2453: The Delisting Dilemma and the $500,000 Equity Trap: Why Homeowners Refuse to Sell with Rick Sharga

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So far the event's been fantastic. Lots of great speakers, so many good contacts. Just the amount of different people you see here and meet here is probably the biggest benefit, and the speakers are unbelievable, and it's jam-packed with content. Basically can't miss a speaker. If you're on the fence at all about this, if you're even considering it, just jump on, do it.

You won't regret it.

You're going to be able to close those time windows that you think take forever. Just do it. It'll be a great experience for you as an investor, and you're going to be able to learn just through osmosis through all these great people you're around.

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. Good day, Empowered Investors. Welcome to episode 2453. And you know what I just finished doing recently? It was increasing my virtual brain power. Well, what does that mean? It means I was actually increasing the brain power of my AI clone. And let me tell you, this thing is smart. It is really smart. I just updated it with all of the transcripts from the last 3 years of Empowered Investor Live. Yes, I did. So if you were at those events and maybe you didn't get your question in live at the time, you just need to go to empoweredinvestor.com/ai. And, or just go to empoweredinvestor.com and see the little AI icon on the website. I don't mention this enough. It's completely free. I know there are other thought leaders out there charging for access to their AI or limiting access to the AI. Ours is completely free and it is so knowledgeable. I believe last time I checked, it was trained on 17,200,000 words. Of my content. Yes, just my content. And then of course it has the whole internet to back it up, so it's way smarter than yours truly, that's for sure. And it's also much more patient. You can ask it really complex questions and it will give you darn good answers. Now of course it's an AI brain, so you know they hallucinate, but heck, your humble host here hallucinates too. So I make mistakes just like the AI does, although for entirely different reasons. Mine would be considered a senior moment. The AI would be considered a, I guess, a very youthful moment because it's such a new thing. Anyway, let's talk to it for just a moment. Oh, by the way, our guest today will be Rick Sharga, returning guest, great guy. He's always got brilliant insights on the real estate market and the economy at large. So we'll get to him in just a moment., but just want to talk to the AI for a moment here. And I got to think, what should we ask the AI today? You can ask it pretty much anything. So you push the call button and then it's calling. Hello, it's Jason Hartman AI. I have a lot of information to share. How can I help? Well, I'm trying to debate if I should refinance one of my properties. I do want to pull cash out because I believe in your idea, Jason Hartman's idea, of inflation-induced debt destruction. And I believe in leverage. I'd like to pull some cash out, maybe buy another rental property or maybe two more properties. But I'm trying to decide if I should get a HELOC or completely refinance. Of course, the rate will be a bit higher for sure. It'll be about 3 points higher. So what should I think about here? You're thinking about this the right way. 3 points higher is real money. So let's talk through it. Here's what I'd consider. A HELOC gives you flexibility and you only pay interest on what you actually draw. You can pull cash when you find the right property, not all at once. That matters because rates might move, deals take time, and you don't want to be sitting on borrowed money you're not deploying. A full refi locks you in at that higher rate across the whole balance, whether you use the cash tomorrow or 6 months from now. But here's the thing, and this is important. You're already thinking about inflation-induced debt destruction, which means you get it. You want that debt working for you while inflation eats away at it. So the question isn't really HELOC versus refi, it's how fast you can deploy that capital into producing assets. If you can move quickly and confidently into 1 or 2 more properties, the full refi might make sense because you lock in the rate and you've got the cash ready. If you're still hunting for deals, a HELOC keeps your optionality open and your costs lower until you deploy. What's your timeline looking like for actually finding and closing on those next properties? If you want to walk through the specifics of your situation and your numbers, talk to one of our investment counselors. They can model both scenarios for you. Call 714-820-4200 extension 2, and they'll help you figure out which route actually makes sense for your portfolio. So what I wanted the AI to do, and probably if I talk to it a little longer, is I wanted it to help me analyze the idea of that HELOC, or even just a regular second loan, which is different from a HELOC, or refinancing the entire thing and pulling cash out. Maybe I'll get 80% loan to value, right? A lot of you are sitting on a lot of equity, and just remember something, my friends. My empowered investors, equity is not working for you. How do I know this? Well, I've said it before, but I haven't said it in probably several years. So here you go. You know, every year in late January, early February, maybe mid-February, you get 1099s from all of these different institutions you're dealing with, right? You're— maybe you have a brokerage account because you got to have some money in Wall Street, the modern version of organized crime. You got to support the mafia. Listen, I'm in the mafia too. I'm investing with them as well, so I can't complain too much. You have some money in a brokerage account, you have some money in a savings account getting eviscerated by inflation and taxes, right? And so you're definitely losing money there. And whatever, right, for whatever you did the prior year, you get the 1099 showing what you need to pay taxes on, right? The gains, the interest. The return on investment. But you never ever get a 1099 from any of your properties. Did you notice that? Saying, hey, I've got $100,000 equity in this rental property, and I've got $200,000 equity in my home, and I got $300,000 in that other rental property, and all