Introducing a new index presented by fellow Real Estate mogul, Jason Hartman: The Hartman Comparison Index (HCI). What is it? How can you use it when making decisions in your real estate investing? Join Ken McElroy and Jason Hartman in a presentation about the HCI and what it means for real estate. Learn more about your ad choices.
Ken McElroy:
It’s Ken McElroy, and I’ve got another great guest here he’s been on before. It’s Jason Hartman with the empowered investor. He’s got lots of, lots of lots of experience in real estate. He lives in Florida. He buys all over the country. And today he’s going to talk about a new index. He calls it his index for housing market, and it’s called the H C I, I can’t wait to hear about this. Jason, welcome to the show.
Jason Hartman:
Hey Kenny, it’s great to be back with you. And, uh, I am excited to share this with your audience. Uh, you know, we’ve, we’ve done several shows together and it’s always just a real pleasure to talk to a pro like you and, and your audience. Uh, so, uh, you know, we’re going to, we’re going to explore today, uh, the question is housing expensive or is it cheap? Let’s find it. Yeah, I would say,
Ken McElroy:
Right, right, right. So, you know, everybody, it’s funny because a lot of people think it is what it is, where I am. Right. You know, but that’s not always the case. And so, as you know, and, uh, you know, Jason buys nationally, I buy nationally and internationally and both of us have, and you know, it’s all relative. And so a lot of times the guys, you know, we pay attention to indexes. We pay attention to KPIs or key performance indicators because they predict trends and they kinda give you a baseline or a basis for what you should be doing and where that could happen on the occupancy. It could happen with rant. It can happen with housing prices. It can happen with expenses. It can happen with property taxes. It doesn’t really matter, but, uh, I’m really excited to listen to Jason about his HCI, the Hartman comparison index. So Jason, let’s, let’s hear all about it.
Jason Hartman:
Thanks, Kenny. I appreciate it. So, you know, uh, my listeners have, uh, sort of given me credit for this question. I often ask on my podcast or YouTube channel. And the question is a question that I think is so meaningful in so many areas of life can, whether it be investing or dating or buying a new car or buying a new house, or, you know, uh, adopting a dog, right. Anything you’re doing right here is sort of life’s ultimate question. And, and this is it compared to what that’s it. Right? And that, that like is, is the question we all, we need to ask ourselves all the time compared to what, and what I find interesting about real estate is that most people today would think that real estate or housing in particular is expensive. And like you said, at the beginning, you know, it depends on the market. And there’s an old saying in real estate, you’ve probably re rehashed many times, and that is all real estate is local. All real estate is local, right? And that’s certainly true in a country as large and diverse as the United States. There’s not one real estate market. It drives me nuts when I, you know, turn on the TV or read something in the media. And, and some guru was talking about that housing market. I can never figure out where that is.
Jason Hartman:
It doesn’t exist. You probably think the same thing, you know, where is the housing market, you know, uh, is it in Miami or LA or Seattle where you’re from, or, uh, Phoenix where you live now, you know, where the housing market and the fact is there is no national market in a country as large and diverse as the U S there are at least 400 or so markets, which is the metropolitan statistical areas that, you know, well, and you teach your people, but there’s, there’s about 3,100 counties in the U S right. And in every County, there are cities and in every city is a neighborhood, you know, a bunch of neighborhoods, right. And so all real estate is extremely local. I know you teach your audience about sub-markets and things like that all the time. And in, in reading your grade books, you do that.
Jason Hartman:
And so, so that’s the first thing we need to understand all real estate is local, for sure. But the next thing we really got to think about is what are we measuring it against? If we think it’s cheap or expensive, what is the measuring stick? And that’s really what I want to dive into today, as I share this new index with your audience. And that is the H C I, the Hartman comparison index. And so hopefully you can see my screen now. And for those of you just listening on Kenny’s podcast, you know, we’ll, we’ll try to make any of the visuals understandable without you seeing them. But of course, go back to the YouTube channel and take a look there too. Uh, so the question is, what’s the measuring stick, right? What measuring stick are we using? You know, if, if you use a measuring stick, uh, that is got the metric system, and it’s a meter long, well, that’s different than a yard, obviously, right?
