CW 316 – Trulia’s Jed Kolko Explores Real Estate Markets
Jason Hartman talks with Jed Kolko, chief economist of Trulia, about current trends in buying, selling, and new construction in real estate markets around the country. “We’re seeing the biggest increase in construction on the multi-family side,” Jed shares. He says this is definitely a recovery time in the housing markets, although there are some markets that are investor driven that may not last. One red flag still hovering is the upcoming large foreclosure wave in certain markets around the U.S. Jed also shares where consumers are looking hardest, such as the western part of the country and suburbs. There are some urban neighborhoods experiencing growth, but there is still more population growth and interest in suburban neighborhoods. Jed and Jason also discuss seasonal patterns of buying and selling. For more details, listen at: www.JasonHartman.com.
Jed Kolko, Chief Economist and VP of Analytics, oversees Trulia’s research programs. Applying a background in economic development and research methods, he transforms real estate data, economic trends, and public policy debate into digestible insights for home buyers, sellers and renters. In Jed’s prior role as Associate Director and Research Fellow at the Public Policy Institute of California, he led research projects and advised policymakers and business leaders on economic, housing and technology policies. Before his work at PPIC, Jed directed Forrester Research’s consumer-technology market research, advising corporate executives on technology adoption and demand. Jed has also held positions at the Office of Federal Housing Enterprise Oversight (now FHFA), the World Bank and the Progressive Policy Institute.
Female Voice: Welcome to Creating Wealth with Jason Hartman. During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness then you ever thought possible. Jason is a genuine, self made multi-millionaire who not only talks the talk but walks the walk.
He’s been a successful investor for twenty years and currently owns properties in eleven states and seventeen cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman: Welcome to the Creating Wealth Show. This is your host Jason Hartman. This is episode number 316. Wow, those numbers keep passing by after all this time, three hundred sixteen episodes. Wow, we are — we are just moving fast and we’ve got lots, lots more to come. I’ve got Michael here with me today. He’s one of our investment counselors, as you know. You’ve heard him on the show before and we are going to talk about a few important current events and the property, before we get to our guest today and that is the chief economist of Trulia. You probably heard of Trulia, it’s a Zillow competitor. You’ve certainly heard of Zillow and they do forecasting and modeling of different real estate markets around the country and the interesting thing about them is, when you have a big website like Trulia or Zillow where you’ve got so much traffic at that site or Realtor.com, that’s another big one, there’s so much traffic at the site, not only do you talk about or can you talk about the real estate market from an – a — a purely like market perspective or economics perspective as an economist would have or a market researcher would have, but you’re also adding a whole other layer of who is searching for what? How often, for example, are they searching for properties in Houston or Austin or Atlanta, or — hopefully not in L.A. or some of the crazy markets like that, but it just adds a whole other dimension to ways to really talk about the real estate market. So, I think you’ll find that interview to be interesting and that will be up here in a little bit, but first let’s talk to Michael and let’s talk about some other stuff. How you doing, Michael?
Michael: Doing great today, Jason. How are you doing?
Jason Hartman: Good. How is life in Newport Beach, California?
Michael: Well, it’s pretty much always amazing and felt like summer a week ago and then we got actually quite a bit of rain yesterday and today. So, we got a — a false — a false sign of summer coming and got thrown back into spring.
Jason Hartman: Well, I’m — I’m really surprised you had rain the last couple of days. That’s — that’s surprising, but everybody talks about the weather. When I asked you that question I thought you were going to talk about the ridiculously high taxes, oppressive government, the crowds, the fact that there’s — there’s so few new places to go because, you know in terms of restaurants and entertainment because it’s so hard to open a business in the Socialist Republic of California, but none of that. You’re just talking about the weather, huh?
Michael: Well we — all we need all the beaches in the state parks, just ask Jerry Brown.
Jason Hartman: That stuff’s overrated, but you and Jerry Brown can have it. I’m so glad I moved out of California. I’ve got to tell you what’s funny too. Sarah and Ari were sitting at dinner with one of our local market specialists from Atlanta, Ken who we’ve been working with for years. They do a great job for our clients, and — and they were sitting at — at dinner right after I had moved to Arizona, and they were all talking about me behind my back, but I later heard about this conversation and they had done a — in Atlanta, a home — an Atlanta investor buying seminar in Irvine, in southern California, and they were all sitting around the dinner table and so Ken — Ken asked the question, he said so is Jason really serious, I mean about staying out of California? You know, he — he moved. Is this — is this for real? And — and they started taking bets on how soon I was going to come back, and they all agreed, it would be like I’ll give him six months, he’ll be back in California.
Well folks, it’s been two years and I’m still here, and I don’t have any interest in coming back to California.
Michael: Does it — they’re still pop up on your Facebook every once in a while especially when you joked about retiring, everybody’s said, oh so you’ll be back in California in no time.
Jason Hartman: Yeah. Oh no, that — that would definitely not be one of the better places to retire. Talk about — talk about getting whammed with expenses and taxes and high cost of living. Uh huh, no thanks. But some day maybe I’ll eat my words. There are a few things I miss about California, but there’s a lot of things I don’t miss. So, so far the scale’s in — in the favor of staying away. But — but anyway hey, let’s talk about — you had a couple of interesting current events and articles that were really fascinating that you posted in our — one of our internal internet groups where we all, within the company, we kind of network and come up with ideas and do a lot of content creation. And you posted some interesting things there last week. Where do you want to start, Michael?
Michael: Let’s start with the — six of the worst real estate investments and actually is a Zillow contribution to Forbes. So you were representing Zillow and then Forbes, obviously one of your — Steve Forbes, one of your past guests. So right off the bat, and he’s really — I probably wouldn’t have mentioned the article to the group, except it’s everything that you’ve been saying as long as I’ve known you, so it just reinforces that there’s some other big media power houses that are reinforcing the same thoughts that you have on real estate.
Jason Hartman: And actually Michael, it’s longer than you’ve known me because you were listening to the podcast long before you actually knew me, so — right?
Michael: Well, I think — I think like six years ago.
Jason Hartman: Okay.
Michael: Yeah, I think.
Jason Hartman: Yeah, cool, good stuff Well yeah — no, I’ve got to – I’ve got to tell you folks, just because you hear the word real estate, doesn’t mean it’s the right kind of real estate. What we’re all about is direct investment in real estate, where you own it, you control it, you do not leave yourself susceptible to violating commandment number three of investing with a crook or investing with an idiot, or investing with someone who’s taking huge management fees off the top of the deal. And all of these things — well, not all of them really, I guess the first two could be direct ownership and the rest of them really aren’t in — in the same way. So, let’s talk about them but — but go over the six. I mean, these are great. This is really a great article. There’s some great lessons here, folks.
