What is the Future of Housing & Real Estate? (with Jason Hartman)

hey everybody it's ken mcelroy and i got my good buddy here jason hartman hey jason how you doing hey good ken it's good to see you again doing good let's see i know i know a lot of people may or may not know but so you've done thousands and thousands of real estate transactions in 11 states 17 cities you've been educating people for years and years and years um and congratulations on all your success and and i know you've been on the show before we did one on the you know investing during the pandemic and that thing has just done really really well that video and so i wanted to what i wanted to do was talk about you know that was that was a while ago let's talk about you know what we're kind of seeing now so um if you want to start let's talk about now the year's over it's 2021 and uh obviously 2020 was a very very interesting year but what's interesting to me is housing prices are defying the odds like and you kind of called this as you know i kind of called a real estate crash and uh we can have an argument ken because most people say that you're bearish and i'm bullish yeah i know i know so you can duke it out yeah so you know what i what i what i failed to anticipate is the amount of money the fed was going to throw at this thing and it just allow renters not to uh pay rent and and mortgage um you know mortgages not to be paid and and this forbearance stuff and and and all that obviously um i still do and i still want to get into that um you know what do you see right now do you see this trend slowing down or reversing in 2021 because you know now we have this new administration coming in in january and we have uh obviously it's been kicked down the road to the end of january so february and march could be very interesting what do you see all of the things that you said i think were absolutely accurate because if you were just looking at it without the distortions of the government and the fed getting into the picture then you know you're absolutely right the problem is the government and the fed are a wild card this this could be a dangerous precedent for sure but i think we can hang our hat on the idea that there will always be government intervention from now on there will be central planning and uh we are in an era of a managed economy uh there can be no doubt about it and ultimately that will end in catastrophe but uh the idea of when it will end is a giant question because all of the people can that have been predicting the end of the world for decades and decades and decades you can go back to the 70s and all of this doom and gloom will come true eventually because you you can't this whole system just can't go on forever the thing is though it can go on for an awfully long time like decades maybe a century more longer than we're going to live so uh to think that uh you know dollar collapse economic collapse they can paper over the problem they can kick the can down the road for a lifetime potentially right the jig doesn't have to be up anytime soon and i know it defies gravity it's illogical philosophically i hate it i hate it but it's the it's the world we live in it is it is so obviously we're seeing housing prices go crazy now for me yeah you know what i've been kind of really looking at obviously is taking a look at these uh low supplies you know the housing supply everywhere i i was i was playing golf with a bunch of realtors actually recently and they were saying you know there's there's in some markets it's it's down you know 50 100 percent from from what it was and and so there's a lot of realtors chasing a little supply so if you're in a market where people are going it's you know creating these huge huge bubbles um obviously there's also there's also markets where it's going the other way but but um everybody's talking about these price increases so if you look at zillow you look at the national association of realtors they're like oh it's a great year it's a great year but you know you gotta wonder you know there's ever it's massive unemployment and you know business is failing and the government's propping all this up and people aren't paying mortgages and people aren't paying rent um you know you know what do you what do you see do you see that trend going into 2021 i see that it is very uneven in many ways first off it's uneven and you alluded to this ken it's uneven geographically right and and you've got many videos where you've talked about this so it's not going to be news to anybody but i'll just say it for the record you know of course urban areas are in distress and i think they're going to get worse not only because of the danger of covid of the danger of a contagion of the danger of a virus but now we add to that as of many months ago civil unrest riots and and all the amenities that attract people to these high-density urban environments are gone broadway is closed the restaurants are closed the concerts are closed the theaters are closed why do you need to live in a city and guess what else is closed the office is closed in many areas and uh you can still have the high-paying job with that with you know that wall street employer for example if you're using new york or you know san francisco another financial capital uh but you can do it from home on zoom yeah so uh you know the the emperor has no clothes when it comes to the city right uh it's it's just not that important anymore and i do believe that eventually when all of this kind of resolves the cities will come back to some extent but i don't think they'll come back to the extent they were before to their former glory because again people adapt and they change and they accept new realities and suburban environments start to offer more of those amenities and many of those amenities really i'd say the main amenity of of the cities is the high-paying jobs and again those you know you you saw of course stripe the credit card merchant processing company we use them we're a customer of stripe you know they offered their employees twenty thousand dollars to move out of the cities where they have offices new york san francisco la right and uh they said that over a course of several years they're gonna have to agree to some pay cuts to get the 20 grand up front but it's going to be worth it for both of them both employer and employee are going to win and uh to tie this in the urban areas the cities generally almost all of them tend to be high tax business unfriendly places and also can landlord unfriendly places right so you know we as landlords of course you you have like 8 000 units i think or probably more by now uh and i'm an investor in some of yours uh you know we like places where if a tenant is a deadbeat and they're a bad actor