that equity is not producing any return. If it was, You would have to report it. Okay, right. You're not getting a 1099 for your equity. So equity is lazy money. It's sleepy money. It is not working for you. You want to strip the equity out of your properties. Why? It lowers your risk in terms of being a potential foreclosure victim if times get really rough and really bad. Because when you have more equity, you become a target for foreclosure by predatory lenders. We saw that with millions and millions of people in the past over the years. Also, you are a target for lawyers because if you've generated some liability or you've gotten in some dispute with someone out there, which happens to all of us from time to time, as long as we're doing enough things in life, right? If you're not doing anything in life, you'll probably never have any disputes because you're not doing anything. Then that equity becomes a target. It makes you look rich, right? And that's something that lawyer can grab. So for asset protection purposes, you don't want to have a bunch of equity. And for simple return on investment, the higher your equity, the lower your return, because you have more money in the deal. And the more money you have in the deal, the worse the deal is for you and the better it is for everybody else. So strip the equity out of your properties. Our investment counselors, as the AI said, can help you with this. You can call 1-800-HARTMAN and press extension 2, get to our investment counselors, or just visit empoweredinvestor.com. Make sure you do that. They'll do a portfolio makeover, a portfolio review. You know, we have so many past clients from years and years ago And a lot of you are just allowing a lot of lazy equity to accumulate, and it is not working for you. Put it to work. If you're an employer or a manager in a, in a big corporation that you work for, you would not tolerate a lazy employee. Similarly, you should not tolerate lazy equity in your properties. So get that equity out, put it to productive use, make it work for you. Your money needs to work for you. This is the oldest argument, really. Well, I mean, it existed before that, but really Karl Marx, who I'm not a fan of, by the way, I just want to get that out of the way. I'm definitely not a fan of Karl Marx, but he really brought it to the forefront, right? Is this whole debate between labor and capital. And we are in a world where capital is rewarded, and you've got to use the capital. If you're relying on your labor, that's very limited in terms of wealth creation for you because there's only one you, and you can only do so much, and there's only 24 hours in a day. So you've got to make your money work for you. You've got to always make your capital work for you as much as possible. Make it report to you. And the best way to make it report to you is by using PropertyTracker.com, our free software. Just go to propertytracker.com, sign up, get a free account, and analyze deals almost every day of the week. Maybe not weekends as much, but 5 days a week we're pushing upgrades into Property Tracker. Just nice little pleasant surprises you'll notice when you get in there. For example, the inflation rate is updated according to the government statistics, which are underestimating inflation. Of course, we all know that, but we're just using the official statistics. But we're going to be adding a new feature feature. I can't wait for this new feature, a whole bunch of new features, but one of them is going to take that 1-year performance projection inside of Property Tracker and the static versions of it that you can see at empoweredinvestor.com in the properties section in the Empowered Investor Marketplace where you can look at properties to buy. And by the way, if you want to sell any of your properties, we can also help you with that. We can list those in the Empowered Investor Marketplace for you and expose them to our audience, our huge audience of investors, all 7 of them. That's how many people listen to the show. 7 on a good day, maybe it's 8. Obviously, I hope I'm just getting there. But yeah, so look at the Empowered Investor Marketplace, and those are static pro formas. You can drag any of those in with a click of your mouse into your Property Tracker account. Just go add to my portfolio, it'll bring it into your account, and then you can manipulate all the numbers until your heart's content. You can run best case, worst case scenarios, leave it the way it is but maybe change the mortgage assumptions, whatever you want. But we're adding a feature where you can just click a button for a bear case and a base case and a bull case, the best case, on a property. That's going to be very enlightening for you. We're also working on adding cost segregation to the actual performance. So really exciting stuff going on. We have the best deal analyzer in the business, bar none. Any of you listening out there, challenge me on this. If you're watching on YouTube, comment below on anything or put your questions below about anything, whatever you want. You love me, you hate me, whatever, I don't care. A comment is good for the algorithm, so I don't care what you say. Or ask your questions at jasonhartman.com/ask. You can just go put them there and we will get back to you on those. But really good stuff going on with Property Tracker and the AI. EmpoweredInvestor.com/AI. Check that out, use it. It's a free knowledge tool and it was just updated literally this morning with 1.2 million more words. So it's got a lot of knowledge on a lot of things, not just my knowledge. But all the experts we've had on these shows over the years and just so much more. So check it out. It's there for you. If you need us, reach out and we're happy to help you do a portfolio makeover, a portfolio review, answer any of your questions, and help you find great properties for your portfolio. All right, let's get to our guest today, none other than Rick Sargeant. He's got some brilliant insights on the real estate market. It is my pleasure to welcome a returning guest back to the show. He's been on with us many times sharing his wisdom, and that is none other than Rick Sharga, the founder of CJ Patrick Company, with some great insights on the market. And by the end of this interview, if you stick around the whole time, you'll know if the market is going up, down, or sideways. Rick, welcome back. How are you?

