The SHOCKING Reason Housing Prices Keep Going Up

Greetings from Zagreb, Croatia. Yes, I am still here, but as you may notice, I changed hotels. When I go visit a city, I kind of like to just try a few different things. And if I'm staying in a place a while, I'll stay for a few days in one hotel and then, you know, it's kind of a hassle to move, but you get a different experience and you really get to kind of see the city because you're in different neighborhoods, you're meeting different people, it's just a very different experience. And it's. If this real estate thing doesn't work out, but I think it's worked out pretty well, I could always become a hotel critic, right? You know, or maybe a travel blogger or something like that. Anyway, it's great to be here. I'm probably off to the Middle east next. I have a speaking opportunity there in Dubai of all places. That would be my second visit to Dubai, which I like to call the most amazing man made environment in the world. Now this hotel, as you can see, you probably can tell that this is a Soviet era hotel. It's got low ceilings and it doesn't have floor to ceiling windows like those nice new buildings do. But I got this big giant hotel suite here, one and a half bathrooms, pretty neat. My last one was a big hotel suite also, but at least it had bigger windows and wasn't as much Soviet oriented as this one is. You can tell, you know, it's amazing. Like you just think back to the way these places probably were and who, who occupied them during the Soviet era. It must have been so fascinating. I don't know. I have this strangely morbid curiosity about communism. It's a weird thing with me. I know it's weird. Remember I told you this before, but when I got the new iPad. Oh, when, when did those new iPads come out with the OLED screens and you know, the high, super high resolution. This was like 12 years ago. The first thing I did is I looked up Pyongyang, North Korea on Google Earth and I wanted to just see it up close as much as possible in high definition. Fascinating stuff. So I have talked to you many, many times over the years about how construction costs are a big driver for housing prices. And of course the Hartman Risk Evaluator is a great way to use the LTI ratio, the land to improvement ratio, and make sure you limit downside when investing in real estate. But here is a quick short video I wanted to share with you about a builder, a developer from another country, and you can see how this is a worldwide issue because all over the planet they are facing the same issues about construction cost. And remember, when you invest in what I call packaged commodities investing, that's part of the Hartman risk evaluator methodology, you limit downside risk because you are investing in items that have intrinsic value and are not attached to any one currency. They are needed by every human on earth because every human needs shelter. And these commodities with intrinsic value are indexed to themselves because they have intrinsic value. So when you look at the copper wire in the walls, the glass, the steel, the lumber, the concret, the petroleum products, the energy and the labor cost and of course many other costs for many other parts that Trump is going to put tariffs on. Right? And if he puts tariffs, that's going to just drive up the cost even more, Even more. It's not going to be offset by cheap land. If there are federal lands that you can build on, that's not even going to come close to offsetting the issue. So for real estate investors, that speaks to urgency. But don't take it from me. Listen to this developer and hear what he has to say.

The problem, and I'm going to give you an example. In 2017, 2018, we built a development as 51 units, two bedrooms and three bedrooms in Southport. My contract build price is $275,000 a unit. Build price, finished product. Use your keys. That same building today on average is 800,000. Build price. You're talking within six years, two and a half times. This is the real inflation. This is the real inflation. The issue is we don't have the labor and, and materials.

Right?

Materials have gone up, but labor has gone up more. It's a supply and demand problem in the labor sector. And what's happening is you got Dubai as an example. I just pulled up some numbers. They've launched 90, 000 homes in 2024. But we got to remember Dubai, population is about three and a half million. Australia is 25 million. And we're not even putting out 80, 000 homes. Country. How does Dubai build that amount? How can they build? The purge, right? The import, cheap labor. That is the reason why they can build and you can go and buy one bedroom units there and two bedroom units there for 250 grand Aussie, 300 grand, 400 grand Aussie. You will never see that ever again here because the trades are the new lawyers, the trades are the new doctors. They're getting paid big money and they're heavily protected. And I'm not against that. I'm not saying that we have to import cheap labor, but the reality is if that's what they're going to get paid and that's what things cost, property prices will be affected by that. Like now that 275 unit that we built, we were selling them for 500 grand in Australia. We have a massive problem.

