Harry Dent Predicts the Next Big Crash! Real Estate, Stocks, and the Economy

Thank you for joining me for episode 2042. We will have Harry Dent back with us today in just a few minutes. I really enjoyed and want to thank you for some of your pithy, snarky and very intelligent comments about our last interview with Harry Dent. They were great. I love reading your comments. So please make more comments. They're excellent. And if you like the show, please like it as well and subscribe. Also, any reviews for the podcast version on itunes or Spotify or whatever platform. Feel free to do that as well. We love to hear your feedback and we do use that feedback to craft future episodes. So thank you for all of that. Okay, before we get with our guest returning, Harry Dent, I want to talk to you about housing inventory. It has increased quite a bit. Actually. This is a pretty decent size increase. So if you are watching on video, you can see that we now have 496,000 houses for sale in the United States of America. That is quite, quite a bit higher than it was just a few weeks ago where we had about 465,000 homes for sale. Certainly we would attribute this to housing affordability, which is the lowest it's been in 37 years. That means all of the would be home buyers out there that would like to buy their first home. Guess what? Their choice now is to stay in the renter pool or capitulate and compromise and decide that they will sell, still buy a home, but they're just going to buy a lesser home. This is what, again, it seems so obvious, but most people just don't understand it. When you watch all of these other talking heads out there, you read the articles, they just don't get it that when affordability changes, the buyer changes. I don't know why that's so hard to understand. They view it as though it's one stagnant linear thing and it's just not. That's not the way the dynamics of the market work. I've been doing this for decades. I get it. I understand it. You get it because you listen to the show. But most people don't get it. They just don't understand that simple idea that that buyer changes. Okay, so if you're looking at the chart, you see the inventory standing at 496,000 homes higher than before. No question about it. That will make for a lot of clickbait, misleading headlines, a lot of doom and gloom, a lot of disaster scenarios. Nick Jarelli will probably do a video about how inventory is skyrocketing, but that's just not true. That's Fake news. That's bull. Okay? Because when you look at the next chart, you're going to see, okay, inventory is up. No question about that. But it's still lower than it was last year at this time by a significant amount. It's about 10% lower than it was last year at this time. So inventory is down. There's less houses for sale. Oh my gosh, it must be a seller's market. The market is improving. I mean, do you see how you can spin this just like any way you want? And that is so misleading. But here's the most important thing to consider is when you look at the green arrow on the chart, okay, this shows the delta between where we were several times in recent years in the pre Covid era, whether it be 2018, 2017 or 2019. And you see that inventory is dramatically below any of these times. Inventory is scarce. It is less than half of what it was at some of those times. So we need more housing inventory. There is a huge housing shortage and it persists and persists and persists. It's just not enough inventory. Sellers will not sell their homes. They are refusing to sell their homes because their deal is too good. 65% of those people have a mortgage at or below 4%, a mortgage that they, they could qualify for unemployment insurance. I mean, if they lose their job and they had to buy that house today with that same mortgage payment, they could literally qualify for the mortgage on unemployment. They wouldn't even have to have a job. I mean, that's, you know, based on the debt to income ratios, okay, the dti. So that is an incredible thing. And it bodes for a lot of sustainability of this trend, even though we have seen inventory tick up a bit. But remember, people only have three choices. They can buy rent or, or be homeless. So when affordability is down, as it is now, the lowest in 37 years. 