Jason Hartman starts the show discussing FICO scores hitting a record high. He explains why people may not be utilizing their FICO scores. In the interview segment of the show, he hosts Rick Sharga, Executive Vice President of Marketing at RealtyTrac. They have a discussion on foreclosures and forbearances. Then Sharga discusses how this is different from the Great Recession. They end with thoughts on how COVID-19 changed how millennials approach renting vs. buying.
Jason Hartman 0:02
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors. Hey, good day, everybody. I thought I would just do the intro for Episode Number 1575 of the creating wealth show. Let’s dive into a couple of things we have got our guest today, Rick sharga is going to be on with us. And this will be a two part episode because we talked about a lot of stuff. And you know, there are definitely some vulture capitalists out there. And I don’t blame you for being a vulture capitalist. I think that’s an important part of the market. Because you are assisting with a very important economic concept called price discovery, price discovery, very important concept. That’s what people do when they dive into a market. And when they see ask prices at bargain prices, and they jump in and they take advantage of that. Some would call that a vulture capitalist, some would call it smart. And some would call it people that are just helping the economy move toward recovery. So do you think there will be a big foreclosure crisis? Put your comments down below? I want to see those comments. Are we going to have a big foreclosure crisis? Are properties going to become a super bargain? And if they do, are you ready to pounce on those opportunities? Are you circling like a vulture waiting for that to happen? Well, I hate to break it to you. But you just might be disappointed. So our expert today, Rick sharga with realty Trac is going to be talking about that. And if you are watching on the live stream, you got to go to the podcast to get the full part of Rick’s Rick’s show. This is just the intro portion. And this will be on today’s episode. But I want to show you a couple things that are really important. So let me advance the slides here. Of course, questions, comments, reach out to us, Jason hartman.com. If you’re in the United States, one 800 Hartman, that’s a US only number. And be sure to see our legal stuff at the website, Terms of Service, etc. But look at this. This is great news, folks. FICO scores that all important FICO score. Well, what is going on with people’s credit? It’s actually fantastic news. Yes, it is. The average us FICO score hit a record high of 711. Not like the convenience store 711, which by the way, is changing its business model a little bit due to pandemic life. I mean, that’s just amazing. And back in April, it was 706 a year earlier, that’s pretty good. But it’s even higher now. Now that coveted score is 720. And you can go higher, the highest score is 850. And you know, what I’ve always said is that people need to be really careful bragging about high FICO scores, because that could be a huge mistake. Why could it be a huge mistake? Well, you think a higher score is better, right? Not necessarily. You want to know why? I’m going to tell you why. Look at if you’re looking at a balance sheet, everybody has looked at a balance sheet, right? Or I you know, where you’re kind of analyzing your net worth right on one side, you’ve got all the assets in one column. And on the other side, you got all the liabilities. And when you subtract the liabilities from the assets, what do you have net worth, right? How much are you worth? How much does that paint on the wall worth? How much was all the real estate I own worth? How much is everything else worth right? All the bank accounts and all that good stuff? Well, you take that you subtract the liabilities, you have the net worth, but you know what people almost never put on their balance sheet to analyze their net worth is a huge asset and they’re not counting it. That big asset is the ability to borrow. Yes, the ability to borrow and when you can borrow at a historically low, literally negative interest rates? Well, I probably shouldn’t say literally, I should say virtually negative interest rates, because they’re not literally negative interest rates, I guess they are actually positive interest rates, but not much. They’re not very positive if you’re the lender, because hey, if the inflation rate is whatever percentage you believe it to be, and you’ve got tax deductions against that interest rate on that beautiful, wonderful, incredible, three decade long fixed rate mortgage, then you have negative interest rates, you are getting paid to borrow money, you’re getting paid to borrow money. So if you have a FICO score, that is really, really high, I would say you’re not using it enough. So I think there’s a you know, a sweet spot is so many things in life have a sweet spot. What is the sweet spot on the FICO score, I share with you another example about this vacancy rates. So you hear investors talking about their vacancy rates and their properties. And some investors or property managers will get their chest all puffed out and say, well, we have 98, an occupancy only 2% vacancy in our properties, because we are so good at getting them leased. Really? Are you sure about that? Are you sure you’re so good? I say you’re wrong. And here’s why there is an optimal occupancy or the flip side is the vacancy rate, whatever you want to call it. Most people refer to it as the vacancy rate, hey, is