The Home Affordability Crisis Is Breaking America

0:00Hello, everyone. Home affordability is affecting everything in society, from monetary policy, to financial markets and politics. Warren Buffett's going to cap off his generational run as one of the best investors ever. And Milton Friedman, he explains how to use economic policy to generate success for all American citizens. We are live today from the desk of Anthony Pompliano.

0:30Before we get into today's episode, I need your help to get to my goal of 1 million subscribers on YouTube. The people are saying we can't get there, but together with your help, we will. We have 37 ,847 of you today. Hit the subscribe button and let's get into today's show. All right, ladies and gentlemen, the home affordability crisis is having a ripple effect across American politics, financial markets, and society at large. This issue is going to be one of the most important things for you and I as investors to pay attention to over the next decade. First, home affordability is definitely impacting central bank monetary policy.

1:04This summer, when Jerome Powell was getting grilled, he said the best thing we can do for the housing market is to restore price stability. Take a listen. So I think there are two things going on quickly. One is just there's a longer run shortage of housing in the United States, which there's nothing that the Fed can do about. That's not something we can affect. There's also, if I may say, in the short run, rates are high and that's going to weigh on housing activity. But the best thing we can do for the housing market, the absolute best thing is to restore price stability so that rates come down and so that rates can be at a level of people can afford.

1:39But don't you think the restrictive monetary policy, the framework you all put together, undermines long-term price stability right now by reducing the supply? No, I mean, I think it restores price stability. The point of higher rates is to... So you don't think the higher rates is impacting future supply of housing? So I think what that does is I think interest-sensitive sectors like housing are very much directly affected when we cut rates or when we raise rates. That's right. But that's part of the mechanism for restoring general price stability. Now, while Powell's comments are true, inflation stabilizing would have a positive impact on housing.

2:14The current administration believes that the artificially high interest rates that we have right now, they're also contributing to an erosion of home affordability. Think about it for a second. It makes sense. If interest rates are high, mortgage rates are high. If mortgage rates are high, fewer people can afford to own a home. This isn't really that hard. This position from the Trump administration has led to a very public pressure campaign from the president, Treasury Secretary Scott Besson, and Federal Housing Director Bill Pulte. And what do they want? They want to get rates lower. Now, Jerome Powell and the Fed, they claim that they do not succumb to pressure campaigns.

2:47But if you remember, the Fed started cutting rates within weeks of the public pressure ramping up over the summer. So could that be a coincidence? Sure, of course it could be. Do I think the lack of home affordability in America is influencing Fed monetary policy? Absolutely. And anyone who thinks it's not, I don't know what to tell you. But home affordability is not only affecting monetary policy. We see in financial markets that companies in the real estate market have done very well because investors are placing bets on various companies' ability to solve the housing crisis. There's a big problem.

3:17Those who solve it should get the economic reward. Take Opendoor as one example. Retail investors have flocked to that stock and they went activist on the old management team. They told him, you suck, you're out of here. The CEO stepped down shortly after the activist campaign started. The company then hired the former CEO of Shopify and Opendoor is now going through a significant transition from an investment company to a software company. These various changes have led to the company's stock price going from around 50 cents a share, which was the low of this year, to the closing price of$9.37 per share yesterday.

3:50That's a huge jump. Now, can Opendoor increase access to home ownership? We're going to find out. But I personally became an investor in that company this year, and I am genuinely proud to have my investment dollars helping to fund a company, a company that is focused on helping more Americans own a home. It feels good to have your investment dollars working towards such a noble cause. And I suspect that there are many others like me in financial markets who want to see the problem solved and are happy to put their money to work and contribute. Now, this is an interesting dichotomy from the performance of various home builders.

4:20Lenar is down 0.2 % year to date. It's basically flat. DR Horton's up only 6%. And NVR is down nearly 9 % in the same timeframe. Pulte Group is one of the rare standouts. They're up nearly 13 % this year. So as I mentioned at the start, the housing market is having an impact everywhere. It touches on technology, tariffs, and monetary policy. It is a complex market and it will create lots of mispricings over time. Investors are trying to figure out who can actually create value over the long run and who can't. Who can solve this problem? But nowhere is housing having a bigger impact than in American politics.

