To start the show, Jason Hartman shares what sets his team apart from other real estate groups. He talks about the inflationary economy and the real estate market movement under the Trump administration. In the interview segment, he hosts the coauthor of Big Shifts Ahead and the Vice President and Chief Demographer at John Burns Real Estate Consulting, Chris Porter. Chris explains how demographic issues affect the real estate market, the economy, and business cycles.

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Announcer 0:12
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 on now. here’s your host, Jason Hartman with the complete solution. Real estate investors.

Jason Hartman 1:03
Welcome to the creating wealth show listeners from around the world 164 countries. This is episode number 788. And boy Have we got a great show for you today we’re going to talk about demographics. We’ve got an expert from john Byrne’s real estate consulting, to talk about their new book, big shifts ahead, demographic clarity. And that’s what we all need as investors demographic clarity, and we’re going to dive into some really interesting stuff today. So I think you’ll really like that. But before we do, we have investment counselor Sarah here with us. And we just got off a bit of a rough call, didn’t we, Sarah?

Sarah 1:39
Hey, Jason. Yes, we did. You know,

Jason Hartman 1:42
this is one of the things in our business that drives us a little crazy with this wonderful client. He bought a property he bought he bought a couple of properties, but one of them there, you know, there’s always like, one is the black sheep of the family, right? I like you know, one of our clients that was at masters and has been on the podcast before, he got nine properties from us, and eight of them are great and one has been a problem. And there’s just always this sort of black sheep of the family type issue, right is the old saying goes. So this problem was basically a plumbing issue. And, you know, the the client, the investor is being so reasonable, and our local market specialists now granted this is not a local market specialist we deal with that much business with but a little bit, and I think they’re being unreasonable. I was totally siding with our client after hearing both sides of the story. We were on this conference call. And, you know, Sarah, you said something really profound to me. You said, you know, this is why we don’t have enough inventory because we’re advocates for our clients.

Sarah 2:47
Yeah, I mean, this is like probably the third LMS in the past, you know, six months to a year. I’m sorry, local market specialist. Yes. That you know, we’ve Haven’t something come up and we gave him the opportunity to step up and do the right thing. And, you know, sometimes they’re just unreasonable and, you know, they, they, they don’t want to cut a chat.

Jason Hartman 3:11
And the reason they’re unreasonable is usually because we’re in this booming market, which is probably only going to get more booming, okay, under under the Trump administration. I mean, you know, there he just signed another executive order this guy signs, you know, executive where he’s like the busiest president ever, I think, and this one was repealing another portion of Dodd Frank. Now, I didn’t exactly like this portion that he repealed but I’m telling you, it’s going in the right direction, because markets are just gonna boom, I think under Trump, I think I think it’s gonna be phenomenal in terms of the economy. I’m not saying social issues or anything else. I’m strictly talking about real estate here.

Sarah 3:50
Well, I should hope so.

Jason Hartman 3:52
But but that’s why they were being difficult, right, because they probably got, you know, buyers lined up at their door to buy properties from us and from their own market. efforts, you know, I thought our client was super reasonable. He said, look at just cover half of the expense, and I’ll cover the rest. And you know, I couldn’t believe it, how reasonable I thought that was. And this is a thing where, you know, they either they probably didn’t know about the issue, but they should have known about it, you know, being experienced and so forth. And I’m telling you folks with other groups out there people who pretend to be our competitors I’m really gonna say that may sound a little cocky, but I’m gonna say it because I think it’s true actually. You know, they just don’t offer the kind of support we do. They don’t go to bat for clients like we do. I hear the stories. Okay. And so you probably do too.

Sarah 4:41
Well, I mean, we had you know, one recently where appraisals were coming in, you know, 10 to $20,000 under and we would rerun the numbers with a bigger down payment, which you know, if the, the seller wouldn’t wasn’t willing to budge on you know, the purchase price and, you know, the buyer would be stuck. 35% down in one case. And so we just rerun the numbers and it made more sense to go and, you know, buy two properties and another market 20% down. You know, unfortunately, what happens with the clients is they’re, you know, they’ve already put in fees for appraisal and inspection, and so they kind of get stuck in the middle. And so, you know, again, we gave that local market specialist the opportunity to do what we thought was the right thing, and we just we just didn’t meet idi on it. So, you know, we do have to fire some of our local market specialists. And you’re totally right. I mean, people have buyers, it’s definitely a seller’s market, there are buyers lined up, the properties are selling quickly. And so they’re not really very incentivized to do the right thing because they can just move on and sell it to the next person ready to buy, you know, maybe a cash buyer or whatever it is. And it’s interesting because I had a call with our Memphis market specialist yesterday, and it’s the same thing with the property inspectors. She said that You know, she’s got this one inspector who’s so unreasonable. You know, this is the time I have and I don’t have any other time to do this inspection and it’s a $600 inspection fee and, like, you know, he has people lined up to do inspections. And so, you know, I said, I bet if this was like five years ago, he’d be bending over backwards to get into that property, you know, so it’s happening in this industry, you know, not just the sellers, but you know, appraisers I heard our charging, you know, one of our lenders told me an appraiser in Chicago was charging $1,000 for appraisal fees and kidding me. Yeah.

