Jason Hartman starts the show with investment counselor Adam to give a comparison on where people actually want to live. They give a background between before, during, and post-pandemic times. Adam illustrates the shift towards the suburbs with a number of sources including Redfin. Later, they discuss the refinancing boom.
Announcer 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 multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:53
Welcome to Episode 1547 1547 and on I’m here with Adam today. If you’re watching on video, you’ll see some charts and graphs. If you’re listening to audio only, we will try and explain them to you so that they will have almost the full value in audio. But you can always go to our YouTube channel if you’re only on audio. And you can see these charts and graphs for yourself firsthand on the YouTube channel. Adam, welcome How you doing?
Adam 1:23
I’m doing great. It’s great to be back on the podcast. We’ve done some coffee talks together, but it’s been a while since we did the podcast.
Jason Hartman 1:30
Hey, coffee talk. Don’t underestimate coffee talk. And by the way, folks, for those who don’t know that is our weekly live stream on Sunday mornings. Where Yeah, bring your coffee and join us now this week’s live stream we have my friend Mike is coming on and he is going to discuss a new trend they pandemic or post pandemic trend of hotel conversions, converting them to affordable housing. We’ve been watching that trend a little bit. It is interesting Hard to make the economics work. But more to come on that and it is not the Savior for the hotel business. By the way, I’ll just tell you that right now. But on Sunday, we will be talking about that more. And if you’re not listening to this in real time, today is Wednesday, then of course, you can see the live streams archived on our YouTube channel. So you can always go back and refer to them there at any time. And we will be talking about opportunity zones scams, boy and I in the post pandemic world, and in the world of civil unrest and race wars and riots, and all this absolutely terrible stuff that is going on in urban cores around the country and actually around the world. To some extent, these opportunities owns are looking like less and less desirable all the time. So we will talk about that too. And, and we really talked about a lot of those scams when everybody was talking about opportunities owns, you know, that’s like the greatest thing and I just Just never bought into it. And I’m not buying into it now. So it’s and it actually has deteriorated in the world of high density, you know, urban flight to the suburbs and riots and civil unrest, and we’ll be talking about multifamily investments. So that’s on Sunday. And I just want to remind everybody, to make sure you go to pandemic investing.com that is pandemic investing calm. Hey, pretty awesome that I got that domain name, isn’t it? Yes, I did. write up a strike while the iron is hot. For sure. Well, the pandemic Assad and get your free report. This is really a mini book. And it talks about some of my 10 commandments of successful investing, but kind of reworked and we added some new ones, change them around a little bit for the current environment in the world of pandemic times. And so you can get the free report or really, it’s a little mini book at pandemic investing calm, totally free. Adam, thank you for bringing some charts and some graphs. Today we want to discuss these. And let’s go ahead and take a look what is going on in the world. You’ve been doing some great research. So thank you for that. Tell us all about it.
Adam 4:23
Absolutely. So you know, we’ve been talking about the flight to the suburbs, and it’s easy to say, hey, people are going to move to the suburbs because density and this done the other but where’s the proof? Right. So I went online, did some scouring and Redfin did a study in July with their with the people who are coming to them looking for, for properties or for homes, they don’t really do investment properties, but for homes, and they found that the number of people searching for homes in an urban area was cut in half. It went from 37% 19%. Now granted, this is during the actual pandemic, but the fact is it happened so that’s got cut in half, from 37 to 19. The small towns actually stayed flat. Because for the most part people, if you’re being honest with yourself, you don’t really want to live in a small town because that’s like assignee. And by the way, Adam,
Jason Hartman 5:13
Adam, you’ve mentioned that before. Have you had that experience? Now you grew up in Houston, did you live in a small town outside Eastern or something?
Adam 5:21
No, I grew up mostly in Austin. And then I lived in Houston, but my in laws live in a town of 2000 people. And the problem is, everybody knows everybody, and everybody’s in everybody else’s business. And it has a very few things to actually do. The economy is it goes boom and bust based on you know, whatever the small economy is, you get, you tend to have a lot of racial tension and the small towns in between, usually like the whites and whatever other race happens to be there and their case it’s Latinos and whites don’t get along. So just there’s no room for
Jason Hartman 5:57
you know, that’s that’s kind of that’s kind of interesting. In counterintuitive, you think in a smaller town, there would be less risk of racial strife versus a big city where, you know, you’ve got this, like, urban problem.