So Remember he said 275A unit is now 800,000 a unit build cost. Can you imagine? I mean, that is the exact same issue that is happening in the U.S. it's the labor, but it's also the materials. And remember, these are two costs that Trump is likely to drive up under a Trump administration because we're going to shut down the cheap immigrant labor. Right. And, and now listen, you know what I think about this? I think overall that is better for the country long term, but the initial shock of that is not going to be positive for construction costs by any means. By any means. So a lot of issues there and a lot of floors, a lot of safeguards set against potential price declines even in recessionary times. We're going to get into some geography in a moment and some different markets around the country. Okay, so, so let's look at some other stuff here. Speaking about construction cost. So we have got two charts here, not just one, two charts we want to look at. These are both from CoreLogic and this is residential construction. Inflation surges in pandemic placing pressure on insurance rates. Now this was a whole presentation I looked at about insurance rate shock and we all know the insurance problems. Ultimately this all passes through to tenants. I know that this year, next year, it's hard to swallow. For landlords you've got increased cost. But again, even though this is a percentage, is a high increase in actual dollars, it's really quite nominal in most cases. Unless you have much older properties in natural disaster, wildfire, hurricane, etc. Prone areas. Right. If you have the newer properties, your insurance cost did not go up that much. For example, three of my properties in Sarasota, okay, Sarasota, Florida insurance went up as a percentage, it was a lot. But in real dollars it was like $500 a year. It's really just no big deal. Okay? It's not significant. It's like when the price of gas goes up because I use so little gas. Now, granted, everything I buy has energy cost in it. Of course that's true for all of us. But since I use so little gasoline and as a percentage of my income, it's nominal, it's nothing at all. Right? Yes, Under Biden we saw gas prices skyrocket. But really was it meaningful? No, it wasn't that meaningful. Right. It was in the overall inflationary spectrum, but not directly that meaningful. Okay, so, so understand, of course percentages do matter. Of course they matter. But when it comes to actual dollars, that matters too. Okay, so producer price Index, the ppi. Right. This is the inflation index. It's like the CPI but for producers. Right. Of people that make things. So here is the cumulative change over five years. And it basically has residential construction goods, residential construction trade services, insurance and consumer price index. And it's comparing those four items. So compared to the cpi, all of these things have increased faster than the CPI or the CP lie as I like to call it, because the CPI is understated. So here we have evidence again that that is a true statement. So insurance cost is a little bit higher than the consumer price index. Residential construction trade services have seen the most increase, just like that video you heard from that developer in Australia. And then residential construction goods, these two items have increased almost 40% actually. Sorry, more than 40%. Okay, slightly more than 40% in this five year span. That is absolutely insane. When the insurance cost has increased 20% and the consumer price index just below that. And you know, I can't exactly see it on the chart, it's not a super detailed chart, but it looks like that's about 19% and insurance costs may be 20, 21%. Okay. From my estimation, looking at the chart, if you're watching on video, comment below and tell me what you think the chart's saying now. Replacement cost, that's what insurers go on. Right. This is a presentation about insurance cost and that's what I got this from. But I wanted to talk about it from the construction cost perspective because remember the Hartman Risk evaluator shows us that construction cost set a floor on downside risk for price depreciation. Even during bad recessionary times, that construction cost is very sticky. The builders stop building. We are very undersupplied. And things, even if they do come down a little bit, they can't come down very much. And I know what you're going to say. You're going to say, well, Jason, during the Great Recession certainly there were properties selling below the cost of construction. I'm well aware of that because my company was selling them and you were buying them. Thank you for your business. So that was definitely true. But wait, what does that really mean? We were massively over supplied during the Great Recession. This time we are under supplied we are dramatically under supplied. So the structures are basically from 1991. Okay. This replacement cost of structures, this has basically gone up by 450%. Whoa. That's incredible. Right? But it shows why you should be in the real estate investing game, why you should not waste time or lose opportunities by trying to time the market and overthinking it. Just be in the game. The people in the game win the game. The people not playing the game, the spectators, they don't win the game. They never win the game because they're not playing. You've got to play to win. Okay? So