And you know what I like it in too though Michael, before you go over the six items, is these promoters that — it’s — it’s like a total misnomer. It’s a non-sequitur, it’s an oxymoron. It’s just pure stupidity where they talk — you hear all these commercials and I talked about it before, oh own physical gold inside your IRA. Folks, you can’t own physical gold inside your IRA in the true sense of the word, okay. You’re owning paper gold. It’s not physical gold because you don’t take possession of it. Physical to me means you take possession, which is the only way ever to invest in those metals.
All right. This sounds like the same kind of misnomer about real estate, but — but go ahead.
Michael: Okay. So number one, anything that doesn’t generate rental income. And did you want me to rip through these real fast?
Jason Hartman: Yeah, yeah, I mean anything that doesn’t generate rental income. So like I say, and I — and I put that in bold in the creating wealth home study course and in the creating wealth live seminars and full day boot camp. Understand that anything that does not generate income or rent, is not an investment. It does not qualify as an investment. It is only a speculation. It’s gambling and thus is the reason, we don’t recommend vacant land. Vacant land is not investing, vacant land is speculating. You’re buying purely for capital appreciation potential, no income.
Michael: Yep.
Jason Hartman: Next one.
Michael: Number two, anything with negative cash flows.
Jason Hartman: Okay now that one I — I really want to just address for a moment and — and here’s why. Look at, I agree with that conceptionaly, however there are times where the financing opportunities are so good that you could put nothing down or five percent down on a property, and if you put a reasonable down payment which in my eyes is about twenty percent is a reasonable down payment. If you put a reasonable down payment then you would have positive cash flow, but if you put down less than a reasonable down payment, what you’re really doing in essence is you’re financing your down payment. So, I would rather pay my down payment, as I go if I could, you can’t do it any more because now days you pretty much have to put down twenty — twenty five percent on pretty much everything. There are occasionally few exceptions, but they’re — they’re the exception rather than the norm. And so in that case I have a strategy I call deferred down payment and you could potentially have a small amount of negative cash flow and the investment could still be a really excellent investment because you did not put a reasonable down payment.
Now, it’s kind of hard for people to get their head around this and I tell you I have presented this to thousands of people and I have had the Cyprus debates Michael, over this exact subject because people just can’t get their head around it. They can’t get their head around the idea that when you buy a stupid mutual fund or a stock or a bond, almost any time you do that kind of investment, you put one hundred percent down. Yeah on a — and — and maybe it produces no cash flow. It might be a non-dividend paying stock for example, or you know a mutual fund that doesn’t distribute any — any dividends, right. And so, you have negative cash flow with one hundred percent down — well not negative, but you have no cash flow with one hundred percent down in that example.
So here, you only put one fifth of the amount of money down if you’re putting twenty percent down, and on any property you buy from us you’re going to have positive cash flow provided you get your property rented and do the job correctly, which of course we help you with. But there are times, and we might come into one of those times if things get really frothy and stupid again in the renting market. I’m not saying that that’s right overall for the — the banking community, but I’m going to say to our clients, hey take advantage of it. If you can use that deferred down payment, sometimes it’s pretty good, not always, it’ll be qualified and I’ll explain it when it happens. But there was a time when that actually made a little bit of sense. But you’re — you’re — what are your thoughts on either of those two points. You know I don’t want to dominate the conversation too much.
Michael: Well, that’s — that’s funny that — just that and how this topic came up because I was actually doing some spring cleaning this week and came across one of the old performers from Atlanta and how — the negative cash flow, and you know when I first was flipping through the pages —
Jason Hartman: It — it was five percent down, right?
Michael: — then — then I saw — yeah, ninety five percent financing and then I actually had a note, it was before I worked with you and it said finance your down payment and then suddenly it started making sense be — at first I was like, wait a second, Jason — you know platinum properties — property with negative cash flow but it only took two seconds to remind myself that you said, you know take advantage, tiny down payment, you finance your down payment and this is actually — can be a phenomenal investment down the road.
Jason Hartman: Yeah, the example I used to give is that the time horizon for the break even plan was about nine years. So, let me just give you an example here. You know and I’m doing this math off the top of my head. I really shouldn’t do it this way, I should pull out the old power point presentation where I represent this concept and show people how it works. But if you take and you put fifteen thousand dollars less money down on a property, just as an example okay, fifteen thousand dollars, but instead of having one hundred dollars a month positive cash flow, you have one hundred dollars a month — I don’t want to call it negative cash flow because that’s not really what it is. It’s deferred down payment. There is a difference and a distinction.
It’s kind of like that other concept that some people can’t get their head around of, the concept of — of appreciation Michael, versus regression to replacement cost. I say those two things are — are different. They look the same to most people, but they — they really are different concepts, regression to replacement cost versus appreciation, different concepts.
So here in this example, if you’re one hundred dollars a month deferred down payment, look at what it takes the — the delta there is two hundred dollars a month because if you put the fifteen thousand dollars extra down, you would have one hundred dollars a month positive. But now, when you’re putting the fifteen thousand dollars less money down, you have a one hundred dollar negative. So, let’s take fifteen thousand dollars and I’m going to divide it by two hundred dollars, the amount of the delta — divide — that is seventy five. Okay now, what does that mean? That’s seventy five months. Now, let’s take seventy five and divide it by twelve months in a year. That — in this is after it’s six point two five years, is the time horizon.
So, that’s an awesome deal. I mean I would take that deal in a New York minute. I would much rather finance my down payment. But now, you got to most Joe six-pack Americans and they don’t have the discipline to keep the money in the bank. They’ll go out and spend it. They’ll be idiots and they won’t — they won’t be able to have the financial maturity to manage the concept of the deferred down payment, right. But anyone who’s really thinking it through and who’s going to be responsible, it’s a great deal. Anyway —
Michael: Plus in that six years of inflation, you —
Jason Hartman: Oh yeah.
Michael: — most likely we’re going to go up right up a couple of hundred and [voice over] —
Jason Hartman: Yeah, you know all that stuff, obviously. But — but — but you know look, we don’t — after all this is said and done, we don’t have this opportunity now days so just disregard the last few minutes, okay. Let’s move onto the next one.
Michael: Okay.
Jason Hartman: And the next — the next one I love because I saw one of my buddies get into — well I saw a lot of my buddies get into these deals and they suck. These deals are so bad, and I was saying they were so bad at the time. And you know we would have these promoters want to come into our meetings and promote these and it’s like ugh, I feel so self-righteous. Go ahead, tell them what to do.
Michael: Number three, tenants in common also known as tic investments.