Adam 6:14
Yeah. Well, your problem there is you’re thinking about it in terms of just a number of people and a small town, you’ve got the group of people who’ve, like their families have been there for 100 years or 200 years. And then there’s the outsiders are coming in. And, you know, bring in the outsiders, that’s like two 3% of the population. So suddenly, they feel like they’re being invaded. And so it’s just like, I don’t recommend, if you’re gonna move to a small town rent for several years before you do that, and if you mess if you make one person mad, you make like 100 people mad and that’s 5% of the population or something.
Jason Hartman 6:51
Yeah. 5% of the population that eating you, because you got in a fight with one person, that’s no fun. Okay, so folks, suburbs rule it’s it’s the your re re emergence of the suburbs. That’s the era where we are in. Okay, so in terms of the suburbs, 43% is the number here what it is. So the questions were, what best describes,
Adam 7:15
it’s up to 50%. Now,
Jason Hartman 7:17
right, right. So the questions were what best describes where you were searching for a home before the onset of the pandemic? And then the other question what best describes where you’re now searching for a home? Okay, and this is during the pandemic, right? So, the I’ll read the first question, and the second one, you know, for those who are watching us on video, so in the beginning, it was 37% urban. Now it’s only 19% urban. In the beginning, it was 11% small town held steady, still 10% small town in the beginning. 43% suburban now. 50%, suburban in the beginning, in the beginning, the earth was out without form or shape. In the beginning, there was darkness. And it was rural areas. 9%. Now 19%. So rural did increase, and that’s distinctly different than small town. People just want to be away from everybody.
Adam 8:25
That’s a massive social distress thing. Yeah,
Jason Hartman 8:27
yeah, it really is. That’s probably a little too much social distancing. So very interesting. Anything else to say about that?
Adam 8:33
No, I just think it was important to look at the big shift because like I said, we’ve talked about the shift, but we haven’t really had a bunch of numbers just because housing data tends to lag on the economy. So I thought it was important to look at those.
Jason Hartman 8:46
It has now this is the chart I recognize. I actually posted this in our content group before and maybe you found it again or found it there. So it says rural homes, lead home price rebound. You Amid pandemic Okay, so I guess they’re considering this mid pandemic. As I’ve said, third inning, I think we’re in the third inning now, maybe the fourth inning, you know, and it’s part of that is really I’m judging it by people’s mentality and their mood toward it. People are starting to get really fed up with these lock downs. And, you know, I think people just aren’t buying it anymore. A lot of people think, you know, we’ve been had this whole thing’s a big myth, it’s a scam. And well, the virus is real. The reaction to it is, I mean, I think overboard. So, yeah, and especially with that CDC study, where they reinterpreted the data, and this was about two weeks ago, they released it that, you know, I think only 4% or something I can’t remember if any, I did say it on the podcast before but like a very small percentage of the deaths were actually attributed directly to COVID. You know, they were all other comorbidity problems, people. That, you know, we’re super elderly, we’re we’re gonna go anyway, people that were very unhealthy, they were at high risk for, for death Anyway, you know, they just mark them as COVID largely, you know, there’s a government payout insurance, whatever, you know, it’s, it’s a big scam. So tell us a little bit about this chart if you would.
Adam 10:19
And so you, you know, we kind of usually expect home prices to go up. But in terms of the pricing, rebound, urban had a rebound of almost less than half of what the rural area has seen. And the suburbs have done 50% better than urban. So they’re coming back. They’re all every market is coming back in terms of rural, suburban urban, but urban is trailing way behind and that’s why, to me, it just goes back to that other chart. It’s trailing, because nobody wants to, nobody wants to live there. And you’re having trouble finding buyers, and I’m sure if they did a study showing, you know, days on market, it would be even worse. You know, You compare the change of days on market with these, but you know, people are flying back in the housing prices in the suburbs. So if you’re investing with us, you’re following our philosophy we’re buying in the suburbs. Then if your property had gone down in value, your property’s bouncing back up, whenever it’s time to refi, you’re not going to have an issue and getting your your appraisal in at the right prices. But if you’re in an urban area, might have a little more difficulty making that happen. Okay, so here, you see these numbers, rural 11.3%, suburban 9.2 and Urban 6.7. Okay, that’s the year over your change in median price. All right. So okay, let’s take a look at this one. National housing market summary. For the four weeks ending August 2, we’ve got median sales price in rural suburban urban areas, and then median sales price year over year, and so forth. And it’s interesting to see what What happened, but you highlighted the home supply at the bottom of this table? And basically, wow, these numbers are pretty staggering. Adam, tell us more. Yeah. So the big reason I did this is I have so many clients when I talk to them, they want to get into the hundred thousand dollar house, which, you know, I’ve been investing $100,000 houses and I want to continue investing in the bread and butter, hundred to $120,000 properties. But looking at this chart, you’re gonna see you’re getting a lot harder to find. Yeah, it might be a long time. I mean, that’s honestly why when, when my wife and I went under contract on the three new constructions that were under contract with, we were talking and we were like, when will the hundred thousand dollar house be back? And we’re like, well, we could be sitting on money for a long time. If we’re waiting for those properties to come in. Just because when you look at this and in rural areas, your home supply year over year is down almost 40% suburbs, it’s down over 30% 80 In the urban areas, the home supply is down 20 over 20%. I mean, your new listings, they’re up a little bit in urban because people are leaving. But in your suburbs, your new listing is down almost 4% year over year, and your urban listings are down 14%. So the homes just aren’t there. I mean, we were looking for inventory people believe us, we’re looking for providers who are giving us good stuff. But they’re not able to buy anything right now is the big thing. They’re not able to buy anything. And so we can’t we can’t offer a whole lot in the rehab properties.