I'm doing well, Jason. Thanks for having me back.

Always good to have you. So what is happening in the market? You've got some great visuals for us. For those listening on audio only, we'll explain them to you. So don't worry about that, but let's get into it.

Yeah, we're going to talk a little bit, Jason, about a couple of points in the economy that, that relate very specifically to the strength of the housing market. We'll talk about the housing market in a little bit more detail, and then you and I can, can kind of converse a little bit about where we see the, where we see things going. For the rest of this year into 2027. Just to kind of start off, when mortgage rates doubled back in mid-2022, there were a lot of people online. You were not one of them, but there were a lot of people online who were breathlessly foretelling about home prices being ready to crash 20%, 30%, 40%, 50%. In fact, I think you and I probably talked about how ridiculous that was back at the time.

We did. And we were right, Rick.

So, so far, and touch wood, we'll continue to be right. The more likely scenario I've been saying since then was that we'd go through a reset period where it would take the market 3, 4, 5 years to kind of recover from the dual shock of prices rising as much as they had during COVID and then mortgage rates doubling, which has never happened before in the history of the country, by the way. And we're—

the mortgage— I would argue that the mortgage rates actually tripled. If you look at the lowest point versus the highest point I mean, Rick, how resilient is this asset class that you could triple the cost of money and prices still go up, albeit slightly, but they go up?

No, I think we're at 49 consecutive months now of year-over-year price increases, even if they're minimal. And I, like you, I, I remain bullish on the long-term outlook for housing. I do believe there's an enormous amount of pent-up demand. From young adults, candidly, waiting for market conditions to improve just a little bit. And I think we're toward the end of that long reset period where people are kind of now used to higher interest rates or used to these higher prices. Wages up until recently have been outpacing inflation. We'll get into that in a minute. But I do think we're at a point now where we should start to feel like the market's recovering a bit. And after, you know, 3 or 4 years of pretty flat home sales, I think that's a hopeful outlook for everybody.

Yeah. Yeah, it sure is. Okay. Well, let's get specific. You've got some great data that you want to share with us. Yeah.

Let's talk about the economy a little bit, because if, if the economy is weak, the housing market's going to be weak. And that, that's just, that, that's not even a truism. That's just true. We're looking at a lot of forecasts that, that believe the, the country's GDP, the gross domestic product, will be slow, but, but still positive. There is virtually no credible economist anywhere who's predicting a recession at this point. The Atlanta Fed puts out a really kind of intriguing ongoing report called a Nowcast, that GDP now, and their most recent estimate for what we're going to see when the Q2 results are in is a growth rate of about 2.6%, which is not exciting, but it's not bad for an economy of our size. And we've recently seen the Q1 GDP adjusted growth rate of over 3%. So overall, the economy continues to grow. And that's, that's a good sign in general, but certainly a good sign for housing and important for, for your listeners and your viewers to understand that about two-thirds of the U.S. GDP is made up of consumer spending. So if the GDP continues to grow, it suggests that consumer finances are stable enough to continue to facilitate that growth.

And of course, the doomers will say, well, it's just the AI boom, it's artificial, et cetera, et cetera. And you know, they might be partially right. Look, I'm not a stock market or, you know, overall macro economist. I'm a housing guy like you are, and I'm quite bullish on housing. But you know, they will say that. They will say that this is, you know, propped up by the biggest tech change in history, which is AI. And now some are saying the AI emperor has no clothes. Close.