and they don't pay not because of a crisis like this but in general you can get them out and you can find an independent tenant that will pay right right so business unfriendly and landlord unfriendly and high tax those are all the same places right right right yeah and so i know and i i read all these articles and some people are saying it's like um you know panic moving right you know people are moving uh and on the other side of that obviously there's a lot of people that were uncertain about their financial future with their jobs and because their employees were let's say rocky or maybe even closed and then you also have they're afraid of covid and so they didn't want anybody you know um looking at their home or you know while it was being listed and so there's all these things and so do you think and then of course we have still somewhere between two and three million people that are pretty seriously delinquent on their on their on their uh mortgages and then you got another 12 million that are delinquent on their rent so do you think that this is all going to unravel in 2021 yeah great question and i didn't answer your prior question completely because i said it was uneven so i talked about the geography but it's also uneven in terms of who is affected right so we know that like the knowledge workers um you know people who have white-collar jobs aren't very affected by this the unemployment is concentrated in a few types of areas businesses professions uh you know and so it's uneven again it's really uneven and it's going to make the wealth divide and the wealth gap even worse which is very sad and i don't think that's good for the country overall and yes to your other question there's a lot of people in forbearance um there are a lot of people behind on rent uh you know i know that companies like your company is is working with people and doing some really creative things which is awesome but there's no question that eventually you have to pay the piper right now the forbearance isn't that big of a problem because the deal there is that those are just going to be tacked on to the end of the loan so i think that's pretty darn survivable and of course we'll see how long this goes on and you know if there is a new administration they're even more likely than the current administration to be more giving and more uh interested in bailing everybody out right and printing more money which ultimately has to result in inflation um and uh you know there's huge divide in inflation between consumer prices and asset inflation uh which is interesting but another topic so let's get into that let's talk about that because you know the federal reserve i think if you're taking a look at whatever it is you're looking at yeah um you have to the federal reserve is now a major factor in your decision making it has to be you know it has to be they're they're clearly helping out on the rent side they're clearly helping out on the mortgage side they're clearly helping out on the unemployment side they're talking about you know ubi and and they're talking about all kinds of things now um which people need and so you know i think before it was that you know it's like okay what are interest rates going to do but we we never really had to consider what is very possibly um we're at 7 trillion i think now uh isn't that right and now we're now we're getting up over 10. yeah so so now what impact is the fed having in these on these housing prices do you think well the the reason that the these these uh the the fed money creation uh programs uh divide the wealth is because they pump up the stock market they pump up cryptocurrencies they pump up real estate they pump up all these assets and guess who owns assets middle and upper middle and wealthy people right guess who doesn't own assets poor people right and so it's it's making the wealth gap even wider and wider which is bad news for the country and society overall i personally like a country with a large middle class because the middle class means stability when there's a divide between the haves and the have-nots that leads to higher crime rates instability civil unrest it is not good news okay and even though you know you and i are in the upper end of that spectrum uh and i feel very grateful for that and i know you do too you know it's just not good for society overall right right it's not a good thing um so it does create inflation and these assets are inflating and it's making the rich just get a lot richer and so it's it's just widening that gap so i was watching some of your stuff and i know we talked a little bit about this the last time you were on i was watching some of your stuff and you had some really interesting slides on inflation would you mind would you mind pulling those up and kind of going through those for for my subscribers because i thought that was a really interesting piece absolutely and uh hopefully you can see my screen now and you see the uh default screen right yeah yeah so uh basically uh look the government has been creating money out of thin air in in conjunction with the central bank the federal reserve and we've been doing that for years and ken a moment ago you mentioned ubi universal basic income and i think this whole crisis has been really a test of how that will work and we are definitely moving in that direction and that's just going to mean more debt more deficits more money printing and it's going to create more inflationary pressure in the system so i've identified about 15 16 years ago six ways that the government can get out of the mess they're in one way is to simply default to say to all the people the government has made promises to whether it be you know social security uh recipients uh welfare recipients of any type of welfare or government uh program uh government employees to just say to them look sorry you know to nations that we owe money to sorry we can't pay you we have to default we simply don't have the money but you know what that's never going to happen because it's politically unpopular it would cause civil unrest we saw what happened in greece and other countries around the world when they instituted what's called austerity measures right and the reason those countries have to go to austerity measures meaning cutting back on the perks and the benefits and the handouts is because they don't have the reserve currency of the world they can't get away with the kind of gamesmanship the us can get away with i'm not saying it's fair or it's right it just is that's the way it is so we are in a pretty good position in the us to be able to kick the can down the road for a much longer than any other country so the other option is they could raise taxes right and so you hear this cry from the left on the