Jason Hartman: Lame, lame, lame. So tenant in common deals, what these are folks is these are — these are where the — the common tenant — the common deal — would be that they would go get a bunch of investors, they go around to these investment clubs, they promote these tics or tenant in common deals and they would say, if — if you put in one hundred thousand dollars into the deal and we’ll get twenty other investors to put one hundred thousand in, we — we’ve got two – two million dollars and we’ll all go out and we’ll buy a lousy office building that has a crappy cap rate, that’s the typical deal, right. And of course, the office market went to is hell in a hand basket — I’m not fond of office property, I like housing. Obviously, everybody knows that by now. It’s the only thing people ultimately need for sure is housing.
They don’t necessarily need an office. They don’t necessarily need a shopping center and we don’t necessarily need a manufacturing facility, which is the subject of our next article. So, we’ll get to that in a moment. But they do need a house at the end of the day. They need a house and these tenant in common deals would be, you’d have a manager and there was a big debate as to whether or not these were real estate deals or they were securities.
So, there was a lot of litigation that came out of this. A lot of investors really got burned, lost a ton of money and then there was a bunch of other litigation, not necessarily for getting burned, but the SEC wanted it to be classified as a security, like a stock investment versus — the promoters wanted to promote it as a real estate deal and the — the way they were trying to call it a real estate deal, is by saying look, you actually have a fractional deed in the deal in this office building. So, you’re not really pooling your money and putting into a fund. The fund is buying the building. That would be more of a security. And by the way, I’m not a lawyer, I’m not a tax advisor, I’m not an expert on this. I’m just telling you, there’s my disclaimers okay. I’m just giving you my real estate investor guy’s perspective.
And — and — and so, you own a fractional deed and so Michael, if you were in this deal and I was in this deal and there are eighteen other people in this deal, and we all put one hundred thousand dollars in, we’d all have these fractional deeds that were basically unmarketable. Nobody wants to buy these fractional deeds. I mean granted I’m sure a few of them resold, and the promoters would tell you, oh yeah if you want to sell out your interest we have an exchange that we’ve set up with fractional deeds and all this kind of stuff and we’ll help you sell it and exit the deal. And — and it turned out those things just fell on their face. They just didn’t work.
Michael: And they required a Series 7 license, didn’t they, to sell?
Jason Hartman: Well, the only if they were considered security, but —
Michael: Oh.
Jason Hartman: — if that were considered a real estate deal, you know or you can just have a real estate license.
Michael: Okay.
Jason Hartman: Okay. Or you could — or you could actually just be the owner or an employee owner of the tic, then you don’t even need a real estate license. You’re just working for the seller.
Michael: Okay. So maybe you — say if you were a unrelated party trying to market it to pick up a commission —
Jason Hartman: Yeah, then — then you need a real estate license, but — but what I — I don’t — I can’t remember the way this all came down. I kind of stopped following it a few years ago after you know, I read about all the litigation. I mean there were these terrible, terrible tic deals, okay. And I don’t know if it was ultimately classified as a security or a real estate deal or if some were allowed to be called real estate deals or others were — I just — I don’t know, I don’t [inaudible].
Michael: Yeah. I know a gentleman that sold them at one of my brokerages that I work at, he had that — the securities license to sell them.
Jason Hartman: Well yeah, yeah.
Michael: Yeah. So, and it had to do with the perspectives because of the language they put in there. So, I don’t know.
Jason Hartman: Folks, stay away from those deals. Just be a direct investor. Manage — be in control. Even if those were good deals, you’re not in control. Okay Michael, what’s number four?
Michael: Number four, development deals.
Jason Hartman: Yes, development deals.
Michael: Talk about speculation.
Jason Hartman: Whoa, this is hard. And I’ll tell you something, when I was at the ripe old age of twenty two years old, I started taking all these classes at UCI, the University of California in Irvine and I — I was taking all these classes that were for the mirm — m-i-r-m, I believe it was, designation or — and there was another one that was like a [inaudible] with it. I was taking both of these series of classes for the light construction management in sales certification.
Anyway, I always wanted to be a developer. I thought developers — those are the guys who make big money and it was really my dream. You know, Donald Bren, the owner of the Irvine Company — he’s a huge developer, billionaire, Forbes 400, etcetera. If you don’t know who that is, look him up. Donald Bren, B-r-e-n. I — I actually got to meet him once at the Irvine Company and he — he is one of the largest developers in the nation, and — and his two — two of his kids were clients of mine, Carey and Steve Bren, and really nice guys by the way, very amazingly down to earth and super cool.
Anyway, I always wanted to be a big developer. I thought that was were the big money is and I started taking these classes at UCI Michael, and I realized these developers, they’ve got a plan three, four years out and catch the market at the right part of the cycle and it is so risky. I just — I said, no way, no way. Not with my deal.
Now, some developers you know you look at big development companies and so forth. Of course it’s different for them because why? They’re using somebody else’s money and that’s not a bad deal when you’re using somebody else’s money, you know.
Michael: Yeah, you have the games where you have your management company that manages the deal, they can take big profits out and then ultimately the development falters and they can’t — if they go bankrupt on the deal, they — they split the — the companies up so that they still make a huge development fee, they just don’t get the — the extra big gain off the final sales of the property but it structured though, they still win at the end of the day.
Jason Hartman: You are absolutely right. They know how to structure these deals so they segment all the companies up and one’s providing services to the other. And I got to tell you by the way, one of our local market specialists is doing this in Arizona and I tell you these guys they are so disorganized it’s really — I — I just have a very low opinion of what they’re doing and I — folks I would not in — do not invest in these. Be a direct investor.
Again, going and investing in someone raising money to do their development deal, almost never would I do that. Just stay away from this junk. I mean these guys — it’s — it’s like their left hand doesn’t know where the right hand is half the time. It’s ridiculous and — and — then they’ve got all these other companies and one’s providing services to the other and they’re — you know they’re probably taking huge profits out of one part, and that’s not the part the investor’s involved in like a construction company. Just stay away from it. Just —
Michael: All right, let’s keep going.
Jason Hartman: All right, yeah.
Michael: Number five, condo, hotels, intervals and time shares.
Jason Hartman: Yeah, what a joke. People actually think a time share is an investment. That’s hilarious. First of all, if you’re ever — if you’re ever lame enough to buy a time share, do not buy it retail where the developer is selling it to you. That’s the worst deal ever even though they’ll give you a free three day weekend there and wine you and dine you so you’ll be dumb enough to invest in a time share or — it’s not even an investment.
We — Michael, we should call divesting, when you get divested of your money. It’s not investing, it’s divesting.