Jason Hartman:
So that measuring stick changes depending on what the item is we’re using to measure it. And so when we look around, we see that people measure things mostly in the U S dollar, and that is a grave error in the reasons. And that’s such an error is the dollar fluctuates. It’s not always worth the same amount. You know, a dollar today is not worth as much as a dollar was 10 years ago or 50 years ago, yet it still had the same name. It was still called a dollar, but it’s not worth the same amount because of inflation. And so if we look at a basket of goods, the way the consumer price, index measures things, which is highly manipulated, you and George, and I all agree on this storage, I’m speaking. Uh, but, uh, you know, it is the concept that we should look at a basket of things is a valid idea, right?
Jason Hartman:
And so we shouldn’t just look at the dollar. We should look at a bunch of things, and that’s what I want to do today. And I want to compare this to the price of housing. What do you think? Yeah, I love it. Let’s go. Okay. Good stuff. Well, let’s dive in. So first off, as you mentioned earlier, you know, all real estate’s local, and I divide the country into three types of markets, linear markets, cyclical markets, and hybrid markets, linear. Those are the markets I like to invest in. And our clients like to invest in. We help people buy properties nationwide. And, um, these are these slow and steady kind of boring markets, but they offer really good cash flow. And they are not very newsworthy because not much is happening there. Right. Um, the newsworthy markets are number two, the cyclical markets. Those are the coastal markets.
Jason Hartman:
They’re the expensive Northeastern markets. And these markets are going up and down more like a rollercoaster. And when they’re hot, they are super hot. And when they’re cold, they get pretty cold. So they have bigger, uh, peaks and valleys. If you’re looking at a chart, whereas the linear market sort of chug along and do their thing, and they’re kind of boring. Um, you know, they have small peaks and valleys, but they’re not significant. The hybrid markets in between the two, most of the world is a linear market. When you look around the world, Paris, London, Hong Kong, Dubai, those are cyclical markets para you know, most of the rest of the world is linear. Okay. Most of the U S has linear. So that’s the most common type of market is a linear market. And, um, uh, so, so the, compared to what question is super important and let’s compare housing to a bunch of things.
Jason Hartman:
Um, there’s an old saying in economics that the cure for high prices is high prices and the cure for low prices is low prices. And what that means is that when prices are high demand, it tapers off and then prices come down in the marketplace. And so that cures, the high prices when prices are low, Oh, everybody dives in and they buy everything in sight and they actually create bidding Wars. And that cure the problem of prices being too low, right? When they’re low, you get the cure automatically by market dynamics for low prices. And I would argue that contrary to what many people are saying now that housing prices are actually low. And I know that’s a controversial statement and people are certainly welcome to debate that with me and what I want to share. Just another perspective and compare them to different things.
Jason Hartman:
The most common question we get, Kenny is, are we in a bubble? Are we in a bubble? This is one I hear all the time. And I know it’s one, you’ve talked a lot about on your channel to your audience. And it’s probably a question you get all the time too. And so I created a new index to measure the price of real estate, comparing it to a bunch of other things. And not only a time permitting, are we going to talk about the price of real estate, but we’re also going to talk about the monthly payment on real estate and compare that to other things. So what do you think?
Ken McElroy:
Yeah, let’s do it. That’s so sounds great.
Jason Hartman:
Okay. Hey, so this is the most common question I get asked are bubble pop, when will it pop? Exactly. And especially since last year. And, uh, I think a lot of people are surprised with what’s what’s happened, uh, you know, since, since about a year ago. So the first thing we got to look at is the ingredients of a house or an apartment complex. And I call this packaged commodities investing because what we’re really buying is a whole basket of things. We’re buying lumber, we’re buying glass steel, concrete, petroleum products, labor, energy, all of this stuff, packaged copper wire copper has been going crazy lately. All this stuff packaged in the form of a house or an apartment building or another type of property. And so we all know what’s been happening with lumber prices. They’ve been going absolutely crazy. And it’s a lot of people are asking, you know, is this real, the cost of lumber and copper and forth.
Jason Hartman:
Remember, you know, the wires in your walls are made of copper, right? So that’s a big ingredient to a house. Um, is it real or is it just a supply disruption? Is it transitory? That’s a question we’re, we’re hearing a lot. And the answer probably remains to be seen. I think it’s, it’s both right. Uh, but overall, these prices of, you know, uh, metal products, iron steel, steel mill products, lumber, they’re up like crazy in this graph, this chart isn’t even up to date. Okay. They’re up more than that now. And I saw this funny meme. I thought you’d get a kick out of,
Ken McElroy:
That’s funny, that’s a home Depot dinner date,
Jason Hartman:
Take me somewhere expensive. Uh, one says to the other, and, and they’re on a romantic date at a lumberyard. That’s funny. That’s a, that’s the irony of the situation we’re in now. So if you look at the housing prices, you know, you can pick any time period, but just pick a really long period, right. Pick over a hundred years. Right. And this doesn’t even go to present day, but we see that housing prices started to go up like crazy after the set, you know, it’s kind of in the seventies, right. In the mid seventies and 1971, you and Robert Kiyosaki talks about this all the time, the big event happened, right?