the cup half full? Or is the cup half empty? Yeah, depends on how you look at it. So that optimum rate, should you do not want your properties 100% occupied all the time, because that you know what that means? That means you are a sucker? sucker. Yep. You know, Only a fool has his or her properties occupied 100% of the time, with no vacancy. Why do I say that? Because the price is too low, you’re doing something wrong, your rent is not high enough, you’re not charging enough rent, if you have no vacancies, you should have some vacancies, you want to target a healthy vacancy rate 100% occupancy is a song that your properties are too cheap. So raise the rent, raise the rent. Now, if your vacancy rate is too high. On the other hand, what might that mean? That might mean that you’re unrealistic and your price is too high, or your properties are in bad condition, or your marketing is bad, or your management is bad. And when I say your management is bad, I mean, you if you self manage your properties, and I might mean your professional, I say that in quotes, property manager, because so many of them are just not very good. But there are a few great ones out there for sure. So 711 is the highest buy go score. And that’s where we are now. Tara, great news, right. But and by the way, that’s when FIFO began keeping track 15 years ago, according to the WSJ, Wall Street Journal is an excellent newspaper By the way, well, I don’t get the paper, but you get the electronic version. You know, stop watching all this crap news. The news on television, television, I was I remember I was being interviewed on a TV show. A while back, the anchor person after the interview, we got to talking a little bit about television. He said something profound, he said television is the idiots medium. And you know, when I was growing up, they always called television the idiot box right now, there are certainly some good educational things you can consume on television, no question about it. But if you think about it, the format of television is so soundbite oriented. It’s so quick and vacuous and it’s just very basic, right? You can’t go in depth because there’s just not enough time to go in depth on television on traditional television. So you’d be much better off reading the Wall Street Journal. Okay, boy, you know, I should really make some money from saying that they are not a sponsor. But Wall Street Journal pay me some money. You should be a sponsor. No, I’m just recommending them because they really, they really that’s a great publication, Wall Street Journal. I don’t like everything they do, but a lot of stuff. It’s a lot better than that. crappy read on the New York Times. junk. Okay, now, I shared something similar to this yesterday on the live stream but this is not the same thing. This is different. Different, different, different. Okay. So look at this, the top 10 markets with the largest two bedroom rent price. decreases. Yesterday, what I shared was a different chart with different data. This one’s a little different, different publication, and oh, shame on me. I don’t even cite the source. Because I can’t remember. But I just clipped this this morning from something I was reading, you know, every morning, I read, read, read, I look at charts, I look at graphs. It’s just what I do. I love this stuff. It’s so interesting to me. Anyway, I got this one this morning. I don’t remember where I got it. But I didn’t make it up. It was from a credible news source. Let’s let’s just say that I love when these news media sources, you know that that’s in the First Amendment, we have this idea that the reporter does not have to disclose their source, which is fine. That’s a good rule. Because we want a free and open media rather than this stupid media we have today with everything as a political agenda on every media outlet, which is totally useless, of course. But soon, this election will be will be behind us. And whatever happens, you know, then people can start bitching about whoever’s in power. That’s what they will do. But at least we don’t have to have what we have now. Because what we have now is absurdity. For sure. So where was I going with it? Yeah, but you know, when they don’t disclose their source, and they say something like sources close to the matter, say, or undisclosed sources say when they really don’t need to say that, you know, this is not Watergate, where they were protecting deep throat, remember Deep Throat No, don’t get confused with the adult film, Get your mind out of the gutter, you know, Deep Throat said, follow the money. You know, that was the secret to Watergate, follow the money. It’s always follow the money. That’s always the rule. But yeah, you know, sometimes a reporter really does have to protect their source under what’s called the reporters shield law, which mostly protects media and makes it not so they don’t have to disclose their sources, which is great. It’s awesome that we have this Constitution and the First Amendment and the Second Amendment, which makes the First Amendment possible, by the way, just a little food for thought there. But yeah, a lot of times they don’t disclose the sources and they should, really, they should, because they use that for their agenda to further their agenda. But look at this these rent decreases of these two bedroom units in San Francisco down 21% San Mateo down 11% Santa Clara down 9.2 that’s all tech oriented obviously. Tech areas. You go to Massachusetts down 8% more Massachusetts or tax that uses we should say tax that uses 7% Denver down 6% dc the bailout