389 FBF: Is Real Estate Cheap or Expensive Today Home Prices Compared to Stocks Gold Bitcoin Wages

This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.com.

Welcome to the AIPIS show for accredited income property investment specialists and those who aspire to be if you're a real estate, mortgage or financial professional, this is the place for you. We'll explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.

Okay, here we go. So I think the primary question to ask when you're considering where the value of anything is going to go, whether it be real estate or stocks or any other asset in the world is simply this.

Is it cheap or is it expensive? Is it cheap or is it expensive? So to answer that question, we've got to go into a bunch of stuff. Now I could stand up here, as most economists would do, and rattle off like the forbearance rate is going down a little bit, but what about all the homes in forbearance? What about all the employment problems? Right? I could go on and on about that, but instead I thought it would be really more useful to take a different look at the market and look at it from the point of is it cheap or is it expensive? You know, as I talked about on Monday, and probably at the last family Mastermind that my listeners call this the Jason Hartman question. And I think it is really one of the most important questions in life in general for anything. And that question is simply compared to what? Compared to what? So if we start comparing the price of real estate to other things, as we did a little bit on Monday, but I only had a few minutes to talk to you about it then, and today we're going to go deeper on that topic and we're going to not only compare the price of the house, but we're also going to compare the monthly payment on the house. And some of these valuations will really, really surprise you. I promise they will surprise you quite a bit. So compared to what, is it cheap or is it expensive? Now what you need to keep in mind is that at the end of this presentation I'm going to ask you this question, is it cheap or is it expensive? And I want you to tell me what you think, because it will all depend on what you're exchanging it for, right? Whether it's cheap or expensive. So looking at homes priced in other assets and comparing them to the price of these other assets, are we in a bubble? Right? And if we're in a bubble. When will it pop? Well, let's look at Price vs Payment today a little bit, which we did in depth last time, but also look versus other things versus other assets. If you listen to my podcast or follow me on YouTube, you'll know that I talk a lot about this concept called packaged commodities investing, where I really just look at a piece of real estate as simply the ingredients of it. Right. Instead of looking at a finished cake. And I don't know if any of you did burns this time. Right. But I did it for my first time on Monday and boy, that was a food coma if there ever was one. They have these incredible desserts. Right. But when we eat the cake or when we eat the dessert, we never really think about all the ingredients that go into it. I guess maybe some do if they're really into cooking, but we just think about the final thing. And that's the way the world thinks about real estate. And it's the way, thankfully the bank thinks about real estate, because the bank gives it all these special privileges when it is assembled, when it is packaged as one thing. When you assemble all the copper wire that's in the walls, when you assemble the concrete, the lumber, the petroleum products, the glass, the steel, when you assemble or package all of these things, it gives a totally different classification for borrowing. You can't buy those ingredients on a commodities exchange and finance them with 30 year fixed rate, incredibly cheap debt. You can't buy them on the commodities exchange and have them be the most tax favored asset class in America. Only when you give it the name real estate or specifically income property do you get those special privileges. So I've got a book coming out called the Empowered Investor. Hopefully that'll be out in early fall and I'll go more into that. And I'd love to talk to some great book marketing people in the group because I have not done a book in many, many years and all of my other books are on the New York Times worst seller list. Yeah. So never been much for book marketing, so I could use some help. Okay. Because I think this one's gonna be really good. But the one ingredient that you've heard a lot about lately is the lumber ingredient. And of course we know that lumber prices have absolutely skyrocketed to where just the lumber ingredient alone is making the cost of the typical new home $24,000 more expensive than it used to be. It's absolutely staggering what's happened just with this one ingredient. And all the other ingredients are up too. So prices are going up very quickly. There's tremendous upward pressure on prices and frankly I'm pretty bullish. I think that's going to continue for a while. I don't think a crash is coming anytime soon. There will be a correction eventually. Obviously nothing lasts forever. But have you heard this phrase, the Crash Bros. The Crash Bros. Yeah, well that's a common phrase because last year there were all these people that were predicting the crash, right? Because of the pandemic. That was intentional by the way. I just want you to know that.