Ken McElroy:
Yup. Yup. Took the money, took the dollar off the gold
Jason Hartman:
Standard. Yep. Yep. Nixon closed the gold window, detached the dollar from gold forever. And then we saw housing prices go crazy. And a lot of other prices did too. Then we have the great recession come along and we saw a housing crash and a crash of a lot of things. But you know, we’re talking about housing and specifically here. And then of course, since then we’ve seen housing prices go up a lot. And since the pandemic just, it’s just surprised a lot of people really, because of these super low interest rates. So, um, I offered this to your listeners before, but there’s a lot more detail in, in my little free mini book called pandemic investing. That’s it pandemic investing.com. And, uh, we talk a lot about inflation induced debt destruction there. And so lot more to this, I know we can’t cover it all today, but I just wanted to offer that, um, here’s the case, Schiller home price index compared to the consumer price index.
Jason Hartman:
And we see that mostly they would track each other, but there are times in the market cycles when they get really out of sync. And the case Shiller is way above the CPI, the consumer price index. And that usually indicates a crash, right. It has, you know, the last time around for sure, uh, during the great recession. So the question is the million dollar question or a multi-million dollar question is, will it happen again? Are we going to see another crash? Well, since our rich uncle Jerome Powell came in and lowered interest rates to ridiculous levels that has just, you know, it’s like pouring gas on a smoldering fire. And so the housing market absolutely went through the roof and a lot of other things went up in price too, because the money was essentially free to buy it. Right. And, uh, literally they’re actually paying us to borrow money right now.
Jason Hartman:
And that’s why, uh, the opportunity is so good because you’re really borrowing at negative interest rates. If you look at the cost of real inflation and the interest rate on a mortgage, whether it be an apartment complex, like you buy or a single family home, like our clients buy. Um, and then you look at your tax deductions because that interest is tax deductible. Um, it’s, it’s, you’re literally getting paid to borrow the money, even if you didn’t rent the property out. So it’s, it’s quite amazing. And that’s what Powell has done now. I’m not saying it’s a good thing. It’s very dysfunctional. Uh, and it’s bad for the economy. Long-term, it’s certainly bad for insurance companies and pensions, uh, because they can’t get yield without going farther up the risk curve and taking a lot more risk in their investments. And for older people too, it’s, it’s really unfair to them, but look, it is what it is.
Jason Hartman:
And, uh, for real estate investors, it’s a huge benefit, so they should take advantage of it. So let’s do our first comparison of the index. Let’s take what, what humankind has considered to be money for 5,000 years. And that is gold. Okay. Now I’m not a Goldbug, you’re probably not a gold bug either Ken, but uh, most people around the world consider gold to be a form of money, not the only form, but a form of it, for sure. And for 5,000 years, the human race has considered gold to be money pretty much. So if we, if we wanted to buy the median price house 21 years ago in gold, like they do literally in some parts of the world, a buddy of mine, uh, developed a housing development in Vietnam. And he said that the buyers literally came in with cases full of gold to buy the houses. That’s how they would buy them. And I thought, wow, that’s pretty amazing. Well, 21 years ago, if you wanted to buy a house in gold, it would cost you 610 ounces of gold. But today 21 years later, when almost everybody thinks houses are more expensive, it only costs you 208 ounces of gold. So priced in gold or majored in gold housing is actually two thirds cheaper than it was a generation ago. Isn’t that amazing? Yeah.
Ken McElroy:
I’ve seen, uh, Mike Maloney do this. This is really fascinating. He D I’ve seen him do it with oil. I’ve seen him do it with all these different things. And I think the point here guys, is that what Jason is trying to point out is that you need to, you need to back up from, from the number and take a look at as it, as it as relative as it is to other things, right?