37 years, a low in affordability. Now granted, affordability was worse before that, okay? But these people are just forced to stay in the renter pool. So guess what? That puts upward pressure on rents. We've talked extensively before about rental statistics being very inaccurate because they're weighted toward institutional apartment building owners, not single family homes. Rental data for single family homes is notoriously bad. It just isn't that good. It's getting better. But what we are seeing with a single family home market is very strong rents. Much different than the apartment market that is dramatically oversupplied. I mean, we talk about a housing shortage, right? But if you were in the apartment market, and trying to rent new apartment units coming online as they were constructed. There is a bit of a glut of inventory now. That'll work itself out, too, and it probably won't take very long, you know, just a couple of years. And we're probably going to see that dynamic shift pretty well. Also, I want to remind everybody that because of popular demand, we are doing a second Zoom meeting. And these are not webinars, they're Zoom meetings. So you can participate, ask questions, see all of your fellow investors there on the meeting with you. We're doing another Zoom meeting on this very special deal. 2.99% financing. Yes. Really? You heard me say that, right? It's not a typo. I'm not reading from a teleprompter. 2.99% financing offer, a fantastic seller financing, buy down mortgage rate. So if you want to get onto that, go to jasonhartman.com, fill out any web form and get on our mailing list so you will be invited to these great Zoom meetings where we have special offers that we don't tell you about on the podcast or on the YouTube channel. 2.99% go to JasonHartman.com, get on our list so you'll be invited to that meeting. If you're already talking with one of our investment counselors, ask them to invite you to that meeting. And they will. And that'll be next week, so don't miss that special offer. Now, I do want to say that there are some reservations and flaws to this 2.99% deal. Okay? It's a pretty great deal, but like anything in life, you have to weigh the pros and cons. And it's not perfect, right? Nothing is perfect. So we will talk about that on the Zoom meeting as well. So you get the real picture and you can make good, wise decisions. All right, so there's the inventory picture as it stands. Now, I want to show you one more thing and then we'll get to Harry Dent. This is the 2023 forecast of home prices. And you probably know what I'm going to say. I was right again. Yes, I was. Okay, so look at all of these entities, these big name entities. The Mortgage Bankers association, otherwise known as the mba, Fannie Mae, Morgan Stanley, the American Enterprise Institute. I mean, look, folks, a lot of these folks have been on the show. You've heard interviews with their spokespeople, their founders, et cetera, right? Zillow, Wells Fargo, the criminal organization known as Wells Fargo. How many times have they been fined for screwing people. It's just unbelievable. The amount of corporate cookery that we allow in this country. Too big to fail. That's what happens, right? Goldman sucks. How many times have they been fined for taking advantage of people and breaking the law? It's just unbelievable. So Wells Fargo and Goldman sucks bad apples for sure. CoreLogic. Right. So these were all their home price predictions for this year and I'll just go through them. The NBA said prices would be down. Fannie Mae said prices would be down by 1.5%. MBA, by the way, down 0.6%. Morgan Stanley, they said houses would go down by 4%. The American Enterprise Institute was very bearish. They said housing prices were going to collapse by 15 to 20%. Zillow said they would be down 0.7%. Wells Fargo, 5.5%. Goldman sucks, negative 5% to minus 10%. And CoreLogic said that they would go up by just 3%. But guess what? All of these groups have revised their forecast because they listened to Jason Hartman. Probably just kidding. I don't know. Some of them do. I know that. But not all of them. So the mba, the Mortgage Bankers association says the year will be flat. They say this year housing prices will not go down. They will not go up. They'll just be flat. Fannie Mae says they'll go up by 3.9%. Morgan Stanley says flat. American Enterprise Institute says they're going to go up by six percent. Zillow says they're going to go up by 5.5%. Wells Fargo says they're going to go up By 2.2%. Goldman Sachs says they're going to go up by 1.8%. And CoreLogic says they're going to go up BY 6.8%. Now here's the thing to realize, folks. In spite of tax benefits, positive cash flow, inflation, induced debt destruction, and all of the other multidimensional benefits or forms of return on investment with income property because it is the most historically proven asset class in the entire world. Besides all of those things, it could be easy to make a false argument here. You know, one of my friends and fellow YouTubers makes this false argument all the time. I mean, he would be right if he wasn't looking at the whole picture. Right? And that's why the argument doesn't hold