CW 1013 - Facebook Data Mining, New Home Development, Regulatory Impact on Home Prices & Millennials Trying to Buy Homes with Matthew Gardner

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome listeners from 57 states in the U.S. well, that was the number according to Obama in 165 countries worldwide. This is your host, Jason hartman with episode 10131 013. Yes, it is harder to say that, isn't it? Now that we're over a thousand. Thank you so much for joining me today as we are in the midst of a very, very historic and un fairly covered story. Now look, some of you have written me and you asked me to stop bashing Trump. Okay, I will try. I will try. I'll tell you, he's a lot better than the criminal cartel that the Clintons ran for so many years, for four decades. And Mr. Trump, Donald J. Trump, has accomplished something that no other US President ever could. Now compare this to the empty suit president we had last time around. That's Obama, of course, the empty suit man. The guy with so little experience it was mind boggling that he could even get into office. I mean, it really makes you know that there must be some truth to the whole Bilderberg Group conspiracy when someone like Obama can get elected as president, the most powerful person in the world. It's crazy, crazy, crazy, crazy. But look, will Trump get a Nobel Peace Prize for ending the Cold War with North Korea? Or I don't know, maybe the Cold War didn't end yet. Maybe I'm being massively premature and way too optimistic. But it is truly amazing that he accomplished the summit with Kim Jong Un and the leftist Marxist media and is just finding every little fault they possibly can. And look, I don't care about being partisan. I mean, Trump fan, not a Trump fan, does not matter. It is so ridiculous. It is so unfair. Who was that? Where did that quote come from? I think. Oh gosh, I don't know. Was it Voltaire? I'm not sure. Anyway, he Said, I may not agree with what you say, but I will defend to the death your right to say it. And the leftist media can, by George Soros and all of the elites who would love to see America hollowed out with their globalist agenda. So, you know, they can, they can have power over us little people here in the hoi polloi, right? They are just all over it. They can't find anything good to say about Trump's incredible, incredible accomplishment. So look, hats off to Trump. It's an amazing thing that he pulled off peace through strength. I mean, can you imagine if Obama would have had that meeting with Kim Jong Un? I mean, that would have been, you know, sell America down the river to get the meeting even, right? At least I know with Trump, I don't feel like I'm going to get royally screwed as a citizen, you know, the way I would with Clinton or Obama or any of those. Because hey, the man did write the book the Art of the Deal. Okay, Love him or hate him, but he wrote the book the Art of the Deal. He's a deal maker. So for whatever it's worth, for whatever it's worth, but it is definitely a historic moment right now that's going on with this, with this whole North Korea thing. Hey, maybe next it'll be a meeting with Iran. Iran? Yes, an Iranian US Summit. Wow, that would be amazing, wouldn't it? It really would. Well, hey, you know, on the last episode I talked about identity theft and on this episode we've got a, an economist on and you're going to love what he has to say. We're going to talk all about the real estate market. He is a real estate economist from Windermere Real Estate Group. They are based in Seattle. He's obviously in a high flying cyclical market. So just understand the viewpoint. Definitely. But this was a fascinating interview and I really, really enjoyed it. One of the things he said that was interesting also, you know, and kind of my Trump remarks at the beginning here is he said that nobody, he quoted the Chinese PM who recently said nobody wins a trade. And you know, I'd really as Jeff, our Venture alliance member, brought up for me with mentioning Tim Ferriss's interview. He said let's unpack that. Well, let's unpack that. I really want to unpack that more and see if that's true. I'm not totally sure it is, but it's an interesting thought. I've been pondering that since I did this interview just yesterday. This one's hot off the press. For you. But hey, before we go into that, and this relates to, to the identity theft discussion we had on the last episode, on Monday's episode. Look, this is the new criminal windfall, okay? It is the biggest thing going identity theft. You've got to protect yourself. I've had several known instances of it myself. I know one of my companies had a known instance of identity theft when someone, probably the, you know, the cleaning service that would go into our office every night, our office in Irvine, California. They probably found a check laying out somewhere. Maybe it was a commission check in one of my real estate agents mailbox or I don't know, I don't know what they found or how they did it, but somehow someone copied our checks and they went into a bank in central California. I want to say it was in somewhere like Fresno or Bakersfield or something and they went into a bank. And I got a call one day from a detective and he says, Mr. Hartman, do not trust that I'm a detective. I want you to hang up the phone and I want you to go and look up the phone number for the police department in Fresno or Bakersfield or whatever city it was, I can't remember. And I want you to call me back so