Post Pandemic impact in Real Estate with Dr. Robert Kleinhenz -Part 2

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How did COVID-19 change the real estate industry, are we going into another recession? Joining us this week is the Principal Economist and Founder of the firm Kleinhenz Economics, Dr. Robert Kleinhenz.

A leading voice on the economy at the national, state, and local level, Dr. Kleinhenz taps over 30 years of experience to present his outlook for the economy and its leading industries, and to offer his perspectives on leading policy issues.

He is known for his extensive knowledge of the economy and economic policy. He speaks to a variety of audiences that include leaders in business, government, the nonprofit sector, and education. A frequent contributor to the media, he has appeared on CNBC, Bloomberg, and NPR, and has been quoted in news outlets including the Wall Street Journal, the Los Angeles Times, the San Francisco Chronicle, the San Jose Mercury-News, and numerous Southern California publications. He is also a member of the National Association for Business Economics, past President and Treasurer of the National Association for Business Economics-Los Angeles Chapter, and past Treasurer of the Real Estate Research Council of Southern California.

Kleinhenz holds a Ph.D. in Economics from the University of Southern California with a specialty in urban and regional economics. He also holds an M.A. in Economics from the University of Southern California and a B.A. in Economics from the University of Michigan.

Episode Notes:


Narrator  This is The Norris Group’s real estate investor radio show, the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever-changing real estate market hosted by author, investor, and hard money lender, Bruce Norris.

Bruce Norris  Hi thanks for joining us. My name is Bruce Norris and today once again, our special guest is Robert Kleinhenz. The recovery has actually been surprising to me how well we’ve recovered. But I know that you, you’re aware, it’s not been an even sum game, there’s been some sectors that have come back. And there’s others that really have not. So, can you give us a little bit of update on, you know, the things that are coming back well and the things that are still lagging?

Robert Kleinhenz  I think that a lot of analysts, especially those who are in the financial markets, have been exceedingly optimistic about their expectation for the pace of recovery. If you take a look at the job gains that we have seen even the most recent job gain for this for the nation last month, where we added like 266,000 jobs month over month, that far exceeds the average job gain that occurred as we were coming out of the Great Recession. And I try to look at this issue from the perspective of the business person and the consumer. Yeah, we’ve heard that the economy is reopening. But we were still not completely in the clear. And when that’s the case, people are step forward in that, in that uncertain situation. And they do so with a certain amount of caution. So, I think we’re looking at much more moderate, we should be looking for much more moderate gains over the next several months. And we will indeed recover the jobs that were lost during the, there were over 22 million jobs lost during the pandemic shutdown last spring. And we’ve recovered nationally all but about 8 million thus far. So, we still have a ways to go. And we’ll recover those but it’s going to take time as well. Economic recovery in terms of activity, but by the end of this quarter, we’ll recover. Although whilst economic activity that occurred during that time period in the first half of last year, a lot of people don’t realize this, but the economy turned around in the second half of last year. So, even though we had the largest economic downturn, a contraction of three and a half percent, the largest since the 1940s. In annual terms, all of that was front loaded in the first half of the year, the economy recovered, or began its recovery in the second half of the year. These are all good signs. And I think that as we’re looking through this year, we’ll see that the unemployment rate is going to come down, but slowly. There are a lot of moving parts. There are a lot of irregularities right now, just because the people are still trying to figure out which end is up. So, I’m not sure if I answered your question.

Bruce Norris  Well, let me ask you, one other part, have the higher price or higher paying jobs recovered better than the lower ones?

