On Friday, October 21, the Norris Group proudly presents its 9th annual award-winning black tie event I Survived Real Estate. An incredible lineup of industry experts will join Bruce Norris to discuss perplexing industry trends, head-scratching legislation and opportunities emerging for real estate professionals. Proceeds for the event benefit Make a Wish and St. Jude Children’s Research Hospital. This event is not possible without the generous help of the following platinum partners: HousingWire, PropertyRadar, the Apartment Owners Association, the San Diego Creative Real Estate Investors Association, InvestClub for Women, MVT Productions, the San Jose Real Estate Investors Association, Inland Empire Real Estate Investment Club, Think Realty, and White House Catering. Visit www.isurvivedrealestate.com for event information and tickets.
Bruce Norris is joined this week by John Burns. John is CEO of John Burns Real Estate Consulting. He founded the company to help executives make informed housing industry investment decisions. The team enables the profitable development and ownership of the best places to live in the world through great research for industry executives and their investors. The team’s consultants and analysts navigate their clients through housing cycles, helping them satisfy home buyer and renter demand. John recently co-authored Big Shifts Ahead: Demographic Clarity for Businesses, which will be available for purchase this month. 400,000 plus people follow John’s LinkedIn influential column, and 30,000 plus subscribe to his emails. John will be one of the featured panelists at I Survived Real Estate 2016 on Friday, October 21.
- What does John Burns discuss in his newest book Big Shifts Ahead: Demographic Clarity for Businesses?
- How were the different generations affected by the economy?
- How do the eras the different generations grew up in affect how they spend money?
- What is the current status of immigration in the United States?
- What are game changers in the market we need to keep an eye on over the next ten years?
- What’s with John’s new word surban, and how does this related to the market?
The study of demographics is nothing new to John because of his business in which he works. Bruce asked him when he approached the subject in his book if his intention was to add to what he already knew or start from scratch. John said it was both. So much of the research he and others had done was assuming those in their 20s would behave their parents. However, it is not panning out this way at all. They were also pounded with daily emails about demographics, and it was completely overwhelming. He wanted to organize it in a way that he can make sense of it and people can use it.
Bruce asked how important he views demographics as a predictor of what is next on a scale of 1 to 10. John said he puts it at around 6 or 7. What he learned doing this is that demographics is the big long-term future, but they can be shifted a lot by many other things. This is why he will not put them at a 10 since government policies change behavior massively as well as the economy and technology. There are so many things impacting the world and shifting consumer behavior massively.
Bruce is spending four days at events he never thought he would attend. These have to do with robotics and 3D printing. He wants to try to thoroughly understand everything he cannot even comprehend at the moment. He is doing this because, for example, if you were Blockbuster Video ten years ago you knew you were going to be replaced by something on your phone. Bruce wonders if there will be some very big shifts in the usage of commercial space. Sean O’Toole will be featured on the I Survived Real Estate panel, and he is a bright man who is very much into computers and has been since he was 10. He even used to do start-up companies back in high school. Five years ago when they were driving to the Nixon Library, he was telling Bruce all about 3D printers. Sean’s ten-year old son was using a 3D printer, and Bruce did not even know what one was. This is why Bruce is wanting to learn more about it since there are so many things coming that will be game-changers.
Bruce asked John when he looks at demographics if he thinks it is more accurate ten years in the future or 50 years. John said it is definitely not accurate 1-2 years out, so he does agree ten years is a good rule of thumb. Bruce got the sense from John that he picked the timeframe based off of this. John said all the forecasts in the book went up to 2025 because a lot can happen with economic cycles and other things. Generations are 19 years apart, so people like Mark Zuckerberg and John Burns’ high school age daughter are both millennials, although they are not in the same stage in life.
John broke everything down by the decade people were born, and this is why he stuck with ten years. He thought with normal life cycles, picking the years people had their 10, 20, and 30-year high school reunions then everyone could relate to that. They used the ages of 28, 38, and 48 throughout to compare current generations to prior ones, and the findings were fascinating. It was an interesting way to look at a topic that is already locked and loaded. Bruce asked if he has had any blowback about changing the way you say what timeframe is covered when you talk about the baby boomers. Everyone knows this generation started in 1946 and lasted a long time.