Jason Hartman:
Yeah. Good point. And I haven’t seen Mike’s stuff on that, so I’m going to look for it, uh, tonight when I have some time. Uh, that’s really interesting, but, um, what what’s also interesting here is let’s not just look 21 years ago. Let’s look at a fluctuation. Let’s look at 2010, what many people would consider to be kind of a bottom of the market? Okay. In 2010, it was 162 ounces to buy a house. So in the last 11 years, the house has gotten more expensive in gold. Okay. And what we need to remember when we’re looking at this index is that nobody forced any of us to keep our money. If you, whatever you deem money to be in dollars, right. The last 21 years, for example, since 2000, right. We could have stored our savings in gold or oil or rice or orange juice or anything.
Jason Hartman:
It didn’t have to be in dollars. Now, most people stored in dollars, but you didn’t have to. Right. You could have stored it another way, your savings. So this is what it looks like in gold. And housing is actually very cheap priced in gold today. Okay. What about Bitcoin? Well, Bitcoin wasn’t around, but if it was, uh, you know, housing would certainly be a lot cheaper. Now, I first discovered Bitcoin when I was speaking at a conference in none other than where you’re going soon believes. Okay. And, um, and I remember talking to a guy as we were having a cocktail party on the beach and he came up to me and started talking about Bitcoin. And I said, what’s that? And it was $74 back then. Okay. Now we all know what happened. It’s been nuts. It’s a very speculative asset. I have a little bit of it, but you know, I wouldn’t put more than five or 10% of your net worth into something like this because it could be zero tomorrow quite literally.
Jason Hartman:
Okay. And we’ve all seen the fluctuations. Um, you know, I got a little bit there because if it goes crazy and goes to a million dollars, I don’t want to have FOMO. I don’t want to miss out. Okay. So, so I’m hedging my bet, but, but again, I don’t have a huge, huge faith in this. Okay. I just, you know, I got a little bit just on the side, but in 2010, when Bitcoin did exist. Okay. It would be 773,000 Bitcoin to buy the median price house. And today, uh, well actually now it’s more, and I haven’t repriced this chart because Bitcoin went down quite a lot recently, but 7.5 Bitcoin when it was at four, a thousand dollars. Yeah. Okay. Yep. So interesting. So how about oil? You, you mentioned oil well,
Ken McElroy:
By the way, before you jump off the Bitcoin thing, um, it’s interesting. Cause a lot of people, um, cashed out and are, you know, that money is making it’s, you know, that’s making its way through the economy. So there’s, there are, there are people that are playing Bitcoin and then, you know, transferring that into dollars. And then, you know, obviously, uh, that’s another metric here, but it’s interesting. Cause you can, you can do that with gold. You could do that with Bitcoin. You can do that with other things.
Jason Hartman:
Yeah. You’re absolutely right. The problem I have with it and probably the same problem you have with it is you never really know when the buy and sell you don’t, if that’s true, it’s a, it is a mystery and, uh, it’s a mystery to pretty much everybody, you know, let’s just face it. It’s a, it’s a gamble, but you know, the world economy runs on oil. Okay. And interestingly, in the last 21 years, um, housing prices and oil has gotten a little bit cheaper. Okay. Now, you know, oil fluctuates. So does the dollar, so does the price of the house, right? That’s why we don’t just use one thing to compare, to like the dollar. That would be an error. We should compare it to lots of things. And that’s what the HCI does. The Hartman comparison index. So let’s look at oil 21 years ago, it would take 5,500 barrels of oil.
Jason Hartman:
I’m obviously rounding off, uh, to buy the median price house today. It only takes about 5,300 barrels of oil. So it’s a little cheaper price than the oil. Okay. Now 10 years ago it took 2,500 barrels. So it was a lot cheaper, 10 years ago to buy the medium price house or 11 years ago, I should say. So, you know, it changes right. But that’s oil for you. Um, orange juice. What about orange juice? Do you like orange juice? Kin course. Yeah. Well, I’m not a big orange juice fan, but I like it better when there’s vodka in it.
Jason Hartman:
So anyway, uh, or, or champagne, you know, have them the most on Sunday, brunch, so priced in orange juice. What has happened to the price of housing? Well, uh, 21 years ago it would take 1,821 pounds of orange juice to buy a house today. It takes 3,200. So priced and orange juice. Housing has gotten more expensive. Uh, 2010 is another marker, 1,336 pounds. Okay. So you can kind of see what’s happened. It really was a good harvest year and it was definitely cheaper to buy a house in pretty much everything in 2010. Okay. But it wasn’t cheaper in 2000. Okay. Or even 2005. Mostly. What about rice? This is the diet for most of the human race. They live on rice. Okay. Most of the world rice is a staple in the food supply, a very important staple that people get their sustenance from. So if you wanted to buy a house priced in rice, 2,121 years ago, it would take 29,000, uh, 29,000 pounds.