Well, I don't think consumer spending is driven by AI. You and I don't go to Costco and buy a pound of AI to cook for dinner. That's good. And we're not wearing AI if we go shopping at the Gap, right? So I don't think those two are tied together. Now, the stock market performance, which I was just going to talk about, I think on the S&P 500, they talk about the Mag 7. The big, big tech stocks. And that includes some companies now that are AI companies. You can make an argument that a fair amount of that growth over the last year has been strongly contributed to by AI, but it's also been strongly contributed to by the fact that a lot of companies, public companies, are reporting record earnings. So, so, you know, that's another good sign for the economy. But one of the things you look at from an economic standpoint is how the stock market is doing.. And right now, we, we briefly passed 53,000 on the Dow a few days ago, which I did not have in my bingo card for 2026. But all 3 of the indices right now are running either at or near record highs. And that's despite some of the headwinds we've seen in other parts of the economy. So 2 economic metrics we look at, GDP and the stock market, both doing pretty well. One of the red flags we do have, and this, this was getting better, but, but suddenly got worse is inflation. Up until about a month ago, wages were outpacing inflation. Inflation wasn't impacting home prices that much. It wasn't down to the Federal Reserve's 2% target, but it was moving in that direction. It was down into the low 3% range, which if you look back at our history, the last 50, 60 years, we've been tracking the inflation rate, the average annual inflation rate in the country was 3.5 to 3.6%. So despite the fact we weren't where the Fed wanted us to be, we were well within normal ranges. What's happened in the last two reports, of course, is that when the conflict in Iran started, we saw the Strait of Hormuz shut down. That drove oil prices up to $120 a barrel briefly, and, and gas prices went up. And if you look at, if you look at what contributes to inflation, the growth in inflation that we've seen in the last couple of months is almost exclusively driven by those higher energy prices. So as oil prices have recovered a bit, if we do get a resolution of that conflict sooner than later or the market stabilizes around that conflict for oil prices, we'll see these rates of inflation come down.

Uh, and, and Rick, you know, you're talking from the general economy point of view, you know, inflation is bad, right? But specifically for real estate owners, even owner occupants and investors, inflation, it, you know, it may not be philosophically good. And I agree with that, but from a personal perspective, they're definitely benefiting from it.

Oh yeah. Over time, inflation will help you build your equity in whatever properties you own. And so that's a good thing. It's a. It's a cost-benefit analysis. So you want inflation high enough to, to accrue some value, but not so high that it makes everything else too expensive.

Right.

The reality is even at 4.2%, we're less than half of where we were 5 years or so ago in a different environment in DC when inflation was kind of running out of control, which caused the Fed to take very, very aggressive actions to, to kind of slow things down in the economy. So we're certainly not looking at, at South American country kind of inflation rates. And I am hopeful that as oil prices have, have stabilized a bit, we'll see these inflation rates come down to more manageable numbers. But all the talk— and you and I were talking a little bit about the Fed before we got started today— all the talk in Fed circles right now is that it appears we might be more likely to see a Fed funds rate hike than a cut if inflation doesn't start to come down a little bit.

That is the talk.

One of the things that's keeping the Fed tethered is that unemployment rates remain low. Most recent report came out at about 4.2%. Everybody should remember that anything better than a 5% rate of inflation, most economists tell you, is full employment.

Employment, not inflation.

Yeah, employment.

You meant to say employment.

Yeah. No, thank you. My brain was still on the last—

Well, I mean, it is the Phillips curve. Those two are talked about together all the time.

So, yeah, the one red flag we're seeing in the unemployment numbers is that about a quarter of people who are unemployed have been unemployed now for 27 weeks or more. And that's half a year for all intents and purposes. So it's taking longer for some people to find jobs once they lose their current job. Now, some of that could be a little misleading because I suspect some of these folks are, you know, making money in the gig economy. Doing some other things.

Or starting their own business.

Yeah. And that's what I did the last time that I was departed from a corporate job and best move I ever made, by the way.

But it's— And, you know, it is just getting amazingly cheap and easy to start your own business. I mean, the friction that has just been massively reduced and the risk.

There are about 17 million self-employed people across the country right now, Jason Hartman. Yeah. Which is, by the way, proven to be a little challenging for the mortgage industry.

Oh, yeah.

Used to people with W-2s, but that's a discussion for a different day. But we are seeing a record number of people running their own businesses. Job growth has been stronger than expected up until this, this most recent week when the job numbers came in at about 55,000, but still positive. And we're, we're seeing that job growth in spite of the fact that government hiring is, is down by about 10%. So it's— this is all private sector job growth, and wages continue to grow at 3.4, 3.5% a year, uh, which again until recently had been outpacing the rate of inflation and certainly is outpacing, uh, home price growth, which we'll, we'll talk about in a, in a couple minutes. So if you look at kind of the the, the overarching trends in the economy. We're, we're creating more jobs, uh, wages continue to grow, unemployment is low, stock market is doing very well, uh, GDP is, is steady and solid. So generally speaking, uh, the economy is well positioned for a healthy housing market.

Yeah. Okay, good. Let's go into the housing market specifically.

The housing market, on the other hand, is, is struggling a bit, and, and one of the reasons for that is that Affordability continues to be a challenge. There's some, some information out from, again, the Atlanta Federal Reserve. They do an affordability index and they track what your median income needs to be to buy a median-priced home and only spend 30% of your income on housing costs. Right. And that's been a pretty steady indicator for them over the years.