Robert Kleinhenz  Okay. And I apologize for, for overlooking that. So, what’s happened is you take a look, there’s good data out there that tell, tell us that for all intents and purposes, the higher wage occupations and workers have fully recovered their any, any job losses that occurred during the shutdown and months following. There are lingering job losses among lower wage occupations. But it’s really important to know at this point in time, that the big problem is in leisure and hospitality. So, we’re talking about restaurants and we’re also talking about the entertainment industry, as well as tourism. So, hotels and entertainment venues. The lion’s share of the jobs that we need to recover fall in that industry, that major industry leisure and hospitality if we were to give a, every restaurant worker a job tomorrow, the unemployment rate in the nation would fall from 6% to 5%. That’s how big the gap is right now. The other industries are coming back at their own pace. And, and that’s good. But when you take a look at these stories about people who that K-shape recovery, you know, the high income households have fared well and they’re doing fine. The lower income households have fared poorly. Many of those lower income households are in leisure and hospitality, so restaurants and so on, or in other services. Those are also industries that have high concentrations of small businesses. So, you here have heard throughout the last 15 months about the pain that small businesses have been going through. And so, all of those problems are really concentrated in those two industries, if we get those two industries back on their feet fully, and it’s going to take time, but once we do so those low wage workers are going to see recovery. The other piece of with all this as well, is the fact that with kids having to go home or stay at home over the last several months, at least one of the household members has had to stay at home. Many, in many cases, it’s been the female household member. So, the mom, and so this has turned out to be a she session, in the sense that many of these trends have adversely affected women more than men.

Bruce Norris  Okay.

Joey Romero  Bruce? Yeah, something came to mind is, if that’s the industry that, that you see, needs to recover the most, how did the state’s individual reactions to you know, shutdowns and closing down businesses, are certain states well, ahead of California, because we were one of the more stricter of the shutdown states?

Robert Kleinhenz  I think we need to weigh the both the health and the economic aspects of these different approaches to dealing with, you know, the health concerns associated with the pandemic. There is some some research that shows that while we may have been more restrictive, and, and have, were more restrictive for a longer period of time than some of the other states which reopened I mean, some of them reopened, at least, partially, if not much more, fully a few months ago. And here we are in California, talking about June 15, which is still two weeks off. The evidence, especially based on the research that was done on the 1918 influenza pandemic shows that the long term growth prospects for the more restrictive for those regions of the country that implemented more restrictive health protocols, the long term growth prospects are better. So, it’s important to keep that in mind. And it’s not like I’m a champion for restrictive health measures by any means or hobbling the economy. I’m just saying that it appears as though that type of outcome occurred 100 years ago. And unfortunately, or fortunately, that’s, you know, where we have to turn to learn lessons going forward, if…

Bruce Norris  We don’t have one of those every 10 years.

Robert Kleinhenz  Yeah.

Bruce Norris  Okay. So… What’s the GDP growth likely to be in 2021 do you think?

Robert Kleinhenz  2021 GDP growth is probably going to be in the high single digits. So, we’re talking about somewhere between six and a half and 8% growth this year, which would be the fastest pace that’s for all of this year. So, for the first quarter, we’ve already got a 6.4% growth rate. And for the second quarter, I think we’re looking at 11%, something like that. But the so this is going to be the fastest annual growth rate we’ve seen since the 1980s. And even next year, we’re anticipating that economic growth is going to be far above the trend that we’ve been accustomed to, which is in the neighborhood of two to two and a half percent, maybe about 5% in 2022.

Bruce Norris  Okay, so in 1983, that was the last year we had something that was in that range. Now, what’s interesting is the interest rates difference. So, Fed funds rate is a quarter percent right now. Fed funds rate back then was 10. And mortgage rates are three and they were 12. So, I guess, what’s your opinion of why that why the stark difference? It seems like, is our GDP growth forced this time rather than natural? In other words, I guess that’s, I’m trying to figure out why the big policy difference, they’re not trying to prevent inflation yet. I think they’re trying to prevent deflation.