you know that this is really a detective you're speaking with. And I did that and I didn't take the phone number. He told me, I looked it up myself. I called him back and he said that someone went into a bank with a check made out for, I don't know, $4,800 or so, almost five grand. And it was our company check. And he said, did you write that check? And I said, absolutely not, I did not. And the bank teller got suspicious and followed the person out and refused to cash the check, thankfully, and followed person out and they ran away. And you know, identity theft, folks, it's the big thing. The chances of you being mugged are much lower. The chances of your house being robbed are lower. Why is that? Well, people are on guard nowadays, right? We're not as dumb as we used to be, folks. We've gotten a little street smart as a public. Our homes are properly alarmed and secured, hopefully mostly. And so they've turned to the new thing, identity theft. And hey, it's not a new thing, but I just want to tell you, it's a big deal. This information control is a big deal. Now, the two scariest companies on earth, I've talked about them many times. Google being the scariest company on earth in my humble opinion. Hey, Monsanto was One of the scariest companies on Earth, but they just got bought up by Bear, so now maybe they will get rid of their name and it'll just be Bear Corporation. We'll see. We'll see. They're poisoning our food. Of course. Starbucks is poisoning us every time we go there. Good luck going anywhere else. They've crowded everybody out. Blah, blah, blah. Okay, well, the second scariest company on Earth is probably Facebook. Facebook. Very scary company. So I was reading this Business Insider article and I thought I'd just share with you a couple of things, right? The article's entitled Facebook is tracking you in ways you never knew. Here's the crazy amount of data Facebook sucks up as they are tracking you. This blew my mind. And you know, Zuckerberg, I wouldn't trust that guy as far as I could throw him. Of course, there's been scandal after scandal. He has just basically flaunted his abuse of our privacy over and over again. Now, I'm sure the Libertarian folks are saying, well, don't use Facebook. Oh, yeah, right. These big, giant monopolistic companies. That's like saying, if the phone company was invading our privacy, don't use the phone. Good luck with that one. Good luck, folks. Yeah, good luck, my libertarian friends. And, hey, I'm a libertarian, too, but I'm just a practical one. I'm a pragmatist, right? So before we get to the economic thing, let me just share a couple of these things with you. It's going to blow your mind. Below are some of the more surprising ways Facebook is recording your data. They record your mouse movements. They claim that it helps them recognize that you are not a robot. Another way they distinguish humans is by monitoring whether the browser window is in the foreground or the background. So they know where your browser window is. They collect a lot of data about your devices, your battery level, your signal strength, and your available storage space. It blows my mind that they're able to know whether my hard drive is full or not. This is pathetic. Disgusting. Absolutely scary. What else do they know that we don't know that we'll discover in the next scandal? Hey, you know, where is the WikiLeaks? Where's Julian Assange? Where's Edward Snowden? You know, Facebook. There are all kinds of rumors that it was originally funded by the CIA as a data mining project. Okay? They also know your operating system, browser types, file names, and the plugins. All fair game to Facebook. Facebook knows who your mobile operator is. Hey, do you have Sprint, AT T Mobile? Verizon? Which one are you using? They know that. They know your IP address. They know your cookie data, your time zone and your Internet connection speed. And you're not alone. In some cases, Facebook monitors the devices around you or on the same network. Hey, you have kids, you have a spouse? Well, if you're all at home and you're on Facebook or the Facebook window is open, which it probably stays open most of the time on most people's computers, they're just looking at what all of you are doing. They got the whole family's movements. Is this scary or what? They know the signals of your device that are monitored, including Bluetooth and information about nearby WI FI access points and nearby cell towers. This is all known to Facebook. They also know your GPS location and your camera information, your photos, if you don't lock them down in your settings, your call logs and your SMS text messaging history. The log history. Okay. Data about your online and offline actions and purchases from third party providers is collected in addition to the information about games, apps, and accounts people use. Maybe Google isn't the scariest company on earth. Maybe it's Facebook. Thank you to the left wing media at Business Insider for sharing that with us. Okay, hey, without further ado, just always remind you, check out Jason hartman.com for properties. We don't have our big tropical event up there yet, but we will soon. I know I keep talking about it. Keep the first week of November open, folks. You're going on vacation with us. And without further ado, let's get to the first first half of this excellent, fascinating interview where we talk about the real estate market and the economy. You're really going to enjoy this one very insightful interview.

