New Housing Development, Regulatory Impact On Home Prices & Millennials Trying To Buy Homes With Matthew Gardner

Jason Hartman begins the show discussing President Trump’s visit to Singapore and his work with North Korea. He has put them on the negotiating table, a feat no other president has been able to do. Jason later warns about the scare of tech companies, most notably Facebook. In the interview segment of the show, he hosts Matthew Gardner, Chief Economist at Windermere Real Estate. They discuss macroeconomics in the US and what’s happening with housing inventory and how millennials are saving for a downpayment.

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. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 0:52
Welcome listeners from 57 states in the US. Well, that was the number according to Obama and why 165 countries worldwide. This is your host Jason Hartman with Episode 1013 1013. Yes, it is harder to say that, isn’t it now that we’re over 1000 thank you so much for joining me today as we are in the midst of a very, very historic and unfairly covered story. Now, look, some of you have written me and you asked me to stop bashing Trump. Okay. I will try. I will try. I’ll tell you he’s a lot better than the criminal cartel that the Clintons ran for so many years for four decades. And Mr. Trump, Donald J. Trump has accomplished something that no other US president ever could. Now compare this to the empty suit president we had last time around. That’s Obama. Of course the empty suit man. The guy with Little experience, it was mind boggling that he could even get into office. I mean, it really makes you know that there must be some truth to the whole Bilderberg Group conspiracy, when someone like Obama can get elected as President, the most powerful person in the world. It’s crazy. Crazy, crazy crazy. But look, will trump get a Nobel Peace Prize for ending the Cold War with North Korea? Or I don’t know, maybe the Cold War didn’t end yet. Maybe I’m being massively premature and way too optimistic. But it is truly amazing that he accomplished the summit with Kim Jong Hoon. And the leftist Marxist media is just finding every little fault they possibly can. And look, I don’t care about being partisan. I mean, Trump fam not a Trump fan does not matter. It is so Ridiculous. It is so unfair. Who was that? Where did that quote come from? I think, oh, gosh, I don’t know. Was it Voltaire? I’m not sure. Anyway, he said, I may not agree with what you say, but I will defend to the death your right to say it. And the leftist media controlled by George Soros, and all of the elites who would love to see America hollowed out with their globalist agenda. So you know, they can they can have power over us little people here in the hoi polloi. Right. They are just all over it. They can’t find anything good to say about Trump’s incredible, incredible accomplishment. So look, hats off to Trump. It’s an amazing thing that he pulled off peace through strength. I mean, can you imagine if Obama would have had that meeting with Kim Jong Hoon? I mean, that would have been, you know, sell America down the river to get the money. And even right, at least I know with Trump, I don’t feel like I’m gonna get royally screwed as a citizen, you know, the way I would with Clinton or Obama or any of those, because, hey, the man did write the book The Art of the Deal, okay, love him or hate him. But he wrote the book, The Art of the Deal. He’s a deal maker. So for whatever it’s worth for whatever it’s worth, but it is definitely a historic moment. Right now that’s going on with this. With this whole North Korea thing. Hey, maybe next. It’ll be a meeting with Iran. Iran. Yes. In Iranian us summit. Wow. That would be amazing, wouldn’t it really what? Well, hey, you know, on the last episode, I talked about identity theft. And on this episode, we’ve got a an economist on and you’re going to love what he has to say. We’re going to talk all about the real estate market. He is a real estate economist from Windermere Real Estate Group. They are based in Seattle. He’s Obviously in a high flying cyclical market, so just understand the viewpoint, definitely. But this was a fascinating interview, and I really, really enjoyed it. One of the things he said that was interesting also, you know, kind of my Trump remarks at the beginning here, is he said that nobody he quoted the Chinese PM, who recently said, nobody wins a trade war. And, you know, I’d really, as Jeff or venture Alliance member brought up for me with mentioning Tim Ferriss interview, he said, let’s unpack that. Well, let’s unpack that. I really want to unpack that more and see if that’s true. I’m not totally sure it is. But it’s an interesting thought. I’ve been pondering that since I did this interview just yesterday. This one’s hot off the press for you. But hey, before we go into that, and this relates to the identity theft discussion we had on the last episode of Monday’s episode, look, this is The new criminal windfall, okay, it is the biggest thing going identity theft, you’ve got to protect yourself. I’ve had several known instances of it myself. I know one of my companies had a known instance of identity theft when someone probably the, you know, the cleaning service that would go into our office every night, our office in Irvine, California, they probably found a check laying out somewhere, maybe it was a commission check and one of my real estate agents mailbox or, I don’t know, I don’t know what they found or how they did it. But somehow someone copied our checks. And they went into a bank in Central California. I want to say it was in somewhere like Fresno, or Bakersfield or something. And they went into a bank, and I got a call one day from