Jason Hartman:
Okay. Today only 27,000 in hundred weight rights. Okay. So priced and rice houses have gotten a little bit cheaper, but in 2010, only 17,000. So more expensive than in 2010. For sure. How about the S and P everybody can relate to this one, right? How many shares of the S and P 500 does it take to buy a house? Well, let’s look back 21 years ago, 1,884 shares of the S and P to buy the median price house today only 898 shares. So priced in the S and P 500 index is housing cheaper, more expensive? It’s cheaper. Interesting. Huh? Yeah. Now 2010, this is one area where in 2010 housing was actually more expensive than it is now. 2100, 179 shares in 2010. It was actually the most expensive priced in the S and P 11 years ago. Why? Well, we did have a housing crash, but we also had a worse stock market crash. Right. And so if you, if your money was in the S and P and he wanted to trade that for a house thousand 10, lot more expensive. Right.
Jason Hartman:
Okay. How about median income? Let’s price it in income, right? What were people earning back in the year, 2000 versus what are they earning today? Okay. So, uh, in median, the median price house, uh, in median income per year, it would take you just four years to have median income, to buy the median price house. 21 years ago, 11 years ago, it would take you 4.5 years. That’s another area where back in 2010, it was actually more expensive to buy a house slightly more. And today it is also more expensive. It’s 4.9. Yeah. Years of median income to buy the median price house. But wait, there’s more, as they say on that late night infomercial, right? When you price the mortgage payment and median income, you’re going to be quite surprised. And we’ll get to that in just a minute. And stop me if you’ve got any comments or questions can, Nope, this is good.
Jason Hartman:
Okay. So how about minimum wage? Well, sadly people making minimum wage can’t really afford a house, right? Certainly not the median price house. Usually they can’t afford some expensive, really inexpensive houses in really inexpensive markets. They can do that. Um, but we are going with a median price house, right? So, uh, how many hours of work would it take you at minimum wage to buy the medium price house? 21 years ago took you 33,000 hours just rounding off 10 or 11 years ago, 2010, about 31,000 hours. And today housing is more expensive in price than minimum wage, 49,000 hours by the median price house, but that’s not the monthly payment. So there is some hope here. So hang on, not about the price, it’s about the payment. Almost nobody buys a house based on the price. They buy it based on the monthly payment. So here, if we do these comparisons, it’s interesting mortgage payment for median price, home inflation, adjusted mortgage payment, and mortgage payment in Bitcoin, much cheaper.
Jason Hartman:
I don’t even have to go through the numbers. Okay. Then dramatically cheaper, uh, gold barrels of oil, orange juice. Okay. A cheaper price than gold, for sure. Um, took 3.6 ounces of gold to make the payment 21 years ago. It only takes 0.7 ounces today to make your monthly payment, uh, barrels of oil, much cheaper, uh, 33 barrels of oil to make your payment in 2000 and only 18 barrels of oil today. And orange juice. Um, little more expensive actually. Okay. Just slightly 10.7 for 21 years ago and 10.91 today. Just slightly more expensive. Okay. What about the S and P? So if you want to make your monthly payment and shares of the S and P 21 years ago, it take you 11 shares today. It takes you about three chairs shares. Okay. So it’s cheaper. How about, um, uh, average wage. Okay. 69 hours versus 48 hours today. It’s cheaper. Okay. Minimum wage. It’s cheaper there too. Okay. So you see all that. All right. And here’s the dashboard for the index and it pretty much just reiterate every metric we just discussed. So you can see that by most measures, housing is actually cheaper today than it was a generation ago, generation being about 21 years. You know, it’s not exact people differ on that a little bit, but it’s around there, um, maybe 25 years. Uh, and then, uh, when you look at it from a monthly payment perspective, it’s dramatically cheaper.
