2452: Housing Obsolescence and the Supply Crisis: Navigating the Market Until the Mid-2040s with Michael Zuber

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Hey Jason, it's Sarah. Today I got a quote for a garage door repair. The property manager said I needed a new motor and quoted me $672. So of course I asked for a couple additional quotes. And that technician found that a sensor was disconnected and my $672 repair went down to $0. So don't take the first quote that you get. Always get a second opinion.

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.

Alrighty folks, what is top of mind for Mr. Jason Hartman, somebody who's been in the real estate game over 3 decades? We're going to talk about demographics, we're going to talk about owners and renters, and we're just going to see how his mind works as he is constantly collecting up-to-date information Jason Hartman, welcome to the show. Thanks for doing all this.

Thanks, Mike. It's good to see you as always. We do this every week, so it's, uh, it's always fun except when you are on some cruise somewhere around the world, some trip somewhere enjoying all your real estate wealth.

There you go, there you go. Well, uh, one of the things I love about you is you're, you're constantly consuming new information. Uh, you, you have a habit of taking them and putting me in a PowerPoint just as a collecting deck. Uh, but let's talk about some of the things that you've collected here recently. You ready?

Yeah, sure. This is not a huge deal, but it may come as a surprise to some about the birth and death rate ratio. And in speaking about that, it's interesting to look at how it allocates around the country. And also, it serves us to think about this in terms of the housing stock. Now, why am I making this comparison? You know, some might ask, right? Well, If you think about it, a lot of people look at how many homes are available, you know, how many homes exist, and then how many homes are on the market, and then they look at how many homes are being built, and then they compare it to population and so forth and household formation. Okay, so that's great, but what they often miss is the subject of obsolescence. Okay, remember, the housing stock ages, and a lot of these houses are just no good anymore, and they have to be just bulldozed and replaced. So you always have to think of that. Now, maybe the slightly morbid comparison is with people, okay? Because, you know, people are born, people die, and people live in between, okay? And so we just need to constantly think about this Yeah, so let me ask you a question on the chart, right?

So again, if I'm reading this correctly, the darker the orange means people— there's more and more people in that state, and the, in the darker the blue, less people. Is that how I read this?

Right, right, the negative. So you look at Oregon population decline in terms of birth versus death rate ratio. I don't think this chart accounts for migration. Wait, South Maine. No, it does account for migration, I guess. Okay, so this is just the overall state's, you know, net increase or decrease.

So the darkest blue looks like Pennsylvania, if I'm reading that correctly.

Yeah, Pennsylvania being the worst, right? Negative 10.7— or 10,700 people. But, you know, again, compare it to the overall population of the state, right, as well. Okay, and then you've got to also parse that again many ways, but one major way is who are those people. Note that California had a slight increase. Now, 110,000 versus 40 million is a drop in the bucket. That's like nothing. But I would venture to bet that in California, that increase is driven by illegals. Okay, these are not people that are making major contributions to the economy or the tax base. We, we all know what's been going on with California for many, many years. But in Texas, I would think it would be better because a lot of those are economically successful migrants drawn to Texas because of its zero state income tax and business-friendly environment. Texas does have quite a bit of an immigration impact, of course, too. Not anymore because the borders have been successfully closed, which is great. But anyway, you know, you, you can kind of just get a sense of things. Okay. It's just interesting to take a look at this.

It's not like a big aha, but no, but you know, I think there is some subtle ahas in this because again, if you, if you go back and we think about the doomers monetizing fear, right? One of their big things is demographics. They often talk about the birth rate collapsing, which, you know, as a standalone statistic is true.

Yeah.

But they don't talk about how deaths are being delayed as well as medicine gets better, right? We are just simply getting older. And they of course forget about migration.

