The Real Estate Market Forecast
Investors, here’s a story you should watch closely the rest of this summer: If Congress delivers on President Trump’s wishes to repeal or at least loosen credit requirements that were imposed under the 2008 Dodd-Frank Act, it could mean an optimistic real estate market forecast with some good years ahead for those who invest in real estate.
That was a joyful summation from real estate expert Jason Hartman recently when he co-hosted an episode of the Women Investing Network (WIN) podcast with Elisabeth Embry. The investing duo sat down to discuss not only the “poorly written” Dodd-Frank Act, as Hartman describes the legislation, but the real estate market forecast and other issues currently in the news that could affect the economy in general and you as an investor.
Other issues they discussed include how the government manipulates and lies about the true inflation rate and the challenges a country can face based on demographics, specifically the declining population in Japan.
First of All: Welcome to the Women Investing Network
The Women Investing Network (WIN), launched earlier this year and co-produced by Hartman, is a podcast where you’ll learn from successful entrepreneurs, business leaders and real estate investors who have found success in business and life.
Hartman’s recent appearance on the show, in which he discussed the Dodd-Frank Act and other current economic issues, marked WIN’s 30th podcast episode.
Twice a week, Hartman and/or co-host Elisabeth Embry feature leading authors, entrepreneurs, top-tier investors and financial experts who share their secrets of success. As you listen to each show, you will learn, along the way, some tips and tools that you can apply to your own career, business and life.
Elisabeth Embry is a real estate investor, lender and self-described “people-connector” from the Seattle area.
After earning a degree in anthropology from the University of Washington, Elisabeth focused on a career in technology, serving in managerial and corporate roles with such companies as T-Mobile, IBM, Amazon and Expedia. She began investing in real estate while working down that technological path, and now, as co-founder of Really Investing in the Seattle suburb of Bellevue, she boasts a large income-property portfolio with 50-plus properties.
She also has become a successful coach and mentor of female entrepreneurs.
And, yes, part of Elisabeth’s large real estate portfolio arose as a follower and investor in Hartman’s Platinum Properties Investor Network, which has beamed nearly 900 episodes of his popular “Creating Wealth” podcasts, which detail the ins and outs of real estate investing, over the past decade or so.
What will you learn by listening to WIN’s podcasts? As a female investor, or as a male who wants to listen along as well, you will learn how to win not only in the world of investing, but in life in general, Elisabeth says.
“The types of guests we have focus on strengths and strategies around career, corporate, entrepreneur, business, family, communication, health, wellness, longevity—there’s a wide variety of things,” she says.
“But there’s also the element of real-estate investing, which is a cornerstone of the show.”
What Is the Dodd-Frank Act, and Why Is It a Trump Target?
A cornerstone of WIN’s most recent podcast with Hartman was the Dodd-Frank Act, which Hartman often has described in his podcasts as “a poorly written, 2,200-page bill that has really constricted the real estate market.”
Specifically, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as it was fully named, was passed in 2010 by the Obama administration and a Democratically controlled Congress. The act was in response to the real-estate fallout of 2008 and the financial crisis that befell big banks a year later.
With an aim of preventing such future crises, the Dodd-Frank act—so named after its authors, then U.S. Sen. Chris Dodd and then Rep. Barney Frank—brought a series of what were perceived as critical reforms to the banking industry.
The act hiked the amount that capital banks must hold in reserve, which was seen as giving the banks an added cushion to absorb loan losses in future downturns. It also required banks to keep a larger portion of their assets invested in funds that can be easily liquidated should there be a bank run—such as cash and government securities, as opposed term loans.
Trump long has bemoaned the Dodd-Frank legislation.
“We expect to be cutting a lot out of Dodd-Frank,” the president said not long after his inauguration. “I have so many people, friends of mine, with nice businesses, they can’t borrow money, because the banks just won’t let them borrow because of the rules and regulations and Dodd-Frank.”
Trump’s efforts to repeal or loosen the Dodd-Frank Act, Hartman tells listeners in the recent WIN podcast, are a giant step forward for the real estate market forecast, for you as an investor, and for the economy in general.
The House already has appeased Trump by passing a repeal bill, the Financial Choice Act of 2017, in June. Now the reforms await action in the Senate, where the bill now sits in the Banking, Housing and Urban Affairs Committee, awaiting possible advancement to a full Senate vote.
“You’ve heard me talk extensively about Trump,” Hartman tells his podcast listeners.
“Love him or hate him … regardless of what you think of him, he is loosening the floodgates of money” by trying to repeal or loosen the Dodd-Frank Act. “As that happens and credit requirements are loosened, more money will flow into the market.”
Hartman and Elisabeth talk at length in the podcast about 10-year business cycles, real estate market forecast, and whether the current financial recovery’s upward climb may end soon, because of where may stand in such a cycle. Some economists argue that the current recovery started in 2010, or the year after big banks collapsed, so a correction or end to that recovery—should you be a 10-year cycle theorist—could be in just a couple of years.
Au contraire, says Hartman.
“I would kind of caution against that thinking a little bit,” he says. “Only because we didn’t really sort of get to par until 2012. So, we’ve only been in the boon for five years, I will argue.”