But when we— when you say the market is struggling, you're referring probably to sales volume.

Exactly.

Yeah. So sales volume-wise, it's been down for over 3 years now. It's been, it's been very slow. So you'll hear the realtors complaining, you'll hear the settlement people, the mortgage people, they're all complaining because transaction volume is what they live on. But prices continue to rise, albeit slightly.

So in most markets nationally, that is absolutely correct. What we're seeing though is there's about a $40,000 wage gap if you were making the median US household income, looking to buy a median-priced home across the country. Now, that is going to vary wildly market to market and buyer to buyer. And there are still a lot of buying opportunities out there. But bottom line is, if you just look at nominal affordability levels, they're as bad as they've been in about the last 40 years. And the last time they were this challenging was the 1980s when mortgage rates were 20%.

Yeah.

And to your point, uh, Jason Hartman, we sold about 6 million existing homes in 2021 before the mortgage rates went crazy. That dropped to 5 million in 2022, and we've been at about 4 million a year since then, 2023, 2024, 2025. And at the moment, we're trending for a 4th year at about the same number. What that does say though, is in what's arguably been a disappointing home sales market. We're still selling 4 million properties a year.

Yes, right.

But there's a lot of transactions.

That, that's, that's true. Uh, but it's definitely not the glory days in terms of sales volume, right? That tells us a couple of other things, Rick, that I think are important that, you know, so many people just missed. Number one, it says there's a lot of pent-up demand. Yes, that is going to come into the market when that affordability curve starts to meet. Now, wages have been doing pretty good. So people are making more money. They've been outpacing inflation largely, you know, well, it depends what survey you look at and so forth, or outpacing home prices, I should say, for sure. Okay. And so the gap is getting smaller and the affordability is getting slightly better. And if we see the downtick in interest rates that we've all been waiting for far too long, I think it's just going to be a flood of buyers in the market. Now, the other thing is that normally what should happen when we see this kind of situation where affordability is so bad, it's just awful, that should really prop up the rental market and make rents much stronger. And that would normally happen, but it didn't really happen to any real degree because of all of the new apartment units. They were just so overbuilt. Record numbers of new apartment units delivered the last 2 years. They've sucked a lot of the, the rental demand out of the single-family market. So many of those people would have rented a single-family house because they couldn't afford to buy one, but the apartments were offering such good deals that they just couldn't refuse. So they just rented an apartment because they got 4 months free rent on a 1-year lease or whatever their promotion was. It was amazing.

Yeah, you're absolutely right. We had, we had over a million apartment units come online Yeah, that's a lot. 18 months. Uh, some markets are actually overbuilt a little bit. We saw rent asking rents actually go negative year over year for a few months, which—

for apartments.

Yeah, yeah, for apartments.

Yeah.

For your listeners who are in the single-family rental home market, uh, we've still seen rent asking rents go up year over year. Not much, about 2%, but still performing better. And Bottom line is, while affordability is challenging for home sales, it has had some benefits for single-family rental property owners. We have about 5 million people turning 35 a year for the last 3 years and for the next 2. And in a lot of cases, they have families. They'd rather be in a house than an apartment. And so I think there will continue to be opportunities for a little while. You mentioned mortgage rates coming down. The affordability got a little worse recently because mortgage rates went up after oil prices went up. And it doesn't sound like it should be related, but oil prices went up, so bond yields went up. The bond market got a little bit nervous, and bond yields drive mortgage rates up. They still stopped short of 7% and, and have been kind of between 6.5% and 6.7% in, in most recent weeks. But when they came down to about 6.5%, to your point, we saw a bunch of people come back into the market.

Yeah.

So it doesn't take much. And even at today's rates, where it's 6.5%, 6.6%, we're down about 30 basis points from a year ago. So mortgages are actually a little cheaper than they were last year for a lot of borrowers. And again, as, as you said, if we see these rates come down even a little bit more, uh, it will facilitate a bunch more buying activity.

And, and the mortgage spreads are lower than they have been over the last couple of years which is an optimistic sign. So even though that 10-year rate isn't getting that low yet, the spread between the 30-year and the 10-year is definitely lower. So that's desirable.