water. Okay, but here's the argument. In inflation adjusted terms, these housing prices did not go up if inflation is higher than the appreciation rate. That is true. Nobel Prize winner and author of the case Shiller Index, Robert Shiller would argue the same thing. And he is also wrong. Because the most important thing many times is what they don't tell you. Remember, you can't hear the dogs that don't bark and there is a giant dog barking here that they don't tell you. And that is simple leverage. All right, so if someone bought any of these properties and they have 10% equity in the property, either they put 10% down or they refinanced and pulled cash out and they got to a point where they had 10% equity. It could be 20% equity, whatever the number, you can just do the math. But 10% is the simplest thing because you just move it out decimal point. Okay, so these leveraged returns are dramatically higher. You basically multiply them all by 10. So if inflation is really bad, and inflation is say 5%, for example, right. You know, 3% more than double the Fed's target rate. And of course I'm using the CPI and yada yada, we, you know, that's a whole nother discussion. Just listen to the old episodes if you want to know more about that. But, but let's just use CPI to keep it simple. Okay, so say inflation is 5% and say Fannie Mae's forecast is correct and house prices appreciate by 3.9%. Well, you really lost money, right? You lost 1.1%. Because in real dollars it didn't appreciate. In nominal dollars it did. But we have to view our life in real dollars. But this argument is completely false of my fellow youtuber friend because what he doesn't say is that people leverage the properties. So for example, if they had 10% equity in the property at the time, they would have a 39% appreciation rate, effectively 39%. So if inflation was 5%, then they're still ahead by 34%. This is why income property, I mean, it's just one of really six major reasons as to why income property is the most historically proven asset class in the entire world. And it's also the most tax favored asset class in America. And taxes are the largest expense in most of our lives. So you can see when you really analyze things properly, you can see that you're just way ahead. Right? Say you put 20% down on the property or only had 20% equity. What matters is not what you put down, by the way. That's also false. What matters is the amount of equity you have in the property at the time the appreciation occurs. Yes, that is the right way to do the math. So say, for example, you had 20% in the property 20% equity in the bank had 80%. So there, you know, you would still be up very, very substantially BY like what, 17%. So you know, it's just. Or no more than that. Anyway, whatever. I need another cup of coffee before I do math. Complicated math here, folks. What is the square root and the exponential of, you know, yada yada. Anyway, people just don't look at this stuff correct. That's why they just don't get it. And that's why they miss out on the opportunities. Can you imagine all the destruction and all the bad decisions made by following the Chicken Little doom and gloomers, the Crash Bros, the clickbait people on YouTube that are telling you how bad things are, how everything's going to crash? Can you imagine following these idiots for the last 10, 12 years? How much money you lost? I mean, the devastation caused by these people is absolutely insane. You know, See the problem is nobody sues them for it, right? Because it's sort of hard to sue someone for something that didn't happen. For the dog that didn't bark, okay, I didn't invest and so I didn't make money and therefore I have damages, right? That would be the argument. But it's easy to do it the other way, right? I invested in this deal and I lost money, so now I'm going to sue the guy, right? Like that's an easy case, but the other case is too speculative, right? So it's just funny the way the world works. Very few people really account for the devastating, tragic, disastrous losses caused by these people. Yeah, all those clickbait titles, all those doom and gloomers, all these bad predictions. I mean, look, you can't blame someone who reads a crystal ball, right? I mean, that's just impossible, right? But sound, sound prudent economic decisions made with proper thought, analyzing the multidimensional characteristics of income property. That's the way we have to do things. And so for that I am glad you are listening to this show and not missing out on those opportunities. Be sure to like and subscribe and write us a review on itunes. And without further ado, let's get to our guest today and our continuing discussion with the very bearish Harry Dent. Here we go.