a detective, and he says, Mr. Hartman, do not trust that I’m a detective. I want you to hang up the phone and I want Want you to go and look up the phone number for the police department in Fresno Bakersfield or whatever city it was, I can’t remember. And I want you to call me back. So you know that this is really a detective you’re speaking with. And I did that. And I didn’t take the phone number. He told me, I looked it up myself. I called him back. And he said that someone went into a bank with a check made out for, I don’t know, 40 $800 or so almost five grand. And it was our company check. And he said, Did you write that check? And I said, Absolutely not. I did not. And the bank teller got suspicious and follow the person out and refuse to cash the check, thankfully, and follow the person out and they ran away. And you know, identity theft, folks. It’s the big thing. The chances of you being mugged are much lower. The chances of your house being robbed are lower. Why is that? Well, people are on guard nowadays, right? We’re not as dumb as we used to be, folks. We’ve got a little street smart as a public, our homes are properly alarmed and secured, hopefully mostly. And so they’ve turned to the new thing. Identity theft and hate. It’s not a new thing. But I just want to tell you, it’s a big deal. This information control is a big deal. Now, the two scariest companies on Earth. I’ve talked about the many times, Google being the scariest company on Earth. In my humble opinion, hey, Monsanto was one of the scariest companies on Earth, but they just got bought up by bear. So now maybe they will get rid of their name and it’ll just be bear Corp. We’ll see. We’ll see. They’re poisoning our food. Of course, Starbucks is poisoning us. Every time we go there. Good luck going anywhere else. They’ve crowded everybody out. Blah, blah, blah. Okay. Well, the second scariest company on earth is probably facebook, facebook, very scary company. So I was reading this Business Insider article and I thought I’d just share with you a couple of things. Right. The article is entitled Facebook is tracking you in ways you never knew. Here’s the crazy amount of data. Facebook sucks up as they are tracking you. This blew my mind. And you know, Zuckerberg, I wouldn’t trust that guy as far as I could throw them. Of course, there’s been scandal after scandal, he has just basically flaunted his abuse of our privacy over and over again. Now I’m sure the libertarian folks are saying, Well don’t use Facebook. Oh, yeah. Right, these big giant monopolistic companies. That’s like saying, if the phone company was invading our privacy, don’t use the phone. Good luck with that one. Good luck, folks. Yeah, good luck, my libertarian friends. And hey, I’m a libertarian do but I’m just a practical one. I’m a pragmatist, right. So before we get to the economic thing, let me just share a couple of these things with you, it’s gonna blow your mind. Below are some of the more surprising ways Facebook is recording your data. They record your mouse movements. They claim that it helps them recognize that you are not a robot. Another way they distinguish humans is by monitoring whether the browser window is in the foreground or the background. So they know where your browser window is. They collect a lot of data about your devices, your battery level, your signal strength, and your available storage space. It blows my mind that they’re able to know whether my harddrive is full or not. This is pathetic, disgusting. Absolutely scary. What else do they know that we don’t know? That we’ll discover in the next scandal? Hey, you know, where is the WikiLeaks? Where’s Julian Assange? Where’s Edward Snowden? You know, Facebook, there are all kinds of rumors that it was originally funded by the CIA is a data mining project. Okay. They also know your operating system, browser types, file names, and the plugins all fair game to Facebook. Facebook knows who your mobile operator reps hate sprint at&t, you know T Mobile, Verizon, which one you’re using, they know that they know your IP address. They know your cookie data, your timezone, and your internet connection speed, and you’re not alone. In some cases, Facebook monitors the devices around you, or on the same network. Hey, you have kids, you have a spouse. Well, if you’re all at home and you’re on Facebook or fate, the Facebook window is open, which it probably stays open most of the time on most people’s computers. They’re just looking at what all of you are doing. They got the whole family’s movements is this scary or what they know the signals of your device that are monitored including Bluetooth, and information about nearby Wi Fi access points in nearby cell towers, this is all known to Facebook. They also know your GPS location. Your camera information, your photos, if you don’t lock them down in your settings, your call logs and your SMS text messaging history, the log history. Okay, data about your online and offline actions and purchases from third party providers has collected, in addition to the information about games, apps and accounts people use, maybe Google isn’t the scariest company on Earth. Maybe it’s Facebook. Thank you to the left wing media Business Insider, for sharing that with us. Okay, hey, without further ado, just always remind you check out Jason for properties. We don’t have our big tropical event up there yet, but we will soon I know I keep talking about it. Keep the first week of November open, folks, you’re going on vacation with us. And without further ado, let’s get to the first half of this excellent, fascinating interview, where we talk about the real estate estate market and the economy, you’re really going to enjoy this one very insightful interview.