Jason Hartman 6:36
Same thing. I can’t imagine that’s even legal for a single family home appraisal to be that expensive. That’s crazy. But, you know, the point is, okay, is that legit, we know who our customer is. Our customer is not our supplier. Our customer is the investor. And you know, a lot of our suppliers listen to this podcast and they’re hearing me say It probably doesn’t make them too happy, I apologize. But you know, I know who my customer is. And it’s the person who buys the property. It’s the investor. And I’m going to be fair, I want to maintain good relationships with our vendors. Of course, with some of our vendors, we just love them. We’ve been doing business with them for many, many years. Some of them we’ve done hundreds and hundreds of transactions with him. And, you know, but if they’re not, if they’re not good people, if they’re not ethical people, if they’re not taking care of business and taking care of customers, and I’m not saying these people will just talk to our which, you know, this topic is just top of mind, okay, that’s all. But if they’re not going to take care of business, take care of our customers, or investors, they’re going to be gone. They’re going to find that we’re going to direct the business to the people who have the good teams that do a good job, and if something goes wrong, they’re going to take care of it without a lot of argument. Now, I said a lot Didn’t say none. Because there’s always a little bit of argument that has to happen to get anybody to do anything. So it seems like but yeah, you know, Sarah, I mean, you deal with this all day long. So to the other investment counselors, and we’ve talked about it from time to time. You know, let’s just wrap that issue up. I want to talk to you about a couple other things before our guests. But

Sarah 8:18
yeah, well, I’m holding out that they’re gonna come back with an email and make an offer to help this client out. That’s, you know, kind of where we left off. So I’ll give him the benefit of the doubt until they say they’re not willing to help. But I think we were, we made a pretty strong argument for them to to help out so fingers crossed. Yeah.

Jason Hartman 8:37
And then if not, it’s the gas chamber. No, yeah. We’ll give them over to ISIS. How’s that sound? ISIS, I’ll take care of them. Yeah.

Sarah 8:48
Any political comments here? I know I always

Jason Hartman 8:51
I always diverge into a political comment, don’t like it. So this isn’t exactly a political comment, but sort of is. Okay. So enough of that. Jason get on on the ball here. So Sarah, I’ve hinted a little bit on recent episodes about an upcoming property to her. And it is not confirmed yet. But do you want to hint about that a little bit?

Sarah 9:15
Well, working on details for a Memphis property tour, and I know we’ve

Jason Hartman 9:24
already been there and done that, you know, it just blows my mind. Memphis. It just, I mean, are we ever gonna run out of properties there? It’s, well, I mean, inventory is low. That’s not what. But it feels like it feels like the whole city must be investors by now, because we’ve sold half the city.

Sarah 9:43
Well, here’s the good news. So the good news is that we have a local market specialist that is developing new construction properties. That’s the reason

Jason Hartman 9:52
they’re gorgeous, by the way. Yeah.

Sarah 9:53
So you know, we’ve been dying to get some new construction back when I started. You know, working with you in 2007, it seemed like all of our 10

Jason Hartman 10:03
years ago, yeah, 10 years, a decade ago, we started working together.

Sarah 10:08
But it seems like all of our inventory was a new construction. And, you know, they don’t look as good on paper. But the property I bought years ago definitely outperform the performance over time. Just because I had a long term tenant that stayed. And so, so really no vacancy in nine and a half years. Can you believe that? And then very little maintenance because it was a new house. So you know, when you take all that into consideration, and you rerun the performer, sometimes you will actually do better than what the performer says,

Jason Hartman 10:40
Yeah. Well, in in many times on resales, you do a lot better than what the performance has to but you know, the new properties, you definitely you do pay a premium for them. They’re more expensive. And, you know, I think one of the things we want to do before we get to our guests real quickly is talked about setting expectations. And we have always prided ourself I’m being very transparent and also setting reasonable expectations for our clients. Because it’s just not worth it look at we’re in this for the long haul, you know, we don’t want people to have problems we don’t want people to get into stuff that you know doesn’t work out. We want them to go in with her eyes wide open, so to speak. Okay. And I got the same right to Sarah by the way. That is the same. Yes. inside joke folks. If you’ve been listening for a while, you know what we’re talking about.

Sarah 11:30
I never say is saying with confidence. Just so you know, I’m always questioning myself.

Jason Hartman 11:35
Sarah likes to take old sayings and and remake them in her own words.

Sarah 11:40
So you should hear what I do with song lyrics. My my 14 year old daughter is just just loves catching me rewriting songs.

Jason Hartman 11:51
Oh, that’s funny. That’s fine. Well, one of the things we want to do is talk about expectations. Look, folks, the deals they just ain’t As good as they used to be, okay, deal with it. Sorry. They’re not, you know, the market has appreciated substantially. And we told you this was gonna happen. But now I’m telling you that I think things are going to continue to improve. And just be careful you hear me properly when I say that, okay. I think the economy and the real estate market is going to do very well under under a Trump administration. I do have a couple of concerns. One, of course, is interest rates, okay. And, you know, Trump is a little bit of a wild card, that goes without saying, but I do think overall, things are going to be very good. So you got to adjust your strategy to either side of the equation. It’s either going to be an improved rental market, or a capital gains and appreciation type of market. But Sarah when people look at those performances, and a lot of these are the same clients, we had You know, 346, even 910 years ago when you started with me, and they’re just thinking like, Wow, those properties I bought in Indianapolis or Memphis or wherever, way back when 368 years ago, these deals aren’t as good. And they’re right aren’t they?