It's my pleasure to welcome Matthew Gardner to the show. He is the chief economist at Windmere Real Estate. Matthew, welcome. How are you?

I'm very well, Jason, how are you?

Good, good. It's good to have you on the show. And we always appreciate getting a picture of the economy that always looks different from everybody's chair. Just thought I'd ask you kind of generally, how do you think we're doing? It looks like we've been in a bit of a boom time. Some people are talking about the business cycle and, you know, aren't we due for a recession? I think we got a few more years, but what do you think?

Well, actually, I took a position about a year and a half ago where I made the statement publicly that I expected we'd enter a business cycle recession likely around the end of 2019, early 2020. I'm still sticking to it, although certainly in the last couple of months a lot of my fellow economists seems to have jumped on board with the same opinion. So ultimately I think we certainly are due to have a recession, but we're probably a couple of years away, maybe a year and a half, possibly at the outset, two years before we have one.

Your company, Windermere, are you in about 10 states now or how.

That's correct. We have about 6,500 brokers in little over 300 offices in the 10 Western states. We're as far as east as Denver and Fort Collins in Colorado, north up obviously to the Canadian border, down south to San Francisco.

Okay, fantastic.

San Diego.

Yeah, excellent. So you would be considered a sort of a Pacific Rim and western US type company. That's, that's your main coverage areas, right?

That's correct, yeah, yeah.

Fantastic. Those mostly cover. I, I know that a lot of your offices are in higher end markets. I would call those the cyclical markets versus the linear markets that are kind of boring and don't the news too much. But you know, you've expanded so much over the years. I'm not sure that's really true anymore. I know that's sort of your genesis. Seattle, where you're based, is certainly a very high flying cyclical market. Do you kind of look at those distinctions of those different markets the way we do or not?

Well, I think so, yes. And if you look at the western states, certainly they are doing very well. I mean, our offices in Colorado as well as in Utah are doing remarkably well. And the further west you get, the more buoyant it becomes. Certainly as far as the housing market is concerned, there's a lot more going on here than, shall we say, in markets like Michigan or Ohio, which I think the statement there somewhat linear and I would very much agree with that. So we are very much to a degree in the boom bust markets, which are pretty much all of the ones which we have offices in, other than maybe Utah. Utah seems to be remarkably resilient when it comes to downturns. They really don't have them, but in general, yeah, I think the western states are the ones which do tend to see more peaks and troughs certainly when it comes to the housing market than the Midwest or even the parts of the east coast as well.

Right, right. That old saying, the higher they fly, the harder they fall might be somewhat appropriate in that discussion. But you know, there is this amazing, really tragic shortage of inventory. The new home builders, the last time around they were building entry level Housing before the Great Recession and even into it. A but they just haven't built that kind of product at all and they're building higher priced product. What is going on with new home development? I know construction costs have risen dramatically. Is there going to be any break in the inventory shortage?

