2021: Hybrid Self-Management, Housing Affordability Crisis, Real Home Price Index, Creating Wealth Virtual Event

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 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 2021 and thank you for joining me today. So I would like to start the show today talking about hybrid self management for just a quick moment because I got to tell you folks, this is such a hassle. I mean, I can't believe it. Listen to what happened in the past two weeks with two of my properties. Gosh, I cannot believe how difficult this is, how time consuming it is.

I'm joking. Here you go. Here's the tragedy of the last couple of weeks for me. Two of my properties needed air conditioning servicing. Hey, they're in Florida. People need air conditioning. And so one of them, the tenant actually fixed before I could even get to it. They handled it. They just took care of it on another property. I sent out an air conditioning company that of course we can refer you to. I was referred to them by one of our clients and this company went out. I set the expectation for how much they're going to charge. I said service call, you know, about $75 to maybe 110. $120? Well, they charged me 125 for a service call. Okay, that's fine. In the middle summer. By the way, these rates do vary with these vendors depending on the seasonality. Just know that they're super busy now and they're won't even do normal servicing appointments. They will just do repair calls this time of year, which is understandable. Okay, so anyway, they go out, they fix the unit, the tenant's super happy, sends me a message, no problem at all. Turned out the unit needed some cleaning and a new capacitor. It was $250. Now, keep in mind, if I had a property manager, I would have had zero control over this. This whole problem, cumulatively with both of these air conditioners maybe took me 15 minutes. Well, maybe it was 20 minutes between a couple of emails, messages back and forth, Calling the air conditioning company myself because the tenant said they wanted to hear from me before they went out. Gave them a quick phone call, that was easy enough. Talked to them in real time. That's it. 15, 20. We'll call it 20 minutes. And now I gotta click on the link they sent me to pay the bill with my credit card. Okay, that's probably gonna take 45 seconds. Okay, so 20 minutes and 45 seconds to solve this disastrous problem. Yeah, I know. Self management, Hybrid self management. It's such a hassle, folks. Now, keep in mind, on both of these properties, I will probably not hear from either of these tenants for another six months. This one scummy property manager was listening to the show. Maybe he's listening now. Hi, how are you? And he wrote a review saying that my whole view of self management was, you know, ridiculous. And I have dozens of assistants helping me with all of this. No, I did all of this myself. I didn't delegate it to anybody. It took me a whopping 15 to 20 minutes. Well, actually, if we're being honest, 20 minutes and 45 seconds.

