expert about this, Peter Zion. He's got his new book out, and some countries are simply going to end. Japan, Russia, and I know it's not a country, but Western Europe. They're all over, over, over, over. They are done, baked. Unless they start having sex like rabbits. Okay. Oh, if I say that word, my dog will get very excited because she loves wabbit season. Chasing wabbits is one of things the dog loves to do. It's a hobby. It's her business. It's like my business. I love my business and she loves hers. Rabbit hunting. Okay. And squirrels, too. Yeah. So how will these countries end? You know, as Japan basically doesn't have any immigration and all of its people just die off, and Russia doesn't have any immigration and all of its people die due to its stupid invasion of Ukraine and of old age and unhealthy lifestyles. And too much vodka. A little bit of vodka is good, but too much is bad. Especially in a martini. Shaken, not stirred. So as these countries die off and as Western Europe just sort of dies off. Right. What will happen? Will other countries just invade them because they have no army to defend themselves? Because there are Basically no people there. There's like the country will be sort of a ghost town. I mean, I mean, what does Japan look like in 30 years, 40 years? What does Russia look like in 30, 40, 50 years? I mean, these countries literally just won't exist. One of the reasons Putin did his invasion now is because he cannot wait. He won't have any soldiers. And, and did you hear this? Russia just lifted the age restriction to join the military. It used to be 40 years old. Now they'll take anybody. You know, you'd be 70 years old and go be a soldier in the Russian army. It's unbelievable, right? Literally a shortage of people. So when we apply this to the labor market, I mean, anyone who's been to a restaurant lately or has tried to get an appointment at the doctor's office or to get a massage or a haircut or just, or you try to hire anybody if you have a business, it's ridiculous. It is ridiculous. There just aren't enough people to do the jobs. And I get it that we've got a lot of over entitled millennials. You're probably not listening to the show. I know, I'm talking about your generation. A lot of you listen, but you're the smart ones. It's about half and half in the millennial generation. There's a lot of really sharp winners in the millennial generation. Just ambitious, smart people. I would have said kids, but they're not kids anymore. The oldest one is what, 42 nowadays? So you millennials ain't that young anymore. You can't get a pass forever, you know. Okay, but there's a lot of slackers too, for sure. So anyway, there's just not enough people to do the jobs, folks. So the labor market is tight. What does that mean? It means inflation. Inflation, inflation, inflation, nation. With, with a tight labor market, you've got bargaining power on the side of labor and not on the side of capital. Right. Remember the big war in society, really forever has been the war between labor and capital. Right? Who should have more rights? Should the employer have more rights? Should capital have more rights or should labor have more rights? And the Marxist revolution, which did not work out very well, some people are trying to bring it back. It was obviously a disaster. Said that labor should have more rights than capital. And you know, the Industrial revolution basically said capital should have more rights than labor. And this war will go on, but right now the rights are swinging in favor of labor, not capital.

We'll see who the winner is. We'll see, we'll see. But that means inflation and that means a healthier consumer because the job market is strong. Getting off the tangent, I know that was a long one, folks. So apologies for those 2% of you in the audience who don't like my tangents because 98% of you keep telling me to keep on going. Oh, and by the way, don't let me forget. Be sure to write a review or post some comment on YouTube. That's what we talk. See cognitive decline here, folks, and enter in our giveaway, our weekly giveaway to win a $50Amazon gift card. So post a comment on YouTube below. Tell us what you think, good, bad or indifferent. Or teach us something. Right, Teach us something. Point out any errors or inconsistencies in our arguments. We'd love to hear your comments and write a review on Apple podcast. And you'll be entered to win a $50Amazon gift card. All right, so salaries, wages are increasing. Labor has the bargaining power. And if we look back to the early 2000s, let's go back to 2003. We see the burnt orange line represents bankruptcies. How many bankruptcies were happening in the US on the consumer side? This is not including corporate. This is not corporate bankruptcies, just consumers. Okay? And that's this line, right? So by the end of 2005. Well, by the beginning of 2006, in the first quarter of 2006, almost a million American consumers declared bankruptcy. Right? That is pretty insane. It's pretty bad. And then that number trickled down because sort of a lot of them were in the system. It went way down the following quarters, but it was still up. It was going up. Right? But it was lower than that significant one time spike there. And the foreclosure activity was, I'll say on this chart, that number represents about 200,000, give or take. And then the foreclosures started to increase. And we all know what happened during the Great Recession. By 2008, 2009, we saw foreclosures go way, way up, right? And there were millions and millions of foreclosures. They kind of worked their way through the system. Bankruptcies spiked again in about late 2010, and then they started to decline steadily, pretty much. And the same thing happened with foreclosures. But right now, you have almost zero foreclosure activity. It's statistically insignificant.

From 2003 until now, foreclosure activity is, is nil, zip, nada, nothing, meaningless. Now, it did go up just recently, and everybody in the media was trying to make a story out of it, saying, well, Foreclosure activity is increasing. Foreclosures doubled. Well, they doubled from like nothing to still nothing. It's just not significant. And bankruptcies have actually been in decline since the COVID pandemic. And wages are going up, folks. Where's the crisis? You know, now all of that said, I get it that our economy is built on a house of cards. No question about it. I'll be the first to agree with that. But then I will ask you, compared to what? Every other economy is built on a house of cards too. It's that way for every other economy. The US economy is in such a better position in enviable spot compared to any other country on earth, at least any other major, well, any other country because it's the reserve currency, biggest military, biggest brand, the place everybody wants to come and live. There are some countries that, you know, lifestyle would be better if you just look at your lifestyle, right? There's a few, but they're small countries. They're not big players in in the global economy, of course. So look folks, that is the way it is, right? That's the way it is. Inventory. So this is national association of Realtors study showing that to get to the norm, right, of six months of inventory, we need 2 million more homes for sale. Now you can look at this a lot of different ways and I've already taught you about how NAR calculates inventory much differently than other sources do. That I've shared with you. I don't love the way they calculate it, but that's what they do. And as long as you're comparing apples to apples, it's okay. But just always compare apples to apples when you hear about inventory of housing. And this is one of the most important metrics. You know, unsold inventory is extremely low and we have a shortfall of about 2 million homes for sale to get to the normal level of supply. And that's the way it is. As good old Walter Cronkite said it in the days when the news media was far more ethical and honest than it is today. That's the way it is. All right, thanks for listening everybody. Happy investing. And go to jason hartman.com if you need assistance with anything. You need advice, we offer free assistance. We have a team waiting to help you. And also be sure to enter by posting a review on Apple podcast or a comment on YouTube and you'll enter our weekly drawing for a $50Amazon gift card. And that's the way it is. Happy investing.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that, and be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.