Of course, of course, they conveniently make lots of leaps in logic and forget about a lot of things. So thank you for bringing that up. One of the other important parts about this though is not just the way that, you know, the doomers do that, but it's the point of how much does it matter? Okay, it doesn't really matter that the birth rate is declining Yet. Yet. Okay, this starts to really matter in the mid-2040s. Correct. That's when it matters. It's important, but it's not like it's affecting the real estate market today. This is a far-out thing, and I have long said, Mike, that this party is probably going to be over in the mid-2040s. In terms of tightly constricted housing supply and so forth, unless we have either a, an immediate baby boom, which doesn't seem very likely, or we have some high-quality immigration. Even low-quality immigration would help, right? And we're getting some of that low-quality immigration out. See, the immigration thing is a, it's a caffeine boost. I've got my coffee right here, okay? And it's a fake energy, right? You know, that's not real energy, it's fake energy. It's temporary and it has a crash later. So initially, even low-quality immigration kind of makes things look good. And that's why—

well, I mean, folks, you can Google this. I think it was the Dallas Fed. The Dallas Fed did an article about the migration illegal migration, let's be clear, under Biden was responsible for upwards of 30% of the house and rent appreciation, right?

Inflation. Wow. Yeah.

So again, check it out. Dallas Fed, go ahead and Google it. It's a, it's an interesting read. Again, more people in a fixed supply means stuff gets more expensive. So again, Dallas Fed did that research. You can look at that. So what's this next one? Single-family, active inventory.

Okay. Let me just make a comment on what you said, because what you said is very important. Jason Hartman. Now, always ask when someone says something, when you're looking at a chart, reading an article, hearing a sound bite, always say, what are they not telling me? Well, what did Michael just not tell you, right? And what did the Dallas Fed survey not tell you? Well, what it didn't tell you is that, okay, so we reduce the impact of immigration, then you think, okay, well, that's going to cause prices to decline. And in the very short term, you might see a slight impact from that. But first of all, those illegals aren't occupying the houses that we're investing in much. I mean, maybe a little bit, but not, not much. They're in really cheap houses like Class C and D type properties, apartments, things like that. Okay, but that's one thing. But what it didn't tell you is that that leaves more jobs for legal Americans, and that puts upward pressure on wages. And some of it you may not really notice in the statistics because of the gig economy. There's a lot of distortions going on there. And so who cares if prices are higher if wages are higher or people are better employed? And what, what you can't tell a lot of times, you say, okay, well, Jason Hartman, I just looked at the wage survey or the ADP study, right, which is a common one, and payrolls aren't really up that much. Yeah, but that doesn't really tell the story, okay? There's a gig economy, there's— it's very hard to count and quantify, and there's just a matter of people being better employed.

Not— yeah, there's, there's no question. Again, if you remove— just like you add people, stuff goes up. If you remove people, yeah, in a wage economy, wages go up. And again, folks, I'll remind you that wages are up 15 months in a row. In excess of home prices. And again, you want to fix housing, continue that trend for another 30 to 40 months and bingo bango, we are right back to trend.

Oh yeah, yeah. And it's really nice to see that wages are now outpacing housing prices.

Absolutely.

Because that means the affordability equation, even with the rates that we're just stuck on these higher rates.

Yep.

It's getting better every single day. It's getting better.

So, yep. Yeah, correct.

All right.

What are we looking at here? Active inventory.

Well, this is just the typical Alto survey. We've talked about this many times. This is from Bill McBride's Calculated Risk. He published some, some great stuff and it just shows you inventory, right? And it's slightly up 0.3% year over year, right?

Nothing.

Yeah.

I think that would surprise a lot of people.

Almost nothing. Yeah. It's almost nothing. Yeah. And it's still down from the pre-COVID era by 10.5%.

Okay.

Yeah.

We're not getting back there.

Inventory is still low. There's still a housing shortage. Don't listen to the doomers, they are lying to you. Okay, you just can see right where we are, and we still need more housing supply. This one is good because it shows the—

well, this is what the doomers don't tell you. This is one that drives me crazy.

Yeah, so, so this one is good because it shows you renters versus homeowners. Now, by age group, Yeah, by age group, by demographic cohort. But you might be thinking, well, what does this mean to investors? Well, it means several things. Number one, you don't have to be an owner-occupied homeowner to take advantage of this wealth gap, okay? You can rent your house that you live in, and then you can invest in other properties that people rent from you. Right? It doesn't mean you have to occupy the house, but homeowners massively exceed renters in terms of net worth at every age group. I mean, you just need to own real estate, folks. You need to be in the game. And the more in the game you are, the better off you're going to be. So if you own 3 rental properties now, maybe you should get 7. If you own 7, Maybe you should see if you can get 15, right? Get more rental properties because this effect just multiplies and multiplies and multiplies. It's the most historically proven asset class in the entire world.