Ken McElroy:
So, so, so before we jump off, I just want to be clear. So if we’re, as we’re measuring home prices, compared to all these other measures, you’re you, you know, the, uh, using those all being relative, then you’re saying that housing is cheaper as compared to those other things that you just
Jason Hartman:
Showed. Yes. Yeah, I am. And, and so if you, uh, you know, our, our buddy George Gammon, right? He has a question he always asked that I really like, he always asked himself this question, when investing, is it cheap or is it expensive? And historically speaking housing is actually still pretty cheap. Amazingly, most people think it’s expensive because they’re measuring it in dollars and they’re measuring the price of the house rather than the payment on the house. Okay. Now I do want to give a word of caution here. First off, this does not tell you everything. We didn’t talk about eviction moratoriums. We didn’t talk about forbearance. We didn’t talk about supply and demand, uh, which by the way, would be very favorable. The supply and demand thing would be very favorable to saying housing prices are going to continue to rise for awhile. But, um, you know, there’s, there’s more to it than this.
Jason Hartman:
I just think that very few people really make valid comparisons. They, they have sort of these very, um, kind of, and I don’t want to sound insulting when I say this, but it’s just true. You know, it’s kind of like lazy thinking, right? It’s kind of shallow thinking. They say, well, you know, 10 years ago I could have bought that house for 150,000. And now it’s 250,000, but that’s only dollars. You gotta measure it in other things, because nobody really cares about dollars. I trust me, nobody listening actually cares about dollars. They only care about what the dollar will buy them. That’s all that matters, right. Is the purchasing.
Ken McElroy:
That makes sense. The, the, the, the one thing, and also, you know, in real estate, we can obviously use leverage. We can use OPM and, and debt. And also most people aren’t walking around with oil or, or, or, uh, walking around with, you know, a Bitcoin, well, I guess some people are now, but, or juice and stuff like that, even though it’s, it’s a really, really good comparison of, of all of this. You know, it’s all kind of relative. We all kind of are sitting in dollars, but your point is well made. And that is, if you look at inflation and what’s happening and all these other things, it’s not all just inflationary issues, but, um, housing still as compared to other things, those things, those basket, that in that basket is cheap.
Jason Hartman:
I, I, Kenny, I love how you said most people aren’t walking around. I can, I can just envision, uh, pulling up to a house. You want to buy with a truck full of oil. I’m going to apply.
Ken McElroy:
I got 5,500 gallons of oil here. I’m ready to buy no barrels, barrels, barrels. Yeah, yeah, yeah. It costs more to ship them.
Jason Hartman:
Yeah. Yeah. But here I got my Bitcoin in this little electronic wallet, so yeah, no, you’re absolutely right. But, you know, instead of having your money in a savings account, denominated in dollars, you can easily have your money, uh, in a gold fund or an oil fund, or I think
Ken McElroy:
That’s the point. That’s actually the point. The point is you guys, what you need to understand is if you take a look at what’s happened with the dollar it’s lost value, and these other things have gained value as relative to what you would consider a rising housing market right. Now, even imagine if we didn’t have this run, just, we just had in the last year, what it would be. So, you know, that’s, that’s
Jason Hartman:
Kind of the point. Yeah, no, no question about it. And what you said right there. I hope everybody really caught what Ken just said. Cause that was really important. It’s it’s not a question of necessarily, I mean, just to elaborate on what you said, I’m not repeating it exactly, but you know, it’s, it’s not a question of, uh, that house price is so high, it’s the dollar lost value, right. So it’s all relative, right. If you’ve got these multiple measuring sticks, you’re just looking for the relative nature of them. Uh, so you’ve got that basket of goods, like the consumer price index, or, uh, like the currency traders say, you know, the basket of currency, right. You could, you know, we didn’t talk about comparing a house price to the Euro or the yen or a basket of currencies. You could easily have your savings invested in a currency fund, uh, or in the S and P right. And then you could simply liquidate those stocks and buy the house. Right. So that’s the thing to really understand. You don’t have to walk around with, you know, a whole bunch of orange juice or oil bars, right?
Jason Hartman:
Yeah. Good stuff, good stuff. And when you look at it from a mortgage payment perspective, that’s also interesting. I’ll just share, you know, once more, maybe Ken for just another second here, um, you know, you, you can see the screen again, right. Uh, median, uh, this is, this is the, uh, the index, the Hartman comparison index, median housing price, and monthly mortgage payment. Right. And so there’s the housing price in the HCI and the, uh, the monthly payment in the HCI. And you can see that both of those things are down. Okay. But the payment is way down. The payment is done much further. And one little word of caution on that though, again, is that, remember, I’m just talking about the mortgage payment, principal and interest, which is fantastic. It’s a super bargain, but taxes and insurance and association dues. If they apply, those are higher. Okay. So it’s not quite as good as it looks, but I can’t really calculate for that because it varies so much by area, you know, in insurance costs and property taxes vary quite dramatically.
