IRAN PEACE DEAL: Why Mortgage Rates are About to PLUMMET!

[00:00:00]All righty, folks. It looks like we are on the cusp of a peace deal with Iran.

[00:00:04]What we're going to do this morning is we are just going to make the wild-ass assumption and assume it sticks. Nobody invalidates it because we need to talk about what happened. What happens to interest rates? What happens to the US economy? And yes, what happens to housing because I don't think you're ready and you might want to buckle up.

[00:00:24]And of course, we're going to have this conversation with Jason Hartman, 30-year veteran of the real estate market, seen plenty of things, done plenty of things, and a friend of the channel. Jason, how you doing, buddy?

[00:00:35]>> Michael, it's great to see you. And yeah, it's good news, you know, Trump is much better at waging war than his predecessors. I'll tell you that because we did not get embroiled in a 20-year mess. We did not have any significant ground troop presence whatsoever. I mean, this is the way you wage a war if you have to. So, I I think it was very well done and the peace deal bodes well for real estate markets interest rates, I I think, and we'll see. What do you think?

[00:01:05]>> start Yeah, again, let's let's just make the wild-ass assumption the peace deal sticks. We don't have to talk about was a war good or bad or neutral because that doesn't matter. What matters is what happens to our money. And the first thing I think you need to look at is A, the oil market because it's now down under 80. It was over 120 seemingly four or five weeks ago. So, that folks is what they call deflationary. And we have a significant drop in the 10-year note this morning, which could and we'll see later this afternoon lead to fall in mortgage rates. So, I think the first thing that you could say with pretty good certainty is mortgage rates will fall. You might be asking by how much?

[00:01:41]Good news, I got a number for you. If you look at mortgage rates before the Iran war and what might be in store for us after, you might see 40 basis points fall. That would take us down to about 6.1%, which on a $400,000 mortgage is meaningful. So, Jason, I think mortgage rates are going lower. Then you add on top of that Kevin Warsh, we could, I'm not saying will, but I'm saying we could see sub 6% again this year if everything lines up. What do you think?

[00:02:12]>> You know, hopefully we're not being hopeful.

[00:02:16]>> [laughter] >> I think I think you know, I think it just makes sense. You know, Kevin Warsh has a new and different way of considering inflation, which makes inflation lower than significantly estimate. Yeah, significantly lower and that gives him cover to lower rates. You know, we can certainly argue about how to calculate inflation. I have lots of arguments about that, but it doesn't matter because he's the Fed chair. So [laughter] >> Yeah, our opinions are irrelevant. His is the one that matters. Yes. Yeah, folks, if you don't know what Jason's talking about, I believe one of the things you're going to see Wednesday, Wednesday in front of the press is Kevin Warsh talk about this new way of looking at, seeing, and feeling inflation. I think it is called trimmed mean inflation. And folks, if you don't know the numbers, the last CPI headline reading was 4.2, and mean trimmed inflation was more like 2.4. So, yes, one feels a lot better than the other.

[00:03:14]>> Yeah.

[00:03:14]>> So again, I do think oil falling, rates falling, and again folks, deflation. You go from $120 oil to say 75 or 65, we could potentially see deflation, which is complete opposite of inflation. So, what do you think?

[00:03:29]>> You know, technology is as I've always said, there are two major forces battling it out. And look at it like a boxing match, okay? In one corner, you've got technology, and technology is very deflationary because it does more with less. It's It's incredible, right?

[00:03:47]We're all impacted by tech, and you know, what we don't see is the back end of technology and how software is eating the world. Now AI is eating the world, making supply chains more efficient, making real-time delivery more efficient, just making businesses in the background so much more efficient. So, technology very deflationary and what's inflationary is monetary and fiscal policy, right? The government's taxing and spending and the Fed's money printing and quantitative tightening or easing. Well, easing in this case. Those are all inflationary forces. These two are battling it out. And which one will win? It remains to be seen. You know, it's a constant tug-of-war in terms of uh which way it's it's going. Sorry, my dog is nipping at my feet.

[00:04:32]>> Ah, it's okay. We love dogs on the channel. Mine is >> Yeah.

[00:04:35]>> Mine is sleep [laughter] sleeping by my feet, so uh >> I don't think this topic is necessarily funny, but >> Yeah, yeah. Let's move on to the economy. Because the other thing I find very interesting is the economy, again, based on the data that we are given, is performing quite well. And if we get tailwind of lower rates, lower oil, and productivity gain, and a strong job market, this economy could rip in the second half.

[00:05:00]>> Oh, yeah. No question about it. I I think we are on the verge of some very good things. I think the future is quite bright. You look at what's going on with the stock market. You look at the pent-up demand for real estate with so many people. I've got I've got a chart on that, too.