Jason Hartman 13:34
Yeah. Okay. So what Adam is talking about, as of course, through our network, on the website, you can purchase new construction properties, and you can purchase renovated properties or rehab properties. And it is getting really there’s a very short supply of inventory in every category, but certainly in the renovated properties, that inventory scarcity is very significant. So Your over your supply of houses in rural areas down almost 40% in suburban areas down 32% on rounding just slightly in urban areas, even it’s down by 21%. And this by the way, I want to remind everybody, this is as of August 2, okay, so this is not March and April, when people really just weren’t even showing homes and putting them on the market. Now we’ve come into the season, people, you know, the market has definitely been moving, and still very, very low inventory new listings, in rural areas down 14.2% in suburban areas, down 4% in urban areas up by point 5%. And I think we’re going to see that go up significantly in urban areas, just takes a while for it to work its way through the system. Okay, I’ll give one anecdotal thing there is whenever we bought house here in this nice suburbs It was a hot market and people were talking about the house in which you live for Yes
Adam 15:08
ma’am property that we live in our car realtor came to us and said, Hey, I have people wanting to buy in the neighborhood. We can’t get them once they come to the MLS, can you? You know, whenever you’re walking around driving around, if you see any pre MLS listings, let me know. And then it didn’t happen for a long time. She didn’t need us to do that. She texted me about a month ago and said, Hey, if you see any pre MLS stuff, let me know I’ve got people who are looking and can’t
Jason Hartman 15:34
find anything. You know, their words properties that haven’t listed yet. Okay? Yes. Good. So now this next chart shows us that people are looking for larger homes. And I’ve said this before, you know, in the pandemic world, the home is the center of the universe. people not only need one home offices office, they need multiple home offices. They need a room for a home gym. They need room for the kids to study. And they just need space from each other. You know, in the family, right? So, so the home has really really become the focus of life. The home is the center of the universe. That’s what I’ve been saying for many, many months now. So this shows you what does it show us It shows us that the size of homes a year over year change in home sales, sales up more for larger homes than for smaller homes, so much for the tiny house movement. Hi, Adam.
Adam 16:39
Yeah, suddenly the mcmansions are worth something again.
Jason Hartman 16:42
Yeah, right. Right. Right. Okay. So the numbers though, that I mean, it’s amazing how tiny some of these are right? The homes from 300 right a hotel room 300 to 1500 square feet, up 2.3% but from 50 100 feet to 3000 feet up 10%. So we’re like quadruple the amount more than quadruple. Right. And, and for the big houses 3000 to 5000 square feet. They’re up by 21.2%. That is staggering. And he has really hugely significant.
Adam 17:26
Wow, yeah. Wow, you’re not gonna find 3000 square foot mini 3000 square foot properties that are worth investing in. But, you know, you can find a lot of the 1500 square foot properties that you can invest in that actually can cash flow for you.
Jason Hartman 17:41
Yeah, so even 1800 square feet sometimes. Yeah. So you can, you can catch on to this trend. That’s great. Adam, thank you for bringing this to us today. We really appreciate it. Folks. Of course, if you have any questions, one 800 Hartman or Jason Hartman, calm and then remember pandemic investing calm For your free book, and I’ll be back with a couple more things. But I got to say goodbye to Adam. Adam. Thanks again.