Robert Kleinhenz  We do need to keep in mind that these programs, especially the fiscal policy effort on the part of Congress, in the White House, are generally spread out over several quarters. So, even though we’re talking about big numbers in the trillions of dollars, they are spread out over several quarters and maybe a couple of years. And so there’s no doubt that they have big impacts on the economy. But we need to keep in mind that the private sector of the economy in the United States is by far the largest sector. I mean you’ve got about 70 to 75% of economic activity, that is a spending happening just from the consumer sector alone. And then you add in the, the private business sector, which accounts for maybe 15%. So, the economic engine that we’re looking at going forward is, is going to be pulled forward by private sector spending more so than the support that’s been lent to it through these various public programs. And if we try to draw a comparison between today, and back in the 1980s, the thing we need to keep in mind is the, the history immediately preceding each of these. In the early 1980s, we had a period of time in the 1970s, there was marked by stagflation. So, there was little or no economic growth. And at the same time, we had a relatively high rates of inflation, that gave rise to what, what we economists call higher expected inflation. So, people were building higher expectations, or expectations for higher inflation into things like their, their asking wages for work, and, and so on, and so forth, you shift forward to where we are right now. And the immediate history or preceding history that we are coming out of has been one a very low inflation. In fact, it was the efforts in the 1980s on the part of the Fed Chair of Paul Volcker to stamp, to tamp those inflation expectations down, that gave rise to really the last 25 years or so of very low inflation and very low expected inflation. So, now the question is, what’s going to happen to inflation expectations over the next few months? And over the next few years? And to answer that question, we have to figure out whether or not people think that this near term bump, it’s not a spike near term bump in inflation, whether that’s going to be sustained, or if it’s going to be temporary, most of the signs are pointing to it being temporary, rather than sustained. And if that’s the case, then inflation expectations aren’t going to change a whole lot. And so, in all likelihood, inflation, you know, a year from now, is probably going to be in the low single digits, maybe in the neighborhood of two and a half to 3%. Similar to what we’ve been experiencing. That’s the high end of what we’ve been experiencing over the last several years.

Bruce Norris  That’s really interesting. So, the the elements that came about, let’s say, I mean, I was fortunate in the 70s, I got married, and when in 1970. And I owned a, I owned a home first probably in 1973. Well, that’s right at the beginning of a chart that goes straight up in price, for California real estate. And so, it’s interesting what you said the expectation was that your wages were going to go up, and your prices are going to go up. But that expectation is almost more important than the result. Is that kind of accurate?

Robert Kleinhenz  Yeah, if, if expectations get, if expectations for inflation begin to rise, then people and, so households and businesses are going to build that into their future decisions. And that can be a self sustaining problem. And in turn a self fulfilling prophecy, if you will, they will drive higher actual inflation. But in this environment, it’s very unlikely. We have a lot of slack, if we’re hearing about, you know, the lumber prices that have quadrupled, and all that kind of stuff. Again, the question is, are these temporary disruptions in the supply chain that will eventually be remedied? Or is this a sign of something that’s going to be around for a long time? And what I’m hearing is that many of the higher prices, whether we’re talking about it on the production side, or on the consumer side, many of these higher prices are due to what are probably going to be temporary problems that will eventually get worked out over time.

Joey Romero  When we’re talking about pricing in the supply chain, be it lumber, PVC, or anything else that has seen a huge increase, will these prices come back down to normal pre pandemic rates? Or will industries try to make up some of the losses or even just see it as an opportunity to keep some of this inflated rate?