Because I haven't spent the last 45 seconds yet because I didn't pay the bill yet. So I'm going to have to click on the link. I'm going to have to pay the bill. 45 seconds. How fast do you think I can do it? Maybe I can do it in 30 seconds. All right, so there you go. Hybrid self management. Yeah. It's so difficult. Get the violin out. Oh, my gosh. It's just so difficult. It's so easy, folks. It's easy. Easy. Remember, this is not self management. The program we recommend is hybrid self management. And that's what our monthly empowered investor pro can help you do. It's what our mentoring program can help you do. Or you can just do it yourself. Listen to the show, get some tips here and don't join any of our programs, okay? Just hybrid self management. It's a great alternative. And it's not just the management fees you'll save. Because a lot of people say, well, I only pay my manager $120 a month in terms of their fee. Not true, folks. You're paying a lot more than that because you are paying with bad tenant screening, you can screen your tenants better than they can. And you're going to do it in a hybrid fashion with a local market specialist. That's going to help or a, a la carte property manager or whatever. That's what we teach, that's what we help you with. And so you're going to get better tenants. You're going to get tenants that are happier and they stay longer, so you have fewer tenant turns over time. And you are going to not see markups in the repair bills. You're not going to see dishonesty in the repair bills. Of course the vendor can be dishonest with you, right? But at least you'll have some sense of that and some control over it. And you're going to have a tenant that demands dramatically less of you than they do of some amorphous property management company. Because with self management or hybrid self management, they have the pressure, the social pressure of that relationship with you. And so this is a much better way to go, folks. Again, I really recommend that you at least join Empowered Investor Pro. It's cheap. We have monthly zoom meetings where I coach you on all of this stuff. We bring in experts that'll help you with all of this stuff. But hey, you don't even have to do that. Just give it a try. Now, you got to be experienced. Don't do this if you're totally brand new, right? If it's your first investment property, your first rental property, I recommend that you have a property manager, one of the property managers. We will refer you to that. We vet and recommend that, have relationships and see how it goes, get the lay of the land, get the feel of it, and then graduate to hybrid self management. All right, enough on that. I had to tell you about my massively stressful, super time consuming, awful experience with hybrid self management. 20 minutes and 45 seconds over the last couple of weeks, and I bet I will not hear from these tenants again for six more months. So maybe 40 minutes a year. And this is two properties, not one property. This is two of them. So there you go. All right, so we are in a housing affordability crisis as interest rates have gone up with the Prior appreciation that we had built into the market. That happened during the COVID era where everybody thought the market was gonna crash except yours truly. We have an affordability crisis or do we? That's a good question. Now the clickbait headlines and the liars and the cheaters out there who will deceive you would tell you that there is an affordability crisis. And that's not completely untrue compared to what is the proper question. So compared to where we were over the last couple of years, yeah, we have an affordability crisis because everybody's expectations got so out of whack. They became so used to the lowest interest rates in 5,000 years, and they became used to low housing prices before the run up. And now we have high prices and higher interest rates. Now keep in mind, compared to what, when I got into the business, when I was a young kid, at 19 years old, interest rates were 14%. That was, that was what a mortgage cost. And I remember when rates went down to, you know, 13%, 12 and a half percent. I mean, people were jumping for joy. They couldn't believe how low interest rates were. I mean, it was phenomenal. They were rushing to buy every property they possibly could. That was the start of my career, really. You know, I really didn't see too much of that 14% era. I really, you know, sort of hit the stride in that 12% range. And I remember after that I bought, I think it was my third property, and I was getting rates of like 9, 10, 10 and a half percent. I don't know. You know, I think I've kept those files from those old property purchases just because I thought they might be useful to use on the show here just to illustrate to what that was like. And look at like median income back then and a real case scenario of mortgage payments. You know, rather than just looking at indices and historical charts and so forth, which are. Which are good, but sometimes it's good to just look at like real world experience. Right, so the housing affordability crisis and the compared to what question. Life's most important question. Compared to what? Right, okay, let's talk about that. So median income earners can only afford 25% of the current listings for all properties on the market. Now remember, these are national, so they include linear markets, cyclical markets, and hybrid markets. And of course, those cyclical markets are the ones facing the downturn. But even they are faring surprisingly well and being surprisingly resilient during this historic time of massive interest rate increases. Okay. A new report finds that even with existing inventory levels. And there is a shortage. Right. The housing shortage would not be so severe if there were enough homes for all income levels. Well, I don't even know exactly what that means. That's such a compound statement. But yeah, whatever, let's get into it. All right, so this article is from Housing Wire, and it goes on to say it is no secret that housing inventory is low. As of June 2, there were 433,104 single family homes on the market nationwide, according to data from altos. We're going to show you one of their charts here a little later in the show, which is going to blow your mind. And while that situation is certainly far from ideal, according to a report published Thursday by the national association ofrealtors and realtor.com even with the existing inventory levels available for sale, the housing affordability and inventory shortage issues wouldn't be so severe if there were enough homes for buyers at all income levels. Well, duh. I mean, do they even need to write