Adam 18:07
Thanks for having me. Great to be back.
Jason Hartman 18:13
And to wrap up today, I just want to cover a few more things with you that I had hoped to cover while we have Adam on but just a few more interesting charts and thoughts on where the economy is going. Now again, if you are listening on audio only, I will try and describe the visuals that I’m looking at to you. So let’s go ahead and dive in. This is a chart showing the quarterly mortgage originations by type and by type of course they mean how many are purchased money loans, and how many are refinance loans. And as you can see, the mortgage market is absolutely on fire. You know, I’ve owned a couple of mortgage businesses throughout the years And I’m a little bit envious, because these people in the mortgage business right now are just absolutely making a fortune and the service is terrible. Because, you know, Redfin was out with a survey saying that 57% of all their listings, have a bidding war situation, they have multiple offers. And this is, of course, the complete opposite of what so many people were predicting, they were predicting that the market would crash, and they’re still predicting that and many have been predicting it for the last 40 years. You know, many have been predicting it for the last whatever number of years they’ve been out there in the marketplace. You know, the doom and gloom ORS, they always seem to be wrong. But regardless of that, most people consider a good market to be a seller’s market and a bad market to be a buyers market. And of course, that is a very incorrect perception and an in Correct analysis of it, really, in any market, you can make money, you just need to adjust your strategy. So adjusting the strategy is key. And that’s one of the things I love about the income property asset class is it really does because it’s multi dimensional, versus so many other investments that are these one dimensional investments. This asset class is multi dimensional. So it it caters very well, to us adjusting our strategy as economic times and economic demands and economic opportunities, change and present themselves. So again, on this chart, you can just see that the refinance business is absolutely staggering. It is through the roof, over $1 trillion. That’s with a T $1 trillion in excess of 1 trillion, about 1.1 trillion in total mortgage originations in the last quarter and more than half of them Being refinances. So the entire country is trying to refinance their properties right now. But even before that very significant so if you compare that with say 2015, we are running more than double that pace in terms of the refinance market and the purchase money market as well. So, again, the refinance market, people refinancing for a lower rate sometimes for cash out on that refinance and the purchase market of course, that means they’re buying a new home. And these are residential mortgages. So, one to four units over four units would not be reflected here. All right, let’s take a look at the next one in here. This is just a history of manias and bubbles, and this chart really deserves a lot more time. I’m just going to touch on it here today. And we’ll come back to it maybe on the Sunday coffee talk. Live stream that we do on Sundays. So join us for coffee talk. And that’s talk is tea. Okay, talk. So if you join us for coffee talk on Sunday mornings, we go through a lot of this stuff our last coffee talk was two hours and 17 minutes. So we really cover a lot of stuff take your questions and do all that and of course, those live stream sessions are all archived on the YouTube channel so you can see all of the past ones there. And these are live unedited, yes, we make mistakes. Yes, we sound stupid sometimes. But hey, it’s all there in the raw, no editing whatsoever. And here you know, looking back to 1960 on this chart, you see these manias and bubbles and you know, we could look back hundreds of years and we could talk about john lawn and Mississippi and Louisiana land deals. all this crazy stuff we can talk about the tulip mania in In Europe and how that spread and people made and lost fortunes on none other than tulips. Yeah, I mean, they’re nice flowers and all but really, people, even very smart, seemingly rational people make a lot of dumb decisions. Sometimes folks, they really, really do. People who are highly educated, can be caught up in in very bad decisions. So, I guess the lesson there is, don’t rely on the experts become your own best advisor, which is really commandment number one of my 10 commandments of successful investing, thou shalt become educated, so you can be your own best advisor. Yes, you want to hear from the experts, but you want also want to just use some good old fashioned common sense, right? So Walt Disney had a giant run up until the 70s until about 1970, and then it just absolutely collapsed. And then the next mania was gone. It had a huge run up, you know, Nixon closed the gold window. And, of course, that was an inflationary prediction. He took his trip to China. So that was like 1971, the 1973 there. And then of course, you know, he was impeached, and he resigned before being kicked out before getting the boot after the Watergate scandal. And gold went absolutely crazy in the 70s. And right at the end of that decade, you saw gold, an absolute crazy fevers pitch, and then it was just down, down down for like the better part of 20 years, right. And then we saw Japanese banks, they had their huge run up in the 80s. And then, of course, we all know what happened to Japan by about 1989 it just completely collapsed. And then we saw the NASDAQ you know, otherwise known as the.com bubble, that really before that, the NASDAQ had a big run up as we came into, you might remember Netscape, right, the first internet browser and back maybe you’ll remember the