Jason Hartman uses today’s episode to discuss the expansion of credit over the past five decades. He goes into the impact that has had on the economy. Then looks at Trump’s war with the Fed. Jason encourages to continue stocking up on low-interest rate mortgages and then warns on the booming economy.
Investor 0:00
What I’ve learned is you like to mention be area agnostic is one of your commandments and that I love that I like to look at this is also be when it comes to real estate investing, be age agnostic, who cares what age you are, you can start doing this in 19 like you did, you could start doing this 20s you can start doing in your 50s I started my 50s
Announcer 0:24
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 multi millionaire 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 on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:14
Welcome listeners from around the world. Thank you so much for joining me today. This is your host Jason Hartman Episode 1074 1074. Got some news, current events, questions and answers and such for you today. So there is a small war raging in the financial world. You probably know what it is. No, it is not the trade war, although that is one that is talked about a lot. It is the mini war of words between the President and the Federal Reserve. Of course the president Hey, he doesn’t want to see them rain on his parade. It’s truly a An amazing economic expansion we are seeing under Trump. And I predicted this. And even though I have my reservations about Trump, I told you a long time ago, he would be great for the economy. And I also I believe I’m the only one who said he’s our first real estate president. Yeah, I know, that actually matters. I think it does. You know, forget about the apprentice and all that stuff. He’s a real estate guy, okay, love him, hate him, whatever. He’s a real estate guy. And he knows how to make business work. It is so refreshing. Love him or hate him to see a business person in the White House. And I’ll tell ya, I hope after his term or terms, who knows? We’ll see. We’ll see we got midterms coming up. We’ll see how that goes. It may be a democratic wave. I don’t know. We’ll see. I haven’t really been following it. You know, honestly, and this may surprise you. I’m really not that into politics. I’m just more into the broad philosophy of things. I like a more laissez faire approach to government. I dubbed myself as a libertarian, but sometimes I don’t sound like one because just the way things work, especially capital formation, you don’t have free markets. And so you can’t have free markets all the way through, you know, it’s a domino effect. One thing has to influence the other in it, and boy, it sure does influence the other very, very significantly. But as I’ve said, This Federal Reserve under Jerome Powell is the most transparent Federal Reserve I have ever known. They just say, Look, they’re just gonna keep raising rates. And I tell you, if that doesn’t give you some unrest, how you should capitalize on stocking up on these cheap long term fixed rate 30 year investment grade mortgages that are assets, the mortgage As an asset, yes it is. You really should be doing that because they are phenomenal. The deals on those mortgages are nothing short of amazing. Even now, even after we’ve seen the price increase on those mortgages, they are still phenomenal. But you know, Trump doesn’t want them to take away the Punchbowl. And the Fed is mostly in control of the punch ball, you know, the weather the is the bar gonna close and stop serving drinks. Now that’s funny to say because Trump doesn’t even drink right. But the party can be ended by the Federal Reserve very quickly, as they tighten, tighten, tighten. And you know, I would argue, they certainly need to tighten the interest rates have been artificially low for way too long, way too long. And remember looking back in history, this whole thing, this whole credit based economy, it’s interesting to look back at it when the great recession began, you know, about 10 years ago. The company Since we’re always talking about the money supply, the money supply the money supply, but they were almost never talking about what I was talking about. And that was the credit supply the credit supply the credit supply. Now, I know you could argue that the credit supply and the money supply are the same thing, but they’re really not the same thing. So when in history, did the world really, really change in terms of the financial world? Well, there were several points at which that happened. Of course, there was the founding of the Federal Reserve just over 100 years ago. Of course, we’ve had G. Edward Griffin on the show many times he spoke at one of our meet the Masters events a couple of years ago. Another big pundit on the Federal Reserve and student of it is, of course, Ron Paul. He spoke at our last meet the Masters event, and they’ve both been on the show. And so the Federal Reserve that was really a very fundamental shift just over 100 years ago. And then of course, there’s Bretton Woods Right. And Bretton Woods really came in two parts, there was the earlier part of it, and then the sort of, we’ll call it the finale of it much later. And then there was the gold standard. And all these things, of course, tie together, Nixon closed the gold window, finally in 1971. And that was a big, big change, right? These are the things we think of. But you know, one we really rarely think of, is when the world of credit really began. Okay, of course, we’ve had credit for eons. I don’t mean debtors and loans and so forth. And I’m not going back to biblical times. And I’m not