That's certainly one of the questions that I probably get asked more than any other. At least other than is there another housing bubble. But we might get to that a bit later on. But in terms of new construction certainly, I mean the intuitive view would be if we have a lot of pent up demand, which we clearly have, why aren't builders building more? Quite frankly, essentially you have to look at the four corners that I call them of new construction development and those are land, labor, materials and regulation. So if you run through those kind of very quickly, land certainly in the western states where we have a lot of geopolitical constraints and those would be the creation of urban growth boundaries, that is markets where you can locations you can build and outside of those boundaries areas you really quite frankly can't build. We've seen a big push up in the cost of land and that is something which is coming into play more now I would argue than I've seen the last 28 years. So land prices have been going up. Secondly, labor, there's an awful lot of construction workers that were building homes back before the recession started. They've got out the market. They all just split off to the Dakotas and went fracking. And unfortunately those employees have not come back into the housing market. On top of that, obviously recent immigration reforms have caused a contraction in the number of people in building. So when you see that happening, we have a lack of labour that again forces prices higher. Materials doing the same thing. They're going up quite frankly at about half a percent per month right now. Tariffs that are imposed on Canadian suffered lumber haven't helped at all. So you're seeing the cost of materials go up. And finally regulation regulatory costs account for about 25% of the cost of building a home. So it's remarkably high.

Wow, I'm so glad you mentioned that because I have not heard it expressed that way before, at least not that high. And you know that varies quite a bit by area, doesn't it? When you say 25% I mean a quarter folks listeners think about what he just said. 1/4, 1/4 of the cost of the home you buy is regulatory. I mean you're just. Those are pass through cost from the regulatory burden. So if you buy a $400,000, property that's 100 grand to pay for some sort of regulatory issue, whether it be OSHA or environmental or whatever. But feel free to elaborate.

And all the way down to permit fees, everything you've said is very accurate. So sewer and water hookup, infrastructure and all these fees come under regulation. So my point being is that if you imagine a builder who's looking to make a, to build a development, he is going to throw in those costs, the land, labor, materials, regulation obviously, and to add on to that debt service and that will spit out a number, the number that he needs to sell the house for in order to make money. Well, imagine hypothetically if that number is $600,000, yet the market acceptance price point is $400,000. Is the builder going to build or not?

No, they're not.

They won't. Exactly. So because of that, right now we're building about 900,000 single family homes a year. I would argue there's a shortfall today of at least 200,000. So we're certainly not even coming close to building what we need to build. In addition, where we have a lot of robust demand is in that first time buyer price point and that's even harder for the builder to do. So not only is it very expensive to build, they're not necessarily building the product that the market wants.

Yep, that is something else. It really is. So what do we do? I mean, do we just expect no relief from this at all? We'll just see higher and higher prices because of the inventory shortage?

Well, I think ultimately what's going to happen, it's very difficult to take the price off the land because ultimately a land seller, that's a price he wants to achieve. If he doesn't get it, he won't sell labour and materials. Again, you really can't change those. So the only thing you can do ultimately is look at regulatory cost and find out how feasible it is to get that reduced. Now. It'll be a big problem. It certainly is one. Do I expect an easy solution? No, there really isn't. But at some point, jurisdictions, cities, counties, states across the country really need to come to terms with the fact they can't turn around and say to builders, we have a rabid shortage of affordable housing, fix it. Well, we need their help. And ultimately I think that that will likely come from changes in regulation. But certainly I'm not holding my breath.

These regulations are mostly at the local level, right? I mean the stuff that's baked into the cost of the materials, you're not including in that regulatory burden, that's strictly the local or state level. For example, you know, if the producer of the lumber or the concrete or the nails or the glass or whatever, the ingredients of that house, the petroleum products, that regulation isn't being counted in that 25%, I assume. Right. Because they've complied with all that regulation before the builder bought the raw material. Right. Yeah.

And you're absolutely right. So the directory cost, which goes to the cities and the counties for the better part, those are those other permit fees, the water, sewer, hookup fees, they are nothing to do with associated fees with materials. That's totally separate.

Yeah. Wow. That's something else. That's really amazing. It really is. And it varies a lot by locale too. Okay, so we've looked at the construction stuff. What about millennials? You know, this is the largest demographic cohort in American history, slightly larger than Baby Boomers. And they're a really a different kind of group than millennial group, the Gen Y group, you know.

That is true.