John started at the beginning of each decade as opposed to an event inside of that decade. Bruce asked what the process was, which John said it had to do with people relating to the year they were born. Some people who are boomers may not relate to other boomers, and he wanted to keep every period simple. As well, it makes it much easier to do all the math and simplifies thing. Every time we discuss millennials, everyone talks about their 25-year olds. One of the more interesting things is that there is a huge chunk of millennials born in the 1980s who have already formed their households and moved out. The ones in the 1980s have not, while the ones in the 1990s are renting and have not yet become homeowners. It really clarifies the whole discussion and helps make sense of it.
Bruce said it really is a game-changer. He does a lot of reading, writing, and research; and when John gave him a copy of his research he saw everything marked out and very methodical. One of the generations did not even have computers in school for ten years. Bruce sees his two-year old great-granddaughter walking around with her handheld device searching for the movie she wants. This is definitely a different generation, and the information at these kids’ fingertips is amazing. One of the things John came up with in the book was the 4-5-6 rule. The 4 is the four big influencers: government policies, economic cycles, technology, and societal shifts. What Bruce just discussed was the technological changes, which are complete game-changers.
They would not have discussions about kids not having driver’s licenses if it were not for Uber. This would not be around if we did not have GPS and smart phones. It is fascinating how this is shifting behavior. Bruce said he would want to drive himself, and pretty soon he may be driving next to a car that has no driver. This is going to be a little bit of an unnerving experience. John joked that statistically the machine may be a better driver. Sean also pointed this out when Bruce joked about this. However, this may actually have some truth to it since the computer chip is so sensitive to knowing your reaction. You could play a rock, paper, scissors game with it and it will win 100% of the time because it can pick up your impulse.
Bruce asked of the things John said are big influences, which would play the most dominant role in the next decade? John said the economy always plays a big role. For those born in the 80s, in the first 15 years of their working lives they experienced a bad economy. If you want to talk about why they are not spending money or becoming homeowners, you can say the economy played a big role. With the election right now, immigration policy has been a big game changer. There are more immigrants over the 20-year period of the 90s, 2000s, than the prior 60 years combined. 1/3 of our population growth has been immigration, and clearly if the government changes that it will be a massive game-changer.
Bruce said in John’s book he points out that somebody coming now is different than when we think we need to stop something occurring. What we are concerned about is not even happening in. Bruce asked John about the people coming in and who is coming. John said immigration has two components to it. One is our willingness to let people in and people desiring to come here. It is very clear that the desire for Mexico has waned dramatically because the net migration back and forth to the United States has actually turned negative. There more people leaving than entering.
What has changed is the super economic growth in places like Brazil, India, Russia, and China has created millions of upper middle-class people who desire to come to the United States. It has been a real game-changer for immigration. Bruce asked what stage in someone’s life seems to have the most impact on what they do for the rest of their lives. John thinks what happens when you are a child is most influential. Looking at the people born in the 30s who experienced the Great Depression and had to ration during World War 2, these are the ones who are thrifty and conservative.
Contrast this with somebody born during the 1950s who was impacted by the space race and would have become interested in technology. Some of the best tech companies were created by people born in the 1950s. The economy really cranked their entire lives, and these are the people who will be turning 65 over the next ten years. Their net worth is $18 trillion, and they are the wealthiest group of retirees ever. John thinks these are the ones who will be game changers in the area of retirement. Every stage matters, but what you see early in your life, likely teens through your twenties, is what impacts you the most.
John dedicated his book to John and Mary Burns, his parents. They were savers and went through all the experiences John just mentioned. Bruce asked how the savers ended up retiring. John said they were very affluent because they saved, but they also started a 200% increase in divorces. John said fortunately his parents were not a part of this. They generally did very well and benefitted from the huge rise in pension plans, Social Security, Medicare, and the government taking care of them. They really had it pretty good.
Bruce asked if there is a group after that in one of the new generations with similar earlier experiences that could follow on a similar path. John thinks those born in the late 80s and early 90s were born into the Great Recession and have also become very thrifty and frugal. Those born in the 1980s are called the sharers because they are the architects of creating a shared economy and use technology to do it. They are all about sharing their lives to be frugal, renting everything from a room in their house to prom dresses. They will not take on a 30-year mortgage like their parents did because their parents took it on with the confidence they would have employment the rest of their lives. This current group knows we could have a recession next year and they could lose their job. That is why now 30-year mortgages are a risky thing. Bruce thinks they will behave very conservatively, but they will not be asset accumulators like those in the 1930s. They will be more about living now and living frugally.