I'm saying, and I'll stake my career on this. The next year we'll see more weakening than people are expecting because of these lags. Both lag, okay? The 5.2 trillion stimulus will wear off as any stimulus does because it's temporary and not real. Okay?

They've been mopping it up Term like.

A generation's been more. And this tightening will keep digging in and hitting harder over the next year. So we won't know where we're at until the summer or fall of 2024. And I'm saying we're going to be in maybe a depression, but at least a deep recession.

Okay, so deep recession if not depression. What is this other chart? This one says two tech cycles per 45 years and one generational perfect 39. Is that yours? Explain most tops. Okay, tell us about this one real quick.

I was known for the generational cycle. I came up with that myself, nobody else. Okay, enter the workforce at age 20, earn and spend more money to 46. 46 your lag. Boom and bust. I can tell you the rest of our lives. And which countries around the world are going to boom and bust on that one simple indicator. So that's the generation impact. But what I found not too far after that, technologies. I used to think they're on the same clock and they're both related to generation? No, the technology. So that generation cycle is about a 39 year cycle, 39 to 40. The technology cycles are 45 overall. But they also come in two ways. Okay, so you get, you get personal computers, then you get the Internet. Both of those were related, but boy did the Internet expand what personal computers could do or what? Okay, you get automobiles, then you get super highways. The super highways expand how fast and how far you can go in an automobile. Yes, and on and on and on. So, so the, these two cycles I'm putting on one graph, G is the generational peaks 1929, 1968, they'll go to the next. Here's the first G go over the second G in the middle of the graph. That's 1968. That was when the stock market, adjusted for inflation peaked with the Bob Hope generation cycle. And then we had the baby boom cycle peak in 2007. Okay, and we see that over there, the last G up to the right side. And, and look, but look, the stock market's gone up, way up way since then. Not because of the generational cycle, because of the stimulus and because the technology cycles are on a different clock. So again, we had the personal computer cycle T1 on, on the right side of the chart just to look at only that. No, I'll go all the way over to more recent time that peaked in 2000. Then T2 peaked in, in 2021 recently. Okay, all right, so the recent cycle was technology still kicking hard, but the generation not into 2007. They were both doing well.

Okay, all right, what about this one here? It says current fed hike of 525 basis points already the most since 1981. 550 basis points plus total. And then you've got some different timeframes here.

This is just to emphasize this is the biggest tightening we've had in market since they really started to use as the buff. People think, oh, they're not tightening hard enough. No, this was giant, okay? It's already been giant. And now they're looking at even adding another 25 or 50 basis points because it doesn't seem to be working enough. Again, if you don't think in lags, you're going to get in trouble here. They have already guaranteed a downturn next year with 525 basis points and very likely at least another quarter point. I already going to hit harder.

I tell you the vibe I get, not that I believe him, but Jerome Powell's taking a victory lap. He thinks he, he was bringing in the plane for a soft landing. I mean, you say, you know what.

I'd say to Jerome Powell? You're an academic douchebag and good luck. Do you know any major economist that's ever run a business? Jason? Have you ever met one?

Yeah, yeah.

Janet. No one. She looks like she came out of a European nunnery. Look, she's a nice lady, she's smart. She shouldn't be running our financial monetary policy around the world.

Hey, if time, at the time when she, when she was appointed Fed chair, everybody said she was the wealthiest Fed chair ever to be appointed at like a 13 million net worth or something like that, which still hasn't run a bit, but, but yeah. So we'll, we'll, we'll harder. I can tell you the vibe I get. Not that I believe him, but Jerome Powell's taking a victory lap. He thinks he, he's. We'll see. I. I don't know. It's interesting. Okay, what about this chart, Harry? Here's another one. This is the Russell 2000 index pattern.