being in the game is important. Now, inventory. This is from Logan, who's been on the show a few times before, and he published on Facebook just yesterday some listing data. And I wanted to share this with you. This is the number of new listings this week, the same week in various years. So basically this last week we had 51, 800 new listings. Okay. Seem like a lot. Well, compared to what? Compared to what is always life's most important question. In 2009, the same week of the year, we had 263,000 new listings. Only 52,000 listings last week. In 2010, we had 342,000 new listings. And in 2011, as the market was improving slightly, we had 301,000 new listings. And then he says, this chart, Daddy for Christmas will teach you it's not like the housing crisis of 2008. And Logan is absolutely right. Look at the inventory difference. Again, to review, last week, 52,000 new listings. Same week, 2009, 263,000 new listings. That's a lot more than 52,000. Okay, 342,000 in 2010 and 301,000 in 2011. So a lot less stuff coming on the market. This is the lock in effect, folks. People don't want to sell because they have those cheap mortgages. We've talked about that ad nauseam. The. But not just that. It's not just the cheap mortgage locking them in. It's that they don't have anything else to buy because inventory is so scarce when you are looking for a house. Ideally, you know, if you've got to move your family, right, you're moving out of a market, you're selling your home, and then you're looking. You want to be in a market where you have plentiful choices of new homes and you just don't have many other choices at all. And we can see that from the inventory. Where's the inventory? And compared to what? Always the right question. To be asking. Now, let's talk a little bit about prosperity, general prosperity. And if you're reading our newsletter, you are seeing some articles on this that I've been preparing for you. And if you're not subscribed to our newsletter, go to jason hartman.com, fill out any web form and get on our email list@jason hartman.com so you'll get our weekly newsletters coming out every Tuesday for you. And one of the things that I say is happening is, number one, it is an amazing time to be alive. And number two, we are going to have just a generalized increase in prosperity. It is amazing to me how many people, and I have these conversations all the time with very bright people, very smart entrepreneurs, just very sharp people that are the players in the game. They're not the spectators. They're not the armchair quarterbacks. They're not the guys saying, hey, I'm trying to time the market. Oh, I'm gonna wait till the opportunity is better. No, they just get in and they make dust in the world. These are the winners in life. Okay, I've had this conversation a lot, and even with them, it is amazing to me how many people just are complaining about things and they just don't realize how everything materially. Because I'm going to complain to you in a minute, okay? Materially speaking, everything just keeps getting better and better and better. And it keeps getting better for the poor, and it keeps getting better for the middle class, and it keeps getting way better for the rich. The wealth gap is getting bigger, and that is not good for society. But the wealth of the lowest end in. Now, I'm talking about in the US But I'd say this is pretty true around the world as well. I talked to you when I was in Mexico City a couple of weeks ago. I talked to you about that and how these technological tools are so widely distributed and everybody is using them. I mean, everybody listening to me right now, I'm sure, is using probably several AI tools. You know why I'm pretty sure of that? Because you may not even be aware that you're using artificial intelligence tools or generative AI tools that are absolutely amazing. I am showing two pictures here. It's a meme of 2009, say, $4 million helicopter with a guy strapped in, but hanging out of the side of the helicopter with a big, expensive video camera, right? Obviously, like this is a news station, right, that is reporting on something, and they've got the news helicopter and they've got the pilot they're paying for. They've probably got another passenger in there, maybe a reporter. They've got the cameraman who's hanging out of the side. All of these people, they cost big salaries. And the helicopter, big expense for the helicopter. That's like a four million dollar helicopter. Okay, I think that's a Bell helicopter or a Huey, something like that. Then you look at the fuel cost and the maintenance cost. Incredibly expensive. Fast forward 10 years, 2019. And this isn't even as modern as the drones that I own. I've got a couple of drones myself right here. You've got a drone that in 2019 costs 1200 bucks and it's got probably a better camera. And that drone can now do the job of these two or three people. The helicopter pilot, the cameraman, the reporter. Right. The reporter will just be on the ground in an office and someone will be flying the drone. The drone can just do the flight automatically. If you just program it right every day, it'll just go and do the same flight if you want to report, say on traffic or something in a certain area. And look at how the cost for this news media organization has just dramatically dropped. Look at how the cost for farmers has dramatically