going to talk about the money changers and Jesus, throwing their tables over and so forth. And, you know, the Islamic view of interest and debt. You know, I’m not gonna talk about that kind of stuff. I’m talking about modern credit. I want to talk to you about the Diners Club. Yeah, the Diners Club. Anybody heard of that credit card? Well, it was one of the first big credit cards, the Diners Club card, remember the Diners Club card? I remember hearing about it, seeing it and never had one. I don’t even know if it’s still around. But Diners Club, you know, is an old fashioned credit card, right? And this modern expansion of credit really started somewhere, I would say, it’s hard to put your finger on it. No, no, my finger can’t find it. I’m moving my finger around. finger. I don’t know where to put it. But somewhere in the 50s, right. And then it expanded more into the 60s and really, really got a foothold in the 70s. And that’s when we saw this massive expansion of credit where consumers could be more than they really were, you know, they could buy cars on credit. We had mortgages long before that, but the mortgages Of course became much more liberal in question. It just got everywhere that the student loan bubble really started in the 70s. Right. Financing college educations. I mean, that was a huge expansion and credit announced a giant bubble worth about 1.3 trillion. That’s trillion with a T dollars. That is a bubble that is going to burst By the way, and have a big effect on the economy. So we saw this expansion of credit and you know what that created? It created a lot of people with this phenomenon. Maybe you’ve heard the saying, ready, ready for it? Okay, here it is. The quote for the day is not from me, but I just think it’s a funny one. And the quote is big hat, no cattle.
Jason Hartman 8:42
Big hat, no cattle, right. And this describes someone who’s a faker, a poser a wannabe, right? They’ve got the nice car. Maybe they got the yacht or the motorhome but they’re drowning in debt. I saw this a lot when I lived in Newport Beach, California. anywhere around the world where you have number one access to credit and number two, and access to credit is most pronounced in the United States, of course. But number two, you have a high status seeking area, right Newport Beach would certainly qualify as one of those areas, anywhere in Los Angeles, really the whole West Coast, and then all the major sort of high end cities around the US and then around the world. Right? This is where you have many people who are kind of paper thin. And I just remember I remember one of my friends in Newport Beach years ago, a commercial real estate broker, by the way, a certainly a big hat, no cattle kind of guy. You know, he drove a Porsche and expensive car was always you know, talking about money putting on airs about you know, this, that and the other thing, too, you know, get the greatest girls right. And you know, it was it was BS. I mean, it was just big hat, no cattle, whenever we’d go out, you know, bad Back in the days when I used to actually drink I hardly drink at all anymore. By the way, that’s a suggestion I have, you know, folks, I never was big into alcohol, but I just don’t even like it anymore. Like I have no interest in drinking at all. And I would recommend giving that one up if you imbibe because it’s just not good for you. And it’s not doing anything for you. And it’s costing you a lot of money, but the most important cost is the cost on your body. Okay, enough of my tangent my editorializing. I’ll drink to that, hey, I had a beer yesterday. It’s not like I never do it. I’m just saying, you know, I really don’t do much. We’ll do a little bit of that in Hawaii. Okay. I’m sure I’ll have to have a Mai Tai in Hawaii because, hey, that’s what you do there. Okay, so we’re talking about taking away the Punchbowl and the Federal Reserve and so forth. So whenever it was, this friend’s turn to buy a round of drinks. When we go out, you couldn’t find the guy he was in the bathroom. He was talking to someone else he was hiding out. And this is like that page. Thin kind of big hat, no cattle kind of thing, right? You’ve all experienced it. I know, you know, someone like this. Maybe you’ve been someone like that at some point, hey, we’re all just human right. But the thing that’s going on here is this little mini war, not the trade war between the Federal Reserve and the president. And the Federal Reserve says they’re just gonna ignore any of the Trump administration blather. So I don’t think Trump is going to get to do his bully pulpit tweeting about the Fed. I mean, he’s gonna do it, obviously, but I don’t think it’s gonna work. I’ll put it that way. I don’t think it’s really gonna make any difference one way or the other. But I do think they’re probably tightening a little fast. I think the Fed needs to take a chill pill and relax a little bit. Yes, yes. Take away that Punchbowl slowly. You know, when you want to do last call at the bar, give a lot of warning, and they’re given a lot of warning, but I think they’re being pretty aggressive here and they got to go a little slower. Slower would be what I would say. But whatever they do, I don’t know. Let’s listen to this CNBC interview with the CEO of red fin, talking about the housing market. And of course, when you listen to this, like always, you have to remember these sound bites are ridiculously generalistic. They don’t subdivide. Is he talking about linear markets, cyclical markets or hybrid markets? I’ll stop it along the way and help you analyze it. But it is an interesting interview. So I want to play it for you. Here we go.