word mosaic right? And all these old you know, software companies that we don’t even hear of anymore, but of course Microsoft had their run during that time. They largely missed the internet revolution for a long time, but they finally came around and got their act together. And then you know, we had commodities manias, and then the Fang stocks and that’s the bubble we’re probably in right now. So, anyway, this chart, really, you know, you could write a book on this, okay, so, but these are prices in real US dollars, which of course, means adjusted for inflation. And that’s why I like charts like this. So just an interesting thing I wanted to share with you now, this is interesting, too. And we’re gonna come back to this too, in my pandemic investing program, because what I want you to see on this chart, this basically shows the share of GDP based on three big sectors of the economy. You know, when you look at the US GDP, the gross domestic policy Which is a measure of the production that, you know the the productivity of the entire economy in the United States. And here you see the share of it. And what I think is important to look at here is that when you look at agriculture, industry and services, you’ve all heard this, but we are largely a service based economy. And this chart only goes from 2000 to 2017. So this is one of the real problems with charts and looking and doing research and so forth. You know, you never get them for quite the time periods you want, but you take what you can get. Anyway, the point here is not to be totally current with this chart because it hasn’t changed much. But the point is to note that the service sector of the economy, up to the latest date of the chart is more than 77% of the entire GDP industry. Little over 18% and agriculture below 1%. Now, here’s what makes this interesting are one of the many things that makes this chart interesting is that when you want to add value to something, you’ve all heard the term in business, a VAR, a value added reseller, where they take a product, and then they add value to it, and they can massively increase the price of that product. Well, that’s true of an individual business, but it’s also true of a nation. Right? And one of the things that makes the US economy so robust comparatively to the rest of the world not not comparing it to itself, not arguing with the doom and gloom errs that say, Oh, you know, the dollar is going to collapse in the US is over. And, you know, they’ve been saying that for decades, right? They’re still wrong. Maybe they’ll be right someday. But you have a lot of opportunity to add value in the service sector. Because that value is very, very much based on what’s in the mind of people, and what they can think of. And you can add a lot of value with your mind. Whereas with agriculture, for example, which is less than 1% of the GDP, with agriculture, you can’t add very much value, right? The value comes from the human mind. And if you look at a country like Japan, with pretty much no natural resources except the human mind, and the ambition of Japanese workers, and I’m not talking about the last few decades that we’ve had, I’m talking about the long term of Japan, right? Coming post World War Two, you know, of course, they got help rebuilding from the US and so forth. But Japan, even now, I think you could still call Japan and Egon A miracle, because a country with virtually no natural resources, except the people did incredibly well for itself, not the second largest economy anymore, pumped out by China, but China has dramatically more people and dramatically more resources and a much better piece of real estate. Right. So that’s the difference, you can add a lot of value in the services sector now, in the COVID. world. The other thing to consider about this chart and the way it’s divided up, the services sector is, of course, multifaceted. So some of these services have fared extremely well, through the COVID era, the digital type of services, software, e commerce, consulting, any type of thing where it’s, you’re able to work remotely, and you’re a knowledge worker, those businesses have fared quite well. Where is services where you’re providing services with Because you just can’t add much value to agriculture. And you can add more to industry but even industry is a lot more limited, because it’s dependent on a lot of physical things, versus digital things and intellectual things, right. So it’s just sort of interesting to see that pattern how that pans out. Now, I want to take you to a couple of other charts, and we’ll do this in a future episode or a future video on the YouTube channel, maybe on our Sunday livestream even this Sunday, but this looks at the gross Metropolitan product, the G m p, a various areas, and I want to interplay that with a chart I just talked about, because when you look at the amount of money moving and the number of people employed in those various sectors, it becomes a pretty interesting picture. So you see the GMP, the largest GMP being New York, New Jersey. And that’s been very hard hit by the pandemic and by civil unrest. So that is a huge amount of money, a huge amount of wealth that can move out of that area that is moving out of that area to these other more suburban markets, giant wealth transfer happening at right under our nose. And this chart shows the change in real gross domestic product in the United States from the preceding year, based on the metropolitan area, so we’re gonna dig into those more on a future episode or maybe on the southern Sunday live stream, we’ll even dig into that. Anyway, hope you enjoyed this episode. And if you need us, reach out through Jason hartman.com. If you’re in the US, of course, call us at one 800 Hartman and until tomorrow, happy investing.
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