Robert Kleinhenz  That’s a great question. It really depends on the presence of competition in these industries. This is this is econ 101 at its best, we take a look at the markets out there. And in many commodities markets like wood, it’s a global market. Even if they’re a hand if there are a handful of producers, they often tend to be in competition with each other. And that competition over time is likely to drive those prices back down to close to where they were before. They’re, because the presence of those other sellers is going to keep them from achieving much more than what economists call a normal markup, markup. And that, so it really depends on which industry and what kind of barriers to entry there are. And whether, whether or not those barriers to entry or the presence of other competitors is either if it’s, if there are a lot of them, then that competition, you know, drives prices back down to where they were before, plus or minus. And if they’re not a lot of them, then they, there are opportunities to hang on to more profits. So, this whole thing with a silicon chips, and automobiles, the fact of the matter is that many automakers relied on just a couple of firms to produce those silicon chips. So, those firms had a lot of so called monopoly power. And, and that also… so, I mean, you know, you so even though it’s, it’s high tech, and it’s large scale production, I think there are opportunities globally for that particular industry to respond to the shortage. And this created a huge opportunity for that to occur. It’s just a question of whether or not the automakers globally are going to, you know, look to other producers. And we’ve seen this also with airbags, right? Was it the Takata, or I forget what the name of the airbag company was that pretty much serve the majority of the automakers around the globe, and when their airbags had defects, you know, it sent the automakers looking elsewhere for other producers. So, I know I’m rambling a little bit, but you really want to look at which, at the extent to which there are lot of sellers in those industries. And if there are a lot of sellers in the industry, there’s a good chance that the prices are going to return to very close to where they were before.

Bruce Norris  What are the what are the elements are the drivers of deflation? What are the things that you say? Okay, well, like like Japan, you know, Japan, sort of a prototype of what happened for with demographics, and a lot of their efforts on lowering interest rates, you know, it’s been to basically it’s turned out to prevent deflation, but it hasn’t boosted the inflation side. So, just what are some of the elements of deflation that, that you look at and say, okay, that those are issues or they’re not issues?

Robert Kleinhenz  I think the thing that we have, right before our eyes, but we overlook all the time, as is the influence of technology and the productivity gains that arise because of technological advances, that also translate into little or no inflation, or maybe even deflate or lower prices in some areas.

Bruce Norris  Yeah.

Robert Kleinhenz  So so that’s a huge driver, if you will, behind, whether it’s deflation, or at least keeping inflation low. And that’s one of the things that I’m counting on going forward, you know, technology. Geez, we think, think back over the last 40 years, the personal computer was, you know, introduced or at least the IBM PC was introduced in 1981. And you would think, geez, we’ve, you know, seen so many technological advances over the last 40 years. But clearly, there’s still many more to come more on the software side, and on the artificial intelligence side, so on then on the hardware side, but those kinds of phenomena, and their impact on our everyday lives are also having a material impact on where prices are going. So, if you want to look for areas where prices are likely to go up, you look for scarcity. So, real estate, of course, is an area where fundamentally there’s only so much land in California, only so much land in metro areas around, around the country. So, yeah, real estate, long term is always going to be an area where there’s great potential for price appreciation. But you look at other aspects of the economy as we’re more service base and tech based information base. These are areas that are not likely to show a lot of inflation going forward, or price increases inflation is the more general term that refers to the general price level.

Bruce Norris  How do our demographics favor either inflation or deflation?

Robert Kleinhenz  I suppose. And it’s an interesting question. I think our demographic probably favor, little or no inflation. At the present time, the most important thing here is, is as opposed to population, it’s maybe, or even GDP, its GDP per capita. So, the livelihood, the well being of the individual in our country, as long as GDP or personal income per capita are on the rise, then we would expect to see consumer spending, increase the associated activity on the business side of things, all of which I would think audit temper the effects of deflation and tend to cause inflation to rise. Of course, the temporary effects of, or the sources of deflation, as I just said, are technology. So, we’ve had a long run here, where technology I think, has been instrumental in keeping prices low. I think that’s going to continue for quite some time. Now, as far as demographics are concerned, I would argue that nationally as well as statewide, we would, at some point benefit from taking a good hard look at at immigration and immigration policy, it’s been an important source, immigration has been an important source of population growth, as well as gains in our labor force and entrepreneurship. Over the last, well, who knows how long, you know, decades, if not centuries, and every 30 or 40 years? We need to re- tool, our immigration policy and I think we’re overdue for that.