An intentional misspeaking. They were predicting a huge crash in the market. But they've been just completely wrong. The Crash Bros. Have been totally, totally wrong. The complete opposite happened. And so, you know, you can look at housing prices through history, you can look at all of these things, you look at the inflation induced debt destruction strategy that I taught last time around. A little bit of how we basically get paid to borrow the money. And that is one of the greatest things about income property. It really is this hidden wealth creator. And it's not a theory either. Last time around six months ago I, I showed how millions and millions of people who purchased homes in the 70s, right? Millions of people this happened to in real life. If they kept that 30 year mortgage that by the way was more than twice as high, almost three times as expensive as it is today. If they kept that for the full 30 years, they literally got to not only live in the house for free, but they got paid 1.16% to borrow that money. They got paid to borrow and it's truly amazing. You can't do that with the ingredients alone. But when they're packaged, all these commodities are packaged, right? And they're in the form of a house or an income property especially you get all of these incredible special privileges like inflation induced debt destruction. So here, here we look at something like the Consumer Price Index which is a very flawed index, but it is the official way to determine inflation. It's flawed because the government manipulates it lower on purpose because government entitlements are indexed to the CPI. So with the government being a ridiculous 20 plus percent of the economy, which is absolutely absurd by the way, but it is what it is. They have to increase government salaries and give them cost of living increases based on the CPI and all the other entitlements, Social Security and everything else virtually is indexed to the cpi. So the government has a very big incentive to make the consumer price index look lower in terms of inflation than it really is. Now another thing they do is they Talk about something they call core inflation or the core rate. And with that they take the cpi, which is this basket of goods that is highly manipulated and understated. They take the CPI and then they strip out two minor details. These two details are something none of us can live without. Food and energy cost. Yeah, they strip that out because when the consumer price index is looking bad and it's too high, they'll just say they'll start talking about the core rate or core inflation and they'll make it look even better than it really is. So you see that housing prices do get out of sync with the cpi, but that's housing prices, it's not housing payments. And people buy more on a payment than on a price. So our rich uncle, Jerome Powell has given us all this incredible gift to a lot of people. This gift is very unfair. And I'll tell you why. If you think about it, credit card rates have not gone down at all yet. Interest rates have gone down massively. So they're simply creating more concentration of wealth in a small number of us lucky and knowledgeable people who are taking advantage of it, which I highly recommend you do. But societally it is not a good thing because it is just making the middle class smaller and smaller all the time and it's concentrating wealth. But it is what it is. So we've got to play the game that they created. So on Monday we talked about how homes priced in gold. What are they doing? See, here's the thing. The past 20 years we have seen an incredible change in home prices, haven't we? Yes. If you look at homes priced in other things, just understand something, that even though home prices have changed and the thing we most commonly measured in dollars over the past 20 years, they've changed dramatically. No one forced you to keep your wealth denominated in dollars, did they? You could have simply when you earned the dollars, exchanged them for gold, and then the home price would have been much different looking to you. Or you could have exchanged it for a whole variety of other things. We'll go over. So 20 years ago or 21 years ago, it took 610 ounces of gold to buy the median price home. Now it only takes 208 ounces of gold. So have homes gotten cheaper or more expensive? What do you think? Well, if you were denominating your life in gold, they got a lot cheaper, two thirds cheaper. Right. So what about bitcoin? Well, then they got really cheap because bitcoin didn't exist way back then. So let's just go to 2010, when it did exist, and it took 700 173,000 bitcoin to buy the median price home. And today it only takes 7.5. Okay, pretty stark example, isn't it? So homes denominated in bitcoin have become incredibly cheap. Right? I'll answer afterwards. Okay, yeah, because bitcoin's gone up. But has it really? Maybe just the dollar went down. I mean, see, this is all this relative game that is so confusing to people because they don't denominate their thinking in more things than dollars. So that's what I'm trying to get you to do. Remember, nobody cares about dollars. Okay, look, I think I've got one here. I put it in my pocket. Right? So this is a dollar, right? What's it called? It's called a dollar. Well, 50 years ago it was also called a dollar. Big deal. So what? Who cares? I mean, it's a piece of paper with a dead president, right? It's meaningless. All I really care about is what I can exchange it for, what it will buy me. That's the only thing that matters. It doesn't matter how many dollars you have. I remember years ago, one of my podcast listeners sent me a set of, I think four Zimbabwe dollars. But they weren't. They were. One was a $10 trillion Zimbabwe note, and another was a hundred trillion dollar Zimbabwe note, and another was a $50 trillion Zimbabwe note. Right? Those are basically worth about $4 now. Okay, so four bucks, you can buy a coffee at Poisonous Starbucks. Four bucks Starbucks, whatever. Yeah, so in bitcoin, homes have gotten a lot cheaper. What about an oil well? 21 years ago, it would take 5,500 barrels of oil to buy the median price home. And today it takes 5300, gotten a little bit cheaper in 21 years. How about orange juice? Okay, well, in 2000, 21 years ago, it take 1821 pounds of orange juice to buy the median price home. Today, it does cost more. So if you denominated your life in orange juice, you would be paying a lot more. Did anybody do that? Hopefully not. Okay, yeah, no O.J. not the other O.J. right, so orange juice homes have gotten expensive. How about rice? Rice is the most commonly consumed food on planet Earth. More of the human race consumes this than any other food. Okay, so 21 years ago, it would take 29,500 weight pounds of rice to buy the home. Today it's a little cheaper. 27,000. Right. So not as bad. It's gotten cheaper. How about the S and P index, the Standard and Poor's. Right. How about compared to stocks? Well, if you look at the home price versus stocks, it's gotten a lot cheaper in 21 years because in 2000 it would take 1885 shares to buy a house. Today it only takes 898. And a lot of people actually did denominate their money in this. So this is really not a theory at all. Few did it in orange juice or gold, probably. Or definitely not rice, I'm sure. Okay, well, now here's the really important one. Okay? And this is where we need a drum roll. Okay, so this is really important. Let's look at median income. And we really have a real drummer. We can really do a real drum roll. So in terms of median income, it would take 3.99 years to buy the home 21 years ago. Today it takes 4.9 years. So the home priced in median income, which is a really good indicator, has definitely become more expensive.