handout capital of the world washington dc 5.8% Erie, New York down you know, just rounded off Dallas down 5% Milwaukee down 5% give or take. So what’s interesting here is that you see the biggest decreases are in the high tax, high density, mostly high density, business, unfriendly places and that is the trend right The move is towards berghia it’s the move is toward larger homes, three bedrooms, four bedrooms, etc. Obviously sales have been booming in this type of category and the move is away from you know, studio apartments, one bedroom apartments and two bedroom places like this, right? So people need more space for home offices for home gyms. Home is the center of the universe. I was saying that back in February’s this thing was just starting to, to break out. So, you know, again, like what I talked about on the live stream yesterday, which was a much more comprehensive chart of these rent decreases. This is a little bit different than that one. Well, that one was four studio units I believe. So interesting. And look at this. Now this is a repeat from yesterday, by the way, because this you just got to see it again if you were watching yesterday, repeat right here. But this is absolutely shocking. When you look at the inventory levels of properties, think about it since the Great Recession 1012 years ago, depending on how you look at it, since the Great Recession coming out of that home builders have just not been building entry level housing there. It’s just almost completely non existent. I mean, we have a just a little sprinkling of it. If you go to Jason hartman.com, click on the Properties page, you’ll see a little bit of it good quality, brand new investment. grade rental properties income properties there. But there is so little of this and overall there’s a massive housing inventory shortage except in these overpriced overtaxed business unfriendly landlord, unfriendly left wing. How you voting in a couple of weeks, folks, these left wing disaster areas, it’s like everywhere the political left controls, the places just become a disaster. These ones great places, like the now Socialist Republic of California, my home most of my life, absolute disaster, New York, you know, tax toussis, Massachusetts, same deal everywhere, but just look at the inventory levels in some of these areas. Now, this is an alphabetical list. So it’s not an order by, you know, buy what has the most or least inventory. But look at this inventory in Akron, Ohio, or Austin, Texas, down by Akron, Ohio down by 54%. from last year, there’s less than half the number of homes for sale. And the median days on the market is five days, people they sell in five days, that’s how fast properties are selling. You just go down this list, it’s pretty much the same. All over the place in Dallas, inventory is down 45% from last year, homes are selling 10 days faster. So it’s really just absolutely incredible what’s going on. And there are approximately 390,000 fewer homes than the 3.3 million listed during the same period last year. As of this week, the number of homes on the market is down 39% compared to last year. Now, when you listen to our guest is coming up here in just a moment, Rick sharga from realty Trac, you know, he was on the show, like 10 years ago, I haven’t had him on in a while. Apologies for that, by the way, because he’s great. You know, we joked a little bit about Rick, you know, you got to come on the show more often. And, and so he’s back in, we go into this idea of waiting for the big foreclosure crisis. Is there going to be a big buying opportunity for you vulture capitalists, you bottom feeders you? Are you going to be able to you know, are you keeping your powder dry? Is the saying goes, You got cash sitting on the sidelines ready to buy a bunch of properties at half price? Is it going to happen? I don’t think so.
I don’t think it’s going to happen, folks. You know, we’re going to go through that. Here. Now. If you’re watching the live stream again, you got to jump over to the podcast, which will be released in like a half hour of the creating wealth podcast. And you can listen to the interview with Rick. This is just the intro portion. Rick is not here on the live stream. But he’s on the podcast today, and will get his full interview with charts and graphs up onto the YouTube channel here soon as well. So without further ado, we’ve got to get to our guests. So many of you have asked about our asset protection webinar, though. So I just wanted to say that scrolling across the bottom of the screen estate planning asset protection at very reasonable prices, Jason hartman.com slash protect that is a webinar given by a lawyer friend of mine, he really does a great job. You will learn a lot in that time. So check that out. And we will see you on the creating wealth podcast in just about a half hour for the full and complete interview.
All right. Thanks for joining me for this quickie live stream today. Appreciate it and happy investing to everybody.
It’s my pleasure to welcome a returning guest back to the show and that is none other than Rick sharga. He is Executive Vice President of Marketing at realty Trac, the country’s leading provider of foreclosure information for investors. He’s got a wealth of knowledge. And if you are watching on video, we will be sharing some slides throughout the presentation. But if you are not watching, we will try and make those slides understandable to you if you’re listening in audio only format. So Rick that’s in there. So let’s go ahead and dive in. Rick, welcome. How are you doing?