Bruce Norris  Yeah, I agree. I think that’s I think that would be nice to get behind us, you know, instead of being a point of contention comes to some reasonable across the table agreement, and have a lot more people be citizens. And I don’t think anybody on like, if you say, okay, we wish all the people that were were not here legally would leave? No, you probably don’t. That’s probably a big mistake. You know. So, I understand that there has to be restrictions and entry too but we better deal with, I don’t know how many, how many people are here that are not that are here illegally? I don’t have a clue. A lot.

Robert Kleinhenz  Well, I think it’s maybe in high single digit percentage of the of this national population, I think it might be a higher percentage of the statewide population in California.

Bruce Norris  Okay.

Robert Kleinhenz  But I don’t have the exact numbers.

Bruce Norris  Yeah, that’s…

Robert Kleinhenz  But it’s clearly something that we need to address. And, you know, for every study, or every report that shows that, or that claims that immigrants are the source of all the problems that we have. There are several reports, good research that show that they make positive economic contributions, they take the jobs that Americans don’t otherwise want to take on. And they’re a huge source of entrepreneurship, which, again, you know, we have a high constant higher concentration of immigrants here in California. And many of those companies, those high flying companies, we either founded or have been operated or have had CEOs who are, who are not American, you know, born here in the United States, but our international individuals who decided to make California their home.

Bruce Norris  Great point. As far as debt levels for the country, so we’ve added a lot to the, to the debt levels. In a report that I wrote in 2017 I think, you know, I mentioned that I thought we’d have interest rates, that would start with the two and we’d get to 40 trillion in debt. So, unfortunately, it looks like both of those are going to be accurate. At what point does the debt start impeding GDP growth?

Robert Kleinhenz  I would say that the thing to look for. So, I’m not a public finance expert. So, I just want to make that clear. But the thing to look for in my observation, is the extent to which our debt service as a share of GDP…

Bruce Norris  Right.

Robert Kleinhenz  …our debt service is a component of our federal budget gets to be so large that it’s genuinely detracting from meeting the needs of the community. I mean, that’s a problem in local government when we talk about pensions, right. So, cities are having a hard time delivering public services, public safety and the like, because they’ve got such a high pension obligation to their current and future workforce. I’m sorry, their, their current and past workforce. So, they’ve got these obligations. So, I think we, if we view it through that same lens, the real concern in my view, is the fact that at some point, the sort of the service costs of carrying that debt can really interfere with the federal government’s ability to meet the needs of our of our residents and citizenry. I don’t think that’s a problem right now it can, I don’t want to say it can always print money really well, it can always go into more debt is what it can do. And just to be clear, most of that debt is held by us. It’s held by residents of the United States, whether it’s individuals or firms or the other government entities somewhere in the neighborhood of 70 or so percent of national debt is held by Americans, and about 30% is held by countries abroad.

Bruce Norris  You made an interesting point. So, did say you can always create more money and liquidity, can it always control interest rates?

Robert Kleinhenz  That’s a great question. In the 1970s, the Fed was on top of the world. And it can, at that time, it really could control interest rates, especially at the here in the in the United States. Between the 1980s and 2021, where we are right now, the world changed dramatically in a lot of ways, one of which is that the financial system became a global financial system, right. And so now the Fed can control certain key interest rates or policy rates, like the Fed funds rate that establishes a floor for, for short term rates. And but when we talk about things like the 10 year treasuries, or we talk more generally about interest rates, right now, it, it doesn’t really have the ability to control rates so much as to influence the direction of interest rates.

Bruce Norris  Okay.

Robert Kleinhenz  Because it’s one of many central banks. And it’s in a global financial market, where there’s liquidity all around the globe that is seeking return. So, the Fed can’t really control interest rates the way it used to. We’re very lucky in the United States that we continue to have the dollar, that the world views the dollar is the reserve currency.

Bruce Norris  And I’m gonna get to that question.

Robert Kleinhenz  Yeah. And…

Bruce Norris  Does that get threatened by debt levels?

Robert Kleinhenz  That’s a great question. We’re also a safe haven.

Bruce Norris  Yeah.