At the end of the day, folks, there's a couple of things that, that are true. One, inflation's a feature, not a bug. Second, we have 30-year fixed rate debt, which is a one-way bet on rates and inflation. Again, you're paying it off with cheaper dollars. Oh, by the way, your tenants are paying it off with cheaper dollars. Yeah. And the last one, you know, part of the wealth formula is you got to own assets. It's just— you, you can scream, you could yell, you could do whatever you want, but, uh, we've seen now for hundreds of years, owners are the ones that get rich, not renters.

Right? No question about it. You've got to own the assets that everybody needs. Housing has universal need. I mean, think of the old saying, what does everybody need? Food, clothing, and shelter. Well, let them rent that shelter from you. I mean, you know, it's, it's a great deal. Now, I do want to say, on balance, you always ask what dog is not barking. I'm famous for saying on my show, you can't hear the dogs that don't bark. So there is one thing in this chart that is important that is not being said, and I want to point that out. So what are they not telling you? What is the chart not telling you? Michael, you, you've seen these surveys and read about them that say, well, people that go to college over their career, they will earn on average over $1 million more than non-college grads. That's fake news, okay? Why is it fake news? Because a majority of people go to college were already ahead of the game before they enrolled in college. They came from middle and upper middle and wealthy families, and they were already ahead. They had more connections through their parents. They had more career advancement opportunities. They were the low class, right? So there's a pre-selection bias, and that is also true in this chart. It's the same phenomenon. I mean, people at the bottom of the economic ladder never get out of the renter pool, right? Of course there's a pre-selection bias here. But that said, most people listening are already in the lower middle, upper middle, or wealthy class. Okay, you know, nobody listening is poor, probably. Okay, and you know, you just got to own more properties. You've got to own more assets that everybody needs because you're just going to multiply this effect. It's, it's a massive difference.

All right, let's show them one more chart. I'm always interested how your mind works. What's in that? What's the next chart?

Here's a good one. So inflation, right? You always say inflation is a feature, not a bug, and I love that. For 22 years, I have been teaching people about my literally trademarked strategy. I actually trademarked it years ago called Inflation-Induced Debt Destruction. And we've learned from many people over the years that savers are losers. The winners are the people that invest. There's a huge difference between investing and saving. You've got to save to invest, but once you have enough to invest You need to get off the savings treadmill because you will always be falling behind on the savings treadmill through inflation debasing your savings and taxes stealing your wealth, right?

Yeah, it's funny, I just this morning I read an article talking about a dollar 100 years ago. Do you have any guess at what a dollar is— that dollar is worth today?

$2.99.

Oh, it's the other way, it's 3 cents.

Oh, 3 cents.

Okay, 3 cents.

I just posted a thing.

Yeah, yeah, but I guess it's the— I should have said the buying power of a dollar 100 years ago was 3 pennies today.

Yep, you are in a losing game. Now you can flip that equation. You know, Charlie Munger, Warren Buffett's sidekick, uh, who recently passed away, he was a very smart man, and he always said when you encounter any problem, invert the problem.

Yeah, so he's a big invert guy.

Yep, the inversion concept is brilliant because that's what you're doing when you buy real estate with someone else's money and then you delegate the debt responsibility to someone else called a tenant. And then inflation comes along and debases the value of that debt. It's like you're— I call this the double inflation arbitrage, but it's really more than double. Because you are, you're just gaming the system in so many ways and it's so beneficial. Be sure you're subscribed to our newsletter. Go to the website and, and subscribe to our newsletter. Get on the list. We've got some great articles. The one coming out this week is Debunking the Doomers. It's about optimism. We've got over 50,000 subscribers to the newsletter now, and we'd love to have you join us because we got some, some great stuff in the newsletter. It's all free, so check it out.

Jason Hartman, you are amazing. Love what you do each and every week. I love the fact that you have the discipline to to continue to grow and learn, challenge and ask important questions. Very cool. Thanks, family.

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