dropped because now they can manage their crops with these drones. And this is just one of a zillion examples of how much better life keeps getting. I want to ask you this. Do you travel like I do? Well, you probably don't travel as much as I do. Most people don't. But I'm crazy or homeless, one or the other. And I'm just not giving this up anytime soon. I kind of been enjoying all this traveling, all these things I'm going to and stuff. It's, it's, you know, it wears on you. But it, but overall I like it. So I'm going to do it for a little while longer maybe. Maybe we'll give it another few months, then I'll buy another house. Okay, but just remember a few years ago, just a few years ago, how WI FI connections were so bad you'd travel around, you'd go to hotels, coffee shops and use their WI fi. You want to open your laptop or your phone and get on the WI fi and use it right in foreign countries. And it was crappy. Now, even in remote places, even in developing countries, third world countries, the WI fi, the Internet is fast and reliable. And you know what? Not only that, but it actually connects quickly. I mean, I remember, you know, just not too many years ago when it was always a big hassle to connect to the WI fi. It Wouldn't work half the time. I'd have to reboot my computer twice to get it to work. Now it just connects. It just works. Everything just keeps getting better. Yet hardly anybody is appreciating it. Think about this. Some of you are old enough if you're older than 50 or 60 years old and you're listening to this, or think of your parents if you're not that old, right? Do you realize that people used to use as an excuse. Here's the excuse they would use. Guess what? I had car trouble. You can't even use that as an excuse anymore. No one would believe you. Nobody has car trouble anymore. The cars just work like they're so reliable. I mean, it is amazing how reliable cars are nowadays. And they've been that way for decades. Cars have been super reliable for decades and decades. Okay? At least since the, you know, 80s, right? Cars have been extremely reliable. You used to see people on the side of the road with their car broken down all the time. You never see that anymore. It just does not happen because cars are so reliable. Things just keep getting better and better and better, and people aren't even appreciating it as it happens, prosperity is getting more widely distributed. More people have access to pretty much everything under the sun. And I want to recommend that you read Matt Ridley's book. It's called the Rational Optimist. It's fantastic. I have not had the pleasure of interviewing him on the show. I want to get him on the show. He's great. I really like Matt Ridley's work, but the Rational Optimist. Read it. It's really, really good. Okay, let's look at some of these business startups now. One of the things I predicted during the COVID era that definitely came true, like everything I predicted during the COVID era came true is that a lot of people were sitting at home and they were starting new businesses. So new business applications went through the roof in the COVID world and the post Covid world because everybody's got an idea for a business. And, you know, they were stuck at home. They were getting their stimmy checks. They didn't have as much to do. So, you know, they thought, hey, maybe I can take my great idea and start a business now. This is really good for the economy, folks. It's really good. And it's really good for general prosperity because all these new businesses create new conveniences, new tools, new products we didn't even know we needed, right? Until someone created them. And I'll give you an example and this came out of a great book I read many, many years ago, longer than I care to admit. It is a book called Unlimited wealth the Theory and Practice of Economic Alchemy by Paul Zane Pilzer, who also I have not interviewed on the show, would like to interview him as well. Anyway, Paul Zane Pilzer, one of the things he wrote about in this book is how the idea of business used to be find a need and fill it. But it flipped at some point, probably in the 80s, to imagine a need, create the need, and then fill the need. And the example he gave, I know you're going to think this is, wow, it's so old, this idea, right? But here's the example he gave. He said that nobody realized they needed a waterproof cordless phone. Not a cell phone. This is a cordless phone. You know, you used to have these things in your house called phones. And there was a base station and a cordless phone on the base station when we were able to cut the cord and use radio frequencies. Right. Instead of a cord. And some people in the old days had the really long cord, and they'd walk around the room with their long cord and their phone. Well, nobody realized they needed a waterproof cordless phone until Sony invented one. And as soon as that happened, this extremely popular product, everybody with a backyard pool or Jacuzzi needed a waterproof cordless phone. That wasn't find a need and fill it, because nobody told the market, nobody said, hey, we need a waterproof cordless phone. No, the businesses had to imagine the need and then create the demand and then fill it. Right? And a lot of times, the way they created demand is by making the product first and then everyone had to have one. You know, Steve