Michael: Just — just watch the — what is it, the Queen of Versailles? Just — that’s a great documentary on — what’s that company? I can’t think of the name. They were the one with the biggest time share company in the country and —
Jason Hartman: Was that Glen Ivy —
Michael: — not Glen Ivy, it was —
Jason Hartman: — and I’m not confusing that by the way with Glen, Dergal & Ross the movie, that’s different. It’s a funny movie, by the way. But yeah — no, I mean just bad deals all around. You can — the amazing thing is, you can buy these time shares on Ebay, people reselling them for almost nothing, like that — the one that the developer who will charge you twenty thousand dollars for, you can a lot of times go on Ebay or wait a year and find them on Ebay or some other time share brokerage website for one thousand bucks. People just want to get out of them because the cost of owning them is so high. You’ve got to pay all these fees, they nickel and dime you to death. It’s just a bad deal.
The thing I realize is, don’t buy a second home, don’t buy a time share, don’t buy — buy vocational rental. Just buy some rental properties and when you want to go on vacation, rent a four or five star hotel, get the luxury presidential suite at whatever hotel you’re staying at. It’ll be way less expensive than owning these things.
Just — some things are not — they’re not — they’re better un-owned. They’re just bad business.
Michael: Well, it just — well, it’s just no common sense. They’re completely getting you on your ego and making you emotionally attached to what that giant real estate project appears to be, but you only own a tiny fraction and it’s just — the numbers are terrible. At the end of the day you have high, monthly fees and just — yeah, just — just go vacation there and — and go — go to a hotel.
Jason Hartman: Yeah, just get an — get an awesome hotel, it’ll cost you way less money and you’ll love it much more. So, number six?
Michael: Foreign real estate.
Jason Hartman: Oh yeah, yeah. Be careful, the scammers are out in force on foreign real estate, I tell you. I have talked to a lot of these guys and I’ve been around a lot of them and we — we just — I — in fact, last week I just had on my Jet Setter Show, Kathleen Peddicord on for the second time. I had her on before, and she is like one of the gurus for decades of international real estate, international living as an Agora company and live and invest overseas and all this stuff, and look at folks, if you’re going to do that kind of stuff, you got to be really careful and make sure you are working with trusted people, because a lot of times these people don’t even get title to the stuff they think they’re buying. It — if you’re buying in a — in a first world country, you’re probably okay but you know a lot of these promoters are selling this junk in foreign countries and it’s just — it’s just mind boggling.
The kind of profit margins they were making at your expense is — it’s pretty scary.
Michael: I actually talked to one of the attendees at the — from the — the Police Conference I went to.
Jason Hartman: Thank you. I just forgot to even mention that. I was going to mention Belize and I forgot. Oh wait, you were there with me.
Michael: Yeah so, he — he — he actually went to see one of the promoter’s properties in — in South America and he said it was literally the middle of the Peruvian Desert and they were trying to sell it as, isn’t this great? You’re living off the grid. You’re out — and he just thought, yeah, you’re off the grid because nobody in their right mind would run utilities to the middle of this desert. And they wanted like $250,000 for — you know, I don’t know. It was 10 acres, and this investor, he — he could tell that they might say $250,000 for — they’ve probably got about 100,000 acres in — in the desert and now you know, they’re trying to do probably a 10,000 percent markup on — well, he — he felt like, you’d have to just be such a sucker to buy it after seeing it.
Jason Hartman: This is a sucker’s game, and look, there is one thing I like about foreign real estate and at some point I’ll probably buy some foreign real estate myself, and I — I — I’m not saying it’s all bad, I’m just saying there’s a lot of scammers and sharks out there in that world. Same thing with the world of asset protection, just watch your back because there’s just sharks and scammers everywhere, making a lot of false claims in my opinion. But there is one really good thing about foreign real estate, if you’re a U.S. citizen. You don’t — and I — you know, again don’t quote me on this, okay. It’s just little red nerve. You’d better be careful and get some good, solid advice from a real advisor.
But from what I hear, you don’t have to report it to the Government, the IRS and a lot of people that want to sort of internationalize their life and have some assets off shore, who are Americans, it — it is kind of good in that way. It allows a little bit more flexibility. Now the American Government vis-à-vis the IRS, may just change that law next year or next month, who knows, but the — the way it is now, my understanding is, you can own foreign real estate and not report it.
You can’t have a foreign bank account and not report it. You got to report that, but the real estate for some reason, it’s treated differently. Probably as a result of some expensive lobbyist who went in there and bribed the politician to get the law written the way they want it. That’s the way everything works in this Country, unfortunately.
You know, I — if I was President the first thing I would do is to eliminate lobbyists. I tell you, lobbying — I mean, I don’t know. It serves its purpose but I got to tell you, there’s so much corruption in that world it’s — it’s mind boggling. But yeah, be careful of the foreign real estate. Enough said, what do you say?
Michael: Yep, yep. Let’s keep going.
Jason Hartman: Okay next topic.
Michael: Okay, let’s jump real fast to that Cato Institute article and they talked about the — the myth of manufacturing — of a — manufacturing renaissance. But you know we had an interesting discussion about this before we jumped on today. So this article is trying to say that, although jobs and manufacturing in the United States continue to decline, when you look at a whole bunch of other metrics such as respect to output, value added, revenues, return investment, exports/imports, profits, there’s all these different metrics you can use and actually are manufacturing under those metrics has been increasing the entire time, even while we see the manufacturing jobs decreasing and they felt like the media mis-portrays what’s going on and they act like we’ve completely lost our manufacturing base and that there’s this big crisis in the Country that we’ll never return to it, when this whole time we — from their prospective and the metrics they chose to — to reference, we’ve been increasing it for — for decades.
Jason Hartman: See — and — and I talked to you before about this off the air because we just chatted about this article for a few minutes. That — I really am not sure I agree with this article and — and the reason is — and I didn’t dig and think it through enough, but a lot of these — you know, you’ve all probably heard there’s this old famous book and it’s called — and I haven’t read it by the way, but I do own it. I bought thinking I would read it. I’ve got a lot of books I own but have never read.
Michael: You — you’re — you’re a [inaudible] off at the office on Anton was so impressive. There was a lot of books on that shelf.
Jason Hartman: I — I’ve — I’ve got like triple that at home. And — and you know what my new thing is, a lot of my show guests they send me their book, and it’s like, I don’t want your book. If you can’t give me a digital book, like a Kindle book —
Michael: Yeah.
Jason Hartman: — I just don’t want it because I just — books are too heavy, they’re too hard to move. I want everything digital now.
Michael: Maybe — Jason — there can be a Jason Hartman Foundation Library in some City one day and it all — be all about investor education.
Jason Hartman: Hey — hey, that’s a pretty good idea. That’s not a bad idea, you know. I could just donate — I should donate my books to my own foundation, take a tax write off, open a library. Bush just got his library opened. I — I doubt he reads much.
You know — you know and seeing all those Presidents together, I was kind of — I saw Jimmy Carter there and he looks chubby. He doesn’t look —
Michael: Oh, I missed it.