that? Do they even need to say that? It's so self evident, but whatever. In April of 2023, data from NAR and realtor.com showed that there were roughly 1.1 million homes listed for sale. Now remember, NAR does their inventory calculations differently. I've said this a zillion times, but I just got to say it again because if you didn't hear me the last zillion times or you're a new listener, you don't know this. And so it's really important to know because they include pending and contingent sales. The ALTOS data does not. Okay, so, so it's different. Right? So 1.1 million homes listed for sale versus the 433,000 we just talked about. And back then it was about 420,000. On the Altos data, 25% had a price lower than $256,000. Okay. Only 25% of the homes, a price lower than $256, Thousand, which is the maximum price of that households earning the national median income of $75,000 can afford. So when you take the income and the mortgage payment, right. That you get from that $256,000 house, only 25% of people earning that income can buy that house. So what are they going to have to do? They're going to have to rent. So as I've been saying for a long time, rents are too darn low. Rents are going up. Okay? Rents are going to go up a lot. And I know we've been in a market of Decelerating rents. We've had a lot of new apartment units come on the market. To some small extent, those do compete with single family homes because people will just choose whatever they can get. But overall rents are too low. Yes, that's not a typo. A typo in my mind, because that's just my statement. But we are going to see upward pressure on rents for quite a long time into the future. There are little spats where things change, but overall the big trend is we have a big shortage, we have an affordability problem, and that means massive upward pressure on rents. Because what do the other 75% of the people do? They can't buy. They can't afford to buy. Right. So that's it. They're gonna rent. Right. Okay, so let's go on with this article here. Over half, 51% of households earn $75,000 or less, meaning that in a balanced market, 51% of the homes for sale would be affordable to buy in this income bracket. That's normal. So that's a 26% reduction in buyers that can afford the properties. Right. It's about half of normal. Right. Okay. So based on the report, the housing market needs an additional 319,460. Well, do you want to be exact on that? That's exactly what they need, 319,460. 60 listings priced under 256,000 in order for the market to be balanced. Now, why did I share this important article with you? Here's why. Because all of the stats that we're always looking at are all prices and all geographies. And this breaks it down nicely because it said not are we 5 million homes short or 4 million homes short in terms of the housing shortage? But we are 319,460 listings short that are under $256,000. That's important, really important. Let's go on. The U.S. needs to add at least two homes that are affordable for middle income buyers. Up to 256,000 for every home that is listed above. 680, $80,000. Hear that again. The U.S. needs to add at least two homes that are affordable for middle income buyers. And that means a home that's up to, you know, ideally less than, but up to $256,000. And that's at current mortgage rates. So if rates rise, that price goes down. You know, if rates go up. And I don't have a calculator with me, but remember, 1% in interest rate equals about 10% in price. So if Jerome Powell doesn't get his head out of the sand, okay. And he keeps raising rates. Right. Then basically 1% means that house needs to be now about $225,000. Right. So you see how that dynamic works. We need two of those for every one that's listed above $680,000. As income levels increase, however, the disparity decreases between current inventory and the inventory needed balanced market. Well, yeah, sure, incomes increase, but what about inflation? Don't forget about inflation. We're going to have more inflation in there. And remember, the inflation doesn't just affect the house. Right. The house price inflates, sure. But it also attacks the budget of every household because they have to pay more for everything else they are spending on, not just their house. For example, buyers earning $250,000 can currently afford to buy 85% of the listings. Okay? So if you're earning a quarter million bucks, you can afford 85% of all the properties listed for sale. But the question is, compared to what? In a balanced market, you could afford 93% of the listings. So that's down too. Okay? Now the situation has only gotten worse over the past five years. In April of 2018, there were about 810,000 listings that middle income buyers could afford. Just 150,000 listings shy of a balanced market. Wow. Folks, this is a massive opportunity for you investors. I hope you are like just squirming in your chair right now listening to this. And I hope if you're in the gym, on the treadmill, you didn't fall over. Okay? Be careful because just think about the opportunity here. Right. Okay. So what if Jerome Powell gets with the program and he actually pivots? I think he should have pivoted two increases ago. Right. But say he does, say rates go down, then these affordability numbers are going to get a lot better. Right? Okay. Then that's just going to push upward pressure on prices. The only cures to the problem are build a lot more houses that are cheap under $256,000. And guess what? How many builders are building houses in that price range? Almost zero. We have them. Just go to jason hartman.com click on the properties page and you will see some of them. But call our investment counselors, have an investment counseling session where we can help you. Because these houses, a lot of them, they don't even appear on the market. Right. You got to be ready to pull the trigger because there are so, so few of these properties that are affordable. Well, say he reverses course, then it's Just going to push upward pressure on prices. So rents, prices, whatever, you make money either way. That's my three dimensions of Real Estate teaching. And you can go to jasonartman.com search 3 Dimensions of Real estate on the search far there and find the old episodes on that topic because it's a. It's a really important topic to understand. Okay, going on. El Paso, Texas, Boise City, Idaho. Spokane, Washington, Cape Coral, Florida, Lakeland, Florida. Round out the top five metropolitan areas with the largest supply shortage of homes with a price lower than $260,000. In El Paso, buyers earning $75,000,000 can afford to buy 16% of the listings. When in a balanced market, they should be able to buy 66% of the listings.