CNBC Interview 12:31
Hard to say when we’re going to see stabilization. I don’t think it’s just the tax laws. It’s rising prices. It’s slow wage growth, and it’s rising rates. That has been a perfect storm for the US housing market. What the tax laws are doing are really shaking up the snowglobe of where Americans live. People are moving from California and other high tech states to places that provide some relief. And the reason they’re doing that is because they can’t write it off anymore on their federal return.
CNBC Interview 12:59
I guess the question Another way of asking this is, when we see this migration, the cities to which they migrate, are we seeing prices there continue to rise? Or is there a stabilization there?
CNBC Interview 13:09
The prices are definitely stronger. And in some places, they’re rising. If you look at Boise, Idaho, Nashville, Tennessee, places in Texas, Pittsburgh, Detroit, those are the destinations for people who are looking for the next turn in the economy and who are looking for some tax relief.
Jason Hartman 13:26
Be careful listening to that, by the way, okay. Because a lot of that is already priced in. Okay. And I certainly would be highly suspect of that Detroit comment. Okay. Now, yes, there has been a lot of appreciation in Detroit, from the bottom, okay, and only in very selected areas. So you got to be very careful with his sort of generalistic stuff. But the general comment goes back it harkens back to the interview I did years ago with Meredith Whitney, who wrote that fantastic To book, the state of the states, Meredith Whitney, and she really nailed it. I mean, go back and listen to that interview, go to Jason hartman.com type in Meredith Whitney or the state of the states. And that’s an interview worth listening to again. And this is something that I predicted back in 2004. I knew this was coming long before I had any idea there would be this tax law and there would be the salt, Sal t acronym, you know, that state and local taxes, and how you can only deduct $10,000 of that now under the new federal tax plan, but it is causing the migration Well, the migration has been going on for years, but the migration is picking up steam because there’s even more incentive to do it. People are moving look at I did it, okay, I can afford to live in California easily many times over for the rest of my life without ever working again. Well, depends how you want to live but I could live very comfortably in California for the rest of my life. Without ever working again. But doesn’t mean I want to look, folks. It’s a funny thing how people without money think, right? This has just always struck me as funny. And I guess when I didn’t have money, I used to think this way to people without money kind of think, Well, hey, you’ve got money. Why do you care? Well, guess what? It was hard to earn that money and I care. You know, just because someone has money doesn’t mean they’re stupid. Now, some people do get stupid with and without money. But hey, that’s up to them. It’s all individual. So we see this migration is being exacerbated, it’s being really incentivize now, because of the new tax law. So that’s an interesting trend. And you know, I’ve made this recommendation to you for many years. If you can do it, and maybe you can’t do it now. But make it part of your five year plan to get some shelter from these high cost high tax areas. I’ll give you an example. Right. I’ve been traveling around. And right now I happen to be in Tampa, St. Petersburg, Florida. And you know, I’ve been kicking around here for a while I was down with Carmen, she and I were in Naples. And then we came up here. I was in Sarasota. And you know, there are charming, charming, wonderful areas that are dripping with ambience and benefits. And there’s no state income taxes, and the cost of living is low. I know what you’re going to say Californians. I can already hear you. Oh, but what about the weather? I agree with you. Listen, being in Florida in the summer or Arizona where I really that was my favorite place to live so far. Scottsdale, Arizona, and I might go back there and suffer the 5% taxes someday, but it won’t be as bad as 13.3% in the Socialist Republic of California or New York, right? Look at the weather in California is isn’t always great either. Okay, that’s a myth. It gets very cold sometimes. I mean, at least for me, I don’t know, hey, I’m getting older. You know, I don’t like cold, but I don’t like extreme heat or humidity either. You know, I don’t like anything anymore. But let me tell you right now in Florida, in the morning