Jobs, when he was alive, he was the same way. He said Apple never did a focus group. Like, a lot, you know, a lot of these big corporations, they spend a ton of money. And I've been to a few of these focus groups where they give you like a couple hundred bucks for, you know, an hour of your time. And I just think it's kind of interesting to participate in those. So I've been to a few over the years, and they want to hear your thoughts on product ideas and so forth as a consumer. Right. Well, Steve Jobs said Apple would never hire a focus group because the customer doesn't know what they want. And Henry Ford said the same thing, Right? Remember his famous quote? He said if I asked my customers what they wanted, they would say they needed a faster horse. Right? And the faster Horse was not what they needed. What they needed really was a car. Right? And so that's what happened. So that's the nature of business nowadays. But let's talk about business applications and where they are the hottest and what this means for the real estate market. And this is by county and it shows. Overall they are up by 16.3%. Everybody's got a great idea, right, that they want to implement and take out into the marketplace. And this isn't a all true or false thing, right? It's. There are many, many factors and cross currents and so forth. But it's interesting to see that very few business startups in my former home, the Socialist Republic of California, pretty mild there. People don't want to start a business in the Socialist Republic of California with one exception that's doing better and that's my old hometown of Orange County, California. That's actually not doing too bad. And also there's a little dark green dot in Sacramento area. Okay. Where a lot of my family's from. You know, those businesses are probably meant to just suck off the teat of government, right? That's what they do. Those aren't like the real businesses. Right, But Orange county is a bright spot in California, but the rest of the state is just anemic. I mean, people just aren't starting a business in California. Now contrast that with Florida, my most recent home state. Florida is dark green because everybody's starting a business in Florida. Look at that. I mean, that has to be the state in the country that just outdoes any other state. By looking at this map, more business startups in Florida than any other state in terms of a percentage. Right? This is a application submitted to the IRS per 100,000 residents. So when they ask for a tax ID number, an EIN number, that's how they're telling, right, that this is a new business startup. So amazing. Now Florida got a little bit out over its skis in some areas. And as the great migration was happening, the one I predicted, that it started after the first COVID lockdowns lifted, Everybody wanted to move to Florida. And so the builders, of course, said, hey, we gotta start building more houses in Florida. And now they've kind, they're kind of retrenching a bit because they did go and meet the demand. And maybe they ever so slightly oversupplied that market. In the broad scheme of things, it's nothing, it's nothing to worry about. It's not a big deal, Tom. But it is a little oversupplied in some Florida markets right now. Okay, but that's something. No, but look, if you are smart enough and patient enough to just always look for the big macro trend, I mean, Florida is still the place. It's phenomenal. Look at all of these business startups. This is all side hustles. New businesses, these will grow the economy. They will grow people's income, they will solve problems, provide services, and just make the pie bigger. So that is really phenomenal. You look at Florida compared to the rest of the country, and it is just a boon for business startups. It's truly incredible. Really, really incredible. Take a look at this a little more in the article. New business applications set a record high in 2023, with notable hotspots in the Southwest and the Mountain West. According to Axios, small business is the cornerstone of the US Economy, employing tens of millions of Americans. By the way, I didn't mention that obvious thing. More job growth. Right? Americans filed 5.5 million new business applications last year, or about 16.3% for every 1,000 residents. Okay. According to the Census Bureau, that's up from 5.1 million the prior year and 3.5 million before. COVID about 1.8 million of last year's new businesses are highly likely to hire workers, per the Census Bureau. That's amazing. I mean, compared to only 1.3 million in 2018. And so it just goes on to talk about some of the different hotspots around the country, but it's truly amazing. Okay, now let's talk about some of this Trump issues as far as it relates to construction cost. Okay. And affordability, because this is going to be an ongoing theme. We're going to have to talk about this more. But here is an article that says how Trump's plan to seal the border impacts housing construction and affordability. As I've mentioned before, number one, this is going to make the construction labor shortage worse, much worse. And that is going to drive up cost. Remember, we started with a video from the Australian developer talking about how labor was such an immense problem for his company in here. Redfin, the real estate company, is commenting on this. Redfin believes that mass deportation will mean