Oh, my God, what an opportunity for landlords. These people need properties to rent they cannot afford to buy. Wow, that's just amazing. In Akron, Ohio, where 61% of the listings are affordable and 58% are needed for balance. Toledo, Ohio, where 61% of listings are affordable and 60% are needed for balance. Cleveland, Ohio, where 59% of the listings are affordable and58% are needed for balance. And Syracuse, New York, where 54% of the listings are affordable and 55% are needed for balance. Round out the top five. So these markets are not so savagely unhealthy for home buyers, okay? But the other markets are, right? This is the flip side of the spectrum I skipped here, by the way. I probably should have just highlighted that other paragraph that says that's the flip side of the equation from the El Paso, the Spokane, the Boise, the Cape Coral and the Lakeland, Florida markets, right? Which, by the way, we have properties in those markets where people need to rent, okay? So check that out. All right? Anyway, I hope this was really interesting, okay? This just shows you just what a bind, what a savage bind the housing market is, okay? Build more homes, decrease the population, folks. That's it. Okay? The lefties wanted to decrease the population. By the way, thank you for all the great feedback on my last episode about population collapse and the absolute disaster that we are facing. But don't worry about that until about 2048. So you got time. There will be, there will be a few decades where we can make some money in here. In between that or two and a half decades, okay? And then, even then, even in 2048, folks, we're into thinking ahead on this show, advanced planning, okay? Even then there will still be opportunities as the great unwinding occurs. And remember, a lot of the housing stock that we have today will become obsolete. It will just be old and, you know, fall to the ground. One thing we know for sure is that people will still have about three years left on their ultra cheap mortgages in 2048. Just remember that, because those don't come due until 2051. Those incredibly cheap mortgages, 25% of those below 3%, 65% of them at or below 4%. So, boy, that portends a shortage for a long time because those people ain't going to sell their houses if they can. Right? Unless rates go down a whole bunch to get near the strike point of those current existing mortgages that they have, or some unforeseeable change happens in the market like a massive supply increase or a massive population reduction. That's what has to happen. And hopefully it's not going to be a population reduction because then the wacko elites will have won. So let's not let them win. Go have some babies. All right, so first American publishes my second favorite housing index. That's the Real Home Price Index, the rhpi. And I thought this was interesting from them because it just highlighted a few things that were interesting. Whether we're debating whether affordability is higher or lower. And we're trying to answer life's most important question, which is compared to what? Okay, compared to what? So a couple highlights from this report. Real house prices decreased 1.8% between March of 2023 and April of 2024. So the real home price actually went down when you take into account incomes, interest rates and inflation. That's what this index is based on. And that's why I like it so much, because of course it's got the official inflation numbers. So that's misleading. It's not quite accurate because of that, but you get the idea. You know, real inflation is much higher than what's being reported on the CPI or the CPI. All right. Real house prices increased 13.5% between April of 2022 and April of 2023. Oh my, my God. That is a disaster. So you see how housing affordability is way down from about a year ago, but it did increase slightly recently. Right? Consumer house buying power, how much one can buy based on changes in income and mortgage rates increased by 2.3% between March 2023 and April 2023 and decreased 10.5% year over year. So what does that mean? So year over year, housing affordability is way down, but recently it's gotten a little better. A little bit better, A little bit of relief. Okay. Demand still exceeds supply we'll go into that in a moment. Median household income has increased by 3.8% since April of last year and 81.6% since January of 2000. Now, we're going back 23 plus years. All right? Real house prices are 34.6% more expensive than they were in January 2000. Now, what does that mean if they are 34.6 more expensive than they were 23 years ago? Remember, we have much higher interest rates. People buy on a payment, not a price. With higher prices and higher interest rates, why are people still buying properties? Why have people over the last 23 years purchased many, many millions of properties when house prices in real terms are up by 34.6%? Well, I'll tell you why. Because this linear thinking that most people have about being the same buyer, same house concept is just false. That's a completely misleading idea. The reality is people adjust their expectations. They capitulate. I have demonstrated that a zillion times on the show over many, many years. People simply adjust their expectations downward and get what they can get. They look around, they consider the circumstances. They say, hey, why is it that when, you know, my mom and dad bought their first home, they bought a big home with a white picket fence and a nice area and a yard and all of this stuff, and now I can barely afford anything? Well, they adjust their expectations and they get what they can get and they have what they have, right? It takes a while, but people simply capitulate. They have to. That's the way it works. Are you going to buy something or not? You're going to get what you can get. Are you going to rent something or not? You're going to get what you can get, right? It's just the reality of life. And having just got back from five weeks in Europe, again, I want to point out, having been born in Europe, and so I can. I can. I guess I have the right to pick on Europe a little bit. The European lifestyle is crappy little apartments, crappy little cars, a much lower standard of living than the United States in terms of economics. Now, they may be better off than we are in other ways. I'll freely admit that Denmark is always the happiest country, supposedly, right? I don't know if I'd be happy with those winters and riding a bicycle all the time, but maybe.