But wait, there's more. Okay, how about minimum wage? So home priced in minimum wage has become a lot more expensive. Right, but when we get to the payment part, this will astound you. Now, minimum wage worker mostly won't be able to buy a house, unfortunately, but the homes have definitely become more expensive for them. There's no question about that. 32,000 hours you'd have to work, right, versus 49,000 hours. Okay, absolutely ridiculous. But what I shared with you about six months ago at our last meeting was that in 2006, the mortgage payment on the median price home was about $1,532. Okay, fine. So I use that year because that's when we had the run up right before the Great Recession. And then in 2020, we saw prices climb. We saw rates decline massively. So rates got a lot lower. Prices got a lot higher over the course of that 14 year period. But guess what? The payment got cheaper because of the interest rate. But what if we adjusted that payment not only for price of the house plus interest rate, but also for inflation? Right, because inflation devalues the amount of that payment. I remember when my mom bought her first house, okay, she told me her mortgage payment was $416 a month. $416 per month. And she was stressing about making a $416 payment on a house in Los Angeles. But over time, that house payment felt a lot less stressful because her salary went up and the mortgage payment stayed the same. Inflation debased the value of that monthly payment and it also debased the value of the loan balance overall, but the monthly payment was the really impactful thing. So if you adjust this not only for the interest rate, but also for inflation, then you notice in 14 years, a house actually got $657 a month cheaper to own. Now, this was as of last year, this was our last meeting. So it is a little bit more expensive than that now, but it's still pretty cheap. So let's look at the payments. This is the really important part, okay? This is the mortgage payment, not the price. Everything I talked to you about so far was about the price of the house. But who cares about the price of the house, right? Why do we care? I mean, look at. Everybody has the story of, you know, when I was your age, a house cost, you know, $60,000, and now it costs $300,000. So what? Nobody buys the house based on the price. I mean, when I say nobody, it's a figure of speech. Some people do. Most people buy it based on the payment. So what's happened to the payment? Well, if you look at the payment adjusted for inflation, here's your adjustment. So 21 years ago, the median house payment, 988. Okay, 11 years ago, 923. But adjusted for inflation, it actually got cheaper, $731. And if you wanted to pay in bitcoin back then, you would have had to forego those two pizzas that the famous bitcoin guy bought. Right. With his $280,000 worth of Bitcoin. Now, for two pizzas, it would cost you 3200 Bitcoin back then. But now that mortgage payment is $1200. But it's really, when you adjust for inflation, only 796 or two Bitcoin.