Jason Hartman: Yeah, he doesn’t look — in that picture he — he looked like a different — different guy. I was kind of surprised. Oh wait, we were talking about manufacturing, right? Okay so, how do I — with statistics. Michael, here’s the thing and I — I — I gave you this example too, but you got to look at this on a per capita basis, adjusted for population and adjusted for inflation, because if the manufacturing is quantified in dollar amount, of course that’s — what dollars are they? Are they dollars in 1980 dollars or 2013 dollars? And so you’ve got an inflation factor there. So, you’ve really got to consider it.
And then you’ve got a — a population factor. So, if the manufacturing — if we’re talking real dollars, inflation adjusted dollars, in 1980 for example, say the manufacturing output of the Country was — I’ll just pick a number, Three Trillion Dollars and then, just as an example, say we had 200,000,000 people in the Country and now we have about 310,000,000 people in the Country. So, the population has increased. So, if it — if the population went up by a third, then the inflation adjusted output of manufacturing needs to go up by a third to be at the same level. And I think, although I’m not sure because I haven’t agonized over it that this article is misleading in that way.
I — I think manufacturing — my impression at least, and tell the listeners your impression, but my impression is that manufacturing infla — adjusted for inflation and adjusted for population or per capita, has declined pretty steeply in the U.S. Your thoughts?
Michael: Well, I’ll admit, I‘m really not an expert on things like GDP, and I even was trying to Goggle — after our discussion, I tried to find a chart of manufacturing you know revenues, over time and I really couldn’t find it based on a per capita —
Jason Hartman: Right.
Michael: — you know, chart so I could get — so I could get a — a – some sort of graphic to really — to measure that. So, I — I didn’t — you know, I don’t know. It’s not — it’s a number that gets tossed around and I — I don’t — I’m not an economist so I don’t put a ton of — I don’t pay a ton of attention to somebody’s metrics as maybe I should, maybe I shouldn’t, I don’t know.
Jason Hartman: Well, the thing you got to remember with everything, it’s got to be adjusted for population, it’s got to be adjusted for inflation, or — or it’s just — it’s out the window. So let’s jump to the next article and let’s talk about taxidus and this one — Michael, this was a great post and some of the videos that came with it were — were pretty awesome that you made an intranet site, but these companies are just playing this amazing game and one of the guiltiest, believe it or not, is a — a favorite. It’s the most valuable company on earth, it’s Apple Computer.
And it — it — it strikes me funny Michael, because Al Gore is on the Board of Apple and they’re sort of — you know, Apple’s got sort of a liberal kind of spin to it. I — I don’t know, that’s just my im — impression of Apple although I love their products, and I would assume that the Apple Headquarters and Cooper Kenol — a lot of people are driving the Pries and they’ve got a — a bumper sticker that says Obama on their car, you know, and all this stuff, right, and yet Apple is like an expert, I mean at — I don’t want to say tax evasion, but tax avoidance.
Michael: Tax avoidance?
Jason Hartman: Yeah, the legal version of it.
Michael: They — they — I think it was in this documentary, the guy makes a funny comment and he says the difference between tax evasion and tax avoidance is the width of a jail cell.
Jason Hartman: Yeah, yeah, exactly. The width of the — no, it’s the — the — thickness of this wall.
Michael: With this wall.
Jason Hartman: Yeah, the jail, yeah, exactly.
Michael: Well, I — actually, I mean I don’t think — is Apple still the most valuable company out there are whatever — 43 percent decline in value, whatever?
Jason Hartman: I need a picture to guess what they are because I thought they were about three times more valuable than any of the big oil companies.
Michael: Yeah, okay. Okay. Well also the — this documentary, the tax rate too were big — the Zero Hedge called it around the tax avoiding world in 53 minutes and said they — they cover how all of the multi-national corporations, use various treaties in different countries to flow profits and keep certain funds off shore and use all these method of — they brought up, which one was it, Starbucks and how Frappachino’s a trademark’s name and they can pay royalties to that trademark in like the Netherlands to send us profits offshore. So, it was just an interesting look at what all these big companies do.
They said Apple’s effective tax rate as a corporation was like 1.9 percent.
Jason Hartman: Unbelievable. They are good — no wonder Apple’s so probable, that’s one of the reasons they’re very well managed.
Michael: You know —
Jason Hartman: Yeah.
Michael: — you know I think this is just interesting from a — it’s just interesting from a prospective of what are these big corporations doing? It might make some people a little angry, but you know, my take away netted at the end of the day was these multi-national companies spend tens of millions of dollars, maybe it’s hundreds of millions, I don’t know, in accounting fees and services to the big four tax firms so that they can avoid paying tax. And we can really take advantage of the — the most tax advantage assets just by being investors and buying real estate.
Jason Hartman: Yeah, I know. With our income property investments folks, we’ve got the most tax favored asset in America and we talked about the foreign property investors and all of these people like the people in Belize, they spend all this time like agonizing over how do I get out of America? How do I weigh taxes and I love America, and I love Apple products, too. Okay and it’s — it’s really not complicated. Just buy yourself a bunch of income properties and figure out how to become a real estate professional.
But those two goals are the most important two goals you should have in your financial life. You become a real estate professional and own a bunch of income properties because you can get into a position where you virtually pay no tax. It — it is amazing and I tell you, I’m in that position and it’s pretty awesome. I pay relatively little tax, okay but we’ve been I — and it — it costs some money to do that. It creates some complexity to do that but I do it right here on shore in America, without doing any monkey-ing around or breaking any laws or living in fear or not filing tax returns. You just — the IRS, the Government, the banking system incentivises us to buy income property. They want you to provide rental housing to people. Do what they say. Do what they want. They won’t give you money in the form of not paying taxes to do it. It’s a — it’s a wonderful thing, it’s really incredible.
Michael: Let’s talk — let’s talk about one of those properties that —
Jason Hartman: Absolutely.
Michael: — they should be buying.
Jason Hartman: Go for it, yeah. Where is this one? This one’s in Huston, right?
Michael: This is Huston and you know like Huston — you know it’s maybe not quite as sexy to people as Austin and Dallas and —
Jason Hartman: Yeah, but it’s a great rental market, let me tell you. I love my Houston properties and so does Sarah. You hear her talk about it all the time. The cash flow is so good there. I mean it’s just – it’s just awesome.