Rick Sharga 19:31
I’m doing well. We have to stop meeting like this every 10 or 12 years.
Jason Hartman 19:35
Yeah, I know. We need to do it more often, don’t we? It’s good to have you back. And you’re coming to us from my old hometown Irvine, California,
Rick Sharga 19:44
right? Yep. I actually live just south there but realty Trac is headquartered right, right smack in the middle of Irvine. So we’re in out here in sunny Southern California. Fantastic. Good stuff.
Jason Hartman 19:54
Well, you know, everybody is asking Rick is COVID going to cause a housing crash Is there a bubble prices are higher than they were at the prior peak in 2006. And look what happened back then. I’m sure you hear all this stuff all day long like I do. And, you know, I just don’t think there’s going to be a big giant foreclosure crisis unless we’re talking about maybe New York City, LA, San Francisco, you know, some of these urban areas, I think are really under a lot of stress. But But what are you? What are your thoughts? What are you guys researching it real t track?
Rick Sharga 20:29
I think you’re spot on. Jason, the the. And the cities you mentioned, interestingly, are typically cities where you don’t see huge foreclosure problem, because their homeownership rates very low. If you go to Manhattan in particular, virtually nobody owns a home in Manhattan, it’s mostly mostly all renters. So now there’s a couple things right now you were talking about the housing market, and COVID has not slowed down the housing market even a little bit. And that’s kind of surprising, given the fact that we’ve had the most significant drop in the economy on a monthly basis, really, since they’ve been cracking the numbers, the GDP dropped 31.4%, I believe, in q2, we’ve never seen anything like that. The good news, and there actually is good news is one, it was actually an expected drop. So people saw it coming. And it wasn’t because the economy was bad. It was because of this pandemic and the need to shut businesses down. And the second thing that was good about it is it was lower than a lot of forecasters than projected, there were people talking about 45 50%, GDP drops, and we wound up at 31%. And it’s been recovering since. So from an economic standpoint, about half the jobs that we lost have been recovered. And one of the reasons we haven’t seen housing fall off, like a lot of people would have expected in a recession of the size is because of the nature of the job losses, we really have seen most of the job losses and a handful of market segments travel tourism, restaurants, retail, hospitality, entertainment. And those industries tend to be made up of employees who are hourly wages. So they’re not making a ton of money, they tend to be younger, they tend to be less formally educated. And so they tend to have very low homeownership rates. So this has been a recession that has really hit renters a lot harder than it’s had homeowners, and a lot harder than it said, potential homeowners. So we’ve seen all those people that were on the sidelines, taking advantage of these historically low interest rates, to go in and buy houses that they’ve been thinking about buying. In fact, one of the things that pandemic actually did was accelerated trend, we’ve started to see millennials, stopping urban renders and start being suburban homeowners, right. And apparently COVID-19 reminded them, that being quarantined in a 700 square foot apartment with a toddler wasn’t as much fun as they expected. Or worse than that. Listen, I have several millennial friends living in New York City, living in 550 square feet. And in a very strict lockdown environment, by the way, where the whole point of living in a city was to have all that great entertainment, the Broadway shows, and you know, everything and all of that just evaporated overnight, you know. So, you know, we are one of the things you and I were talking about before we got online is we are seeing a flight to the suburbs. And and we are seeing it in particular, in some of the higher priced areas like New York and San Francisco, I would expect we might see some of the Pacific Northwest as well. Miami is seeing a little bit of that right now. So people are looking for more space, they’re able to work from home now. And that trend probably isn’t going to go away, although it will modify over the years. So they’re not worried about a commute. They’re not worried about being right in the middle of the area. And they’re looking for a place big enough to have a home and office home office. They’re looking for a little bit more space so they can move around. And candidly, there’s a perception that it’s healthier there. So from a geographic standpoint, the fastest growing segment when it comes to home sales right now is the distance suburbs, right up against rural areas. And it’s it’s an interesting phenomenon that we’re seeing that would have been hard to predict seven or eight months ago.