Sarah 13:23
They are, you know, they’re not as good as they were. But you know, keep in mind we’ve had we’ve had a little increase in interest rates and we may see more of that. But you know, when I started doing this interest rates, I mean, the very first property I purchased was that six and a half percent and you know, just just keep it in perspective, this is buy and hold this is not a get rich quick, you know, you’re probably not going to get rich off your $200 a month cash flow per property. You know, keep in mind you have that tenant is paying down the principal loan over time. You know, what I did with my my properties that were at

Jason Hartman 13:59
fault. is paying it down to

Sarah 14:01
inflation is paying it down to I mean, just real quick on the numbers that house I bought in 2007 at six and a half interest, you know, eventually I ended up refinancing the property. I did it twice one was to lower the rate and then I did it again and pulled cash out because there was appreciation, I raised the rents and so when you you know, if you see a rate drop, you know, 10 years from now, and you can capitalize that then you have to you know restructure deals and take advantage of that and you know, if you see appreciation then maybe you sell on a 1031 exchange or you you know do what I didn’t pull cash out, roll it into more properties. But in this Sarah

Jason Hartman 14:39
what you’re saying is the beautiful thing that I talk about, and this is why people who who make decisions who do not have the paralysis of analysis problem always end up better in life. In fact, I just put it in my queue again, my movie cue the other night, and it’s that movie with Jim Carrey Yes man that I talked about. Save Yes, more often good things happen. And within GM property, what you basically get, even if the deal isn’t as good as you want today, you’re essentially buying an option. Okay, look at it that way you’re buying an option to make it a better deal later. How do you make it a better deal later? Well, Sara just told you, you refinance it if rates go down, or if there’s capital appreciation, you refinance, maybe to pull cash out refi till you die strategy that I talked about many times over the years on on prior episodes, or if that doesn’t happen, then it becomes a stronger rental market because these are non correlating indicators. Okay, rents and appreciation. Usually non correlating indicators, not completely always, but usually, okay. So, if the if say rates go up a whole bunch, well, then your rents are going to strengthen a whole bunch. If Trump controls the borders for the first time, and decades. And if his protectionist trade policies that, you know, philosophically, I don’t completely agree with all this stuff. I’m just talking, being a realist about what will happen. If that does, then we’re going to see wages go up in America. And I was just listening to it. They said it so well, by the way, Sarah, little slight tangent here. I was listening to The Wall Street Journal podcast today. It was just great. They quoted, as they quoted, someone is saying, I wish I had it handy. something to the effect, and it’s what I’ve been telling you on the podcast already, but they said it’s so much better than I did Imagine that. And they basically been saying, look, you know, the concept is, we would rather have blue collar wages increase and have blue collar prices increase at the same time. Meaning that yes, all of the negativity about Trump’s protectionist trade policies, well, they’re going to be inflationary, everything you buy is going to get more expensive, right? But the idea is, if your wages go up, hopefully you don’t spend all of your money and everybody doesn’t spend all of their money on, you know, stuff that is affected by inflation. So the delta between what you spend and what you earn, that’s, that’s what is your wealth creation for the future, right? Hopefully it goes into savings and investment. And that’s what you have left over. That’s how you arbitrage that system. So Trump’s ideology is actually a good one. And I agree with it philosophically, not completely, but I can see practically how that’s gonna work great. So what you do when you lock in and you get a property today, even if it’s not everything you want, you basically buy yourself an option to rework that deal in the future. And that’s the beautiful thing about income property being a multi dimensional asset. You can’t do this with other stuff. Okay. You can’t do it with stocks. You can’t do it with precious metals. Income property has a multi dimensional aspect and it has a creative aspect. And it has a a tactical aspect that allows you to tactically adjust strategy through time. It’s just beautiful. I love this stuff.

Sarah 18:20
Well, and and you know, to add to that points, like I have a few clients who, you know, maybe bought in the recessionary time that are like waiting for the next recession, and they’ve been waiting for two or three sake,

Jason Hartman 18:32
mistake mistake.

Sarah 18:35
And they’re and some of them have just cash sitting in the bank. And I’m thinking, gosh, they missed out on a huge opportunity just over the past couple of years that they were waiting and, you know, in two years, is there going to be another recession? I don’t know. Nobody knows but but he knows but

Jason Hartman 18:49
the thing is, it’s gonna be it’s gonna be brought on by something right? So it’ll be brought on by the business cycle. That’s my by the way. My other concern besides is interest rates when I talk about myself concerns, but everything else being extremely positive and bullish just interest rates and business cycle. My only two real concerns. You’re right, you’re absolutely right. Look at throughout history in any type of market, whether it be stocks, bonds, precious metals, businesses and companies, real estate, whatever the asset class is, the market timers never freaking win. They always lose. Because while they think and while they wait, and while they are sure the cycle is going to change, they miss a whole bunch of opportunities, and they don’t get to take advantage of what I talked about a couple minutes ago, which is that option, you’re basically buying an option to change the deal later. And you can only do that with income property. So that’s a really good thing. Okay. Sarah, so expectations just quickly on that, you know, nowadays, what can you expect the RV ratios aren’t as good as they used to be? But they’re better than they were in the prior boom cycle before the Great Recession. Okay, I can tell you that they’re much better than they were then.