Michael: This one I just can’t believe. You know, this is brand new construction. It’s a four bedroom, 1,440 square feet. The purchase price is $129,000 and what’s our total —
Jason Hartman: And — and then look at this. So, your — your projected rent here — we’re looking at the performer, it’s on the website at Jasonhartman.com is $1,350 per month. We’ve got the — the vacancy rate in there. We’ve got the management fees in there. We’ve got the appreciation in there. We’ve got the maintenance in there, at three percent even, maintenance. That’s a little high for a brand new house. This is brand spanking new, and listen to this, cash-on-cash return’s projected at 12 percent annually. This is new. I mean, we get that on older homes all the time, but this is a newer one. This is brand new, actually. And then overall return investment Michael, what’s the projection?
Michael: Forty five percent.
Jason Hartman: You know what, I think people want to hear those kind of numbers or they’re going to start disbelieving us and — and not giving the — these investments the credibility they deserve. So you know what folks, let’s just assume it only goes half as well. You’ve got 22 ½ percent annual overall return on investment, pretty darn good.
The cash flow here is projected at 30 — over $3,600 annually. So from the — I mean that’s from — that’s a brand new property. It’s unbelievable. I mean, it’s — it’s just — it’s just really, really good. And of course, you do have higher property taxes there, no question about it but that pretty much passes through the tenants. They pay higher rent.
It — it’s funny, in Texas tenants think they’re getting away with murder. They don’t have State income tax and if they don’t own a property, they don’t pay any property tax. But all that really happens in reality is the rents are higher than they would be if the property taxes were lower, and so they just pass that expense right through to the tenants, that’s all that really happens in reality. Every — everything is a pass through entity. That’s the way it works in — in free markets, folks.
Michael, that was a good in. I love that property. Really good, it’s in Houston so check it out at Jasonhartman.com and anything else? We got to get to our guest.
Michael: Well, we ran pretty long as we like to do.
Jason Hartman: You know, we — we tend to — nobody ever accused me of being short winded, did they? Okay, anyway I’m going to shut up now. Well actually, I’m not because we’re going to talk — I’m going to be talking – interviewing out guest here, so we will be back with our guest in just about 60 seconds and Michael, thanks for joining me today.
Michael: Thanks for having me.
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Jason Hartman: It’s my pleasure to welcome Jed Kolko to the show. He’s the Chief Economist with Trulia and I believe he’s coming to us from the San Francisco Bay area today. Am I correct, Jed?
Jed Kolko: That’s right, here in San Francisco and yet another beautiful California afternoon.
Jason Hartman: Well, fantastic. It’s great to have you on the show and of course, pretty much all of my listeners, I’m sure, know what Trulia is, but for the three or four of them who don’t, maybe you just want to start with that and — and then we’ll talk about the real estate markets, since you are the Chief Economist. Great!
Jed Kolko: Trulia’s an online real estate market type. It’s the place to go to look for listings whether you’re looking to buy or to rent and we have fantastic local information about different places. We intergraded that into our search so you can choose the search either based on the properties of a house with a certain number of bedrooms. You can let us make recommendations to the type of homes you might like or you can search based on neighborhoods, say looking at all the homes within 20 minute drive of your work place.
Jason Hartman: Fantastic. And as — as far as the economic side — I mean some might ask, why does Trulia have a Chief Economist? Are you making predictions or are you — I mean you’re obviously observing the market. What do you do on — on your side of it?
Jed Kolko: First of all, the economic for what we do helps us put good information on this site. We call this giving consumers the insight scoop. If you’re on our site, you can see what’s going on in different local housing markets. We also have formation about home values, about crime rate, new time school quality, so information that can really help you when you’re at the point of searching for a particular home.
We also have blogs which talk about what’s going on in the housing market. What that means if you’re looking to buy, rent or sell. So just recently we published our regular buy versus rent report where we look at the overall costs of buying versus renting. It’s a big decision, of course. It’s the biggest financial personal decision that many people make.
We take a look at all the costs of buy and renting, and publish those into a report and an interactive map where you can look at the scenarios to figure out depending on the tax bracket you’re in and what you itemize, how many years you’re trying to stay in a home and where you are, what City you’re in whether intend to buy or rent.
Jason Hartman: Fantastic. Now I assume that the results of the buy versus rent analysis is pretty good right now in favor of buying. I mean we’ve got housing affordability at the best — best rate — the highest rate it’s been ever since NAR National Association of Realtors started tracking it, I believe back in the ‘70s. Rates are low, prices are low and inventory’s kind of a little — getting a little scarce, but maybe speak to that for a moment?
Jed Kolko: That’s right, buying right now is almost as affordable than it’s been in many years relative to renting. Right now when we look on average across the U.S., buying is roughly 44 percent cheaper than renting and that’s when taking into account all the cost of owning and all the cost of renting including insurance, maintenance, taxes as well, of course the mortgage payment and the rent payment.
We also take into account what’s likely to happen, the total prices in rents and how that factors in, then you sell at the end of your ownership. Put that altogether, it’s actually cheaper to buy than to rent in all of the 100 largest markets in the U.S., though it’s a close call in some places than others.
Jason Hartman: When you do that buy versus rent analysis Jed, what is it predicated on in terms of down payment?
Jed Kolko: Our baseline scenario is a 20 percent down payment, a 30 year fixed rate mortgage at today’s best rates which is around 3 ½ percent. But we also look at alternatives to areas like getting a 4 ½ percent mortgage or even 5 ½ percent mortgages because you know that unless you’ve got a great credit score, you might not be able to get a 3.5 percent mortgage today.
Jason Hartman: But those — those mortgage rates are just unbelievable no — no matter which way you slice it. There are no [voice over].
Jed Kolko: That’s right. I mean they — they started to go to bits over the past few months, but — but they’re still so low right now. They even — even as these rates go up to 5 ½ percent, it’s still significantly cheaper to buy than to rent in much of the Country just because — even 5 ½ percent is low by historical standards.
Jason Hartman: It sure is. It sure is. So it — it’s — it’s pretty much a no brainer, if you will, that people should be buying. Of course the — the big challenges people are having is we’ve — we have this very large financial crisis and many people have bad credit scores because they’ve done short sales, loan modifications, foreclosures or strategic defaults and that has made it difficult. So, some people cannot buy for a while based on — on that issue, and then also saving a 20 percent down payment, especially on more expensive market, that’s a pretty big chunk of money, given the current economy, especially.
Michael: The down payment and getting mortgage are the two biggest rip offs right now. Getting mortgage is a hurdle not only because if you were [inaudible] — even people with recently good credit histories find it hard to get a mortgage today because credit still is tight. That may change over the next year, but banks are still more reluctant to lend than they have been.
You know, the third actually in addition to things for a down payment to qualify for a mortgage is that inventory’s tight and in a lot of parts of the Country, especially in the West, there’s not a lot to choose from. And even people who can’t afford to buy to qualify for a mortgage, they are fighting [inaudible] for the buyers and are getting out big by investors who just aren’t moving fast enough.