in the evening, it is beautiful. It’s just stunning here. It’s just beautiful here. Sunny, cheerful. I mean, there are lots of plant look at if you like cool and rain, you can move to Seattle or I mean Washington state or Wyoming and have a lower cost of living. Well, not in Seattle, but a little lower, but no state income taxes, right? So there’s all kinds of choices out there. I’m just saying, think about it. Consider it as part of your five year plan. If you can’t do it right away, to free yourself from this oppressive burden of high cost of living and high tax and regulatory overreaching places because there are just more pleasant places to live. I promise you, there really are really aren’t Okay, let’s keep listening.
CNBC Interview 18:02
It says, houses are affordable traffic is less. Folks really are just looking for a place where they can afford to live. And what’s crazy about the US economy right now is it’s going so great. And yet people feel so poor folks who are trying to buy a home are really frustrated. They can afford gas and groceries and everything else, just not a place to live. So they’re going to
Jason Hartman 18:23
rent and who they can rent from. They’re going to rent from you. Yes, because what he’s alluding to right there is my three dimensions of real estate and of course, I’ve shared that with you on the show before many times and there when we see housing affordability decline, of course we see prices are still very high rates are going up. So affordability is getting just crushed. It’s getting absolutely crushed right now. So the people that bought a few years ago, hey, they’re lucky they got in, they got the low rates, they got the lower prices, and they’re good, hopefully They got 30 year fixed rate loans and they can stay put. Now, here’s the other thing that I mentioned before. And that is that when people have these low rate mortgages, it’s like having a rent controlled unit or rent controlled apartment in one of these socialistic rent controlled areas. It stops the velocity of the market, it impedes it because people don’t move, even if they want to move if their family is expanding, if they need a place in a different area or a bigger place or whatever, they don’t move, because that rent control keeps them stuck. So it hurts the market in so many other ways. And the same is true of artificially low interest rate mortgages. It’s like rent control, because it keeps people holding on to what they’ve got, because that mortgage does not transfer with the property. And that mortgage, as I’ve said for 14 years is an asset Not a liability as long as it’s a good cheap, long term fixed rate mortgage, that’s an asset. That’s a big part of the asset. So it causes inventory to be tight, but that won’t last forever. The inventory will ease up as we see this shift in the market, but the shift is far from hitting the lower price properties that you’re buying as good solid income properties with good rent to value ratios. It’s happening significantly on the higher price properties. And we’ve chronicled that before Of course.
Jason Hartman 20:42
I’m Jason Hartman and I’d like to invite you to our very first two day conference in beautiful Hawaii. Many of our attendees are making a vacation out of this event, you will learn the most innovative strategies for real estate investing available today. We have helped thousands people invest in properties around the US, and we can help you do it too. So I hope you’ll join us and happy investing.
Jason Hartman 21:19
Now, one thing that I did mention in one of the interviews, but I don’t think I mentioned it directly in one of my monologues or intros yet, I read a report just last week, and this really shocked me housing and at the risk of my repeated repeating myself. construction cost six years, like kind single family home today is 31% more expensive to construct. That’s without the cost of the land. Without the cost of the land. The cost of construction has risen by 31% in six short years. What did I tell you? I don’t even want Real Estate that much. I like being a commodities investor. I trademark the term packaged commodities investing, assembled commodities investing, right? You’re owning all of those ingredients to a house or an apartment building. And those ingredients have become dramatically more expensive. 31% more expensive, including assembly. Yes. The houses do come assembled in six short years. I mean, from 2012 to 2018 31% increase, not including land cost. That is absolutely startling. Let’s finish this video. And I want to get to some listener q&a if we have time.