[00:05:18]>> [laughter] >> I don't have these charts in order for you, Michael, but I've got a Here, look at look at this. Put this on the screen, if you would. I mean, wow. You know, this is a positive chart saying existing home sales hit the highest level in nearly 4 years. But forget about the headline, right? That's all great. But look at the history. Look at how low sales have been compared to the COVID era and even before the COVID era. I mean, they have taken a giant dip and it's been a long period of slowness. And what that represents, of course, is pent-up demand.

[00:05:51]>> Yeah.

[00:05:52]>> It represents millions and millions of people who would normally have made a buying decision, who put it off. They're going to come out of the woodwork as soon as they get the slightest sign of more affordability, of hope, of positivity. And they've been waiting a long time. So, that is very bullish for the real estate market.

[00:06:15]>> No, absolutely. I mean, this is something And again, we have historical precedent. Again, at your event, we talked about my 52-54 year spreadsheet.

[00:06:22]And the last time, you know, rates shot up, transaction crashed. And yes, if you want to look start to finish, it was a 14-year period before we went from trough back to a new high. But what wasn't said is we had 12 to 14 years of steady growth. Why? Because pent-up demand, life events, things change. So yes, I agree with you. We have 4 years of pent-up demand. And I think it's even one step further. I think we know with certainty what is the magic interest rate to make transactions run.

[00:06:53]>> If we we get into the mid-fives, Michael, and the glory days are here again. I mean, it's just >> even think you have to go that low, Jason. I think we have we have statistical evidence that 5.99 is the magic number. And frankly, the longer we go on this 4-year and 5-year journey, 5.99's going to be magical. Uh so yeah, I think that's the magic number.

[00:07:15]>> And anything below six in your eyes, yeah. I think any amount of relief whatsoever. But here's another chart for you, entitled home prices continue climbing, okay? And this is this is Redfin, right?

[00:07:28]>> Yep.

[00:07:28]>> What what's amazing about this chart is that you can triple the cost of mortgage money, and this asset class is so incredibly resilient. You couldn't do this. You couldn't do anything that devastating in any other asset class.

[00:07:45]Like tripling the cost of mortgage money. I mean, those asset classes would have just plummeted. But because there is a inherent systemic shortage of housing, home prices kept rising.

[00:07:59]I mean >> Well, it's that >> slight. It It's slight, but it's still rising, you know, 2% a year.

[00:08:04]>> absolutely. But But you know, let's not forget the other thing. The other reason it is still rising is because of the magic, the beauty, the power of the 30-year fixed-rate mortgage.

[00:08:14]>> Yeah.

[00:08:15]>> There are millions of people who have fixed shelter cost, you know, below normal, right? They took advantage of once-in-a-lifetime environment. And their shelter cost is a fraction of what it it, you know, I you know, could be or should be or whatever you want to call it. And that's a good thing. That's what the American economy relies on. If people have more money to spend, guess what we do? We spend.

[00:08:35]>> Yep.

[00:08:36]>> [laughter] >> That's for sure. And that's because it's a hopeful future. In countries where they're not as hopeful about the future, they are scared that there's no social safety net, that things will get bad, they save more money. Now, it is good to save probably more money than Americans, okay?

[00:08:53]>> [laughter] >> Yeah, no Yeah, well, you should save more. Folks, if we doubled our savings rate, I would not be mad at that.

[00:08:58]>> No, exactly. But don't save too much because remember, saved money is not working for you. It's not working in the economy, right? There's a balance.

[00:09:07]That's That's my point, okay? But here's a great chart for you, Michael. And this applies to investors, not homeowners necessarily, but well, it does apply to homeowners, too. But this is basically return on investment for just one of the eight or really nine aspects of return on a real estate investment. Return on investment for just appreciation. That's the red bar at the bottom, okay? And you can see appreciation, you know, no big deal, nothing to write home about in terms of your return there. But when you leverage it, you get that five to one multiplier if you just put 20% down.

[00:09:46]Now, a homeowner gets much more leverage than that, an owner-occupant. But an investor only gets that 80%, right?

[00:09:52]>> Can you imagine this if it was 20 to one versus five to one? Oh my god.

[00:09:57]>> For homeowners, it's phenomenal. It's It's incredible. But look at this, you know, even in areas and times of very moderate price growth, you're getting 25% return on investment. Here, you know, maybe 26% and during the COVID era, almost 100% ROI just on one metric of return on investment, only appreciation leveraged, right? That's it. Leveraged appreciation. Even without the leverage, you did pretty well, but with the leverage, it's phenomenal.