Jason Hartman 13:11
It’s my pleasure to welcome Matthew Gardner to the show. He is the chief economist at wyndemere. Real Estate Matthew, welcome. How are you? I’m very well, Jason, how are you? Good, good. It’s good to have you on the show. And we always appreciate getting a picture of the economy that always looks different from everybody’s chair. Just thought I’d ask you kind of generally, how do you think we’re doing? It looks like we’ve been in a bit of a boom time some people are talking about the business cycle. And you know, aren’t we due for a recession? I think we got a few more years, but

Matthew Gardner 13:40
what do you think? Well, so I actually I took a position about a year and a half ago, but I made the statement publicly that I expected we’d enter a business cycle recession, likely around the end of 2019, early 2020. I’m still sticking to it. Although certainly in the last couple of months, a lot of my stuff. The Economist seems to have jumped on board the same opinion. So ultimately I think we certainly are jus to have a recession. But we’re probably a couple of years away, maybe even half possibly the outset. Two years. Four, we have one

Jason Hartman 14:12
your company when the mirror Are you in about 10 states now or how that’s correct.

Matthew Gardner 14:17
We have about 6500 brokers in little over 300 offices, the 10, Western States sphere as far east as Denver, Fort Collins and Colorado. North our policy to the Canadian border down south to San Francisco. Okay, fantastic. San Diego. Yeah. Excellent. So you would be considered sort of a Pacific Rim and western US type company or that’s that’s your main coverage areas, right? That’s correct. Yeah. Yeah, fantastic. Those mostly cover. I know that a lot of your offices are in higher end markets. I would call those the cyclical markets versus the linear markets that are kind of boring and don’t make the news too much. But you know, you’ve muted It’s so much over the years. I’m not sure that’s really true anymore. I know that’s sort of your Genesis, Seattle where your base is certainly a very high flying cyclical market. Do you kind of look at those distinctions of those different markets the way we do or or not? I think so. Yes. And if you look at the western states, certainly they are doing very well, I’m in our offices in Colorado, as well as in Utah are doing remarkably well. And the further west you get, the more buoyant, it becomes, certainly, as far as the housing market is concerned, there’s a lot more going on here than shall we say, in markets, like Michigan or Ohio, which I think is the statement, they’re somewhat linear. And I would very much agree with that. So we are very much in to a degree and then the boom bust markets, which are pretty much all of the ones which we have offices in other maybe Utah, Utah seems to be remarkably resilient. When it comes to downturns. They really don’t have the right but in general, yeah, I think the western states are the ones which do tend to see more peaks and troughs certainly when it comes to the housing market. in the Midwest, or even the passive East Coast as well,

Jason Hartman 16:03
right, right, that old saying the higher they fly, the harder they fall might be somewhat appropriate in that discussion. But But you know, there is this amazing, a really tragic shortage of inventory, the new home builders the last time around, they were building entry level housing before the Great Recession and even into it a bit, but they just haven’t built that kind of product at all. And they’re building higher price product. What is going on with new home development? I know construction costs have risen dramatically. Is there going to be any break in the inventory shortage?

