Cheap Money Seller’s Market Frenzy

We’ve all gotten kind of used to this crazy real estate market nowadays, haven’t we? In a way, we’ve normalized all kinds of things that we’ve been hearing, but Jason takes us on a deep dive and looks under the hood to see what is really going on. It’s important to peel back the layers of the onion, as that old cliché says, in order to really understand what’s going on.

So first off, nationally speaking, from our friends at Altos Research, the national median home price is $375,000, and they indicate that we are in a seller’s market, which comes as no surprise to many people. But you’ve got to ask yourself, why is it a seller’s market? Or why is it a buyer’s market? Many people think that the people in the real estate business love a crazy seller’s market. That is not true. At least from Jason’s perspective, it is not true because it’s difficult to operate in a market when things are moving so quickly. But it is indeed a seller’s market. And why? Because the money is so cheap. Our central bank has just created a bunch of fake money out of thin air and other central banks around the world have also created an incredible flood of currency units. The value of anything is dictated by its scarcity and its utility, and currency certainly isn’t as scarce as it used to be. So when you debase the currency through this lack of scarcity, you get the dysfunctional situation we’re in now, but you can profit from that dysfunction by using Jason’s inflation induced debt destruction strategy.

Current Market Update – Massive Inventory Shortage

There are almost four hundred metropolitan statistical areas in the United States, over three thousand one hundred counties, and then even more cities and more neighborhoods. So just think about an extremely limited housing inventory for a first time buyer, spread out over all of those metropolitan statistical areas, around all of those counties, around all of those cities and those neighborhoods, and you can have a lot of empathy for the shortage of homes that they’re experiencing.

Jason wants you to take a look at some square footage numbers as well, more specifically price per square foot on a national basis. So let’s go back to the end of 2018 for some of his famous “compared to what” perspective. If you look at a ninety day average of homes listed, we were at about $140-143 per square foot. Compare that to today and we’re at about $180-197 per square foot. But remember, these numbers represent a national average and all real estate is local, so don’t let that mislead you.

Another very misleading thing to look at, which is very popular in the media, sadly, is the Case-Shiller Home Price Index. A lot of the reports and data that you hear are quoting Case-Shiller, but their main index only profiles twenty markets – only twenty out of almost four hundred metropolitan statistical areas! So these twenty markets are all major metropolitan areas. Just remember how Jason has taught you over the years about the three major types of real estate markets – linear markets, cyclical markets and hybrid markets. So in the Case-Shiller Index, 75% of that index is based on cyclical markets. So it’s heavily weighted toward the expensive, non prudent, trophy real estate markets, leaving only five, either linear or hybrid markets.

So as you can see, it’s dangerous to get your data from the wrong source, because you can be misled about what the market is doing. In the case of Altos Research, Altos is not profiling the same things that these other indexes do; all of these indexes do different things. And it’s very important to understand the differences, instead of just blindly listening to the talking heads on the news saying the market is up, the market is down, or this or that, or the other thing. We must ask ourselves: what index are they using? What data are they using?

For example, the Altos Research Index in question here profiles every listed home in the country. So how can this help us? This index gives us a look into the psychology of sellers to help us understand what they are thinking and their view of the future. Are they optimistic about prices? Do they think home prices will continue to appreciate? We can really get some insight into what sellers are thinking and Jason discusses exactly that in this interview with the founder of Altos Research, Mike Simonsen:

Altos Research Housing Market Update

All Real Estate Is Local But Compared To What?

One of the markets that Jason and his team like and recommend is Jacksonville, Florida. So the Altos Research market monitor for Jacksonville says that it is a very strong seller’s market with a median price of $306,000. Now, compare that to the national median home price of $375,000. So even a linear market or a market that’s been linear, at least historically, such as Jacksonville, is getting pretty expensive. Let’s segment this market even further (because you can’t talk about the country as a whole or even one market as a whole). You must segment by product type and by pricing. Are you talking about condos, townhomes or single family homes? Single family homes in prudent markets around the country are what Jason and his team help people invest in because it’s the most historically proven asset class in the entire world, as well as being the most tax and debt favored asset class in the United States. And by debt, Jason means good debt – mortgage debt that pays you to borrow money, and creates that awesome opportunity of inflation induced debt destruction which Jason has taught you about over the years.

Whenever you consider a statistic or piece of data, Jason encourages you to ask yourself: compared to what? We keep hearing that inventory is low and undoubtedly it is, but low compared to what?

Housing inventory back in 2018 was still very low historically. The overall inventory to be considered a normal market in the US should be about 1.3 to 1.4 million homes and as you can see today, we are very, very low, at just over 400,000 homes. Jason believes these low levels will persist for quite a while, as there is literally no sign of that changing in the near term. Ultimately, maybe the home builders will catch up with the demand and there will be more supply. But the problem is what type of supply? They are simply not building entry level homes because there is little profit margin in it for them right now.

We have an economy built on a house of cards. It’s largely a fake economy propped up by money printing, smoke and mirrors, the financialized Wall Street sector, etc, etc, etc. If the printing press keeps going, we are likely to see more and more renters and undoubtedly there will be a correction, as there always is due to cycles in the economy. Austrian economics has taught us that many, many times. When that happens, you’ll find people moving down the socioeconomic ladder, just as we did during the great recession. We saw people selling their homes on strategic defaults, getting bailouts from lenders, loan modifications, short sales or foreclosures, and we saw those people shifted into the renter pool and became renters. Either way, there is going to be demand for higher quality entry level homes.

Ashley & The Jason Hartman Team