So I ask you, is it cheap or expensive?

What do you think so far?

Looking cheap. Right. So if it's cheap, is that a good sign that, oh, hi.

What do you think? What does she think?

She only denominates her life in dog food and affection. There you go. So it is cheap. Now, if it's cheap, wouldn't that be a good indicator that it's probably going to keep going for a while and everything's going to look pretty rosy for a while if it's still cheap. Yeah, that's a really good indicator, I think. Now, there are other things that go on in the economy for sure, but if something is cheap, it needs to get more expensive before it can be considered a bubble. Right? So in terms of bitcoin, the house has Become way cheaper. But even in terms of inflation, interest rate, it's become a lot cheaper, too. So even if you denominated your life in dollars all that time, it'd still be pretty cheap. Right? We agree on that. Okay, what about this? What about gold? Barrels of oil or pounds of orange juice? Not on the price like before, but based on the payment. Okay. Yeah, you definitely want to get a picture of this. Right? Okay. So in terms of ounces of gold, houses keep getting cheaper. Now they're a tad more expensive than they were in 2010, as you can see. Right. We're looking at the first column, 2000, it would take 3.6 ounces of gold. Now it takes less than one ounce, just 0.7. So definitely cheaper. How about oil? About half the price from 21 years ago. Right. So in terms of oil, how. Houses have gotten a lot cheaper, but they're not at their cheapest time. That was in 2010. All right, what about pounds of orange juice? About the same. Not much difference. But again, in 2010, you see, they were really, really cheap if you denominated life in orange juice. Okay, what about the sp? This one is a very realistic one because many people denominated their life in this. So in terms of shares of the S And P, the spy index, okay. You know, there are different SP indexes you can use, but we use the spy. It's the most common. So there we went from 11.12 down to 3.03. Houses have become a lot cheaper per month in terms of shares of the S and P. So if you simply owned an S and P index fund and you cashed a little bit of it out every month to make your mortgage payment, you'd be cashing a lot less, a lot fewer shares of it than you would have been before. So very good. In fact, it's the cheapest it's been in 21 years. Okay. In terms of median hours worked. Okay. Or hours worked based on the median income, well, 21 years ago, take you 174 hours. I'm rounding obviously, right. 174. Today, it only takes you 92 hours cheaper. And this is very realistic for millions and millions of people. How about at minimum wage? Also cheaper. Problem is, a lot of minimum wage people won't be buying houses. Okay. But it's definitely gotten cheaper for them, too, because of the interest rate and inflation. So these are long, complicated topics, but I hope I've got your interest in it a little bit. You can check out my YouTube channel for more. I did A video where someone interviewed me as I talked about inflation in depth. And that video got almost 400,000 views already. So it's a really popular video. So you can check that out. Of course, the podcast, there's a lot more. I'm almost at 1700 episodes on my main podcast, the Creating wealth show. So check that out if you want to know more about these topics. But I want to ask you the big question. Is it cheap or is it expensive? Let's vote. Who thinks houses are cheap?

Not as many as I thought. I guess I didn't convince some of you, huh? Who thinks they're expensive? Yeah. Compared to what? Well, compared to all these things, right? So these are all things that most of us use, right? Okay, now, so we got the cheap and the expensive. And who's not voting? Who abstained? You abstain? Okay, good.

You defer. Okay, fair enough. Okay. Who's voting twice in Michigan or Georgia or. And. And who thinks their vote doesn't count because there's a big wall around the Capitol? Okay. Yeah, Right. Okay. Just gotta. Gotta check. I think I'm in the right room. And we all have the same politics, at least, hopefully, right? Because, I mean, there aren't any stupid people here, are there?

