2027: Housing Prices Soar as Inventory and Affordability Challenge Buyers, Creating Wealth Virtual Event

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Jason, I've been following you for a long time. Ten years ago is when I first saw your course and I've been investing, gone to several Meet the Masters. And man, I'm telling you, the way that things have played out are way better than you projected. For me personally, obviously it's been, you know, a good six years, but now I'm ready to kick it into high gear. As you know, I want to really build a portfolio that's, you know, four or five times what I have already. My wife and I have 12 properties and I really appreciate the opportunity to talk here.

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, 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 2027.

2027 and thank you for joining me today. So first off, I want to thank all of you who have registered for.

Our upcoming virtual event.

It starts on Friday and goes to Saturday. So Friday and Saturday. Join me Friday evening just for a couple of hours. We're going to have a couple of guest speakers you're really going to enjoy. But again, this is the core content, the longest running educational content I have done the first time. We're doing it virtually. We've only done it live in the past and thousands of you have been to this event live. It is creating wealth.

This time it's live and virtual though.

So it's on zoom. It's real easy to attend and enjoy. Go to jasonhartman.com, get your super economical virtual ticket for this event. If you want to know where we are, where we're going, and really understand the principles that make a good investor not a good investor, but a great investor.

Okay, let's get into today's episode. So first of all, we continue to see the Crash Bros. The Chicken Little sky is falling, people, we continue to see them embarrass themselves.

In fact, now that embarrassment is getting really, really heated because they just have egg on their face, right? It's just absolutely amazing how they just keep missing the opportunities and they're missing them here again.

And look, like I've said a zillion.

Times, someday these people will be right. But for now, they are not right.

And they're not even close to right. We are so far away from the clickbait, doom and gloom, sensationalism, hyperbole that they have been suggesting will happen.

They have just been wrong, wrong, wrong.

Look at this article. This is from Builder magazine.

This is what the home builders read, okay?

And it talks about housing price. Well, the title is Housing prices increase as inventory and affordability continue to challenge prospective buyers. The continued lack of resale inventory is a positive sign for new construction market segment. But housing affordability remains close to record lows according to Black Knight. Now what does that mean? Well, it means fewer people can afford.

To buy a house.

In fact, affordability is like at a 37 year low.

It's pretty bad out there.

And all those people who can't afford to buy will choose to rent. But the rental market, there's all kinds of pressure there too. I mean, rental housing is not very affordable either. So what do you do? Well, it simply means you compromise. You can't get all you want. That's just life, right? That's just life. Everybody makes things the best decision available to them. You know, it's like that old song, if you can't be with the one.

You love, love the one you're with, right? So they compromise, right?

If you can't get the house you love or the apartment you love, you're just gonna love the one you get, right? You just have to capitulate.

You have to compromise.

That is life. Life is just nothing but a set of compromises. And learning to accept and be happy with what you've got, learning to be grateful, right?

And that's just the way it is.

And that is a moving target, right? The expectation in the past is much different than the expectation today. That's just the way things are.

People make trade offs, they make compromises. And that's the way it is. Okay, a couple of highlights from this article.

So, home prices increased at 0.7% on a sequential basis in May, equating to an annualized growth rate of 8%, 0.9%. Wow. Keep in mind folks, when you go to Jason hartman.com and you click on the properties page at jasonhartman.com and you surf through the properties we have available.

And just so you know, we have more properties than that available. Not everything is on the website, so it's very important you contact one of our investment counselors, get your relationship going with our investment counseling team. They are so helpful.

And by the way, I want to.

Share with you on a future episode. Every year we do an investment counselor survey and our team is so awesome. I got to just give them a shout out. They do such a great job at taking good care of our clients.

We get such glowing reviews.

People say such nice things about them. It just warms my heart, folks. It really does. To know that our team is doing a great job taking care of you.

You know, we've had some bad apples over the years and we find a.

Way to show them the door and them out of the system because we want our clients to get the best service available.

Okay, so 8.9% when you go and shop on our website, the performas, the maximum appreciation they have on those performas is 6%. Right? So it's literally 50% higher than the pro forma projection. And this is in a market where interest rates have almost tripled. We are literally talking about the most resilient asset class on planet Earth. I don't know what asset class is this resilient? Able to withstand literally an attack from the Federal Reserve. Like it's an attack a credit based asset where typically 80% of that asset is financed and the cost of that money almost triples.

Yet it's like the Elton John song I'm still Standing.

And it's not only standing, it's growing. It's appreciating at 8.9%, 50% higher than we project. That is unbelievable. It's absolutely unbelievable. Okay, the article goes on to say for sale inventory improved modestly during May. And remember, real estate statistics are always.