CNBC Interview 22:43
In April, you had said that rising higher mortgage rates were not a big deal to buyers but rising prices were I know that was April and things have changed. The rates have moved. Yeah,
CNBC Interview 22:53
you got me. So definitely shaking it off then they aren’t now. And I think part of that is because in coastal cities, we’ve seen such a rapid increase in prices. And when you couple that with rising rates, and also a glut in places like Seattle have rental inventory, we’ve seen people who were looking at buying a house suddenly realized they can pay less in rent.
Jason Hartman 23:17
Now the glut of rental inventory, he’s really referring to as the overabundance of institutional style apartment buildings, because as you’ve seen that the symbolic bird of every city in America has been the crane, right? In the past several years. The construction has been crazy. And by the way,
CNBC Interview 23:35
I just tell you
Jason Hartman 23:36
a little tangent here, indulge me for a second. You know how I hate leaf blowers. Right? And you know, how I talk about how noise noise we hardly ever think about it noise right? noise is the scourge of modern society. And I’ve been to 81 countries around the world. Many of those Well, most certainly all of them less economically advantaged than the US It states. And I’ll tell you something. Here’s a new Hartman ism. A booming economy is a noisy environment. You know why? Because in a booming economy, everything’s always under construction. I mean, I’m outside of the hotel this morning trying to eat breakfast, you got leaf blowers, gardeners, construction of this new building across the street. There’s just construction and noise everywhere. It’s unbelievable. So a booming economy is a noisy environment, you know, when I was in Eastern Europe, or anywhere in Europe, for that matter, and I’ve been to both several times, you know, those economies aren’t doing so well. And guess what? It’s kind of quiet. There’s not all his construction. So that is one benefit of a slower economy.
CNBC Interview 24:52
And so lots of folks are pulling back. We aren’t going to know how it’s really going to affect the housing market long term until we see next year, whereas That kind of funky part of the real estate market November, December, you can’t count on anything. But if there’s a strong economy, a roaring stock market, low unemployment, I think people are still going to pay up, it’s just going to be a little harder with tax reform and interest rates being higher to itself.
Jason Hartman 25:16
And what they’re going to do is they’re going to accept less, they’ve already done that. It’s not like they’re not going to buy something or rent something, they’re just going to have to take less than they got before,
CNBC Interview 25:28
to, you know, want to migrate to a place with lower taxes. But let’s not forget that because the changes in the tax law and the inability to take advantage of the salt deduction, state and local income tax, it’s hard to sell your house. It’s not just a buying issue. It’s a seller’s problem as well. Somebody has to buy your house and in these in these areas where you know, they’re most affected by all this. I imagine that would slow down some of the migration. Well, if you’re selling a house in LA to buy a house in Boise, Idaho, you’re going to come out ahead. There’s been an inventory shortage for a long time that has only recently reversed in the California markets and elsewhere. I do think people come into these states, like Idaho with funny money, where they just feel rich looking at two or $300,000 houses. So
Jason Hartman 26:15
I do. Remember I’ve always warned you, especially you Californians, my home state, because I’ve done more speaking engagements in California, and we’ve got more clients from California, probably than anywhere else, although we have clients from all over the world, of course, but I always caution you. Be careful taking your California brain to some of the other markets that you’ll find Jason Hartman calm in the property section, because they all look cheap. Right? And everything is very local. All real estate is local, as we always say.