less labor supply, a weaker labor market, and less economic growth next year. Okay, well, you have to ask yourself, look, if there is massive deportation, which there should be, I think that needs to happen. Say we deport, you know, a few million people that are here illegally. Right. Which would be a good start. We need to do that. Countries have borders, countries have laws. You gotta follow them. That's the deal. Okay. Period. That's just the way it works, folks. I mean, try to walk into any other country and they're not gonna let you in for free and give you a bunch of EBT cards, goodies and stimmies and all kinds of stuff, right? It's totally ridiculous. It's totally ridiculous our lack of immigration policy, but that is going to weaken housing demand a little bit because those people, you know, the vast majority of them live in a house somewhere, right? And they also supply labor to the market. So two cross currents. One is less labor supply, meaning higher labor costs and slower construction times and less housing built. Right. That all means higher housing prices or upward pressure on prices at least. Of course, there are other factors, but it also means a little bit less demand for housing because some of these people will vacate a house. But here's the thing. They're not going to be vacating the kind of house that you own that you're renting to someone. Right? They're going to be vacating a much cheaper, less expensive house. So this should not be an issue for you. If it is, it's. Well, it's highly unlikely that it's an issue for you because these are not your renter avatar. They are not your renter demographic. All right? So don't worry too much about that. But what you should be thinking of is higher housing prices, upward pressure on prices, upward pressure on construction costs. And we've talked about the materials as well. And now this is nahb, the national association of Home Builders. We've had them on the show before. Supply growth was vital to NAHB's efforts to correct a nationwide housing shortage of, according to them, of 1.5 million units. And remember on a prior episode, we've gone over the different companies and the different big players in the market and what they believe is the housing shortage. NAHB was a pretty conservative number. They think it's only 1.5 million, whereas some think it's close to 6 million homes. In terms of the shortage, NAHB chief economist Robert Dietz, he's been on the show before, said, quote, by the end of 2025, we expect rates to be in the high 5% range. This is good news for builders. Housing demand and housing affordability. Well, what is that going to do? It's going to put upward pressure on prices. Another thing. Putting upward pressure on prices. Yeah. All of these people talking about the doom and gloom that just never seems to happen. Right. Hey, by the way, I was reading an article and it reminded me of this. Where's the big Airbnb crash. Yes, I know the Airbnb crash happened, but where are all the millions of houses that were supposed to come on the market because of the Airbnb crash? Oh, didn't happen, did it? But Nick Jarelli got a lot of prisoners and he was just wrong, wrong, wrong again. Right? I mean, this is. These doomers just never get it. They're just never right. So anyway, that's the gist of, you know, the article. There's more to it. You know what we're going to start doing? I think we're going to put all these slides and make them available to our empowered investor Pro members, which, by the way, we got another meeting coming up and we've got another master class coming up. Remember, every month pro members, we meet on the first Tuesday of the month and masterclass open to everybody. We meet on the second Wednesday of the month. So that's it for today. Last week I went over some great properties we have and we have many more than that. If you need help building your portfolio or if you have questions about anything under the sun, we have teams of people that can help you with 1031 exchange, self directed IRA, asset protection, offshore Planning, and Onshore planning. Buying properties of course, that's what we do. We help people buy properties in diverse markets around the US because we are area agnostic. Reach out to one of our investment counselors through jasonhartman.com or you can pick up the phone and actually call us 714-820-4200 and just press 2 and you'll be routed to one of our investment counselors and they will be glad to set up a free consultation with you, help you do a portfolio makeover so that you can optimize whatever assets you have, whether it be savings, stocks, bonds, other properties, cryptocurrencies, whatever it is. Right? Optimize it for the highest return on investment. And remember, there are many different optimization vectors you might want to optimize your property portfolio for highest cash flow, highest appreciation potential, ease of management. There are many different things we can help you with and we're happy to consult with you one on one. Any of our investment counselors are available for free consultation and they'll be glad to help you buy properties, look at different markets around the country and determine where best to invest based on your risk tolerance, your time horizon and your investment goals. Jason hartman.com we're here for you and we will see you next time. Until then, happy investing.