Ken McElroy:
Right. Right. And this is largely due to the federal funds rate being so low and, and, uh, the interest rates being so
Jason Hartman:
Low. Yep. Yep. Artificially low and dysfunctionally low. I would argue. I’m sure you’ll probably agree. But you know, I mean, for real estate investors take advantage of it. It’s a, it’s a real opportunity. Yeah.
Ken McElroy:
It is. It’s a, it’s a great, interesting, uh, uh, scenario there that you just laid out. Th the one thing that, um, you know, as you know, we just saw in April the, the 4.2% inflation rate, right. Which is kind of the buzz everybody’s talking about that right now. Uh, one, you know, one of the things that I wanted to just to point out to everybody is that the, um, the original discussion at the fed was that if inflation is above 2% for at least a year that they might rise interest rate, I might raise interest rates. So now that doesn’t mean they’re going to, but the point is, is that was one of the original discussions is, is as, as you start to take a look and that’s why this inflation number is so important. And as it all relates to the stuff that you just said, but that inflation number at 4.2%, if it’s going to be very interesting to see what it is in, in the, in the next month, because yeah, because now all of a sudden, the, the way to combat inflation is to rise and raise those rates, you know, rising rates.
Ken McElroy:
So, and that’s not good.
Jason Hartman:
That’s, that’s what, that’s what, um, not Alan Greenspan, but Paul Volcker, our federal reserve chair in the early eighties did under Reagan is, you know, he had the guts, which probably nobody has the guts to do today. Ken cause it was brutal. You know, it was like a kick in the head to everybody it hurt, but he did break the back of inflation by raising interest rates to just astronomical levels. Right. And, and that’s what killed the Carter inflation era of the late seventies. But, um, it was, it was tough medicine to take.
Ken McElroy:
I remember my, I remember as a kid, my parents were getting a auto loan. It was 18% interest rates or something, some crazy number 15, 1820. And uh, you know, now everybody’s like, Oh, it went over three. You know, I was like, it’s still cheap. You know, it still makes sense. It’s still cheap. So, uh, you know, it’s these little fluctuations, I think, uh, I think for a lot of people, all they’ve ever seen are low rates, but you know, you haven’t, I haven’t, you know, we’ve seen well above 10%. Oh yeah. And, and, and we, we could be seeing that again, because if, if inflation starts to roll, like, like a lot of people say that it is, uh, that this is one of the tools that they’ll use. I believe
Jason Hartman:
I completely agree with you and it really has to happen. Um, they can manipulate and play games, but ultimately rates have to go up, uh, to, to, to cool the economy. And I would really encourage your listeners. And Ken, I’ve never talked to you about this, so I don’t know if you use it or not. I know you’re just a total data guy. You do tons of reading and research. And, um, but I, I really, uh, lately have taken a liking to the Chaplet index and the Chaplet index is another measure of inflation and they do it in a whole bunch of different Metro areas around the country. And, um, you know, people can look it up online. I’m going to do a show about it on my YouTube channel. Um, but, uh, they, they take, I think they take 500 items that people actually buy and spend money on and they don’t manipulate it the same way.
Jason Hartman:
The CPI, the consumer price index has manipulated through, uh, three major ways, weighting, hedonic, indexing, and substitution, which I’d be happy to talk about that. Um, but chap would just measures it. They just take the 500 items and they just track that’s it like, it’s super simple. Right? And they, they show, you know, even before this last big inflation number that came out, that’s making a lot of people really worried about inflation. Now finally, um, they show inflation in, uh, you know, big Metro areas to be like 10 to 12% already, you know, before, before this inflation. And in many other areas, you know, six to 8% in real inflation. And then of course, uh, another website and I interviewed the founder on my podcast, uh, shadow stats.com, which is interesting. Um, but you know, I, I do take issue with some of his methodology, but, but you know, it’s, it’s good to look at it. Right. Even if you don’t totally agree with it. It’s good to Jonathan.
Ken McElroy:
Just good to know. Yeah. There are other people out there measuring this stuff, shadow stats. I was going to mention as well. And Chatwood, I think those are the, the point folks here is that you should be doing your research doing your homework because there are, there are forces at work here. Uh, w w w we can’t be flooding the economy with all this excess cash and, and not have, um, you know, some ripple effects as a result of it, period. Yeah.