Yeah. They're not like my generation, Gen X. They're not like the baby Boomers. They're not like the maturers. What do we make of this group? I say that they're delaying home ownership. They're delaying family formation. They've got these huge student loan burdens. You know, I like to say that they've got a mortgage. They just didn't get a house included with it. That's called their student loan. But, you know, because they're so large, some of them are certainly buying, and that is impacting the market. They are finally moving into the housing market, and, you know, 80 million people, even if a smaller percentage of them are buying, it's still a significant impact. What do you say about the Millennials?

Well, I mean, I think you've nailed a lot of it right on the head. Yes, they are by far the largest, by about 55 million. Five million more millennials now are Baby Boomers. But I think there's several things which are important to look at, one of which is certainly a very interesting demographic to look at, but we need to kind of get away from the normalized argument I.e. they spend their life eating avocado toast that isn't necessarily for $16.

Yes, exactly.

And as you said, the oldest Millennials are now in their early to mid-30s. They've grown up, and so are they buying homes? Yes, they are. But the different things you mentioned are actually very appropriate, one of which is they are lumbered with an extraordinary amount of student debt, outstanding federal Student debt today is at about $1.5 trillion. So think about it in these terms. Trillion is a huge number. If you take all of our credit card debt as a country, it's about 850 billion, give or take. We owe a third more on student loans than on our credit cards.

Wow.

And the kicker is this. File bankruptcy, your credit card debt goes away.

Yeah, you can't do it with student loans.

Does not exactly. So one of the issues they have beyond the normal of not being able to afford their avocado toast, is the fact that they are having a very hard time saving up, getting a down payment to buy a home. Now, about 25% today are still tapping on the doors of the bank of Mum and Dad. So approximately one quarter are actually getting the down payments from their parents. But that's becoming more difficult. Back in the day before the recession, a lot of families would tap into their home equity lines of credit, these kinds of things, to help out their children. Obviously, with recent tax changes, they are more or less likely, shall we say, to do that than they used to be in very high rental rate markets. The quandary they have is, do they pay the rent or do they save up for a down payment? They can't do both. So that is another issue. And so they're really kind of stuck in a situation whereby they're almost forced renters for the better part. So down payments, a big issue, certainly very much so on the coastal cities. San Francisco, la, well, also Seattle to a degree, Portland. But even on the East Coast, New York and Miami, these are expensive markets. Now, do they want to buy? Absolutely. About 68% of them believe that buying a home will be the most astute financial investment they will ever make. But 74% think they can't qualify for a mortgage. They would. Also, what's interesting is kind of, where do they want to buy? They're moving out of apartments. As you, as you mentioned very accurately a few minutes ago, the household formations, they are actually growing up. They are creating households. They are getting married, they're having less children, by the way.

Right.

They're doing things that our generation did, but they're doing it about five to seven years later.

Right. One of my millennial friends, I've just got to share something with you. Funny, of course, you and probably most of my listeners have heard this term that the millennials have coined. They call it adulting. Adulting. And one of my millennial friends, she texted me the other day and she was complaining about how she needs money and. And she says this adulting is difficult.

Oh, very much so.

Welcome to the club.

Yeah.

Exactly. As to why that is the generation no one said no to and these kinds of things. But no, it is remarkably hard. However, they certainly want to buy. Now, here's the interesting thing I'm seeing certainly in the Pacific Northwest, and that is the fact that when they do move out of their urban apartments, they do not want to move into the suburbs. They would like to move ultimately into what I define as being ex urban markets. They'd like one foot in town, one.

Foot out the exurbs. Yeah, yeah.

Townhomes are a very big thing for them, anywhere 12 to 1500 square feet. It is perfect for them. Now, the issue is, in many markets and certainly Seattle and Portland and the Bay Area, very much so is the fact that they can't afford those townhomes which we're seeing traded in that 6 to $900,000 price point, which is essentially what it is certainly in the Northwest. It's almost actually now forcing them out further into the suburbs.

Sure.

And additionally, as I mentioned earlier on, builders just aren't building for that demand for that price point. That's problematic for them. Even if they can afford to buy somewhere, what is out there that they can afford to buy? Right.

Right. This will be continued on the next episode. Thank you for listening and happy investing.

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