A couple of months behind. Okay, I share with you some statistics that are only a week behind, but that's not what we're talking about today.

This article is a current article, but.

It'S always a couple of months behind.

Because that's the way the statistics are tabulated.

I've said this many times.

You know, property goes up for sale.

And then it sells and it's reported pending. And nobody knows the price yet, right?

It's a secret.

Only the buyer and seller and the realtor knows the price. And then the deal closes and that.

Price is reported to the multiple listing service. It's recorded at the county recorder, then we know the price. Right. So this data is always in arrears, and that's why I spend so much.

Time on this show talking to you about current inventory levels that are from.

Last week, because that data gives us.

A whole bunch more insight. Okay, so you know, this is taking from the traditional data that Black Knight is using, and that's what we'll go with.

But it's okay.

It's close enough, definitely.

Okay, so four cell inventory improved modestly, but is still 51% lower than pre pandemic levels.

So inventory has been cut in half.

Okay. Continuing to put upward. Upward.

I didn't say downward.

I said upward.

Pressure on home prices.

Inventory levels have decreased in 95% of the major markets analyzed by Black Knight, with the largest declines in the western metros, including Phoenix.

Now, Phoenix was way oversupplied, and so was the next one, Boise and Ogden. Okay, Those very much oversupplied San Francisco, Colorado Springs. Okay.

Those markets have seen major decreases in.

Inventory and they needed it because those, those markets were pretty oversaturated. When rates went up, those markets came largely to a halt. And San Francisco has still got a lot of struggles ahead of it. Of course, you, you know, we've talked about that ad nauseam. Okay, okay.

However, with starts continuing, meaning housing starts.

Right. How many houses are starting construction? Okay.

Starts continuing to outpace expectations.

That's a good thing because we're solving the inventory problem. Not much, but it makes a little dent in it.

And reaching the highest level in more than a year, according to Black Knight, with existing homeowners listing their homes for sale at a 27% lower pace than normal. Right. So we've got essentially almost a third.

Fewer sellers willing to put their house on the market. They just don't want to sell. Why don't they want to sell?

They've got the lock in effect. They've got the golden handcuffs of those great cheap mortgages and that they don't.

Want to give up.

Why would I give up my super cheap mortgage? Right. You're not going to give that up. It's just too good a deal to give it up. All right, let's move on. So the article goes on, quote, as it stands, housing affordability remains dangerously close to its 37 year lows reached last year, despite the Federal Reserve's attempt to cool the market.

Walden says, quote, the challenge of the.

Fed now is to chart a path forward toward a soft landing without reheating.

The housing market and reigniting inflation.

Good luck on that one.

That ain't gonna happen. I tell you, when they pivot, the housing market is gonna catch on fire again. It's gonna go crazy.

It's already arguably on fire. Think about it. If you go with that 6%, which is the traditional average estimate of appreciation.

You know, look at the last few decades. We've covered this on many other episodes before you go with that traditional 6% annual appreciation rate, we are 50% higher than that now. We're at basically 9%. Okay.

Appreciation.

When we've seen this massive increase in interest rates. How do you do that? Well, you have major household formation from the largest demographic cohort in American history, the millennials, who. Yes, they're six years behind schedule.

I get it.

You know, they grew up slowly. They didn't grow up at normal speed like prior generations did. Six years behind schedule.

But they are here, and they are finally getting married and buying houses, or.

At least renting houses and having kids.

Right. That was the shadow demand that I've been talking to you about for a decade now.

All those Millennials who just refused to grow up. Well, they finally grew up, and here they are entering the market.

The oldest millennial is what, about 42 years old now?

Right. And there's a whole bunch behind them. And they are just going to continue to move into the housing market. And a large percentage, they're not buying.

As much as their parents did.

No, they're not.

But they are buying.

And if they're not buying, they're renting.

So who cares as long as they consume a house? I don't care if you buy it or you rent it. You can rent it from me, you can rent it from one of our thousands of clients, or you can buy it. And either way, it creates more housing.

Demand for rentals or for purchases. All right, let's go on with the article here.

According to Black Knight's analysis, Nationally, it takes 35.7% of median household income to make the average P and I or principal and interest payment for a median.

Price home in Los angeles.

It takes 68%.

Well, obviously, no one's qualifying for that loan in my hometown of Los Angeles.

Right.

Which is a epic disaster. Okay, that's actually not funny, Jason. You shouldn't laugh. You know, I was always taught by my. I'll call him my surrogate father. He taught me some great lessons when I was a kid. He said, never laugh at someone else's misfortune. And, you know, that's. That's true. It's good advice. Very legitimate advice. Right. And I pretty much don't. But, you know, California is just such an epic mess and it's really such a sad thing. It really is.