Yeah, it's getting back to more historically normal levels, which, which would be good for, for borrowers. And you also mentioned that home prices are kind of flattening out, uh, still going up. But if you look at, uh, just two indices that I follow, one's the FHFA Home Price Index, and that's all of the loans that are, that are owned by Fannie Mae and Freddie Mac. So it's those conventional mortgages, about 60% of the market. Their annual price increase was 1.7% year over year. That's down from about 4% from the same time period a year ago. And in some parts of the market, they show the West, South, Central— these are Census Bureau designations— prices are actually down about 1% year over year. So from a buyer perspective, these lower price increases on homes are beneficial. It makes affordability better. The Case-Shiller Index, which is probably the most quoted index for the same time period, was showing year-over-year price increases of 0.7%. So to your point, uh, wage growth definitely outpacing home price growth, which, which, which helps from an affordability perspective. And I, I think this is really important. Important because you've been talking about prices going up. I've been talking about prices going down. Reality is it depends on where you are in the country, and that depends to a great extent on levels of inventory that are available for sale. So if you're in Cape Coral, Florida, or Austin, Texas, or Phoenix, Arizona, uh, or, or Seattle, Washington, you probably have a little bit too much inventory on the market. And you're seeing prices actually decline a little bit year over year. If—

but those are— we, we should note that those are also the markets— of course, all real estate is local, always remember that, the most important rule of all, maybe. But those markets are all markets that got way out over their skis. Yeah. And had massive appreciation, so they're giving a little bit of it back and readjusting. Yeah.

And that's happening in Boise, Idaho, and St. George, St. George, Utah, right? And Denver, Colorado. So, so, and Las Vegas. So there are markets where inventory isn't oversaturated, but prices got way out ahead of where they should have been.

Sure.

One other indicator, and this is something HousingWire tracks pretty regularly, is the number of properties that take a price reduction before they're, before they're sold. Yeah. And most people don't realize that happens about a third of the time normally.

Yeah.

Last year we were seeing a much higher percentage. We were in the, in the 40s, uh, 40% of, of homes were taking a price reduction. Uh, most recent number is down to about 37%. So we are seeing a little bit more rational pricing. Uh, probably buyers, uh, a little bit more, um, a little bit less sticker shock when they're buying a house, and sellers probably getting a little bit more realistic when they're, when they're listing a property for sale.. And in, in fact, there are some reports that suggest that list prices are, are down slightly year over year. But, but to your point about real estate being local, depending on where you are in the market, the Midwest, the Northeast inventory is still very, very tight. We are still seeing prices rise in most of those markets. If you get down to the Gulf Coast, uh, if you get to the Southwest, the north, the Northwest, in a lot of these markets, we have too much inventory available and that's, making prices weaken a little bit. So you really need to know what's going on in your local market before you, uh, before you jump in.

Absolutely. But those markets, I want to say, those Sunbelt-style markets have always been the hot markets. So, and that's where builders have created a lot of new inventory because those were the hot, you know, the favorite children, right? And so now we've seen the Northeast that was kind of neglected. For so many years in the Midwest that was neglected, you know, get into a position where they just don't have as much inventory because they just didn't get any attention from the builders, you know, in comparison. So yeah, yeah.

And you look at a state like Ohio, uh, which as we're speaking, uh, CNBC announced is the best state in the country to, to, for businesses to, to operate. It's kind of been a hidden gem. I know a lot of investors who've been looking at markets like Columbus and Cincinnati, but it has 30% less inventory today than it did than prior to COVID. So there are opportunities out there, and you're right, when we track investor purchase activity, a lot of that activity has been in the Southeast. It's been in Georgia, it's been in the Carolinas, Alabama, Florida. So you, you do see a lot of activity there and still a lot of opportunities because properties are affordable there. If you're a rental property investor, you can buy a property at an affordable price and rent it out and still make a profit. Whereas if you're in a state like California, much more difficult to do that because of the price points on the assets. Although, you know, California might give you some opportunities for fix and flip. So really, really depends on where you are in the country.

Sure does.

And this is where I'm long-term bullish, as I believe you are, on home sales. Both pending sales, which are contracts that have been entered into, but the transaction hasn't completed yet. Pending sales are running ahead of last year by 8, 9, 10%. Mortgage purchase applications. So these are people looking to buy a house, also running ahead of last year's numbers. So with everything that we've had, we had brutally bad weather in the Northeast and Midwest in the first, first 2 months of the year, which slowed down sales. We had the war in Iran breaking out in March. We've had mortgage rates that have been up and down. We've had consumer confidence that's been pretty weak. And with all of that, we're still seeing more people interested in buying a house. And so I do believe if things settle down a little bit from an economic and geopolitical standpoint, we will see that buying activity come back and come back strongly.

Absolutely.

Existing home sales, actually, again, rough first quarter, not a lot worse than last year, but marginally worse. As of today, NAR announced June home sales.— for 2026, and they were actually up almost 3% year over year. So now we've had 3 consecutive months where home sales are up on a year over year basis. I don't put a lot of stock in the month over month numbers because of the volatility in the data, but year over year numbers are pretty solid. And that, again, it to me is a very positive sign about what to expect in the housing market. We did talk about prices earlier. New homes, interestingly, had a rough month in May, second consecutive month where new home sales were down a little bit.