[00:10:32]>> So, let's get back to the question that we opened with. Again, we're going to assume the peace deal sticks, lands. We want to see death and destruction stop around the world. So, let's assume it sticks. I think it's fair to say that oil will fall, rates will fall. Do you think that the second half of the year, the housing market, do you think transactions could jump five to 10%?

[00:10:51]Should we, you know, should we see six or heaven forbid 5.99? Do you think it could be that much of a jump?

[00:10:56]>> You know, I don't know what the volume jump would be, but that begs the question of looking back at my chart, the one you saw quite a while ago on Instagram that I posted that shows the affordability based on mortgage rates. I don't have the number in front of me, but I think if we get to the mid-fives, okay, from that 7%, which was our sort of benchmark area where we started in on that analysis, that means over seven million additional people can afford the median price home. That's phenomenal.

[00:11:31]Can you imagine seven million new buyers moving into the market where we've only got less than 700,000 homes for sale? I mean, talk about the bidding wars that would happen. It's insane.

[00:11:42]>> Yeah, and again, if you're doing that in an economy that is growing, cuz again, I think the other thing that's interesting I I typically listen to the All-In podcast on the weekend when I do my long run cuz it's a it's a 90-minute noise maker. You know, they talked about this AI apocalypse being a complete farce.

[00:11:59]>> Yeah.

[00:11:59]>> Cuz AI is actually creating more jobs than not. So again, if we assume the peace deal lands and that AI creates more jobs than it destroys and we have a growing economy, that's a lot of goodness. And oh, by the way, and if Warren and Trump get lower rates in that economy, housing's going to uh it's going to make up for lost time.

[00:12:16]>> Oh, no question about it. No question about it. Folks, you better be ready.

[00:12:21]There has been so many studies, just mountains of research on this. It's everywhere, okay? Just look it up, do some research. I've talked about it on my show. I've showed some charts and graphs. And these studies are about trying to time the market and how market timing simply does not work in any asset class. The market timers who think they can outsmart the market, whether it be real estate, stocks, precious metals, cryptocurrencies, it doesn't matter the asset class.

[00:12:51]They do not win the game. The people who win the game are the consistent in the game players, okay? That's so true. You know, if you're running a script in your head about doom and gloom, if you have let your mind be hijacked by the doomers who have their reasons and explanations, usually they're making leaps in logic that just don't that don't jive, okay?

[00:13:20]You're going to miss it. You know, like Michael said a few minutes ago, are you ready? You know, are you ready for this?

[00:13:25]You know, right now, with the current situation, you can earn a fantastic return on investment with your income properties. But, if we get into this era that we're talking about, which is definitely coming. I mean, hey, maybe our timing is wrong. Maybe it won't come this year. Maybe Maybe worse will be hawkish. Maybe we won't see rate cuts.

[00:13:48]Who knows? But, it will eventually happen. Okay?

[00:13:52]>> with that 1,000%. It will come. Is it this year? Is it next year? Is it 2028?

[00:13:57]That could be a very reasonable discussion argument, but it will come. I mean, mom and dad will not stay put forever. And last time, folks, it took 14 years. So, again, we do have historical precedent for how long it could take. I'm not thinking it'll take 14 years, but it could. It did last time.

[00:14:13]>> Henry David Thoreau has many great quotes. You know, he wrote Walden and he's, you know, obviously very famous, right? But, one of Henry David Thoreau's quotes that applies to all of us as investors is this one. Only that day dawns to which we are awake.

[00:14:33]And what does that mean for investors?

[00:14:35]If you're not in the game, you're going to miss out. Only that day dawns to which we are awake. Only that return on investment comes to which we are invested in.

[00:14:45]Or something like that.

[00:14:46]>> [laughter] >> I'm going to make my own version of that quote.

[00:14:49]>> There you go.

[00:14:49]>> You got to You've got to be in the game or you're going to miss it if you're not in the game.

[00:14:53]>> Let's close on this cuz again, this could be changing. I don't think it changes in the next 90 days, but it could change in the next 6 to 9 months.

[00:14:59]And that is the investors buyers market that I've been preaching screaming from the sidelines. Folks, we have less competition. We have more options. And it has not been easier to find a motivated seller in the last decade. If the peace deal lands, if mortgage rates fall, if oil falls, and the economy starts growing at 3, 3 and 1/2, heaven forbid 4%, that buyers market, that investors' market will disappear and disappear quickly. Please, use this window. Get a buy box, write disrespectful offers, follow up 17 times, and get your great deals. Don't miss it. What say you?

[00:15:36]>> I think you're absolutely right. You've got to be in the game. I mean, investing is the legitimate process of creating value over time. And look at what most people consider to be the world's greatest investor, Warren Buffett, who recently retired finally.