Jason Hartman:
So talk about that session a lot and that’s it. Yeah, I do.
Ken McElroy:
Right. So, you know, you, you know, it’s interesting, uh, next week we’re going to be in Miami together. And, uh, one of the speakers is going to talk about why we’re going into a deflation economy. I can’t wait to listen to that because there’s a lot of talk about inflation and is it confusing? It is. Do we have the answers completely? No, we don’t. You know, but you have to kind of draw some conclusions based on things. And one thing that is true and that we did have a 4.2% inflation rate back in April, that is something.
Jason Hartman:
And that number that Ken’s talking about is the manipulated down number. Okay. So it’s the real number. Yeah. So,
Ken McElroy:
Yeah. So let me just share this with you guys, if you can borrow over four, which has manipulated, I mean, I’m sorry, if you can borrow it three and your inflation rate is over four, which has manipulated, you’re basically are getting free money. That is the truth. If you’re getting money at 3% from a bank and inflation is at, for you guys, the banks in trouble, I mean, the, you know, it’s, it’s, uh, the math works for you. If you’re, if you’re a borrower, right.
Jason Hartman:
It does, it does. And that interest is, I mean, depending on the size of the mortgage and, you know, there’s details, but it’s mostly tax deductible, the interest. Yeah. It’s for sure about what Kenny said, in his example, you borrow at 3%, the real inflate while they stated at the official inflation rate is 4%. So you’re getting, you’re making 1% margin right there, off the bat. Okay. Oh, somebody else’s money. Yeah. Yeah. On somebody else’s money on OPM, which you do really well with your apartment complexes. It’s a great strategy, but then you get to say your combined state and federal tax bracket is 50%, you know, just for rough numbers. Okay. It’s probably not quite that high, but if you live in California or New York, it may be so, so that 3% really becomes 1.5%. So your margin, instead of being 1% is now 2.5, you’re getting paid 2.5% to borrow the money on a property that produces zero income.
Jason Hartman:
What if you rent the property out and get positive cashflow, you’re getting paid a lot to borrow the money. It’s, it’s just incredible. And it is incredible. Let me mention one thing before I, we wrap up Ken about the inflation deflation debate, mostly I think, and this is just my opinion, but mostly I think that, uh, is about the tug of war between technology on one side and bad fiscal and monetary policy on the other side. And technology is definitely deflationary. It’s, it’s wonderful. We love technology because it makes things cheaper and more efficient and that’s all great. Uh, but bad fiscal policy, meaning taxing and spending irresponsible government and bad monetary policy, federal reserve is inflationary to the max. So who will win this war, you know, technology or her, or, uh, monetary and fiscal policy. Well, you know, technology has a lot of leverage to it and it’s great and it changes the world and, you know, there’s great stuff coming down the road in the future, but monetary and fiscal policy are literally unlimited and we’ve seen it. We saw it this last year. They can literally create as much fake money out of thin air as they want. There is just no limit to it. So I would argue that the future is inflationary, but we’ll, we’ll see. And we
Ken McElroy:
Will see a great book is the price of tomorrow, you know? Yeah. That’s a great, great book. So, uh, you know, uh, as you guys are confused about all this, so it’s normal, so don’t feel so bad, you know, it’s, uh, it is a confusing subject and, and you, you just gotta keep trying to get it, get in front of it and, and, and listen to folks. So, Jason, thank you. Uh, this is great. The Hartman comparison index, uh, the, uh, the launch of the Hartman comparison index. And, uh, so how do people get ahold of you? What’s the best way for them to reach you?
Jason Hartman:
Yeah, so that free, uh, that free mini book is at pandemicinvesting.com. So pandemicinvesting.com is the free mini book. And there’s no strings attached. It’s just free. It’s emailed to you right away, nothing complicated. And then my main website is JasonHartman.com. And, uh, you know, we, we have a toll free phone number in the United States. We actually up the phone. Kenny, can you believe that a company that answers the phone, uh, it’s 1-800-HARTMAN. So that’s real easy. 1-800-HARTMAN in the United States only, but around the world, Jason hartman.com.
Ken McElroy:
That’s awesome as always, Jay, I’ll see you next week in Miami, and can’t wait to catch up a little bit more. Thanks for being on again.
Jason Hartman:
Okay. Thanks for having me happy investing everybody. Yep.