Matthew Gardner 16:38
That’s certainly one of the questions that I probably get asked more than any other least other than is there another housing bubble that we might get to that a bit later on? In terms of new construction? Certainly, I mean, the intuitive view would be, if we have a lot of pent up demand, which we clearly have, why aren’t builders building more factories, essentially, you have to look at the form corners that I call them a new construction development. And those are land, labor, materials and regulation. So if you run through those kind of very quickly, Landsat in the western states where we have a lot of geopolitical constraints, and those would be the creation of urban growth boundaries, ie markets where you can look issues, you can build an outside of those boundaries areas, you really quite frankly can’t build. We’ve seen a big push up in the cost of land. And that is something which is coming into play more now. I would argue that I’ve seen the last 28 years so land prices have been going up. Secondly, labor. There’s an awful lot of construction workers that were building homes back before the recession started. They’ve cut out the market. They all just paid off to the Dakotas went fracking, and unfortunately, those employees have not come back into the housing market. On top of that, obviously, recent immigration reforms, of course, the contraction in the number of themes In the building. So when you see that happening, we have a lack of labor that again, forces prices, higher materials doing the same thing. They’re going up, quite frankly, at about half a percent a month right now. tariffs are imposed on Canadian softwood lumber haven’t helped at all. So you’re seeing the cost of materials go up. And finally regulation, regulatory costs accounted for about 25% of the cost of building a home. So it’s remarkably high. Wow. I’m so

Jason Hartman 18:29
glad you mentioned that, because I have not heard it expressed that way before, at least not that high. And, you know, that varies quite a bit by area, doesn’t it? When you say 25%, I mean, a quarter, folks, listeners think about what he just said. One quarter, one fourth of the cost of the home you buy is regulatory. Maybe we’re just as our pass through costs from the regulatory burden. So if you buy a $400,000 property, that’s 100 grand To pay for some sort of regulatory issue, whether it be OSHA or environmental or whatever, but feel free to elaborate

Matthew Gardner 19:08
and all the way down dependencies of the city is very accurate. So sewer, water hookup infrastructure, and all these things come under regulation. So my point being is that if you imagine a builder, who’s looking to make to build a development, he is going to throw in those costs that land labor materials regulation, obviously, and to add on to that debt service. And that will spit out a number and the number that he needs to sell the house for in order to make money. I imagine hypothetically, if that number is $600,000, yet the market acceptance price point is $400,000. Is the builder going to build or not? No, they’re not. Right, exactly. So because of that, right now, we’re building about 900,000 single family homes a year. I would argue there’s a shortfall today at least 200,000. So we are certainly not even coming close to building one. We need to build, in addition, where we have a lot of robust demand is in that first time buyer. price point. Yeah. And that’s even harder for the builders to do. Right. So not only is it very expensive to build, they’re not necessarily building the product that the market wants.

Jason Hartman 20:16
Yeah, that is something else. It really is. So what do we do? I mean, what do we just expect no relief from this at all, we’ll just see higher and higher prices because of the inventory shortage.

Matthew Gardner 20:27
What I think ultimately, what’s gonna happen, it’s very difficult to take the price off the land, because ultimately land seller, that’s a price he wants to achieve. If he doesn’t get it, he wants to sell labor and materials. Again, you really can’t change those. So the only thing you can do, ultimately is look at regulatory costs and find out how feasible it is to get that reduced. Now, it’ll be a big problem. It certainly is one. Do I expect an easy solution? No, there really isn’t. But at some point jurisdictions, cities, counties, states, across the country We really need to come to terms with the fact they can’t turn around and say to builders, we have a rabbit shortage, shortage of affordable housing, fix it. Well, we need their help. And I also think that that will likely come from changes in regulation, but I certainly am not holding my breath.

Jason Hartman 21:17
Yeah. And these regulations are mostly at the local level, right? I mean, the stuff that’s baked into the cost of the materials, you’re not including in the that regulatory burden that’s strictly the local or state level, for example, you know, if the producer of the lumber or the concrete or the nails are the glass or whatever the ingredients of that house, the petroleum products, that regulation isn’t being countered in that 25%, I assume, right, because they’ve complied with all that regulation before the builder bought the raw materials, right.

Matthew Gardner 21:48
Yeah, you’re absolutely right. So they’re actually costs which, which goes to the cities and the counties for the better part. Those are there’s other pregnancies, the water sewer, hookup fees. They are nothing With associated fees with materials that’s totally separate.