Robert Kleinhenz  So, so, we’ve got two aces in our hand that a lot of other countries don’t have. So, even when things aren’t going so well, for, for for the United States, if things are worse around the world, and there are heightened levels of uncertainty and money flows to the United States. So, so this issue about that national debt, I mean, I guess I should weigh in on this and say, um, I would argue that this is probably a centrist view from the economics profession. There are many different views on whether or not we should worry about the debt and the budget deficit. But I think that the idea ought to be that when the economy is doing well, the federal government ought to at least break even if not run a surplus, and work off some of that debt, pay down some of that debt, when times are bad. So, as we’ve gone through the year, 2020 and into the first part of 2021, that’s the time to engage in deficit spending, because the government does have the ability to, you know, generate spending, through borrowing that would otherwise not be possible and create a backstop to the economy when times are tough. So, I think that would that’s a way to look at both the deficit and the debt picture that I think is reasonable. So, we would never necessarily be able to totally eliminate the national debt. You know, even corporations go into debt and carry debt on their, on their books. So, it’s not like the government needs to have a totally balanced budget, nor does it necessarily be debt free. And there are a lot of reasons why the government whether it’s state, local or federal should, should run or can and should go into debt. But there should be some sense that at some point, you’re, you’re trying to manage it. From what I’ve seen, neither political party has any any interest in managing either the budget or the national debt at this point in time. Nobody seems to be interested in those things. So, that’s a cause of concern.

Bruce Norris  Yeah. Let’s start last topic, tax law changes. So, a series of things that have been brought up probably are some of them going to be enacted. So, capital gains rate going up to the highest personal rate, what do you think the impact will be of two things, on revenue, do you think it’ll actually raise tax money?

Robert Kleinhenz  Yeah, I, again, I’m not a government finance or a tax expert. I, I tend not to assess, proposed, proposed policy changes until there’s a really clear sense that they’re going to happen.

Bruce Norris  Okay.

Robert Kleinhenz  And…

Bruce Norris  …the reason why, you know, as a real estate investor when you’re thinking, like 1031 exchanges, they’re talking about getting rid of that.

Robert Kleinhenz  Yeah.

Bruce Norris  Well, that would be a big, a big change.

Robert Kleinhenz  I think when I look at it from the perspective of the last round of tax changes at the federal level, the 2017 tax changes in the tax code and so on. The coastal states, the high cost coastal states, in my view, were adversely affected by the limitation on state and local taxes and mortgage interest deductibility. So, these kinds of changes in time do have an impact, an impact on investor decisions. There’s no doubt about it as they pivot and try to figure out a way to continue to protect their gains. So, an increase in the capital gains tax is going to lead people to look for other ways to shelter their income, there’s no doubt about it. There may be an interest in figuring out ways, internationally to, to circumvent some of these, but I just feel like this is not my forte, Bruce. So, I can talk in general terms, but…

Bruce Norris  No, that’s. fine. No, that’s okay. One, one last question about taxes. There’s been bandied around California, and at the US level about net worth tax every year. Do you have a let’s just say that something like that was implemented in California? What do you think the ramifications would be for that?

Robert Kleinhenz  Yeah, I think that the these kinds of measures are better addressed at the national level, so that it can create a even less even playing field if California implements a net wealth tax, net worth tax, and that doesn’t show up elsewhere. So we hear these high profile individuals who are leaving California, because they’re seeking to avoid the high taxes of California. And mind you, when you take a look at the migration numbers, because there’s still migration state to state, the people who are moving to California tend to be high income, well educated people right. So it’s not exactly a deterrent. The a couple of things that I think I just want to mention, one, for the state of California, we kind of need to have a total overhaul of our tax, tax code, property tax, income tax, state and local tax. It’s, it’s just not working very well. And we’ve got all these different patches, but we’re not really, I would argue looking at an edit. Oh, and we also need to overhaul maybe our Sequa to make that less of a deterrent to real estate production.

Bruce Norris  Yeah.