We're talking sales volume, the sales volume.

Well, and, and prices have been up, up and down in, in the new home market.

That's why I clarified that, because I wanted to ask you, you know, a lot of the builders have maybe for roughly 2 and a half years now been addressing the affordability crisis by providing a really lower-end product. And I think that has skewed these new home value numbers because, you know, when I showed some examples on my show where D.R. Horton, Lennar, KB, they were building these really like basic homes. I mean, they're new, so they're nice, right? And they did have nice countertops and stuff. They weren't, you know, avocado green Formica like we used to build. People really need to appreciate how much better homes are today than they used used to be, you know, when I was growing up, you know, it was nothing like this. It's, you know, even a, even a very basic home, but, you know, very basic floor plans, some with no garages, which, you know, it is almost expected in a new home anymore. So, you know, really small little 950-square-foot single-family homes, no garage, not even a carport, amazingly.

So yeah, we went through a period, and it's not necessarily the case right this minute, but where the, where the median price of a new home was less than the median price of an existing home. And that, that didn't mean that if you were looking at similar properties in the same market, you could get a new home for less money than an existing home. But it did mean that the builders were focusing on less expensive markets and building smaller and less expensive homes in those markets. So that, that's one of those areas where when you look at national data, the numbers can get a little bit fuzzy. Now, the most recent numbers in May, the median sales price of a new home was about $425,000. And so that was higher than the median price of an existing home. But the builders are kind of in an interesting predicament right now. They, they're sitting on about a 10-month supply of inventory. Uh, and, and that's higher than they usually like. They're usually—

Oh yeah, it's a lot. And, and that, this is why it's funny, Rick, and you've never heard this from me, But, uh, you know, we always are kind of agnostic in our market when we're finding properties for investors. Sometimes we're in a market like we were in, you know, 2015 where there was just no construction, right? Everything that sold through our network was a resale renovated property. And now almost all, you know, well, not almost all, but a large percentage of our volume is brand new properties because that's where the deals are. So it goes back and forth, folks, and it switches back and forth in the geographical market. So you really got to talk to your investment counselor to get some help on that. But yeah.

So the builders have been very circumspect about starting new homes. We're looking at a 5-year low in terms of housing starts.

Right. I think that's going to lead to the next shortage.

Yes.

Right. You know, now they've got 10 months of supply. But I think, you know, maybe in a year they're going to have 3.5 months or 2.5 months of supply because they didn't build anything right now, you know.

And a certain percentage of these starts and the projects they're working on, probably as high as 20% by some estimates, are ground-up construction for single-family rental properties for investors.

Right. For like the institutional— Yeah. Yeah. Right.

So it's an interesting time. So we have Slow inventory growth in existing homes. We, we have about a 4-month supply of those homes, which is, is, and, and it's tighter in some markets. We have a 10-month supply of new homes, which is too much. I do know investors like yourself that are actually out buying from these builders directly, uh, for, for rental properties, uh, and getting pretty good deals on them. And, and the builders are offering all sorts of concessions whether it's price reductions or buydowns, financing or whatever. But it's, it's interesting times. None of them are suggesting that they're expecting a market crash, by the way. They're just kind of slowing down to let buying activity catch up. So there's a difference between their outlook for today's market and where they see things going. And that, by the way, is pretty consistent whether you're talking to builders consumers or investors. Uh, it's, uh, I think everybody's looking at current conditions being a little bit rough but fairly optimistic about where things are going. And, and that's really where we, we, uh, we kind of wrap up today, uh, Jason Hartman. Consumer finances, a little bit of stress because of rising inflation, low personal savings rates, but unemployment, wage growth are stable. Job market's stronger than a lot of people thought about. Uh, housing Affordability, a bit of a headwind for the market, but improving. And long term looks like it'll continue to improve. A lot of pent-up demand. We see more purchase loan applications and pending sales. And honestly, a near-term resolution of what's going on in Iran really could reverse the increases in inflation, energy costs, and mortgage rates, all of which would benefit the housing market. So I am cautiously optimistic that we, uh, we see the rest of this year from a sales perspective improve over what we had a year ago, uh, and maybe set the stage for what feels like a more robust recovery in 2027.

