Real Estate Prices Are The Lowest They Have Ever Been
I once sent a warning to the Rich Dad community that the real estate market
was cooling down. After all, we know that all booms go bust eventually, and
every party comes to an end.
While many readers thanked me for the words of caution, many others sent me
hate mail. An angry real estate broker called me and said, "Are you trying
to ruin my business?" The angry readers should draw insight from something
Warren Buffett said: "For some reason, people take their cues from price
action rather than from values.
While I agree with Warren Buffet’s approach, it turns out that following
that advice can be a lot more difficult than previously thought. What
changed my view? It is obvious that house prices are higher, so why could I
possibly start this blog with the title "Real Estate Prices Are The Lowest
They Have Ever Been?" Because I met Jason Hartman and he completely
scrambled my brain.
This blog, or podcast or video contains a very important concept whether
you are in real estate, gold, stocks, crypto or anything. It answers a very
simple question that is anything but simple: What is something really
worth? What is real value?
[insert video here]
The problem as I see it is that in today's economy we can't measure value.
It starts with the confusion around inflation. I’m old so when I remember
when the inflation numbers were real. Back then to determine somethings
value, you simply took the current price and measured it against past
prices including the rise in inflation. But now that inflation is a
political number you must ask, “What is inflation and what is inflation
mean?” How can you know when the inflation number we are told are not real,
they are FAKE. If you cannot use inflation numbers, how can you determine
what is something worth?
Currently there is the Consumer Price Index (CPI). This number is a hundred
percent manipulated. The Federal Reserve Bank just make it what they want
it to be and no one questions it. The problem is that it is a very
important number. All cost of living adjustments are all based upon the
CPI. If the CPI goes up, then lots of things jump in price because it must
be adjusted to. The same is true when they adjust it down. I've never seen
a more confusing time in all my years in business.
Manipulation is not new to our world. Everything manipulated these days.
We're always trying to figure out the truth behind something, or what's
real. It is nearly impossible because everything is so fake. We are in very
strange times, everything is manipulated nowadays. Everything is a scam.
And it's not only what's real or what's fake, is what can you say without
getting taken down? What is Facebook, Twitter, YouTube, and others going to
censor? And what will they allow? This is why Jason Hartman, the founder
and CEO of the Hartman Media Company and the Hartman Foundation, is so
important in today’s world. Jason created the Hartman COMPARISON (not
consumer) Index (HCI).
Jason, and his HCI’s, mission is to determine a true value even in a world
a highly manipulated, highly censored environment. Big tech companies are
censoring everybody. You can't speak the truth anymore. It's like George
Orwell's book, 1984. It's a very discouraging time and very disconcerting
in many ways. But one thing that has a lot of data in it.
Why is data so important? Because, Jason says, without true data communism
and socialism have been a disaster every time in history and every place on
earth. They did not have the data of accurate price signals.
Price signals contain just a fortune, a wealth of data in them. Every
commodity in the market, whether it be a good or a service has a price, and
that price is determined by hopefully a free market, or in our case, a
relatively free market.
Note from editor: Read this part slowly as Jason explains the questions he
asks and how he uses the data he collects.
When Jason uses price signals and all the data they have behind them, like
why is the price of gold what it is, why is the price of oil what it is,
why is the price of Bitcoin what it is, why is the dollar valued compared
to other currencies at whatever value it is? When he uses all that data and
takes roughly 40 of these products and services or commodities and
services, and combines them into an index, he can then compare that index
to real estate prices.
If the numbers are accurate, Jason’s HCI can potentially mitigate any
downside risk and inform the user of possible upside potentials.
When Kim and I first started investing we measured the value of rent by
asking, if you're living in your house, what would you charge yourself rent
for? That's how we got the rental value.
When we bought our first house together. Kim had to go to our gold
depository because we didn't have a dollar. We were buying our own personal
residence up in Portland, Oregon and the loaners said, they needed $23,000
now, quick. Because our credit was so bad we had to jump on this. So, we
took the silver bars in grocery bags to the precious metals dealer down the
street and got our $23,000.
Everyone around us said it was a good idea because real estate prices
always go up. Of course, that is not true, remember 2008, but I still hear
it all the time. That is why I like the concept of this index. Right now,
everyone is saying the real estate prices are through the roof. But Jason’s
HCI says maybe they are not. When the HCI compares real estate to real
goods and services we can see exactly where real estate stands. Not
opinions, data.
When we you compare the price of real estate to this basket of commodities
and services, you can really determine a lot by it. Let's take gold, for
example. If you go back to say 1970, when we were still on the gold
standard before Nixon took us off, the median price house was $22,000 and
change.
Back then gold was $35. So, if you wanted to buy the median price house in
gold, it would take 646 ounces of gold (22,000/35). Today, the median house
price is about $348,000, give or take, depending on what index you're
listening to. Gold is almost $1,800. So today to buy that house, it would
only take 194 ounces of gold (348,000/1,800). So today, the “value” of a
house is less than a third the price it was in 1970. It's cheaper priced in
gold.
So, what does this mean for the “average" person? What do I do with this
information? When we ask Jason these questions, he responded with this,
"There are two things that value everything on earth, scarcity and utility.
If something is scarce, it's going to have more value. And if something is
useful, it's going to have more value. So, gold is scarce and it does have
value in the sense that it's been considered money for 5,000 years. So, if
you stored your wealth in gold, rather than dollars, you would have been
better off during this time because the purchasing power of the dollar, has
declined dramatically and gold hasn't."
'With the knowledge from my HCI we can conclude that it is cheaper to buy a
house in gold today, but more expensive to buy it in dollars. That informs
that question. How should you store your wealth? The other question it
informs is, what's next for the market? Is the market too expensive? Well,
if you only think of things in dollars, then yeah, you're going to say,
hey, it looks pretty expensive. But if you think of things compared to a
whole variety of other commodities, you might say it's cheap. It depends on
the commodity you're comparing to."
Now let’s try the same exercise in oil. Since oil fluctuates so much can
the same formula work? Jason says it does because if you look at it over a
long period of time, those fluctuations start to even out and become more
accurate. This is why you can't just compare it to gold or any one
commodity. Everybody just compares housing prices to dollars. That's all
they do. Why not compare it to a whole bunch of things that every human
needs? Right now, oil runs the world making it the most important commodity
on earth.
In 1970 oil was only $3 a barrel. We already stated that the median price
house, back in 1970, was $22,000. It would take over 6,700 barrels of oil
to buy a house in 1970.Today you still need to bring them a lot of oil. The
median house price now, as of June, is 348,000. And oil was $75 a barrel at
the time. So today you only need to bring that seller 4622 barrels of oil.
So priced in oil, houses are cheaper. Priced in gold, houses are cheaper.
If you had stored your wealth in gold or you would have been much better
off in dollars. So now I ask you, are Real Estate Prices The Lowest
They Have Ever Been?
Want to learn more from Jason? www.jasonhartman.com