Sarah 20:06
Yeah, in RV ratios are anywhere from point seven to 1% we do still see that 1% from time to time, they’re probably on your older less desirable neighborhoods. The point 7.8 Rv ratios are going to be in your higher end you know, nicer neighborhoods, more expensive properties. And those you know, those newer construction type properties and your cash on cash is probably going to be you know, around seven or 8% on the new builds and and on the existing homes that are in your you know, B areas you know, you’re looking at probably nine to 12% cash on cash, you know, taking into consideration the financing and

Jason Hartman 20:44
that is still all things considered that’s phenomenal. I mean, you can’t be

Sarah 20:50
taking into consideration appreciation, and and all those

Jason Hartman 20:55
words inflation induced debt destruction, all of the all of the great multi dimensional and So, absolutely right. Very good point. So just keep it in perspective, folks, historically, this is still a fantastic time to buy good quality income properties in the right areas from the right teams. Okay, that will take care of you, and which is how we started this intro today. Okay, so Sarah, we’ve got to get to our guest. So I guess what we’ll leave you with folks is go to Jason Hartman, calm. Look at some of the properties there, talk to an investment counselor. Also, stay tuned for the formal announcement on a Memphis property tour, probably in March, if you want to kind of keep that in mind for your calendar. Sarah, anything else?

Sarah 21:42
I know. That’s it. I hope to see you all there.

Jason Hartman 21:44
Let’s get to our guests. You’re gonna love this interview today. I really enjoyed it a lot. I love studying demographics, because as the old saying goes, demographics is destiny. And I think it’s a really easy, very tried and trued way Tried, tried and trued. See, I did it wrong, tried and true way to really predict the future. You know, people use demographics and they malign it, and they overcomplicate it and they dated, rigid. I’m not talking about that the stuff we’re going to talk about is simple, sensible stuff today. That just makes sense. And you’re gonna see why I’m still so very, very bullish on income producing real estate. So let’s go to our guest and you’re going to enjoy this interview. Here we go. It’s my pleasure to welcome Chris Porter to the show. He is the chief demographer and vice president with john Byrne’s real estate consulting. They’re based in my former hometown of Orange County, California. And they do a lot of great studies sell a lot of their data and their work and their consulting to big real estate developers, and I believe institutional apartment owners as well. We’re going to take a deep dive into some demographic issues and what they mean for real estate investors what they mean for the overall housing market, what they mean for landlords. And in talking to Chris, just a little bit before we started recording, we talked about my thesis that the next 10 years coming at the rental housing market, or the demographics coming into rental housing market are nothing short of phenomenal. Chris actually agrees with that. And we’re going to get a little more insight into that, you know, we’ve talked about it before many times about Generation Y, liking, mobility, delaying household formation, being saddled with student loan debt, and on and on and on. So we’ll dive into that and some other topics. We’ll talk a little bit about Generation Z, which is just coming of age here soon. And some other great stuff, Chris, welcome. How are you?

John Burns 23:35
We’re doing well. Thank you, Jason. Appreciate it. Good.

Jason Hartman 23:42
Hey, it’s great to have you on the line. And, you know, you’re out with a new book called Big shifts ahead. Demographic clarity, you know, For for business and real estate people, what are some some of the broad strokes, you know, in your book that you cover

John Burns 24:08
what we just decided several years ago, just do a real deep dive into census data make sense of a lot of the mountains of data that’s out there that often conflicts with each other. And we really want to help our clients understand what’s going on from a demographics perspective. Some of the big takeaways from our book, we look at the impact that women have had in the economy, and specifically in the housing industry as well, the immigrant population, we’ve also looked at older and younger workers today, as well as what was the retirement picture looked like over the next 10 years as well. We’re about to see a 38% increase in the number of people who are 65 years and older. And that’s that’s a huge jump. And we’re we’re just really curious to see what happens. What happens over the next 10 years. And so that’s what really led us to write this book. Interesting.

Jason Hartman 24:56
Well, 65 and older I almost feel like you should say 65 years young. I mean, that’s so young Nowadays, people, you know, is crazy that that’s still considered retirement age in

John Burns 25:10
today’s world, you’re exactly right. And in fact, a greater share of them are working than ever before go back, you’d have to go back to the early part of the 1900s. To see people 65 plus worth working this much. You’re right. It’s definitely a younger, quote, unquote, retiree. And they’ve got a longer retirement to finance than ever before. And so they want to allow them to stay active in the workforce for that very reason. One of the great components one of the great comparisons I like to look at is when you look at pictures of presidents today, and then you look at pictures of presidents when they left office, you know, 5060 years ago, it’s a much different, more youthful person today, for sure,

Jason Hartman 25:51
no question about it, but being president ages, you know, all of them go in without gray hair and come out with gray hair. Great points. I think that’s a pretty stressful job overall. But hey, I’d take it. So, okay, so where should we start here? I mean, you divide generations up by decade, which is quite interesting. I think that puts a little bit of a finer point on the generations. But, you know, maybe before we dive into that, can you just say a few words about Generation Z? Maybe First of all, is that the official name of that generation that that demographic cohort that is coming after generation Y, or what’s known as the millennial generation, are they are they going to be officially dubbed Gen Generation Z?