Right. Okay, so is it cheap or is expensive? I say it's still pretty cheap. It's getting more expensive. There's no question about it. It's getting more expensive. And as we see these bidding wars, I mean, look at our biggest problem. You know, my company, by the way, if you don't know, we help people buy turnkey properties nationwide. We help investors build nationwide portfolios. If you have any inventory you'd like to sell, we can sell it for you in a heartbeat. But I'm sure you can, too, okay? And that's what we do. And it is unbelievable how it's just at a fever pitch. I mean, as long as I've been doing this, I got my real estate license when I was 19 years old. In my first year of college, you know, I made good money, so I didn't bother to finish college. And I used to think that was really bad for a long time. Now I think it was a great decision. So, you know, when I heard, like, Bill Gates and Steve Jobs talking about how they didn't finish, I thought, okay, I'm in good company here, right? Even though you can't trust Bill Gates as far as you can throw him, but that's a different story. So I'd say it's cheap, and I'd say it's going to be cheap for quite a while longer, probably through the end of the year. It's still going to look pretty cheap when you compare it to a lot of these other things. Right. And that's what we have to do. And if we're working with investors who are hesitant, who are worried that they're buying at the top, you know, very important to educate them on this kind of stuff. Now, I told you on Monday I would make a big prediction today. Here it is. Can we do another drum roll? I don't think we're ready. Okay, this is the big prediction. All right, thank you. How many of you do subject to deals or wraparound mortgages, things like this? This really affects you. Okay. This is going to be a big thing for you guys especially, but it's super important to everybody. Here's the prediction. Everybody out there is talking about, well, you know, real estate might be hot now, but wait till the rates go up. Then we're all screwed. It's all over. The party's over. They're going to take the punch bowl away, Rates are going to go up, foreclosures are going to just skyrocket, and the end of the world's going to happen. Well, the problem with that analysis is this. Remember, the most basic rule of economics is what? Supply and demand. Demand, Right. They're only examining one side of the equation. Right. You've got to look at both sides to understand that. Because think about it. Think about all the tens of millions of people who have either purchased or refinanced properties over the past few years when interest rates have been incredibly cheap.

And then how many of you are into cryptocurrency? You know, how many of you are believers? Right? Okay. You know the term hodling, right? Or hodling, I don't know, how do you pronounce it? Hodl or hodl? What? Okay, hodl. Okay, so that was a term that a bitcoiner used, and he misspelled it in a form, and it just somehow went viral. It means holding, right? Just holding, buying and holding, not selling. So guess what? The tens of millions of people who have these artificially cheap mortgages that have been subsidized by the government and really by central banks all around the world, not just the US Government, not just the Federal Resources Reserve, okay? They are going to be incentivized to protect and defend and never let go of those cheap mortgages because those mortgages are a huge part of the asset. And this is almost a stock tip, in a way. And I'm not into the stock market. I think Wall Street's the modern version of organized crime. Okay. But nonetheless, the stock tip might be this. Invest in home improvement stocks when the time comes because people are going to be really incentivized to keep their houses. They're going to improve them. They're going to spend money at Lowe's and Home Depot and with remodeling people and landscaping people and all of this type of stuff, they will not want to let those houses go. Because remember, everything is about. Compared to what? Look at it from their shoes, okay? From their situation. If you're one of those tens of millions of people and it's five years from now and interest rates have tripled, say they're three times higher than they are now, they're not going to want to let that house go. Well, they don't care about the house. They might want a new house, but they can't move the mortgage with the house. So they are going to do everything they can to, to keep that property. Yes. They might turn it into a rental property or they might improve it, expand it, redecorate, buy furniture, whatever. Make themselves happier in that property with that great mortgage. Because remember, every 1% in mortgage rate equals about 10% in purchase price. So think about what has to happen if the rates go up by 3%. The price has to come down by 30% to equal the same monthly payment. Approximately. Okay. So there's going to be a huge incentive to never let go of these properties. You know, Ron will tell you, okay. He's been around the block. Remember how people before the due on sale clause was held by the Supreme Court, they used to make a fortune doing the old, you know, William Nickerson stuff in the old days. And they used to buy properties and assume the mortgage before the Supreme Court said due on sale clause. It's enforceable. You, you can't do it anymore. Right. So this is going to be a huge deal. And what it's going to do is massively constrain the supply of new houses coming on the market. And that's going to be a big, big deal. Yes, of course, foreclosures, there will be some more and so forth, but people are going to do whatever they can to not ever let go of these ultra, ultra cheap mortgages. So I hope that makes sense and I hope it helps you. Oh yes.

Yeah. Hodl. Yeah. Buy good properties and hang on to them.

Absolutely. Buy and hold. That's the ticket. That's the ticket. And happy investing.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any update episodes. Be sure to check out the show's specific website and our general website, hartman media.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.