Inflation, Shrinkflation, What’s Next?
Turn on the news, tune into the radio or open any website and you cannot help but hear the word on everybody’s lips: inflation! It is so out of control that we are even noticing increased incidences of shrinkflation (paying more but getting less product). Gas prices are no exception and continue to soar sky high. Jason’s recent turn at the pump had him asking himself the Jason Hartman question: compared to what? It cost $35 for a full tank under our previous presidential administration vs $62 now. Same amount of gas, but double the price! But who does this really hurt this most? The middle, lower middle class and the poor, without a doubt.
Now can you imagine the costs for landscapers, construction workers, and housekeeping staff who all commute into expensive real estate markets from lower cost markets where they can actually afford to live? Can you imagine how rising gas prices are impacting them? Yet again, another example of our talking head government officials spouting off at the mouth about helping the poor. But considering the actual state of affairs right now, their policies are doing exactly the opposite and it’s the same every time. Every. Single. Time. Just look at history!
We often talk about inflation induced debt destruction, but what about shortage induced inflation? We are living through something very significant. Just consider the way thousands of cargo ships were just wasting time, fuel and productivity sitting out there in the ocean off the West Coast. Florida governor Ron DeSantis took a different approach by welcoming cargo ships with open arms and trying to rebuild and resolve shipping industry issues.
These shortages that we are seeing are not just in material goods, but in services essential to our society, whose root cause can be attributed to government mandates violating our personal freedoms. We saw it happening with Southwest Airlines and with medical professionals in hospitals who were striking and quitting, further propelling this new phenomenon called “The Great Resignation,” in order to protest government control over their personal health choices. We’ve just seen a long convey of truckers in Canada forming to protest mandates. We’ve entered an era where people feel so strongly about protecting their personal freedoms from government overreach, that they are willing to leave their careers or at least strike and organize walk-outs in order to protest these mandates. This is happening everywhere and induces further shortages. Medical facilities are finding themselves completely understaffed and people are having difficulty receiving treatment for ailments and diseases completely unrelated to our current epidemic.
In recent real estate news, a report from Goldman Sachs estimates that home prices will rise in 2022 by 16%. Seems high if you add it onto the current prices which are already seemingly high, however don’t make the mistake of measuring house prices only in US dollars; that’s where the Hartman Comparison Index™ comes in handy to give a true sense of value by comparing median home prices to commodity prices over time. You must always ask yourself the Jason Hartman question: compared to what? Also, don’t forget that this 16% figure encompasses all markets and all types of houses. This is not an acute measure of linear markets where one can find good rent to value ratios and deals that make sense from day one.
The report went on to state that home prices were up 20% year over year, but according to a new market forecast, they may not have reached their peak yet, and the rapid increase in prices is due to a number of colliding factors including: low interest rates, tight housing inventory, pandemic induced migration patterns and an increase in millennials entering the home buying market.
Really? That’s it? That’s their big report?! Ladies and gentlemen…was Jason not already talking about this last year in February? It took all those super smart Goldman Sachs economists to report this information 18 months after the fact? But you would have heard all this and more if you’ve been listening to Jason!
So we’ve also heard reports about an increase in housing inventory recently, but which inventory? Home builders are just not building as many entry level houses anymore. Profit margins for new single family homes are not what they used to be and as a buyer, you must proceed with caution; prices on new home builder websites are extremely misleading! Hidden costs such as lot premiums and pre-plotted upgrades drive the price up, so by the time you add a few more things that you might want, you are way over the advertised price!
Back to the housing inventory report — inventory has been increasing, but it is still below pre-pandemic levels and the building industry can’t fill this void because of continued material and labor shortages — something Jason has discussed ad nauseam on the show. And now these labor shortages are even more prevalent in the service industry, causing mass disruption in our transport and medical industries.
The article went on to report that construction employment is still 201,000 jobs below its February 2020 levels and offers a solution to the limited housing inventory and escalating prices: the relaxing of zoning laws which allows more multi-family residences to be built in areas previously zoned for single family homes. Great suggestion! Jason has been saying that now for more than a decade…
Ashley & The Jason Hartman Team