John Burns 26:40
So that’s, that’s a great question. In fact, part of the reason we decided to look at this generation by decade born was, people have a hard time defining the generations. What is Gen Y, and I think the conventional definition is about 94 1980 to maybe 2000, which would make Gen Z So starting in 2001, and again, that’s that could vary by depending on who you ask. So if you think about people who are born in 2001, they’re still 16 years old. They’re a sophomore in high school. And it’s hard to really know what their adult lifestyle is going to be like it. So that was one of the reasons we decided to go with this, this different approach, and really put it as you said, put a finer point on the generation definitions, right.

Jason Hartman 27:27
And I think it’s good because people don’t know exactly where they started. And even demographers disagree, you know, how old are you to be a baby boomer or a Gen X or Gen Y. So tell us about that. I mean, you you go way back to the 1930s. And you call them savers and in the 40s achievers in the 50s. innovators and then equalizers in the 60s and balancers in the 70s and sharers in the 80s and connectors in the 90s and Global’s in the 2000s. What does all that mean?

John Burns 27:57
Sure, let me let me take a step back and think As we talked about earlier, you know, we all hear anecdotes at cocktail parties about things that are really rooted in demographics. And it’s usually based on somebody’s personal experience, you know, my kids are doing this, or my parents are doing this. And that’s what they say, the boomers are doing, that’s what the millennials are doing. We want to put some real numbers behind those anecdotes, just really do equip business leaders to make great decisions, help them make great decisions. So we created this framework where was based on the decade born. So if you look at the baby boomers, and it gets widely accepted, the third one from 1946 to 1964. But if you look at somebody who’s born in 1964, they’ve had a very different life experience, somebody Born in 1946. And same thing for the millennials. As I mentioned, if you talk about somebody born in 1980, who’s a 37 year old father of two, married and owns a home, that’s much different than somebody born in 2000, who would also be considered a millennial and as a junior in high school. You can’t really paint those, those two groups with the same Brush, given just the life stage they’re in. So we said, let’s, let’s look at this with a finer point. We realize there’s still some generalization that occurs here. But we think it’s a process that’s a little bit more digestible looking at it by decade born, which actually gives you a really nice 10 year increments to look at. And it makes the analysis that much easier. So, as you pointed out, we gave each group a nickname. And we base those nicknames based on a shift that we saw that particular group leading. Now we think other groups have exhibited a lot of the same trends are exhibiting the same shifts. But really, these were the groups that led them, and we want it to be a name that was had a positive connotation to it, and something that that generation would be proud of. So we can call the 1930s groups of savers just based on their their upbringing, and they were born into the Depression era. And for them sort of frugality was was the way of life and it’s something that’s carried through onto their adult life. They just they worked hard and they say, it’s a lot The 1940s achievers, this was the group that, you know, the first half was pre baby boom, the second half of that decade was was just the very beginning of the baby boom. And what it did is it created a very competitive group. Are they more of them? Are there more people than ever fighting for a spot in college or fighting for a job once I graduated college, I graduated high school. So by nature, they just became a very competitive group. And so they let us our country in sort of this achievement, striving, philosophy, the 1950s we call the innovators, that’s really that’s the generation that includes Steve Jobs and Bill Gates. So if you think sort of about their high school classmates, that’s that’s the group we’re talking about. And they really those are the innovators that have created a lot of the tech companies a lot of the technological advances that our country benefits from today. The 1960s group called the equalizers and that was was one of the actually more challenge groups for us to come up with a name for, we decided that equally because they’ve really benefited from a lot of the movement toward equality that has been started by generations prior to them. But they were the ones for example, that women started graduating college at the same rate or even higher rates than than men did. And when we’re not at complete equality yet, whether it be you know, gender, or race, really see this group is sort of the one that been at the forefront of helping to lead some of these trends towards greater equality. The 1970s group we call the balancers and this is another one that we struggled with the name for. We don’t want to imply by any means that this is a lazy generation. I know the sort of 1970s group has often come across as being maybe slackers, or they’re associated with Gen X. But really, it was a group that we saw creating more of a balance between their work and in life. They saw their parents the 1940s achievers in 1950s innovators who worked very, very hard and sacrifice for that they also had higher divorce rates. As a result, they were working so hard, this 1970s balancer group, we think that they work hard at finding a good balance in their life. And that’s sort of the shift that they’ve LED. And, you know, we’ve seen a number of trends reverse with this group.