Robert Kleinhenz  So, that’s, you know, that’s that’s one thing. Yeah, thanks. But in order to increase housing production in a material way, here in California, I think we’re gonna have to address some of that. But the other thing that I wanted to mention is that, you know, we have seen over the last 30 or 40 years, a shifting of the distribution of income toward, you know, a higher concentration of higher income of income as well as wealth in the hands of smaller number of higher income individuals. A lot of it has to do with what we talked about earlier that the upheaval that’s brought on by changes due to technology. So, when you have upheaval, driven by technological changes, whether it has we’re talking about the 21st century, we’re talking about the early 20th century, capital tends to be the area that benefits the most so investors and business people and so on. I think that’s what’s happening here, and has been happening for the last 20 or 30 years, at least. Now, I think, you know, there’s an argument to be made to figure out a way to rebalance the distribution of income a little bit. Maybe rebalanced isn’t the word, but to shift it a little bit, but I, again, I’m not a tax expert, so I can’t claim to have answers to that I just see the symptom which is…

Bruce Norris  The society impact, I understand that I really do. I had the privilege of meeting with the CEO of Fannie Mae in Washington DC, this last week, and the goal was to have him contemplate a nothing down loan program for first time buyers, because that’s one of the ways you get, you feel like you’re part of the part of the game, you know, owning your own home is a big deal, at least it was to me. And so, you know, gave him a program that I think wouldn’t create foreclosures and would be beneficial in reaching across the aisle to the people that don’t feel like they have a stake in the game. And I think that would be a good program.

Robert Kleinhenz  I, I hear what you’re saying. And I agree with you that, you know, despite what we have read for many years that millennials are different from their parents in terms of their buying habits and their preferences, and they may not be so inclined to become owners, they may want to rent through their entire lives, they may never want to move out to the suburbs. Well, all of those conjectures, I think are proving to be wrong. As millennials move into the life, portion of their lives where they’re having, they’re making, they’re having union. So, we’ll not necessarily talk about getting married, but having unions having kids, they need space, they’re moving to the suburbs, and they want to go to places where the schools are going to be good in the interest of their kids. So, they’re, they’re behaving a lot like previous generations behaved. And, and so I don’t think there are any surprises. The thing about first time homebuyer support that concerns me is that and this is not just for the state, but nationally, if we’re already dealing with huge housing, shortfalls of supply relative to demand, this is just going to exacerbate the problem. So, I think it’s a laudable effort. We really need to be looking at the other side of the market, not propping up, not trying to drive demand higher, or create opportunities. I mean, the idea is to create opportunities for first time homebuyers that wouldn’t otherwise be there. That’s, that’s a great idea. But Holy cow, and I know, Fannie Mae is not really in a position to change this a whole lot but we really need to build more housing when you increase that supply. And it’s evidence. The, the peak, most significant piece of evidence is that we see these high home prices.

Bruce Norris  Absolutely.

Robert Kleinhenz 

Rising home prices.

Bruce Norris  Well, it’s interesting, what you just said that there’s a chart that I paid attention to because of what was available from Cal Poly, they always charted the price of a new home versus existing home. And they only have inverted four times, ’80, ’89, ’05 and December of 2020. For the existing home price was more than the new. And that’s because of what you just said the demand is so high it can’t it can’t land as often on a new home.

Robert Kleinhenz  Yeah.

Bruce Norris  It’s landing on an existing one, and prices just took off. So, Robert, I have enjoyed this very much.

Robert Kleinhenz  It’s great to see you, Bruce.

Bruce Norris  All right.

Robert Kleinhenz  Say hi to Aaron as well. And thanks for running the show. Joey it’s good to see you. Good luck to you guys.

Bruce Norris  Okay, all right.

Robert Kleinhenz  Take care bye bye.

Narrator  For more information on hard money, loans and upcoming events with The Norris Group, check out For information on passive investing with trust deeds, visit

Aaron Norris  The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go and click the Hard Money tab.




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