307: Why The Rich Are Getting Richer
The wealthy are enjoying federal monetary stimulus. Meanwhile, unemployed tenants can now be evicted nationally (check your local law). Own assets? Great. Mortgage interest rates are at historic lows; the S&P 500 is at an all-time high. (Entire episode transcript is below. Read as you listen.) In the pandemic, tenants want single-family homes more than communal apartments. Fannie Mae & Freddie Mac want to add a 0.5% refinancing fee. Homebuilder sentiment is high? Why? High demand, low inventory, low rates. Stagflation is explained. It is a stagnant economy with high inflation. There are signs that inflation is poised to increase. Resources mentioned: Inflation Triple Crown video: https://youtu.be/dZojl686fU0 Section 8 turnkey property: www.GetRichEducation.com/Section8 Stagflation video: https://www.youtube.com/watch?v=YaC_PNKu_Cg&feature=youtu.be Elevator Anxiety: https://www.axios.com/elevator-anxiety-reopenings-9a474985-4786-43a3-8b64-5119ff7f2267.html Mortgage Loans: RidgeLendingGroup.com QRPs: text “QRP” in ALL CAPS to 72000 or: eQRP.co By texting “QRP” to 72000 and opting in, you will receive periodic marketing messages from eQRP Co. Message & data rates may apply. Reply “STOP” to cancel. New Construction Turnkey Property: NewConstructionTurnkey.com Best Financial Education: GetRichEducation.com Top Properties & Providers: GREturnkey.com Follow us on Instagram: @getricheducation Keith’s personal Instagram: @keithweinhold Complete Episode Transcript: Welcome to Get Rich Education. I’m your host, Keith Weinhold. The rich are getting richer and the poor are getting poorer. I can’t think of any one time in my life where that’s been happening more than it has been than right now. I’ll tell you why - and what you need to do to get on the right side of that. What is going on in the real estate market and what are the real estate economics that matter? Then, a discussion about inflation. Today, on Get Rich Education. ____________ Hey, you’re inside GRE. From Manila, Philippines to Managua, Nicaragua and across 188 nations worldwide, I’m Keith Weinhold. This is Get Rich Education. The rich are getting richer, the poor are getting poorer - and I can’t think of any one time in my life where that’s been happening more than it has been than right now. Because Americans living paycheck-to-paycheck might now be ... paycheck-less. Some of them are laid off - because of the pandemic - and now they're concerned that there's no national eviction ban. That’s right. In most states, non-paying tenants CAN be evicted at this time. Now, you’ve got to check your local law. Well, when is Congress going to do something to relieve those that the pandemic has left unemployed? Well, they don’t even reconvene until after Labor Day. Some people are wondering - “Where is the CARES Act 2?” Where are those updated forbearance options, eviction moratorium, the PayCheck Protection Program, and the $1,200 stimulus checks and the stepped-up weekly unemployment compensation? In fact, Richmond Fed President Thomas Barkin had good metaphor. He said: “Months ago, when we did the first stimulus, we thought the economy faced a pothole and the stimulus put a plate over it so we could navigate. Now escalation of the virus may be making that pothole into a sinkhole and creating a need for a longer plate.” That’s the end of what the Fed President said. Now, look, I think there’s a lot to be said for just letting the free market do it’s job. But it’s a little hard to be in this laissez-faire, Austrian economics school of thought when some people could be suffering. So that you know what I’m talking about, “lay-say-fare” basically means no government intervention into the free market. Meanwhile, the rich are bingeing off Federal Reserve policy and liquidity injections that keep mortgage interest rates at historic lows and the S&P 500 at an all-time high. Mortgage rates recently dipped below 3%, which is just amazing. You don’t even have to be THAT rich … to benefit. If you’ve got substantial exposure to the real estate market or the stock market, chances are, that those assets are doing alright. One thing that you need to keep in mind as an investor, is that, when the Fed puts rates on the floor, it affects more than just MORTGAGE rates - it affects other rates too - like savings account rates. Just look at the rates at bank savings accounts. Even if you’re in one of these online banks that give better yields than traditional brick-and-mortar banks - we’re talking about online-first banks like Ally Bank and Popular Bank - they were paying two-and-a-half percent on savings accounts not all that long ago. Even those banks are now down to about three-quarters of one percent - probably less than the real rate of inflation. So because savers get punished worse than ever right now, that, in turn, forces more people INTO things like real