John Burns 32:26
And so I think part of that is, is just due to the fact that they were seeking out more balance in their in their lives. The 1980s shares that would include a group that would include Mark Zuckerberg, for example, any of these young Silicon Valley Tech executives, this is a group that basically their, their wives are about sharing. They, you know, share things on their social media accounts, but they’re also they’re sharing homes with their parents at a greater rate than the prior generations had. Just because they haven’t moved out there sharing cars via Uber, they’re sharing just so much and so they’re leading us As a sort of sliding toward the more of a sharing type Society of the Nigerian economy big Yes, exactly. The 1990s group we called the connectors, this is a group that’s just been connected to technology ever since the day they were born. I think back to the early 1990s when the internet and World Wide Web is really becoming part of our everyday lives. This is a group that was the young kids when that when that started out, and so they know a life that only has internet access. And they really don’t know much privacy is a result. They’re very highly educated group and more so than any generation before them as well. But as you pointed out, as part of early compensation, they’re graduating from college with more student debt than ever before. And then the last group is the 2000 Global’s and this is a group that just is growing up with multicultural friends and value diversity. We don’t know a whole lot about them. You As they’re still reading,

Jason Hartman 34:01
this is this is Gen Z, the Global’s

John Burns 34:03
he would call them exactly Gen Z. But technology has definitely been a big part of their education today. And you know, we do expect they’re going to be big numbers, and we expect that they’re gonna have a big impact on our society. Over the next 10 years, this is the group that’s going to be starting to form households, you know, by 2025, but the oldest exam will be 25 years old, so. Okay,

Jason Hartman 34:28
okay, interesting. So, do kids sort of hold the same values as their parents? Because you can sort of look at that echo? Or do they go the opposite way of their parents? And the reason I asked you this is when you look at the 1970s balancers, you talked about who their parents were, or maybe it was another cohort. I think it was the balancers. Well, you talked about the the achievers and the innovators, right? They worked very hard in those years, and then the balancers were a little more slack II you You didn’t want to say that. But you kind of alluded to it.

John Burns 35:02
They thought they sought to find more balance, I guess we could say,

Jason Hartman 35:05
Yeah, right. Right. Does the echo of the parent,

John Burns 35:08
do they go the opposite way? Or do they go the same way? Or does it depend? it probably depends. It does depend. I mean, I think maybe early on in their lives, they they kind of rebel a little bit and want to go the opposite way. I mean, one of the theories that’s been out there, the philosophies out there has been that, you know, you’re more likely to behave like your grandparents generation. So you kind of rebel rebel from your parents, and you’re more like your grandparents. And if that’s the case, then these 99 connectors are probably closer to their 1930s Savers, grandparents. And there’s this idea that yes, the 19th connectors are a little bit more fiscally conservative, and they were the ones that sort of came of age during the Great Depression, or I’m sorry, the great recession. And, you know, they went through a lot of the same things that maybe their grandparents went through in the Great Depression. Yeah, so maybe they’re not into conspicuous consumption, like the, you know, some other generations. Okay, well, we’ll tie this into the real estate market and the you know, the home ownership market and the rental market. I mean, what what can we learn from this? Sure. Well, our our thesis is that, you know, over the last eight or nine years, just as we’ve gone through that recession, and emerged from it, we’ve really not seen household formation, expand at the rate that, that it has historically been what historically have done, you know, 1 million to 1.2 million households per year, we’re doing about half that level for eight or nine years. Part of that reason is recession oriented. But we think, gosh, the demographics are so strong. There’s a lot of pent up demand for forming households over the next decade or so. Both from the groups that delayed household formation to the recession, but also the groups that are starting to become of age now. We think there’s some really strong points for strong household formation over the next year, or excuse me over the next

Jason Hartman 36:56
I think, over the next 10 years, and I think the other big point to that. And I believe you may have addressed this in your newsletters at one time or another. And that is the the shadow demand for housing. And it’s in what that is, is, you know, the Gen Y kid living at home, who’s, you know, 27 years old or maybe older, even, and they’re still living at home. And eventually you you assume these children are going to get out and make a life of their own. So, but there’s a there’s a lot of those. I mean, do we are there any solid numbers on how big that shadow housing demand number might be? Because I think that’s going to be huge for the real estate market both in rental and ownership categories. We do And actually, we’ve quantified it in our book. One of the things that we’ve looked at though, is this 1980s group. So there’s those people who are in their mid 20s to mid 30s. Today, for the most part forms most of the households that they’re going to form

John Burns 38:02
But they are not yet necessarily all homeowners and they’re, they’re buying homes at a later point in their life than they were, the previous generations would. So what we’re we’re thinking is that group? Well, there’s not as much of a shadow demand from them. There’s the shadow demand for homeownership for them going forward. They formed households now they’re going to actually buy homes. So yeah, we’ve quantified a lot of that in our book, our best estimate, our best estimates put about 12 and a half million net households formed over the next decade. And that’s a net number. So it’s it’s the hustle that we’re forming, minus hustles that are going away. And I think that’s one thing that people tend to overlook is, you know, is the, the first wave of the baby boomers or in our 1940s achievers are reaching an age where they’re going to start to pass away. We’re gonna have more deaths in this country than we’ve ever had. And we’re going to start to see more households Go away as well. So our net number is about 12. But the number is a net number of 12. What do you say 12 and a half million new households in the next 10 years? That’s right. Okay.

Jason Hartman 39:10
And is that an immigration adjusted number? I mean, how much of that is new immigration

John Burns 39:17
versus just the existing population? For me households are sure. That does include our immigration forecast as well.

John Burns 39:27
You know, over the last decades, immigration has helped to fuel one third of the population growth in the United States. And based on the latest numbers in the census, they’re expecting that, again, one third of the population growth in the in the US over the next decade is going to be as a result of of immigration that we’ll see what happens. You know, now that we have a change in administration, we don’t we don’t know what’s going to happen. But at least as the last forecast from the Census Bureau, they’re saying it’s still really strong integration, then overall, would it be fair to say that you guys JOHN Byrne’s real estate consulting are pretty bullish on the real estate market. Or we’re what do you what do you think? I mean, you know, and and please let let the political side of it enter in, you know, what do you think Trump’s impact will be on that? I mean, he is our first real estate president.