But anyway, 68% of the local median income to afford the average home, that's Los Angeles, you gotta have 68% of.

Your income to buy a house.

Assuming a 20% down payment. Do you realize how much 20% down is in Los Angeles? That's big bucks.

Imagine you could even save that much money, right?

Other west coast markets, including San Diego, San Jose, San Francisco, require more than 50% of the local median income to afford a house.

So these are obviously renter markets, right? Total renter markets.

But interestingly, in some markets that make sense to buy, like one of our very long markets, Memphis, Tennessee, you still have a huge population of renters.

Generally speaking, I think you can make the claim, and I've made it for.

Many years, that renters tend to be more instant gratification oriented and less financially mature than homeowners. They want it all today. When I was 19 years old, 20 years old, selling real estate part time.

For Century 21, when I was going.

To Long Beach City College, okay, I.

Remember all of these clients I would work with, right? I worked with a lot of investors, but I also worked with a lot of first time buyers because I was selling really cheap entry level properties. That made great sense for investors and great sense for first time buyers.

And every time I was working with.

A home buyer, not an investor, but.

A home buyer, and you know, they lived in an apartment or they rented a house, they would always have to take a step back to buy a house. Like the house they could buy was.

Never quite as nice as the house they could rent.

And they always had to make this decision, you know, do I want to delay gratification and start building for my future and buy a house, right? Or do I want to just get.

More gratification today and live in the nicer home and not save any money.

And go out and party or buy that new car or buy a new jet ski or a boat or whatever, right? So this was always the decision. And the mature person, they are willing.

To delay gratification, right?

The less mature person is like a kid, right?

They want it now, you know, they can't wait. They got to have it now.

They're very impatient.

That's just a general characteristic.

Okay? Cleveland, the most affordable market according to Black Knight, has a payment to income ratio of 23%.

So you could definitely buy a home in Cleveland. But interestingly, we've done a Lot of business in Cleveland over the years. And Cleveland is also a good rental market, but most people can afford to buy there.

And that statistic is probably pretty close from Memphis.

I would say that's another sort of iconic rental market.

Okay, Black Knight projects, it would take 30% drop in home prices to return to normal affordability levels. Alternatively, if prices remain the same and mortgage rates fell to 5%, it would take 19% income growth to return to normal conditions.

God, do they have a way of overcomplicating it? Let me simplify that for you, folks. Remember, I've always given you the rule of thumb.

It's 1% in interest rate equals 10% in price in either direction. This is not exact.

It's a rule of thumb, calm down, don't get out your calculator, but think about it. So you could have home prices drop by 30%.

That's not going to happen when we don't have distressed sellers and we don't have any inventory. Right? Clearly, if that was going to happen.

It would have happened over the last.

12 months when interest rates virtually tripled. Okay, that didn't happen.

So what other thing could happen?

The Fed decreases interest rates by 3%.

And we start to see those rates in the 4 and 5% range again, which is going to reignite inflation and.

Also reignite the housing market. Because guess what? All these people will come off the sidelines, all those millennials I just mentioned, and they're going to buy, buy, buy. They're going to buy everything in sight. And it would actually allow some of the sellers with the golden handcuffs on that have the lock in effect that won't sell their house because they have too good of a mortgage deal. Right. It would entice some of them to start thinking about selling because the differential.

In the mortgage rate of the current.

House and the new house would be less. So that decision would be easier for them. But what really happens? Here's what really happens. It's unlikely we're going to see Fed.

Reduce the rates by 3%. And it's insanely unlikely that we're going to see any real reduction in prices.

Okay?

I mean, barring some catastrophic event, you know, God forbid someone uses a nuclear weapon, World War Three starts. I don't know. You know, anything could happen, right?

But given the sort of conditions that.

We have now in the economy, in the housing market, right.

We're not going to see a housing crash. Right? It just can't happen. With inventory levels so low and these people with lock in effect with the golden handcuffs. They got 28 years left on their mortgage, right? What's going to cause them to become desperate?

Nothing. Okay?

Even a massive increase in unemployment is not going to make millions and millions of desperate sellers.

It's just, there's just no sign that's going to happen. So what is going to happen? Here's what's going to happen. Compromise, compromise, compromise, compromise.

If you can't get the house you.

Love, love the house you can get, right?

That's what happens whether you rent it or you buy it.

And low housing affordability means more and more renters. Remember, here's another rule of thumb. Thumb.

Rule of thumb.

I'm showing my thumbs, okay?