I look at all the major markets and in the DAX in Germany and the footsie in England, all these stuff in the UK and Japan. But in the United States, I'm focusing on the Russell 2000 because first of all, when you first have a downturn, the small caps, which is what that is, tend to get hit harder. And the large caps hold up better at first. But it's also because, and this is showing off a little funny on my screen, but this is showing a, a triangle pattern. You Know first A top and then a B bottom, then a C top and then a D. And we just made this E top here recently at about 21190 or something like that on the rest of thousand and that's saying that's probably a final top and it'll be confirmed when we cross that bottom Trend line around 1740 or so and then it's going to keep falling. So this is what I'm saying. Okay, yes, we know that they push this back. Natural cycles. We would more likely expect to have a major correction on the decennial cycle, especially like from 2020-22. Well, no, they've stimulated. So it looks like to me they pushed the whole cycle about two years. But this is my best gauge to say, okay, that's what I think's happening. But I'm going to keep watching this gauge to prove it or not. And this Russell 2000. So I'm watching that to see if we break that bottom trend line. And if it does that, it's going to be down another 20% overnight and then people are going to realize we're in a serious downturn and it's not a correction.

Okay, so I think this might be your last slide you're sharing with us today. This is China's real estate crash keeps coming back. China's real estate returns to contraction mode. Property sector declined in the second quarter after short lived improvement. What is this chart telling us and.

Why is it important in any bubble? When I look at the Roaring Twenties bubble, the last, Remember, bubbles are rare first of all. So we haven't seen bubbles until recently. We didn't start to see bubble activity until the mid-90s in stocks in the early 2000s and housing. Okay. And now we've seen it ever since. So these bubbles build and they eventually have to burst. And when they burst, they're already always worse than people think. And there's no way to stop a bubble from bursting once it goes too far and bursts enough. Okay. My point is China is the lead bubble in the world. It may be the second largest economy adjusted for purchasing power. Actually it has passed the United States on that for the first time. But still, the size of the economy, it hasn't been, it's been number two to the US but it is way more leverage. It's growing from lower incomes to higher and their government. I tell people we print money, they print condos, they just build houses for.

Nobody and say they print ghost cities.

Yeah, that is, that is way more leverage, way more stimulative than just Printing money. Because remember what I said earlier, even this 5.2 trillion, that that'll wear off mostly in the next year or two. Okay, well, these empty houses and you know how many empty houses there are in China right now? About 22%. 22% empty house. In the US we would be in a depression and real estate companies and builders would be mostly bankrupt.

Yeah, we have the opposite problem. We have a shortage. Okay, so shortage.

Because we got hit hard by 2008 and builders have been very cautious since, which is going to work to their advantage.

Well, it's not just the builders, it's their lenders.

Understand what's different about China other than their new wet behind the ears in the largest, fastest growing economy in the world. China's telling their developers, you build it, we'll cover your ass. You just build it and we'll worry about it. Yeah, that's what they've been doing. And that's the only way you get to 22% empty houses with no downturn. But now, now that China keeps slowing and is so overbuilt, then when they do go down, I'm saying China, we had the worst downturn in the Great Depression, although everybody went down because we had the most roaring twenties. Okay, we were the China back then. We were the up and coming emerging country, quickly becoming a developed country. China is that today. And China is the biggest bubble and real estate was the biggest part of their bubble. And their real estate bubble is falling apart. And when their real estate, I don't care what happens, the rest of the world, China's real estate bubble falls apart apart and keeps falling apart, the rest of the world will follow because it'll change people's perception. People think real estate can never go down and if so, not long. That is going to be proven wrong in the next decade.

So if real estate goes down, you're talking about the price of real estate. Obviously it's a credit based asset and it's been amazing how resilient it's been in the face of rates literally tripling.

I mean I shortage of building by building by developers that got creamed in 2008. That was an overbuilding shortage of houses. A downturn can cure that overnight. What I'm saying is forget the United States, it's China that's the lead bubble here. The US drew the world into the Great Depression and then everybody followed for the same reasons. We were the lead. And the most exaggerated bubble. China is the bubble to watch. Their real estate is the lead bubble and it is falling Apart from my point of view, and very likely will keep falling apart. And the more that.

So, Harry, Harry, one in the world.

Will say, maybe you can go wrong buying real estate.

Okay, I got it, I got it. But let me ask you some questions here because I want. We want to know why. Right? So with.