Bruce asked how this plays out when they retire. Bruce has noticed a huge gap between the net worth of somebody who owns a house and one who does not. John thinks society more than ever is focused on today and now and not the future. He does not see a lot of home buying activity amongst the younger crowd, and they certainly are not thinking they need a home when they are 65 with no mortgage. There are people who think this way, but as a percentage the homeownership is lower.
The latest group has been nicknamed globals. Bruce asked how John chose this name, whether it was their mindset or because they came from all over the place. John said for those born in the 2000s, it is too early to see how they will shift the world. However, their access to information and the heavy immigration to the United States is seen from all over the world. John thinks we are morphing into being more of a global society instead of “my country versus your country.” This was more the mindset of prior generations with the world wars and other events.
Bruce said when you come from a country where homeownership is not a big deal, this is different from before when people would come to America for this exact reason. Bruce asked if they are now bringing over what they are used to having as opposed to coming here because there is more opportunity. John said this may be true, but we are not finding that this new, more affluent immigrant is not interested in homeownership. They are actually seeing the opposite occurring. There are plenty of new home communities out there that are 80% from one specific country, whether it be India or China. They are the ones who actually want to be homeowners. It is actually the American-born generation that is holding off buying. This is a complete reversal from their previous discussion about immigrants sneaking across the border in search of economic opportunity. This is not the majority of immigrants these days.
What is interesting is the timing of all this. We have an interest rate that starts with a 3, and that is one sale. This does not seem to be appreciated or taken advantage of, and this is a 30-year decision. This is a one-way option because if it does go to 2, you can just refi. If it goes to 6 and you did not buy, you missed out on a big opportunity. Going to this shorter-term focus, the fact that we have a 3 ½% mortgage rate the mortgage interest for most couples is no longer tax-deductible. A $200,000 mortgage at a 3 ½% interest rate is only $7 grand in interest, and the standard deduction is only $12,000. Prior generations had a kick in the pants every April 15 who thought they could make a purchase that would help them save on taxes. This is a discussion you never hear anymore.
John’s book concluded with him saying the next ten years would see homeownership be down more. John thinks it will actually fall below 61 by 2025, which sounds like a bearish prediction. However, they looked at every single demographic, and those currently in their 60s and 70s have more of the 75% homeownership rate. They will be passing away soon, so there is a very high ownership amongst people who are passing away. More of the people moving into the workforce will have a 75-80% homeownership rate. However, this won’t be until much later if they even reach this stage.
John coined a new word: surban. This word doesn’t exist, although John joked he put a trademark on it. He is simply referring to a government shift. The government used to invest in highways out to where you could build communities. They have been investing in urban areas, and they have been completely revitalized. Urban is very expensive, so the suburbs have said they want some of that urban in their community. They are calling it surban, which means bringing the best of the urban to the suburbs where it is more affordable and schools may be a little bit better. They would be closer to their jobs, and this is why it is much more desirable and the way new developments are going.
Thank you for joining us this week for the real estate radio show with John Burns. The Norris Group would like to thanks its gold sponsors for supporting I Survived Real Estate: Auction.com, Coachella Valley Real Estate Investors Association, Coldwell Banker Town and Country, Elite Auctions, In a Day Development, Inland Valley Association of Realtors, Jennifer Buys Houses, Keller Williams Corona, Keystone CPA, Las Brisas Escrow, L.A. Green Designs, LA South REIA, New Western, North San Diego Real Estate Investors, Northern California Real Estate Investors Association, Orange County Investment Club, Orange County Building Industry Association, Pacific Premiere Bank, Pasadena FIBI, Pilot Limousine, Real Wealth Network, Realty411 Magazine, Realty Executives Inland Empire, Rick and Leanne Rossiter, Sonoca Corporation, South Orange County Real Estate Club, Spinnaker Loans, uDirect IRA Services, Westin South Coast Plaza, Wholesale Capital Corporation, and Wilson Investment Properties Inc. See www.isurvivedrealestate.com for sponsor links and event information
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