Jason Hartman 40:17
Kind of interesting, you know? Yeah.

John Burns 40:19
I, from a demographic perspective, we think it’s really strong, as I mentioned, you know, much stronger household formation than we’ve seen. I think, as we talked about earlier, I think homeownership will actually start continue to drop, it’s gonna drop at a slower pace. But that’s partially just a demographic. So it’s a math issue. You’ve got a larger number.

Jason Hartman 40:39
Tell us about that. Because I’ve always said that, I think, I think and nobody in real estate agrees with me on this. But I think and maybe I’m, you know, like the Antichrist saying this for my industry. They probably hate me. But But I think that the real homeownership rate should be about 55%. I think it should go down. You know, I mean, homeownership is overrated. If he asked me, but go ahead. I think I think owning a lot of investment properties is underrated. I think that’s wonderful. But owning your own home is overrated. I mean, the convenience of flexibility of being a renter is a really powerful thing, you know.

John Burns 41:18
So I’ll talk about that in just a minute. But we’re so we’re not calling for anything as draconian as 35% homeownership, but I do think that we think it’s gonna fall by below 61% over the next 10 years. And that’s part of it is just a math equation. It’s got an older, a larger number of older people passing away who are 80% homeowners, and you’ve got a large number of young people coming in who are largely renters. And so the math just kind of works out though. We also just think people are going to be less likely to own than prior generations at the same age. One of the things that and this kind of goes to what you’re talking about is the single family rental home is really amazing. As a great alternative for people, people who want to be in a home, they want to yard, they want to be in a good school district, maybe they have kids. And so that’s that’s really important to them, but they can’t come up with the down payment and they can’t they can’t meet the monthly mortgage costs are just really the downpayment is a huge obstacle for people. And so the single family rental home, well, it’s been around forever. It’s been institutionalized here in the last several years, and garnered a lot of press attention as a result. But it’s, it’s really a great alternative for people who just want to be in a detached home.

Jason Hartman 42:39
I couldn’t agree more. And I think as an for the investor side of that equation. It’s the most historically proven asset class in the world, you know, for the for the small investor for the regular person, you know, just get yourself a few rental homes and you’re gonna be doing great, you know, I mean, they gotta make sense they got to be in the right markets, etc. But, yeah, okay.

John Burns 42:58
And I think, you know, one of the It’s hard to remember this sometimes, especially like where I live in Southern California, that if you look at all the renters in the country on third of the renters in the US are renting a single family home. And you don’t necessarily see it that way. Here in Orange County, we’ve got a lot of apartments. But there are parts of the country where if you look at the middle of the country, there are counties where 50% of people are renting a bit 50% of renters are renting a detached home.

Jason Hartman 43:27
Yeah, right. Just like markets like Memphis are like that. So and we’ve done a lot of business there, but I agree. I mean, it’s Orange County, and you know, I lived there for many years. That’s a very expensive market, and you’re not going to find a lot of well as many at least, owners wanting to rent those expensive homes because they don’t make any sense from a rent to value ratio perspective for the investor. You know, you’ve got Irvine apartment communities, which is one of the biggest landlords in the country and tons of apartments there but but you So you’re saying the renter’s like renting single family homes? Do you want to divide this up into geographical areas at all for our listeners, or, you know, what, what else do you want us to know?

John Burns 44:11
Sure. So there’s two, two ways I can tackle that. One would be talking about geographies as well. So, you know, we see this migration out of the Northeast out of the Midwest, as you’ve got older populations who are wanting to be in warmer climates, climates. Also, you know, I think that the southern economies are offering more incentives for businesses to move there as well. And this is not this is not anything new. We’ve seen this happening for a long time. But as we sort of look at, at the next 10 years, we think that the South so cluding, the southeast, including Texas, and some of the Southwest areas, you know, we think they’re poised to grab about 62% of household growth over the next decade. But right now they’ve, Yeah, I

Jason Hartman 44:57
agree. But you know what the problem is Is that like we’ve been doing business in those markets for a long time now? And the prices have, they’ve adjusted pretty significantly. A lot of those markets are getting a little bit expensive for investors. You know, when you talk about when you look at a market like Dallas, Atlanta, Austin, I mean markets that we’ve done hundreds of transactions in these markets, and they’re expensive. I mean, you know, they’re not, they’re not like Southern California, but they’re not really cheap like they used to be. No, they’re not. But I think people are just I think part of it is due to aging population, they want to be in warmer climates. But I also think affordability, relative affordability is another big driver that as well. And so they’re home to 44% of households today, but we think they’re going to capture 62% of growth going forward.