CNBC Interview 26:51
The trend long term is for more Americans to move and work. And those places that the New York media types would call flyover are now desk The nation’s
Jason Hartman 27:00
Alright, so I hope you enjoyed that. I thought it was interesting and I thought I’d share it with you. Now before we wrap up today, let me tell you about, you know, we haven’t held a contest in a while, so I thought it’s time to hold another contest. Now I hope this page will be ready by the time you hear this message. I think it will be go to Jason hartman.com slash contest. Jason Hartman comm slash contest and do a quick 22nd entry. See we make it easy to enter our contest. No big no big things just a quickie, go there and win a ring doorbell or an Amazon Echo. Yes, we’ve given away those echoes a few times. So a ring doorbell or an Amazon Echo. Go there and check it out. Just fill out the quick form 20 seconds. Jason Hartman comm slash contest Be sure to do that. You know, folks, your odds of winning are pretty good. Not many people in Are these contests? So your odds of winning are good. I mean, we have, we’ll have maybe, I don’t know, 100,000 downloads in a month. And we’ll have, you know, 50 people enter the contest. So your odds are really quite good. It’s not like entering the lottery where you’re like 37 trillion to one. So go there, and be sure to take advantage of the contest, and win one of those great prizes. All right, so let’s get to some q&a. Here is our first listener,
CNBC Interview 28:32
comment slash question. It’s from Lena belikov. But motivated you to take action and purchase your first income property. Passive income in order to spend more time with my daughters. What long term goals have you set for yourself? How will income property help you get there? My long term goal is to have enough passive income coming in that we are able to travel with the church missions and build communities. This from Steven It’s awesome. What motivated you to take action and purchase your first income property? Trying to get out of the rat race? What long term goals have you set for yourself? How will income property help you get there? I would like to buy at least one rental property a year for the next 10 years. My passive cash flow goal is $10,000 per month.
Jason Hartman 29:21
That is awesome. Very awesome.
CNBC Interview 29:24
Question from Bob breunig. Jason, I’m a real estate investor with two single family homes thus far, they heard your invitation on a recent podcast asking people with specialized skills to contact you for the purpose of putting these skills to work for your company. I love writing and editing documents and would like to offer my services to you in this capacity, I write on a daily basis in my current role as an attorney. Further various groups have contacted me based on my writing and editing abilities. Finally, I helped coach a robotics team and in particular the drafting of an engineering notebook which requires the ability to write in both technical and layman’s terms. My desire is to learn more about real estate for you and others while putting my writing and editorial skills to work for your benefit. I hope that you will consider contacting me if you should require my writing and editorial services. This from David Lopez. Hello. I have over 20 years in mobile entertainment. I have hosted and have been an MC at a wedding and corporate events here in SoCal. At one time I had a podcast and interviewed many people in the industry. I could host entertain or record interviews for the podcast here in Los Angeles. I could send you a link to a podcast as a sample. Now that you have Jason’s attention, is there anything else you’d want to tell him? Great show? I would love to work with you in recording interviews.
Jason Hartman 30:40
Hey, folks, that is great. I very much appreciate that. And we have been hiring people like crazy lately. I mean, we are we’re just on a real growth kick. And it’s been very fun. I’ve been very busy working with all of them. You get to see some of the results. Have this at our Hawaii event, by the way, our economist will be there. We’re going to do panel discussions with him to panel discussions scheduled. We’ve got all kinds of really cool stuff going on in the software world and a whole bunch of other things. And you know, what was one of the big inspirations to do this? It was the tax savings. I thought, What am I going to do with that tax savings from the new tax plan? Well, I got to figure out how to spend it and put that money back into the economy. That works. That seems like a pretty good win win to me. Okay, folks, that is it for today. Remember, invest in places that make sense. So you can afford to live in places that don’t make sense. But that doesn’t mean high tax places or high cost of living places. Just get a house in a place that makes sense, where you get a house that doesn’t make any sense or do whatever you Want okay, but follow that principle and you will be in very good shape. For those of you coming to Hawaii We will look forward to seeing you there. If you want to get our last minute ticket, we are less than two weeks out. So do that. I know we had one person actually buy their airfare today. Still pretty good. You know there’s there’s an airfare war going on. And it’s amazingly inexpensive to fly to Hawaii right now. So we look forward to seeing all of you there. Until the next episode. Happy investing. We will talk to you in just two days. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website Hartman Mediacom 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 and 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.