Jason Hartman 22:04
Yeah, well, that’s something else. That’s, that’s really amazing. It really is. And they did varies a lot by locale to. Okay, so we’ve looked at the construction stuff. What about millennials? You know, this is the largest demographic cohort in American history, slightly larger than baby boomers. And they’re a really a different kind of group. The millennial group, the Gen Y group,

Matthew Gardner 22:27
you know, they’re

Jason Hartman 22:30
there. They’re not like my generation Gen X. They’re not like the baby boomers. They’re not like the matures. What do we make of this group? I say that they’re delaying homeownership, they’re delaying family formation. They’ve got these huge student loan burdens. You know, I like to say that they’ve got a mortgage, they just didn’t get a house included with it. That’s called their student loan. But you know, because they’re so large, some of them are certainly buying and that is impacting the market. They are finally moving into the housing market and you know, 80 million people But even if a small, a smaller percentage of them are buying, it’s still a significant impact. What do you say about the millennials?

Matthew Gardner 23:07
Probably? I think you’ve nailed A lot of it right on the head. Yes, they are by far the largest by about 5,000,005 million more millennials now are baby boomers. But I think there’s several things which we want to look at one of which has been there certainly a very interesting demographic to look at. But we need to come and get away from the normalized argument. That is how they spend their life eating avocado toast. That is $16. Yes, exactly. And you said the oldest Millennials are now in their early to mid 30s. They’ve grown up. And so are they buying homes? Yes, they are. But the different things he mentioned, are actually very appropriate. One of which is they are lumbered with a an extraordinary amount of student debt. outstanding student federal student debt today’s are about $1.5 trillion. So think about it in these terms, trillions a huge number. If you take all of our credit card debt as a country, it’s about They don’t run 50 billion give or take. We were served more on student loans and on our credit cards. Wow. And is this file bankruptcy your credit card debt goes away? Yeah, you can’t do with student loan. That’s not exactly. So one of the issues they have beyond the normal of not be able to afford their avocado toast, is the fact that they are having a very hard time saving up getting a downpayment, to buy a home. Now about 25% today, are still tapping on the doors of the Bank of mum and dad. So approximately one quarter actually getting the down payments from their parents. But that’s becoming more difficult. Back in the day before the recession. A lot of families would tap into their home equity lines of credit these kinds of things to help out their children. Obviously, with recent tax changes, they are more or less likely, shall we say to do that than they used to be in very high rental rate markets. The country they have is do they pay the rent or do they save up for a down payment? They can’t do both? Yeah. So in order to Another issue. And so they’re really kind of stuck in a situation whereby they’re almost forced renters for the better part. Yeah. Down pence. The big issue, certainly very much on the coastal cities, San Francisco Island. Well, also Seattle, to a degree Portland, but even on the East Coast, New York and Miami. These are expensive markets. Now do they want to buy? Absolutely, about 68% of them believe that buying a home will be at the most astute financial investment they will ever make. But 74% think they can’t qualify for a mortgage? No, they would also So essentially, is kind of where do they want to buy? They’re moving out of apartments, as you as you mentioned, very accurately a few minutes ago, are they household formations, they are actually growing up. They are creating households, the marketing married, they’re having less children, by the way, right? They’re doing things that our generation did, but they’re doing it about five to seven years later, right? And we did it

Jason Hartman 25:54
one of my millennial friends. I’ve just got to share something with you funny, of course, you and probably most of my life. listeners have heard this term that the millennials have coined. They call it adulting adulting. One of my millennial friends, she texted me the other day and she was complaining about how she needs money and and she says this adulting is difficult.

Matthew Gardner 26:16
Oh very much.

Matthew Gardner 26:20
Yeah, exactly why that is a generation No one said no to these kinds of things. No, but no, it is remarkably hard. However, they are certainly want to buy now here’s the interesting thing where I’m seeing certainly in the Pacific Northwest. That is the fact that when they do move out of their urban apartments, they do not want to move into the suburbs. They would like to move ultimately into what I define as being ex urban markets. They’d like one foot in town, one foot out the exurbs. Yeah, yeah. townhomes are a very big thing for them, anywhere 12 to 1500 square feet is perfect for them. Now, the issue is in many markets, and certainly Seattle and Portland and the Bay Area very much so is the fact that they Can’t afford those townhomes, which we’ve seen traded in that six to $900,000 price point, essentially what it is certainly in the northwest, it’s almost actually now forcing them out further into the suburbs. Sure. And addition, as I mentioned earlier on, builders just aren’t building for that demand for that price point. that’s problematic for them, even if they can afford to buy somewhere. What is out there that they can’t afford to buy?

Jason Hartman 27:24
Right? Right. This will be continued on the next episode. Thank you for listening and happy investing. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional and we are So very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.

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