Jason Hartman: You know it’s amazing Jed how quickly it — it sort of turned around. I mean just a year and a half ago, people were very unsure and now we’re seeing prices increase. I mean, here in Phoenix we — we’re — we’re up 35 percent off the bottom and inventory is so scarce in — in so many markets. I mean, pri — prices going up almost everywhere, it — it seems like. I — I mean, we don’t — we don’t do any business in Michigan or anything like that. So you know, I don’t know what’s going on there too much, but your — your thoughts on — on which direction we’re headed in?
Jed Kolko: It does feel that the turn around happened very quickly but in fact, prices were falling for a very long time. They were falling fairly slowly over the past couple of years. It’s that the price turn around was in fact — it actually was a long time coming, but here’s something that is — the inventory decline. There’s been a steep drop off in inventory through much of the Country and part of that’s about the psychology of — of press agents. And to put it simply, nobody wants to sell a part of it. Everyone wants to buy at the bottom.
So, as soon as prices turn around, as soon as prices hit bottom, everyone realizes that prices are starting to rise, and suddenly buyers get impatient and sellers want to wait and that’s one of the big reasons why — why we see such an inventory crunch in many parts of the Country.
Jason Hartman: And builders are — are moving into the market pretty quickly and pretty swiftly to meet the demand, but interestingly I saw this survey and this is how statistics marline thing so much, at least you know, I didn’t analyze this in any degree of doubt, so please correct me if I’m wrong, but it was a survey showing that new home prices are like 20 some odd percent higher than resale prices and so I thought, some people in some markets are still able to buy below the cost of construction for a resale and the new homes just basically create inflation because the builder’s not going to build anything if they can’t make cost of construction plus builder’s profit. So, it’s just interesting to — to sort of look at the states, but what do you think of the new home side of the equation? I mean, how — how does the future look in other words?
Jed Kolko: Construction is rebounding, but we’re still a long way from normal construction levels. Right now we’re still more than 30 percent — 40 percent below normal construction levels. So, it’s — it’s a longer to had particularly in places where there been — there had been big price declines, like Phoenix. Even though Phoenix prices are rebounding seriously, construction’s doing way below normal levels than Phoenix.
And also, we’re seeing the biggest increase in construction on the multi-family side. Right now, multi-family construction accounts for about 30 percent of new housing units. The normal share is about 20 percent. So, multi-family is an unusually big part of the construction rebound and that’s adding some of these rental supply actually in big cities where there’s a lot of rentals and multi-family buildings, you know, big apartment buildings.
Jason Hartman: Yeah, it certainly is. Is this a recovery? Can we call it a recovery or is it just a — a nominal recovery that’s papered over by inflation and money brand?
Jed Kolko: It’s absolutely a recovery. We’re seeing strong job growth in a lot of the markets where prices are improving, but importantly vacancy rates are coming down and that’s an important measure of whether there is access supply relative to demand. Or at the height of the bubble during the bust, vacancy rates went way up, inventories went way up. So, there’s been a lot of over buildings, there’s a lot of buildings in places where there turned out to be not that much demand.
Here — what we’re seeing now is very different, even market fundamentals, strong job growth type vacancy rates in — in most markets suggest that it is a real recovery. You know, there are places where a lot of price rebound is investor driven and that may not last, including Phoenix; Las Vegas; the Inland Empire; part of Southern California, East of L.A.; in Detroit also we see big price rebounds without really showing job growth, and — and that’s a red flag. Those are price increases that could go [inaudible] very quickly. The other red flag is in places where they’re still are a lot of foreclosures to come on to the market, States where it takes longer for foreclosures to go to that judicial process and come onto the market, are going to see more than come up for sale. We’re to see that in Florida, above all, that’s where the biggest foreclosure inventory is right now. It’s a share of the total housing stock.
Also in Illinois, New York and New Jersey, there’s still foreclosure way down.
Jason Hartman: Yeah, I want to get to that point a little more about the inventory hangover, but why did you — on that — on that, I believe it was the first red flag that you mentioned, you were saying a lot of this — this inventory shortage is being driven by investors snapping up the good deals. Why would you say that might stop? I mean, would the investors lose interest for some reason?
Jed Kolko: Investors want to buy when prices are low. When prices have risen enough it’s no longer as good a deal. Now people who are moving to an area and buying homes for that reason, will still move and they’ll move for jobs and they’ll buy anyway. But for someone who’s looking to buy because prices are low, that’s demand, that’s — can — starts to go away once prices rise.
What we are seeing markets set has — has bigger price increases, are seeing a smaller share of interest from foreign home searches. A lot of foreign searches that we see do tend to be investors. That is — that’s their demand starts to go away when prices rise.
Jason Hartman: Yeah, right. I — I — I’d agree with that, and by the way, having a website like Tulia, you probably just have a wealth of analytics information on who is searching, from what part of the world or the Country they’re searching and what markets they’re searching for? I mean, do you have any web that you can share with us. It may not be handy. I know it’s very complex I’m sure to wade through all that data, but when you said foreign investors, I mean, we’ve — we’ve got people from all over the world that are looking to gobble up U.S. real estate right now. Australia; New Zealand; the African Continent; Europe; Asia, every — everywhere, they’re just buying it from everywhere. But any website data that you’d like to share with us?
Jed Kolko: People from abroad who are searching for homes love Florida and love Southern California. Canadians love Phoenix. Brazilians and Argentines love Miami, you know. We see these patterns very clearly on our site. [Voice over].
Jason Hartman: [Voice over}.
Jed Kolko: We also see even domestically the searches where people are and where they’re located. We see a lot of searches from Chicago and other parts of the Midwest for homes in Phoenix. In Florida though, we see more searchers on the West Coast of Florida you know, from the Midwest whereas the East Coast of Florida, is dominated by people in and around New York, looking for homes. They’re very clear search patterns across the Country.
One thing that we see is people paying to look for homes and markets that are more affordable than where they are now. We also see more people looking towards — they were looking from urban to suburban areas, than the other way around. So the — in the long — in the long running trend the sub urbanization of the U.S., it looks like we’re getting through you based on where you’re going with your problem.
Jason Hartman: So yeah, you’ve seen a lot of this movement to rebuild in our Cities and so forth and you’re — you’re kind of saying it’s not worth the trend. At least it’s not where the searches are, right?
Jed Kolko: We see it in some neighborhoods and some Cities there are definitely urban neighborhoods that are seeing strong price growths, strong population growth. Only you look at the overall trend taking the view across Cities and settle across the U.S. There is faster growth. There’s more population growth and more search activity and I — in southern centered cities.
Jason Hartman: Very interesting. What else do you see and what else should people know?