Jason Hartman 24:18
Yeah. So let me run this idea by you. Back in 2012. I started talking a lot about the autonomous vehicle that I’m looking forward to. And now they actually have it in Phoenix, by the way, way Moe launched. It’s fully 100% autonomous ride hailing service. And there is no human there overseeing that car this time around. It’s completely autonomous. And so what I said is that that would take the pressure away from high priced real estate markets, because ultimately, and it’s taken a long time to play out. Obviously, this isn’t happening right away. But ultimately, it would make the prime location less meaningful than it’s ever been in human history. And with COVID, we’re seeing that too, you know, we’re seeing people move leave those kind of what are called prime areas to the sort of secondary areas that, you know, people living in Manhattan always looked down on people that lived in the suburbs, right? Not anymore. Now, it’s now it’s what everybody wants.
Rick Sharga 25:19
Well, and you can’t underestimate the or you can’t overestimate the impact those those autonomous vehicles are going to have on commercial real estate going forward. And when you start to get into autonomous delivery services, I imagine that so suddenly, you’re not gonna need big parking garages taking up, you know, a lot of commercials, you’re not going to need drivers for those autonomous trucks. You talked about.
Jason Hartman 25:41
I, by the way, just to give you a metric on that, that I read once they estimate that 40% of a typical city 40% of the city’s real estate is used for parking. I’ve no doubt. I mean, can you imagine if that need goes away? what that would do to the real estate market in those places? Because suddenly you have 40% more land?
Rick Sharga 26:03
Yeah, no, it’s Yeah, it’s crazy. Prices vacancies. On the other hand, there might be a mini boom in construction as you’re repurposing all those things. Very true. Yeah. But one of the things we do want to talk about, because you mentioned that, we saw that boom and bust cycle back during the Great Recession, we saw prices spike and and there’s a lot of concern among people that we might be in another bubble, or that home prices are going out of control. And if you just look at a linear progression of prices going up over the last few years, we did hit a new high all time, in terms of median home sales price, both in California and the country in July, I think it was $310,000, nationally and over 500,000, California. But if you factor in for inflation, if you factor in wage growth, and if you factor in interest rates, home buying power is actually much stronger than it was back then. And in fact, if you look at the monthly mortgage payment this year, compared to last year, because of what’s happened to interest rates, even though median prices were at all time high mortgage payments are lower. So there’s some rationality to what’s going on. You
Jason Hartman 27:11
are You are speaking my language, my friend, I just did my own study. And I did two presentations on this so far. And I’ll tell you, it is absolutely amazing. Now, I did not adjust for wage growth. I simply adjusted for interest rates, home prices, and inflation. Okay, those three things, okay. And guess what? The 2006 median price home was $657, more expensive than today’s median price home, adjusted for inflation and interest rates. So real estate has gotten cheaper. You know, I don’t know what everybody’s so worried about. Now, granted, you know that I’m being a little bit snarky, because, of course, we’re going with the idea that people are buying a house on a payment, not a price, which is mostly true. But you know, the price does matter. And one more thing that doesn’t take into account. So I’m just going to, you know, in, in balance on balance, I’m going to say it doesn’t include property taxes or insurance, which will index higher with a higher price home. But just on the principal and interest p&i mortgage payment $657 cheaper than it was 14 years ago today.
Rick Sharga 28:25
Now, it’s it also varies by price here. So if you’re looking for affordable properties at an entry level position, you know, good luck, we’ve seen prices go up on a percentage basis, much higher at the at the lower tier, then we see that the upper tier and and candidly, I wouldn’t be terribly surprised to see some price corrections at the high end of the market and some of the more expensive metro areas. So if you’re looking at coastal California, the Bay Area, Pacific Northwest, maybe some pockets like Austin, and maybe maybe even areas in Chicago and New York, those properties were probably overpriced to begin with, again, would not be surprised to see prices correct in some of those markets. But But in terms of a bubble doesn’t seem likely we’re not seeing it in terms of prices as a multiple of rental prices. We’re not seeing it in terms of a difference in median price versus median income in those markets. So it it doesn’t look like a bubble last time. We saw prices go up because of bad lending practices. This time we’re seeing prices go up because of economics one on one. It’s supply and demand.
Jason Hartman 29:31
Yeah, absolutely. And the lending has been pretty darn conservative this time around. This will be continued on the next episode.
Thank you for listening and happy investing. 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 heart and 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.