So. They just adjust expectations. They just take less. That's it. That's it. They just get less. Okay? Unadjusted home prices are now 50% above the housing boom peak in 2000. 6. That's unadjusted. So if you don't adjust for inflation, income and price, then you're going to think home prices are massively expensive. Right? But house buying power. Adjusted house prices are 5.8% below.

The 2006 housing peak.

They're 5.8% cheaper. Cheaper? I said less expensive than they were in 2006. According to the real house price index. Taking into account inflation, incomes and mortgage payments, they're cheaper. So if you listen to the linear thinking clickbait people who tell you housing is so much more expensive, they're simply wrong. They are not looking at the whole picture. So just understand you gotta peel back the layers of the onion. Okay? I do want to remind you that we offer the complete solution for real estate investors. Investor education and consultation with our investment counselors. One on one financial analysis and leverage, acquisition and allocation of your portfolio. Whether it be one house or 100 houses or more than 100 houses. We can help you maintenance, management and monitoring of your properties, your portfolio for the overall goal of wealth accumulation and preservation. So reach out to us through Jason hartman.com, one of our investment counselors will be happy to meet with you. It's totally free and we can help you, advise you. Take a look at what you have, what assets you have, help you do a portfolio makeover, determining the highest and best use of for your portfolio. Just a great service. It's totally free. Take advantage of it. Reach out through Jason Hartman.com, through any of our web forms. One of our investment counselors will be in touch with you and can help you. Last thing is little bit on inventory here. Now this is from Mike at Altos. He's been on the show a few times. And here is the clickbait headline. Inventory is skyrocketing. Yeah. If you listen to some of these guys on YouTube that are just not showing you the big picture. Inventory is skyrocketing because just what? A couple of months ago it was 420,000 homes for sale. Now it's 465,000 homes for sale. Oh my God, we're in trouble. Inventory skyrocketing. That's the clickbait headline. That is a lie. Here's the reality. Inventory is 2% lower than it was at this time last year. And it's about 700,000 homes below what most people consider to be normal inventory levels. Not a recession, not a bad market, not a crash normal, just normal. 700,000 deficit in houses for sale and demand exceeds supply.

That's it. And Here is Mike's projection for the end of the year. He believes that we will end the year with 15% lower inventory than we did at the end of last year.

So for all of you Crash bros out there, what are you thinking? You just got to look at the numbers. I mean, that's all you have to do. And I love, like, Julian with his idiotic comments on my YouTube channel, by the way. I gotta thank that guy because he's constantly trolling me and it just helps the algorithm. So keep up your. Your trolling and keep embarrassing yourself with your dumb comments. Oh, gosh, it's. It's. This is. This is a fun game, folks. All right, we have a virtual event coming up and. Oh, that's not Julian. It's Julius. Yeah, Julius. We have a virtual event coming up, and that is July 21st and 22nd. So it's what, about 16 days away? And join us for that. Just go to Jason hartman.com, get your tickets. These virtual events are super inexpensive. They cost you almost nothing. Less than dinner. Hey, less than lunch, depending on where you eat. Less than breakfast for some of you. So join us for that. This is a virtual event. It'll start on Friday evening, 7 to 9pm approximately Eastern Time. And then we will go Saturday from 11 to 4 Eastern. And these are great virtual events. You just jump on zoom with us. They're small events. You can always get questions answered. We might even do some breakout rooms with our investment counselors. It's just really great to do these virtual events and we are going to have that coming up. Go to jasonhartman.com, get your tickets. And thank you so much for joining me today and until Friday's episode. 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.