Every 1% decline in the homeownership rate is 1 million new tenants, 1 million new renters. It's approximate, but it's pretty good rule of thumb. So think about 1 million new renters.

Flooding the rental market. What does that do to your rents? Increases them quite a bit, doesn't it?

Yeah. Folks, like I've said so many times.

For 18 years I've been teaching this strategy, no matter what the market's doing.

You adjust your strategy so you, you.

As an investor win the game. And we're going to talk more about that this weekend.

So I hope you'll join us for Creating Wealth.

This is our first time doing the Creating wealth virtual event. Go to Jason Hartman dot com. I did want to show you this little chart if you're watching on video.

And this is just home prices grew 3% year over year.

This is a different survey, a Fannie Mae survey.

And all of these surveys get different.

Numbers depending on the way they calculate them. You know, are they talking about the same home reselling? Are they talking about overall? Are they average? You know, there's just a, we've just talked about this ad nauseam on prior shows. So anyway, take a look at that.

But join us this weekend where we'll take a deep dive into these statistics. This is a participatory event.

You'll be able to ask questions. I will answer questions for you. Our team will be there to answer questions for you as well. So you just unmute yourself on zoom. Ask your questions, get them answered. We got some great experts coming to share their wisdom as well. Well, and you'll really love it. So join us this weekend. Jason hartman.com get your tickets very quickly. Do that right away. Go to jason hartman.com.

Well, you've probably noticed there's a lot going on right now, but of all the trends taking place in America and this is something that Jason has talked about extensively. One of the most salient is the 21st century's version of the Great Migration to suburbia. Millions of Americans living in heavily populated coastal areas are packing up and leaving to the American heartland and Sunbelt, largely due to the fallout from the COVID 19 pandemic. And although COVID 19 has accelerated this trend, people have been moving away from the big cities for some time. Actually, the realities of COVID 19 and the heavy handed responses of various governments have given people just another compelling reason to move away from the cities. This is quite the shift in movement of people. It's often forgotten that the 21st century migration to prominent coastal cities like San Francisco and Seattle was initially driven by job opportunities. At first, the temptation of six figure salaries and vibrant social scenes made many coastal urban centers attractive to Americans who desired novel experiences and financial advancement. However, COVID 19 has changed the whole game. Many people are now fearful of congregating in elevators and mass transit. Overall, people are questioning the idea of living in high density areas where diseases and other maladies can spread more quickly. As a response to the COVID 19 related shutdowns, large portions of the middle class were compelled to transition their daily activities from in person to online. Several examples include relationships on dating apps, working meetings on Zoom, and homeschooling for children. The home has quickly become the center of the universe. As Jason has argued extensively on the Creating wealth podcast, people can now open up their laptops from the comfort of their homes and effectively convert their homes into an office. This makes suburbs an even more attractive alternative for city dwellers. Just think about it. Moving to the suburbs means that you have a lower cost of living, increased outdoor space, access to the city, but lighter traffic, quieter nights, cleaner air, and a much slower pace to life. What we're witnessing unfold before our eyes is the biggest affirmation of the Creating wealth podcast's investment strategy in Income Properties in linear Markets. Always remember, the US Is not a monolithic real estate market. There are roughly 400 different markets in the U.S. each with their own idiosyncrasies. We also should not forget the economic uncertainty in the background, namely the looming threat of inflation. Don't believe the media hype. Inflation isn't going to be transitory. It will be a major factor in people's economic decision making in the decade to come. Lots of people are now waking up to the harsh reality that most cities are becoming too expensive, crime ridden and crowded. Couple that with a bleak macroeconomic picture and you have a recipe for people to look for greener pastures within the us. Never forget that shelter is one of the foundational planks of Maslow's hierarchy of needs. Most people's economic behavior is guided by primordial instincts. Put simply, people tend to rely on their emotions when making crucial decisions. The acquisition of housing is one of those. It's a basic necessity for humans of all socioeconomic backgrounds and income. Property investors can absolutely take advantage of this foundational desire, especially in times when inflation is rearing its ugly head and people are migrating to more linear markets. And you can do all of this with Jason's inflation induced debt destruction strategy. Here's how the entire process goes down. You first head to your bank to borrow money to buy a property, preferably in a linear market. Then you rent out the property. By renting the property, your tenants end up paying the carrying cost on the property. Over time, you pay the asset back in depreciated dollars and the income property appreciates faster than the inflation rate. You benefit in two ways, inflation depreciating your debt and commodities value rising faster than inflation. So what are you waiting for? Take advantage of this next level wealth building strategy and follow Jason's advice. Your future self will thank you. For more information, please visit jasonhartman.com.

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