Jed Kolko: One thing that we see is that the market is so seasonal. It — we’re at a time right now, at the end of March, at the end of spring season when housing activity really starts to pick up, but it picks up in a very particular way. We see on your site that March and April are some of the peak months for search activity online, but it turns out that the sellers often wait too long in the year to go back on — on the market. Inventory tends to peak later in the year, in July or August. That means a lot of sellers might be better off by listing their home earlier in the year when more people are searching and a lot of buyers will be better off by waiting until the summer time when they’ll be competing few other buyers and moving in a little bit more inventory.
So the seasonal patterns are really important. The seasonal patterns also depend on where you are in the Country.
Jason Hartman: Now –now I just want to — before you make your next point, I just want to touch on — on what you just said. For investors, that issue’s a little bit more complex because then you’ve got to factor in, if you can do it, you know the reality of this is pretty hard to do and — especially when you’re looking at nationwide investing in different markets and so forth, but then you’ve got to factor in at the same time what is the best time to rent your property out? If you’re buying an investment property you want to be in a time when people want to rent.
So, there’s the combination of getting the better deal on the price or having more rental demand so that you don’t have longer vacancies. So, that’s kind of a — a — a little — slightly more complicated there. But go ahead with what you’re saying and then I want to talk to you a little bit more about the inventory hangover if you’re voice will last.
And by the way, I want to say I appreciate — you did — you did say to me before we started recording that your — your voice is a little bit strained. You’ve probably been working hard talking a lot, so I appreciate you sticking with us here and — and — and I appreciate the fact that your voice is lasting, Jed.
Jed Kolko: You bet. The — this seasonality of housing varies across the Country and there’s some parts of the Country where — the winter time is peak season, so Florida and Hawaii — and we see the most search activity in July — in — sorry, in January and February. You know, those are markets where there’s a lot of vacation homes and you know, the winter months are you know a — a pleasant time to be out and so there’s a lot of home search activity then.
In a lot of the Northeast and the Midwest as well as the West Cost, spring time is the peak, but across much of the South, it’s the summer time that’s the peak season for search traffic. And it has a lot to do, not even as much is it the temperature, but with the rain. Nobody wants to go to open houses in the rain and the summer time when a lot of the — when a lot of South — it dries, but it’s the spring time when much of the West and Northeast are in their dry season and that’s when we tend to see the peak search activity for homes.
Jason Hartman: Very interesting. And how — how many people are searching on the Trulia website?
Jed Kolko: So we get tens of millions of visitors each month, ten millions of unique visitors each month. And it’s both on our website as well as on our mobile applications — across the platforms as well in the mobile web. And people are doing heavy duty research on the website, they’re turning their mobile devices around as they’re going to open houses and we can see how the — the kind of activity looks. You know, everyone’s taking out their iPads in the evenings and weekends coming to our site. So you know there are lots of ways to get all the information about properties and neighborhoods.
Jason Hartman: Well, talk about the inventory hangover a little bit and then before you go, I’d like to ask what’s next for your company and what are maybe some of the innovations coming down the road and in our business? But on the inventory hangover issue, one of the reasons there is an inventory hangover is because it just simply takes a lot longer to foreclose in some States and those markets would be clearing and recovering faster, in my opinion at least, if the foreclosure process was more speedy, but it just sort of drags it out, you know when it takes a long time to foreclose and when there’s all these legal problems you don’t get to market clearing and you don’t get to recovery as quickly.
So you know, maybe your comments on that, but then also I hear — not as much any more, but once in a while I still hear about the banks withholding inventory, that there are all of these foreclosures and — or bank owned properties, REO properties that just haven’t hit the market yet. So, what’s your take on the inventory hangover, if it exists?
Jed Kolko: Yeah, right now the — the rip off shadow inventory the homes that are down the market but could be right now become their late stage before closing profits and they’re vacant and not a big national problem, but it is a localized problem. In those parts of the Country where it takes a long time going through a few different closing profits, three or more years, they have a backlog of homes that are still to come onto the market. Florida above all as well as Illinois, New York and New Jersey, even though New York and New Jersey didn’t have a very severe housing bust, they still have a lot of their foreclosures ahead of them. Those are the States where this shadow inventory could have an impact on prices, but in the rest of the Country, no States are most of the way through their foreclosure prices. Most of the foreclosures that they will have from the housing bust already happened, and that’s true even if it’s a very [inaudible] States like Arizona; Nevada; Michigan and California.
Jason Hartman: So, you’re take on — do — do you make predictions, by the way, as to what prices will be next year? When — when you talk about the shadow inventory and the inventory hangover issue, that’s obviously an issue of distribution. I always like to say, Jed, that there’s no such thing as a national housing market in a country as large in verse as the United States.
In a little tiny Country like Cyprus, that’s so much in the news lately, and Europe because of the — the bank problem and the — the Government closing the banks and possibly nationalizing the pensions, but that Country has a national housing market, right, because it’s a small Country, about a million people. In a Country this large, I mean there are about 400 local markets. So, it’s — it’s a — it’s a question of where? That’s — that’s always the good question. I’m sure you’d agree with that, but do you make any predictions?
Jed Kolko: There are at least — the — the predictions I tend to make is how mixture make the difference we live here. There are a lot of people who are doing very specific forecast. I’m worried that there are going to be or how many units were built and so I tend to rely on their forecast for those kind of things, but what it is that we looked at recently on our rent — my report is whether they make more sense now or a year from now? And so one — one thing I expect to see is that a year from now, [inaudible] is less than it does right now. Prices are rising faster than rents and if anything, mortgage rates are like going to go up in the next year, perhaps by more than half a point. Those are our factors that’ll make buying a less affordable relative to renting than it is today.
Jason Hartman: Uh huh, I agree. I agree with you, yeah. Well, good stuff. Obviously, Trulia is the website and did you have another website or anything you want to give out or any other resources that you want to have the listeners know?
Jed Kolko: So on our site, for a listing of homes or if you’re looking for a neighborhood, go to Trulia.com will get you to all that search — all those search options, in addition, our trade blog. You did show me a trends page. It shows a lot about insights, about what’s going on and what will be happening in the housing market, both nationally and locally.
Jason Hartman: Fantastic. Well Jed, thank you so much for joining us today and I hope your voice comes back soon and you get some chance to rest it so you can recover and appreciate the insights.
Jed Kolko: Thanks so much for having me on the show.
Female Voice: Now, you can get Jason’s Creating Wealth in Today’s Economy Home Study Course, all the knowledge and education revealed in a nine hour day of the Creating Wealth Boot Camp, created in a home study course for you to dive into at your convenience. For more details, go to Jasonhartman.com.
Female Voice: This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.HartmanMedia.com or email [email protected]. Nothing on this show should be considered to be specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Empowered Investor, LLC., exclusively. (Top image: Flickr | truliavisuals)
Transcribed by Debra
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