Is Real Estate Really That Expensive?

Dear Reader,

Record-low mortgage rates and shortage of inventory are keeping the US housing market strong. Prices have been surging month-over-month breaking new records — even during the pandemic. 

The question is, has the value of real estate really gone up that much? Has your home’s value really increased 20% over the last year? 

In a recent interview on The Rich Dad Radio Show, I asked Jason Hartman, CEO of Hartman Media Company this very question. 

We first have to distinguish the difference between something’s price and something’s value…

Price Vs. Value

First, you have to stop measuring value with the dollar. The dollar can’t tell you what the true value is because, as I’ve been saying for years, the dollar is fake. 

When people ask me “how high will gold go?” the answer they are expecting is in terms of dollars. If I said, for example, gold is going to one million dollars an ounce, most people would run out and buy all the gold they could. But those same people might not run as fast if I said, but a cup of coffee is going to cost a billion dollars. 

Under those conditions, people would sell their gold while it was still worth something. 

The true value of something is the only way to tell whether an asset is overvalued or undervalued.

Since 1921, the value of certain assets has been calculated by the Consumer Price Index. Because the health of the economy directly affects the value of investments, economists have devised several different measurements to gauge it. 

The Problem With the CPI

The CPI looks at the economy from the consumer’s point of view. Every month, the U.S. Bureau of Labor Statistics records the prices of 80,000 different goods and services typically used by Americans. 

Among the prices tracked are those for housing, food, clothing, transportation, health care, education, and recreation. The CPI is the most widely used indicator of inflation and is the basis for calculating increases in such things as Social Security payments. Unfortunately, this number is manipulated.

The method by which the CPI is calculated has undergone many revisions over the years. Critics view these changes as purposeful manipulation so that the government can report a lower CPI. 

Manipulation is not new to our world. Everything is manipulated these days. We’re always trying to figure out the truth behind something, or what’s real. It is nearly impossible because everything is so fake. Everything is a scam.

And it’s not only what’s real or what’s fake, it’s what can you say without getting taken off of certain platforms? What else is Facebook, Twitter, YouTube, and others going to censor? And what will they allow? That is why Jason Hartman is so important in today’s world. 

Jason created the Hartman Comparison Index (HCI). Jason and his HCI’s mission is to determine a true value even in a world that’s highly manipulated and censored. 

Big tech companies are censoring everybody. You can’t speak the truth anymore. It’s like George Orwell’s book 1984. It’s a very discouraging time and very disconcerting in many ways. 

The Power of True Data

Without true data, communism and socialism have been a disaster every time in history and in every place on earth. They did not have the data of accurate price signals.

Price signals contain a wealth of data in them. Every commodity in the market, whether it be a good or a service, has a price. That price is determined, ideally, by a free market, or in our case, a relatively free market.

When Jason uses price signals and all the data they have behind them, he can then compare that index to real estate prices.

Commodities, unlike dollars, have intrinsic value. They are meaningful regardless of any currency. By comparing real estate prices to gold, bitcoin, oil, rice, orange juice, shares of the S&P 500, copper, air travel, college tuition, sugar, cocoa, going all the way back to 1970, we can get a more complete understanding of where the market is now.

If the numbers are accurate, Jason’s HCI can potentially mitigate any downside risk and inform the user of possible upside potentials.

When Kim and I first started investing we measured the value of rent by asking if you’re living in your house, what would you charge yourself rent for? That’s how we got the rental value.

When we bought our first house together. Kim had to go to our silver depository because we didn’t have a dollar. We were buying a home in Portland, Oregon, and the bank said they needed $23,000 now, quick. Because our credit was so bad we had to jump on this. So, we took the silver bars in grocery bags to the precious metals dealer down the street and got our $23,000.

Everyone around us said it was a good idea because real estate prices always go up. 

Of course, that’s not true. But I still hear it all the time. That is why I like the concept of this index. 

Right now, everyone is saying the real estate prices are through the roof. But Jason’s HCI says maybe they are not. When the HCI compares real estate to real goods and services we can see exactly where real estate stands. 

Not opinions, data.

By comparing the price of real estate to this basket of commodities and services, you can determine a lot by it. 

Let’s take gold, for example…

Good as Gold

If you go back to 1970, when we were still on the gold standard before Nixon took us off it, the median price house was approximately $22,000.

Back then gold was $35. So, if you wanted to buy the median-priced house in gold, it would take 646 ounces of gold (22,000/35). Today, the median house price is about $348,000, give or take, depending on what index you’re listening to. 

Gold is almost $1,800. So today to buy that house, it would only take 194 ounces of gold (348,000/1,800).

In other words, the “value” of a house today is less than a third the price it was in 1970. It’s cheaper, priced in gold.

What does this mean for the “average” person? What can she do with this information? When we ask Jason these questions, he responded with the following:

There are two things that value everything on earth, scarcity, and utility. If something is scarce, it’s going to have more value. And if something is useful, it’s going to have more value. So, gold is scarce and it does have value in the sense that it’s been considered money for 5,000 years. So, if you stored your wealth in gold, rather than dollars, you would have been better off during this time because the purchasing power of the dollar, has declined dramatically and gold hasn’t.

With the knowledge from my HCI we can conclude that it is cheaper to buy a house in gold today, but more expensive to buy it in dollars. That informs that question. How should you store your wealth? The other question it informs is, what’s next for the market? Is the market too expensive? Well, if you only think of things in dollars, then yeah, you’re going to say, hey, it looks pretty expensive. But if you think of things compared to a whole variety of other commodities, you might say it’s cheap. It depends on the commodity you’re comparing to.

So what’s all this mean for us? For one thing, it means you shouldn’t avoid a good real estate investment today, simply because the headlines say it’s “too expensive.”

Play it smart,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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