Thank you. That's very insightful. And we'll wrap it up. You know, it's always interesting that economists and forecasters find it very hard to quantify and put on a chart, and that is capitulation. And people just wanting to get on with their lives. They've been waiting so long, you know, they wanted to buy a house 3 years ago, it was just very hard. And so now their expectations come down. This happens to sellers too, and you alluded to that when you talked about sellers and, uh, doing price cuts and so forth. And one of the things that we didn't touch on that's interesting and related to that, I think, that's been getting a decent amount of press recently, and that's the delisting phenomenon. And I think that's actually quite a bullish sign because what it says is a seller put their home on the market, their expectations were high, the market rejected them and said, hey, look, you know, we just can't afford the price you want. And so the sellers just said, okay, I'll just wait. You know, I'm not— there's no urgency here. I've got a super cheap COVID-era mortgage, I've got a ton of equity. I've got, you know, 40% of the country has no mortgage at all. I'll just wait, right? And so, uh, it's, it's an interesting time. This is, um, I'd say in my entire multi-decade career, this has been the past 3 years really the most— one of the most interesting housing markets of all. I, I don't know if you'd agree with that.

It looks boring on the surface.

Yeah.

But really all the dynamics at play to make it boring are what make it interesting.

I agree. Yeah.

Uh, yeah. And you hit on a really important point there. And one of the things I've been telling people who continue to worry about a price crash is one of the reasons we had a price crash back in '08, '09, and 2010 was because people had to sell.

Yeah.

So if they couldn't get their price, they had to sell. They cut their price. They cut their price. They cut their price. A ton of short sales, a ton of foreclosures. If people don't have to sell, they don't sell. Yeah. And they're content to wait until market conditions improve. And they get a more favorable price. And we're seeing that because people are staying in their homes for a record amount of time.

So, uh, right. The tenure of ownership is much longer. I mean, that has gone, gone way up. One of the things I always say to your point, Rick, is that if there's one ingredient you absolutely must have to have a market crash, and that is tens of millions of homeowners who are in distress. Become millions of home sellers. And now we have the complete opposite of that. We have tens of millions of homeowners who are extremely comfortable. You know, I would argue we have about 120 million of them actually, and they're extremely comfortable. So they're not in any distress at all. They might like to make a move, but financially they're just under so little pressure because—

well, keep in mind too that about I have to get these numbers right, but about 14 million homeowners are sitting on over $500,000 of equity.

Wow.

And the reason that number— the reason that number is meaningful is because even with a married couple exemption, anything over $500,000, you're paying capital gains. Yeah. If you're in California and you hit the maximum capital gains amount, the state also taxes you. You get a 35% hit. On that amount at a sale. And I think that's keeping a lot of people in their homes. Why take a 20%, 30% hit on your profit if you don't absolutely have to? So if the government really wanted to get serious about bringing a lot more inventory to market, I have a pretty simple suggestion for them.

Loosen up on that. Yeah. Yeah. It's amazing that in 30 years, those numbers have not been adjusted for inflation. Inflation. I mean, that's just ridiculous. I remember I was selling a home that I owned in Newport Coast, California, okay? It was an expensive home, and now it's a really expensive home. And I was stressing, being single, about the $250,000. And, you know, that was my limit, and I was going to have to pay capital gains tax on the rest. And that was 30 years ago. So today it's just a whole— it's just crazy they haven't adjusted that number.

You adjusted that for inflation, it would give you a million-dollar exemption, which would, I promise you, would bring thousands and thousands of properties to market. So, right, right.

And it— and, and that's not bad. That's not like it would crash the market. It would just liquefy the market, and it would allow people to trade. And guess what? A whole bunch of other industries would make a lot of money from all that trading. So that would stimulate the economy. So yeah, you're absolutely right. That's what should happen You know, the other two things that pervert the market like that are Prop 13, which you've got in California, which seems like a good thing. I mean, I remember Howard Jarvis in 1978, you know, and rent control, because rent control ossifies a market too. It just causes people to stay put, you know, because their deal's too good. And so we've got really four factors: that the tax, the capital gains, the low-rate COVID-era mortgages, Prop 13 if you're in California. And then of course, yeah, every— it's just, this really, really causes a lot of friction.

My favorite quote from President Reagan, of all time, of course, I'm sure you love this quote too. 9 scariest words in the English language are, I'm from the government and I'm here to help.

Here to help. Yeah, that's a great quote. It sure is. Rick, give out your website.

Oh yeah, you can come see me. It's cjpatrick.com. You can find me on LinkedIn or Twitter if you'd like to connect. Just mention that you saw me on Jason Hartman's podcast. So I know you're not some Russian bot and happy to connect. And I'm always posting stuff about real estate and the economy.

Good stuff. Well, all the Russian bots watching or listening to the show right now heard that. Yes. So they will now know what to say. All right. Rick Sharga, CJ Patrick, thank you so much for joining us.

Thanks, Jason. Talk again.

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