political spectrum saying tax the rich eat the rich you know make the rich pay their fair share and while there is some validity to some of those arguments no question especially when you look at you know amazon uh when they made like 11 billion dollars a few years ago and paid zero taxes yes there is some you know argument there for sure but the reality is that there you if you taxed all the richest people at a hundred percent you still couldn't solve the problem the problem has grown so big that there isn't enough tax to get so that won't solve the problem and it has definitely been proven by reagan and others that when you increase taxes you suppress economic activity so if you want to have a growing economy uh you know the reality is you should lower taxes okay because then you stimulate growth right but whatever that's an age-old debate that we're not going to solve here okay so the third way is you could have a yard sale okay the country could sell things off right look years ago we talked about selling uh you know fighter jets to libya and then we were in a minor war with libya right as you know uh we talked about selling the ports to dubai okay uh we've talked about uh all of these types of things and the us does have a tremendous net worth in terms of its resources its natural resources right it's a very big very well positioned piece of land it's a great piece of real estate the united states and uh so we can sell off assets and we do that to some extent the bureau of land management uh you know not black lives matter by the way blm it says on there okay the blm sells off land to developers you know stuff like this happens right toll roads are owned by chinese companies that you know we travel on we're paying money to china right so this happens but again not big enough to solve the problem we could steal our way out of it and if you look at um all the uh historically great military leaders uh and i'll take napoleon as an example napoleon you know as great as he was he was basically uh a crook a robber with an army with the military right and he he you know stole the assets of other countries right and uh was revered as a great general and so uh you know people accused us of doing that uh in in the middle east and you know it's not exactly true but you know whatever the militaries uh throughout history are used to gain assets of other countries good news here technological innovation if the us is the center of some great innovation in biotech energy nanotechnology whatever right we could become very prosperous and solve a lot of these problems and certainly there's a lot of hope for that uh but of course it's a competitive environment around the world with china and japan and other countries uh with their advances but the most likely thing is to inflate our way out of the problem and what that means ken is simply this if you borrow money uh as an individual or a nation if you borrow money and then there and then inflation occurs you get to pay that money back in cheaper dollars or whatever currency unit you're subject to and since the u.s controls the printing press and has a whole bunch of debt where it's we're the largest debtor nation we owe all this money to all these other countries and we owe it to our own people through entitlement programs and social security and unfunded mandates and so forth right the way to solve the problem is to simply run the printing press create more money making all the money in existence less valuable and that's what inflation is right because uh inflation occurs when there is a limited supply of goods and services and more dollars chasing that limited supply of real estate of whatever right whatever widget in the economy and so then the price goes up it's simple supply and demand uh but the debt gets cheaper to repay i mean think about this if you owe a million dollars in mortgage debt on 10 properties that you own as little rental properties single-family homes and there's 10 percent inflation over the course of a year or three years doesn't matter inflation just repaid a hundred thousand dollars of that debt for free it's a beautiful thing and it is the business plan that central banks and governments love so what i say as perverted as this whole system is and i i don't like it philosophically i know you don't either uh nobody does in there you know no thinking person does at least but the reality is it is the system we have and we need to align our interests with the two most powerful forces the world has ever known governments and central banks like the federal reserve the most powerful central bank on earth so that's that's the solution i think i i agree with you i i think that everybody's talking about inflation that's why there's a run on bitcoin there's a run on gold and you know there's all these people are looking for you know safe havens obviously i don't know how long that'll last and i'm not experts in those areas uh what what what most people i think understand this generally you know what what could just the normal folk do yeah i mean most people aren't going to run out and buy 10 properties tomorrow and some people don't own any real estate and i mean for you and i we've been in this business so we're well positioned for this inflation but what what can somebody do right now um you know to uh you know to hedge inflation and not get caught up you know because i know as you know our friend kiyosaki says savers are losers and this is exactly what that means what that means is that your savings is is going to dwindle based on inflation or the purchasing power yeah definitely no robert kiyosaki is right you know nobody ever got rich saving money and literally saving money will cost you money because if you're earning say you're earning one percent interest in the bank which would actually be a miracle you're not gonna earn that much but let's just use that as an example okay and say you're in a forty combined state and federal tax bracket you're giving now now your interest rate is down to 0.6 okay now say that you have very moderate inflation which is not true by the way inflation is pretty significant right now um the government lies to all of us by miscounting inflation the most widely used measure is of course the cpi or the consumer price index and they manipulate the consumer price index in three basic ways weighting substitution and hedonic indexing and you know that's a whole long conversation in itself but just very briefly and i'm sure you've talked about this before um waiting just means you know it's a basket of goods right and and they say okay well this basket of goods went up or down in price uh every month so here's the current inflation rate or the cpi and um and so they'll wait one item more than another to