And then, he adds, “If Dodd-Frank gets repealed and a bunch more money flows into the real estate market, hey, (the boon) will keep going, and we’re kicking the can down the road.”
How Government Manipulates and Lies About the Inflation Rate
The government lies and manipulates the inflation rate and “there are two main reasons for the government to want to do that,” according to Hartman.
First of all, many of the government’s obligations are indexed to the rate of inflation, including the pay of all federal employees and such entitlement programs as disability and Social Security. “So, the lower they state the inflation rate to be, the lower the government has to pay” those employees and programs, Hartman says.
“The other reason is that just generally, if you want to keep the populace happy, you’ve got to mislead them to think that things are better than they are.”
Tools that the government uses to mislead the populace, he says, are substitution, hedonics and weighting. He gives examples of each tool.
For the tool of substitution, he points to the Consumer Price Index. CPI researchers might find that the price of beef has gone up from a previous period, he says, but instead of publicizing that increase, they will publicize instead that the price of chicken has gone down.
“They’ll say everybody will just eat chicken, and there is no inflation.”
Meanwhile, the tool of hedonics, also known as hedonic demand theory, is a preference method of estimating value. Technology makes that laptop computer model you like so well get better year after year, yet you pay about the same price for a new one. But, Hartman says, inflation-hiding propagandists will make you feel as good as James Brown by singing: “That computer is twice as good as the last one you owned so you only paid half-price for it.”
Finally, there’s the weighting tool. This is saying the price of coffee hasn’t changed, but when you inspect the coffee container’s label in the grocery store aisle a couple of days later, you’ll find it now weighs 13 ounces instead of the 16 ounces it once did.
Perhaps the most exasperating way that inflation is hidden, Hartman says, is self-service.
“We are doing so much stuff ourselves nowadays. When you go online and buy an airplane ticket, nobody’s helping us do it anymore. It’s all self-service. We’ve been pumping our own gas for decades now.
“Everybody’s doing self-service these days, and that’s part of the inflation rate.”
Hartman says he ate a $19 breakfast at a New York City hotel recently and that the waiter never asked him whether he wanted or needed anything once he had placed his order. Hartman eventually helped himself to more coffee and water. The waiter did tend to one task, though: Leaving Hartman’s check on the table, with a blank space provided for desired tip. Hartman wrote: “Self-service, no tip.”
Adds Hartman in the WIN podcast: “Look at all of these restaurants now that are modern where you go up to the counter and you place your order—at a restaurant—and they turn that little screen or iPad or whatever around and the (suggested) tip is 18 percent, 20 percent, 25 percent or 30 percent. For what? This is self-service!”
How Demographics Can Affect a Country’s Economy
Hartman says as an investor, you also need to be aware about demographics and how you can predict trends based on those demographics. He points to Japan and how its shrinking populace could affect the world’s economy in the years ahead.
Because of low fertility in recent decades and low spending that has led to trillions in lost gross domestic product, Japan has suffered a population decline of 1 million people in just the past five years. Economists are calling the country’s population decline “a demographic time bomb.”
One reason the United States doesn’t have such a problem is because of the immigration it has allowed in its history, Hartman says. However, there are other countries, “like China, because of their one-child policy … it hasn’t hit them yet, but it’s going to.”
“The thing about demographics is you can absolutely, positively know what’s going to happen,” Hartman says.
“You know that in 10 years, everybody will be older, there’s no question about that. It’s an easy thing to project. It’s not necessarily an economic problem, per se, that Japan has—what it really has is a demographics problem. When you don’t have young people moving in to support the old people, that makes society lopsided.”
Compounding the problem of younger people not replacing the older ones? The older people also are living much longer, because they’re healthier as well.
When Social Security was enacted in the mid-’30s, the average life span after retirement was about four years—but now, that average post-retirement span is 30 years.
“You can see there’s a problem there,” Hartman says. “Why the heck should we have 65 as this sort of retirement age, if you will. I propose that retirement is not good for people.”
Hartman says that both he and podcast co-host Elisabeth could probably retire today, though they both fall short of the official retirement age level, because of their success in real estate investing.
Says Elisabeth: “Something people ask me often is, ‘Elisabeth, why don’t you just kick back at this point? Your real estate wealth has helped you enough that it covers so much, why don’t you go find an island and kick back?’ I’m thinking, ‘I just don’t want to.’ It doesn’t sound like much fun, honestly.”
She and Hartman agree that older people should keep active well into their golden years so they can stay stimulated, be engaged, be creative and be able to keep contributing to society. Hartman suggests that Eiisabeth can keep hosting their WIN podcasts, which he calls “a form of art,” for a number of years past the so-called retirement age of 65.
“It’s not like Steven Spielberg filming a movie or George Lucas, but it’s art,” he says of the WIN podcasts and the real estate lessons they teach.
“For me, it’s an opportunity to give back to young women and men who are becoming entrepreneurs,” Elisabeth says of WIN’s intent. “They’re growing careers; they’re just starting to think about their wealth strategy, and they’re just starting to build their foundation.
“Being able to give them that one-stop shop of not just my knowledge, but your knowledge … and the fact we’re pulling in all of these amazing speakers with their perspective … it’s really a great opportunity to contribute and help others grow to become successful as well.”