John Burns 45:48
The other thing that we tackled in her book as well was just talking about this whole urban suburban, rural discussion, and Oh, great, great point. Yeah, let’s about that. There’s there’s a lot of confusion over that is Well, I think again, it comes down to definitions. And somebody says, well, all the millennials are moving urban. And all the, you know, people in their 30s and 40s are moving suburban, or they’re not moving suburban, you know, and what are the retirees going to do? And I think part of that comes down to how do you define urban planning urban, suburban, and rural. And so we set out to create some definitions that we thought makes sense. You could disagree with our, our definitions, but what we did is we calculate numbers based on how we defined it. And really, we’ve seen this urban park here in the last 510 years. It was partially jobs driven. People just wanted to be closer to Job Centers, that’s where the jobs are being created. But also US had this pop in the young adult population, people in their 20s who do desire to live in more urban type environments, and even had you know a big pop in empty nesters, some of whom would would move in. And so I think both of those factors contributed to the sort of urban pop during the last decade or so. But as that younger household starts to have kids, they get married, they want to have good schools for their kids, they are going to start that that Southern, or excuse me, suburban migration. That always happens. It’s just happening in a delayed rate for them. So, you know, we’re forecasting based on the way that we define these areas, Urban’s going to capture about 15% of the growth going forward over the next 10 years. It’s higher than it historically but it’s slower than they did this last 10 years. But we think the suburbs that’s going to be almost 80% of the of the growth going forward.

Jason Hartman 47:35
Okay, so I got to ask you about a prediction I’ve been making sure I am. I am predicting now we’ve seen over the past I’m gonna say 20 years there’s been a pretty big movement toward like, revitalizing urban cores. You know, turning these downtown areas into kind of swanky walkable areas that Yeah, everybody loves this type of stuff. But but they’re fairly expensive. You know, I mean the land values are still high and you know rehabbing old lofts and so forth. That’s not cheap to do that stuff, or building a new high rise condo complex or apartment complex. But I think I am predicting the resurgence of the suburbs, the good old suburbs. And my my major reason for that is the self driving car. Are you guys thinking about autonomous vehicles and how that’s going to change real estate? And let me tell you why I think that look at real estate since the beginning of time, since the caveman days has been about three things, you know what I’m gonna say location, location, location, right? Right. And location is still meaningful there. I’m not saying it’s not, that will never change. But I’m just saying it’s less meaningful than it’s ever been in human history. Because of technology and you know, virtual this virtual that just simple things like Skype And email and so forth and computer technology on your desktop and you know, at the coffee shop, but the self driving car that you know, and and then when you combine that with its natural component of the sharing economy, of making the self driving vehicle and Uber Lyft type arrangement where you don’t even have to own a car. Wow, yeah, that gets pretty powerful. I mean, does it really matter if I got to go 30 minutes to get where I want if I don’t have to drive, you know, if I could just sit there and be a passenger, take a nap, you know, work on my laptop, whatever. Exercise, you know, maybe it could do yoga in the car. I don’t know. The whole the whole thing is just going to change if you asked me.

John Burns 49:40
Yeah, I it’s gonna be really fascinating to watch how that plays out. I will say though, it I don’t have necessarily opinion on the driverless car. But I do think you’re right that we’re going to see some more, much more suburban growth. But I think that, and this is our philosophy is that we’re going to bring some of the qualities that we like about urban into the suburbs, and so we’re going to create more Small walkable downtown’s and otherwise suburban areas. Right. And there they’ve done

Jason Hartman 50:05
they’ve it’s interesting that they’ve done that a little bit. You see it in ladera Ranch in Orange County, by the way, you know, there, there’s these little sort of mini mini mini downtown areas. They’re, you know, they’re, they’re pretty cute, you know.

John Burns 50:19
And I like that, that I hope that catches on more more so and so we’ve came up with a term to describe this. Traditionally, it’s been referred to as mixed use, and that doesn’t really roll off the tongue. Great. So we, we came up with this term we called serban. And it’s the idea of bringing the best of the urban qualities to a traditionally suburban environment. So if it’s walkable downtown’s in suburban areas, where people you might not have to have a car on the during the week, but you probably want a car during the weekends to you know, to get out of town. That sort of thing. So yeah, the suburban area. We think it’s a it’s a term that we’re really hoping is going to catch on. And I think it’s really well described that Concept very well.

Jason Hartman 51:01
Yeah, I think suburban is really cool. That’s good. Okay, wrap it up for us and just share anything else you want us to know, this is a very interesting conversation.

John Burns 51:10
Yeah. I mean, I could really talk for hours about this, we sold a book. And we probably could sell two or three more books based just on what we found. It’s, it’s just a fascinating thing, because there are certain things about demographics that are predictable. I know one year from now, I’m going to be a year older than I was today. And I know, you know, what’s the likelihood I’m going to pass away next year. So there’s, there’s some elements of this that are predictable. But you throw in things like government policy and the state of the economy and innovations in technology. And it can totally change those those predictions. So we really wrote this to help stay on top of demographic trends. It’s something we want to continuously be updating, really, to help us to understand what’s the consumer going to be doing next. And how can we as business people, really capitalize and make make great opportunities out of that. I think that is fascinating. The website is real estate of course, the book is available on all the usual places online and so forth. Right and we actually have a we have a website big shifts ahead calm. Oh, just has all the good information about the book. We’ve got a free chapter you can download. And all of our charts in our book are available for download for anybody who buys the book. So if you find you really enjoy it, you can you can take a closer look at the charts. The download.

Jason Hartman 52:33
Excellent good stuff, Chris Porter, john Byrne’s real estate consulting, thank you so much for joining us.

John Burns 52:38
Thank you, Jason.

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