estate, because you’re in search of that yield. Even retirees can’t rely on the paltry income from three-quarters of one percent yield so they have to go to the markets to chase yields too - sometimes unwillingly. Well, when all these people that got negative REAL yield on savings accounts and CDs - and aren’t going to stand for it anymore, it forces more demand … and money into markets and consequently, floats the price of everything up. That’s what’s going on now. Now, I personally don't really like this deepening canyon between the "rich” and the “poor". But I know which side I'd rather be on. Besides the investment properties, a lot of people want to move and shake-up their living situation like never before - their primary residence - and filter their new home-buying criteria on pandemic ways of life. Bidding wars are rampant for single-family homes. How rampant are they? Well, Zillow just reported their highest daily active user count ... ever. Now, though property data can move even slower than your last 1031 Exchange did, Real Estate Economist Daren Blomquist just compiled THESE year-over-year price changes through quarter two. You’ve heard Daren Blomquist on the show here. He broke this down this way: City real estate is up +4% - again, this is all year-over-year through the second quarter. Town +4% Suburban +5% Rural +11% The two sources are ATTOM Data Solutions and the U.S. Census Bureau. So rural is appreciating the best. City and town is appreciating the least. With time, I expect urban areas and apartments to slump. Of course, urban areas and apartments kind of go together. In the pandemic, living in a lot of large apartment buildings has become about as fashionable as Jazzercise and The Atkins Diet. Of course, at GRE, we've long focused on rental single-family homes. We’ve talked a little about apartments and you know that I started out with a four-plex & got my start in real estate that way. This week, NAR Chief Economist Lawrence Yun noted: " ... (There's) an oversupply of apartment buildings, especially in city centers given the evident recent shift in consumer preference for single-family homes in the suburbs. Lawrence Yun continued: "Apartment rent growth could therefore be tough going ahead. The rise of single-family units is welcome, as overall inventory of homes for sale are down 19% from one year ago and there is intense buyer competition in the market as a result." That’s the end of what Lawrence Yun said. As long as your tenant can pay the rent, this is welcome news for your existing single-family rental homes - like the ones that you’ve acquired through GREturnkey.com. It puts upward pressure on the price. So congratulations there. The appetite for real assets, especially desirable rental single-family homes, now propelled by low inventory and low interest rates has put you in good shape if you’ve acted. But of course, the COVID pandemic isn’t over. We don’t really know how all of this is going to turn out. And even when a vaccine is developed, remember that it will probably take … at least a few months to distribute it. In my OWN portfolio, all of my single-family rental homes are occupied - 100%. But my apartment building vacancies are unusually high right now. When we talk about apartment buildings and office buildings as well - Axios recently reported about how residents and workers are experiencing what they call “elevator anxiety”. I’ll put that in the Show Notes for you. An elevator is one of the most physically, uncomfortable awkward places to be in the pandemic. If you’re wondering about how that real estate looks - we’re generally talking about buildings that are four or more stories in height. In fact, the ADA - the Americans with Disabilities Act - stipulates that properties with four or more stories generally are going to need to have an elevator. I’ll tell ya - if apartment buildings are as unfashionable as the Adkins Diet these days, then being inside an elevator is about as hip as Jane Fonda workout videos, NordicTrack, and Sweatin' To The Oldies with Richard Simmons. https://youtu.be/na9ZZ4ZjVa8?t=28 Oh geez. Did that really just happen? I guess it did. So … while we’re all processing that, getting back to real estate here. Now, Fannie Mae and Freddie Mac recently said that they will start charging a 0.5% “adverse market fee” on all refinances, including both cash-out and non-cash-out refis. They were trying to put that new fee into effect for next month. What a drag that would be. So for every $200,000 you refinance, you’d have to pay an additional $1,000 fee - or maybe your lender would pay it. What Freddie Mac said is: “As a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty, we are introducing a new … what they call ... Market Condition Credit Fee in Price”. Freddie sent in their notice to lenders. Wouldn’t that be an annoying fee? Well, almost immediately, the National Association of Mo