manipulate and make the inflation rate look lower than it really is it's just a scam it's an absolute scam and then they'll substitute things so for example they'll say well if the price of beef goes up they just assume everybody will just convert to chicken and you know maybe you think chicken is a dirty bird and you don't like chicken right so you know that's substitution hedonic indexing is another thing they do technology always gets better and it's a miracle right the technology we have you know the computer i'm using right now cost twenty eight hundred dollars and every time i buy a new laptop every couple of years it's twenty eight hundred dollars because that's always the price of a macbook pro twenty eight hundred dollars but guess what that computer keeps getting better faster more powerful more storage et cetera so hedonic indexing will assume if the computer got twice as good they'll assume it only cost half as much they'll say it only cost fourteen hundred dollars when it really costs twenty eight hundred dollars because hedonic the word means seeking pleasure how much pleasure am i getting out of the item and it does get better but it's not fair for them to hedonically index it because basically can what that says is that you and i and everybody listening or watching is not entitled to progress progress belongs to the people not to the inflation index right right so uh so it's it's a total scam so that that savings example right you got point six percent interest if you're earning one percent let's assume inflation is two percent that's the fed's target rate and you believe that which is not true of course uh but now you subtract two percent from one point six percent and so you're down below getting negative return on your money you are losing money by keeping it in the bank so that is not the thing to do i think the normal everyday person can buy one property and get a three decade long incredibly cheap artificially cheap fixed rate mortgage for 30 years for three decades and you pay that mortgage back in cheaper dollars over time it is a beautiful thing uh beautiful thing i agree i i've been telling people it's counterintuitive i've been telling people i said you know cash prior to this was considered an asset now it's a liability debt what's considered a liability now it's an asset so you have to like flip it around and and oddly enough you know in my parents generation and you know prior generations is paid let's pay off everything but now that's uh the real estate itself will go up obviously its inflation area as well the components of you know to be able to put something together and build something is going to be more but debt itself if you can um in a weird twist getting debt putting debt against something pulling that debt out and using it to buy something else is actually uh right now a good move based on where um where this is all heading wouldn't you agree absolutely it is the you know most people consider the house the asset and the mortgage the liability i would say the mortgage is a huge asset and ken you know i always like to say that debt is my favorite four-letter word it's my favorite four-letter word and i don't mean consumer debt of course i don't have any debt personally except mortgages on my properties it's my only debt i do lease my car because i think it's a pretty good deal and you know when you lease a car there's no depreciation risk you just turn it in and go right right so so i like that but i i don't have any debt you know just the real estate debt because that's good debt it's good quality investment grade debt and here's one thing i want to say i want to make a big prediction right here and i don't know if i've said this publicly too much so your listeners are gonna get it for the first time but mark my words this is gonna happen and it might be like five years before we really see this but here it is the whole country has practically refinanced their house by now right or they're about to and people are buying properties like they're going out of style guess what that's going to lead to in a few years interest rates are artificially low they must go up these rates are crazy and you know people tend to think that low interest rates are good low interest rates have a lot of very poisonous uh things especially to older people who are savers right and and to pension funds i mean there is a giant pension crisis which by the way you should do a video on that if you haven't already because that's a big topic uh and um and that'll get a lot of views but um so low interest rates are a very poisonous toxic thing in the system and they're artificially low here's what's going to happen here's my big prediction in a few years when rates must inevitably rise and you can't duplicate these ultra cheap mortgages we have now here's what's going to happen people are going to hang on to their houses they're not going to sell them they're going to improve them so home remodeling is going to be good business lowe's and home depot stock will probably do pretty well okay and and they're doing well now okay but they're even going to do better in the future because people will stay in place and they will not relinquish those properties and that is going to further constrain supply of houses and it's going to put upward pressure on prices because supply will be even more constrained nobody's one going to want to give up their 2.5 mortgage that they have 25 wonderful years left on and and they'll they'll keep that property they'll turn it into a rental maybe or they'll just stay put and they'll add a room or you know improve the property i actually agree with that so yes you're i think you're right we heard it here guys for sure so jason we got to kind of we got to kind of wrap this session up but uh we're going to jump over to my premium page and we're going to talk about you know where you're looking for rentals currently the pros and cons of condos and and uh take a look at that so if you guys are interested in that run over to ken mcelroy.com and register and you can take a look at that but jason thanks man always a knowledge of information much much appreciated hey my pleasure ken and uh happy investing to you and all your viewers and listeners awesome thanks you

Channel: Ken McElroy

Views: 88,726

Keywords: Rich Dad, Entrepreneurship, Investing, Personal Development, Get Wealthy, Earn Wealth, Ken McElroy, Entrepreneur, Rich Dad Advisor, Success, Business, Self-Help, Coaching, Real Estate, Real Estate Entrepreneur, Real Estate Investing, Freedom, Lifestyle Business, Hustle, Jason Hartman, Housing 2021, Housing Update 2021, Jason Hartman Housing, Inflation 2021, Federal Reserve 2021

Id: fL5XtqNxmD0

Length: 30min 40sec (1840 seconds)

Published: Wed Jan 27 2021