[00:15:50]>> [laughter] >> He's 93. Give the guy a break.

[00:15:54]>> The guy The guy worked a very long time, and it proves that work has very little to do with money, by the way. Elon could obviously retire, too.

[00:16:02]>> [laughter] >> Especially after last Friday. And you know, you've got to be in the game. Just be in the game. You've got to show up. Woody Allen, his quote, "80% of success is just showing up." If you're not invested, you're not showing up. You got to be there.

[00:16:21]>> Well, let's close on a topic I never thought I would ask anybody. I'm just curious. What are your thoughts on the first trillionaire walking amongst us?

[00:16:27]>> Oh, well, I think it's incredible, and it really just proves that capitalism is an amazing amazing thing. It's certainly not perfect. It's just better than everything else. And the same thing is true of income property. It's not perfect. It's just better than everything else. Yeah, I think Elon's amazing. You know, I bought a whole bunch of SpaceX stock pre-IPO.

[00:16:50]>> Good for >> I got in on that pre-IPO at $43 per share. So, I was quite happy on Friday.

[00:16:57]>> You're up 400%. That's not bad.

[00:16:59]>> 400% in a day. And Michael, actually, this is a great topic. Let's Can we talk for a couple more minutes?

[00:17:04]Okay, so I was thinking about I used to always say that nothing nothing could beat income property. And on SpaceX, I made about 400% in a a right? You know, we'll see if that holds.

[00:17:18]>> Well, I don't know. I might argue it wasn't a day, but I understand what you're saying, so go ahead.

[00:17:22]>> Yeah, well, here's the thing. I'm going through my mind on my past real estate deals and thinking you know, there's no way I made that much on any real estate deal ever, right?

[00:17:33]>> Oh, yeah, I did.

[00:17:34]>> Actually, I don't think that's true. I think I think I did beat that on on real estate deals. I'll give you I'll give you a couple examples, okay? When I wasn't really a great investor as I am told that I am now. I'm not >> [laughter] >> I'm not saying I'm not bragging. Other people say that, not me. But when I when I wasn't very good at investing, right?

[00:17:56]I would buy some new houses in where I lived, right? And I wasn't really investing or you know, thinking of renting them out, but I would put a small deposit down, say 10 grand, just for example. And I would wait for them to build that house, and they might take as long as like a year or sometimes to build it. And the house would appreciate during that time.

[00:18:21]Now, you know, the SpaceX stock, I bought that maybe a year and a half ago, okay?

[00:18:26]>> Oh, 18 months, that's that's pretty quick.

[00:18:28]>> Yeah, and I put 100% [snorts] down, plus I paid a 15% commission to the seller of this what's called the secondary, huge commission, right?

[00:18:38]>> That's a big, yeah, that's a hell of a >> Yeah, yeah, giant commission. So, I did that, and then I just waited, right? And the stock is still locked up. So, you know, it could go down. I mean, there's lots of problems with that IPO. There's many critics. By the way, I'd really recommend that you all watch Patrick Boyle's YouTube channel. He's great. I love his stuff. He's done many videos on how the SpaceX IPO is just a big fiasco, disaster, whatever. We'll see, right?

[00:19:06]>> All right.

[00:19:07]>> You put 10,000 down, and the property goes up by 50 or 60,000 dollars during the construction phase, which has happened to many of our investors.

[00:19:17]>> Sure.

[00:19:17]>> Uh in our deals, right? I mean, that's better than my SpaceX return because I put much less down to gain much more.

[00:19:26]Now, there's two ways you understand your return on investment. One is by recognizing it and the other is by realizing it. So, sometimes I realized it by actually selling the property.

[00:19:39]Okay? Sometimes I only recognized it by noticing it, right?

[00:19:44]>> Sure.

[00:19:44]>> And so, you know, and I didn't sell the property, I just kept the property. So, with SpaceX, for example, you know, last Friday, I recognized my gain, but I didn't realize it because my stock is locked up. I think it's locked up for 90 days. So, you know, >> too. Yeah.

[00:19:59]>> Yeah. So, there.

[00:20:01]>> But, hey, congratulations. I actually know a couple people that got into SpaceX. Uh so, again, they're all smiling. They're having They're have They They Let's just say they bought dinner this weekend.

[00:20:09]>> Yeah.

[00:20:10]>> [laughter] >> Absolutely. We have master classes the second Wednesday of every month. They're free and you can just register for those at jasonhartman.com/wednesday because that's when they are. Yeah.

[00:20:23][laughter] >> There you go. You're amazing, >> Thanks, Michael.