Because an everyday home was 100 grand 20 years ago, and now it's 400 grand when somebody's salaries may be going up 80%. That's.

Hang on a second. Hang on, hang on, hang on. Okay, so look, in the United States, no one will disagree that we have a housing shortage right now. There's definitely a shortage of inventory. You're saying a downturn will cure that and it'll put a glut of inventory onto the market. But here's the thing. You have this problem, and I call it the poison pill that the Fed put into the market during the COVID era. Okay? And the poison pill is either a good pill or a poison pill, depending on which side of the equation you're on. If you want to buy a home, it's a poison pill because these people have 28 years left on their ultra cheap mortgages and there's this lock in effect. It's like, it's like having a job where you have the golden handcuffs in a corporate job, right? Where you just can't leave because the deal's too good of what's coming at you in the Future. And so 25% of the country has a mortgage at or below 3%. 65% of the country has a mortgage at or below 4%. 42% of the country has no mortgage at all. Their homes are free and clear. And the one thing I always say, Harry, is that if you want to have a real estate crash, one ingredient that is like absolutely necessary is millions of distressed sellers. Without that, you can't have a crash. Am I wrong? Pick my theory apart. Tell me.

How about no buyers? What happened to buy?

We already have no buyers. I mean, the demand has plummeted and still the market is not collapsing. I mean, demand, demand was down as much as.

Okay, well, let me give you another phrase, tipping point. Things have to go. This thing about fewer and fewer buyers, I mean, and then, then no buyers. But people are, and I agree with people aren't selling because they can't afford to sell. They can't afford now to get a new mortgage at 7% instead of three and a half.

They can't afford to pay rent. The house they have is such a good deal. You know what I liken it to Harry.

All you need though, what happens when no new buyers, the young people aren't buying because the homes are too expensive. And more important, people see housing fall for the second. Yeah, you have to realize until housing fell 34% between 2006 and 12, housing even in the Great Depression only fell 26%. Housing, most stable asset, financial assets.

But you have to, you have to look at the order in which that happens. The seeing housing prices fall happen after no buyers, okay? No buyers has to come first before the fall happens. Right. And my argument is that this lock in effect is so really toxic to the housing market in the sense of toxic. Like no one's ever going to be able to buy a home because no one's going to sell their house. Right? The only, the only inventory comes from new construction.

If nobody's ever going to buy again, nobody market, they may not go down as fast as they could, but no market's going to go up if there's not more buyers than sellers in the future, who's going to buy houses, right? They're way overpriced.

I agree that affordability sucks. I totally agree with you.

And for the nobody's selling people saw houses, especially high end homes, go down 60% or more and everyday homes go down 30% or more. People didn't even think that was possible until then.

We're not talking about that. We're talking about what's happened now. We've got all these people with these ultra cheap mortgages or no mortgage, right?

So they sit and do nothing. Is the economy going to grow if all of your people. I'm not saying they're going to sell. You're right. They can't afford to sell unless home prices come down enough. And then maybe they're not worried about them, they're not going to cause it. You're just going to lose new buyers. And no market can go up without new buyers.

Okay, so let's talk about new buyers for a second. So I think what happens is that, you know, a lot of people make this kind of mistake where they think that, they say, okay, housing Affordability is a 37 year low, which it is. Right? Right now. Literally it's terrible. Okay? And they say, well, how is the market going to work if nobody can afford a house? Well, it's not that nobody can afford a house, it's just that their expectations are higher than reality because reality declined. And so they have to capitulate and adjust their expectations downward. And I give the example of where I was born. I was born in Europe. And in Europe, I, I couldn't stand in 2008 when Obama was kept saying we should be more like Europe. I mean, in Europe, people live in crappy little houses. They drive crappy little cars. Their standard of living is dramatically lower than the U.S. right? But it's supposed to be so great. And I just got back from five weeks.

In Europe, you don't see it in food and everything. You see it just like you said, in houses and cars. Our houses and our.