4:54We saw Zoran Mamdani get elected New York City mayor. He was openly running as a socialist who promised free buses, rent freezes, and government-run grocery stores. All really bad ideas, but he still won. President Trump and his administration have floated the idea of a 50-year mortgage to help alleviate the financial pressures that are preventing young people from buying a home. And federal housing director Bill Pulte told me last week in a public interview that U.S. homebuilders need to build more homes, or the United States government may start peeking around, taking a deeper look at what federal dollars are flowing to those companies.

5:25So on the left, on the right, and the independents, it's all coming back to home affordability. Monetary policy, financial markets, and politics. Everywhere you look, home affordability is driving part of the story. So how do we fix this? What exactly is the solution? Well, you build more housing. Yes, it is really that simple. It doesn't even matter what type of housing you build. You can build affordable housing and the increased supply will drive down the cost of affordable housing. Not that hard. More supply means lower prices. That's economics 101. But recent studies show that building luxury apartments also drive down housing costs in a city even for affordable housing.

6:04The Upjohn Institute writes, in cities with tight housing markets, policymakers have struggled to help lower income residents afford homes. New research shows that building new housing, even expensive housing, can quickly drive down housing costs across metro areas, including in low-income neighborhoods. Building housing sets off a process called a migration chain. Migration chain, you're gonna need to pay attention to that. People leave their homes to move into new units. When people vacate a given type of unit, it loosens the market for that type of a unit, and that lowers prices. Other people then move into the newly vacant home, and that leaves their previous unit vacant and the process repeats itself again and again and again.

6:44The migration chain. So what is my big takeaway from all of this? The first principle solution to numerous issues and complexities in American society is to simply build more housing. It will positively impact monetary policy, financial markets, and politics. We need the home builders building homes and we need the government deregulating. More housing pushes us back towards the American dream. More housing increases adoption of capitalism and democracy. and more housing helps American families get closer to the financial security that they are all so passionately chasing. Warren Buffett, CEO of Berkshire Hathaway, he published his final letter this week and there's no other way to put it.

7:23He is one of the greatest investors to ever do it. One of the goats. His average annual return is 20 % since 1965. That's nearly double the S &P's average return over the same 60 year timeframe. 20 % a year for 60 years. Like I said, one of the goats. If you had invested$18 with Buffett when he started, it would have grown to$750 ,000 by 2025. That's a return of more than 5.5 million percent. $18 into$750 ,000. Now, Buffett's got a very, very complex life. There's a lot of things that he made and personal decisions that I disagree with. But his investing track record is one of the best ever. And honestly, I think that young people can learn a lot from Buffett, mainly because not only did he have a great investing track record, but he also documented his view of the world.

8:10The timeless investing principles that made him one of the GOATs, you can read them everywhere. I personally, I've got a bust of him right here on this bookshelf. On top of that, this is one of the 60-year commemorative editions actually looking at Berkshire and how it was built. Phil Rosen went to the annual meeting and got that for me. On top of it, many people may not have ever taken the time to do this, but this is 50 years of the Berkshire Hathaway letter to shareholders. If you sit and you read this book, you're gonna learn a lot. not only about how the world works, but also how to invest.

8:40So whether you think that Warren Buffett lost his touch, if you question why he's retiring, the guy's 90 something years old. Let him enjoy the fruits of his labor. He became a multi-billionaire. He built a trillion dollar company and he did it all by simply using his brain. I wish more people understood that investing via timeless investing principles, there is a path there. You don't have to go gamble in the market. You don't have to simply go and watch sports and try to figure out how to hit a triple parlay. You can simply do the simple stuff, do it really well, do it for a long time, and you too can get to a life of wealth.

9:13Buffett's a great example, and I hope that more people emulate many of the principles that he taught in all of his writing. Most of you know, I'm not a big fan of economists. I tend to think they don't have skin in the game, they're very academic, and frankly, their worldview is very wrong. But Milton Friedman is different. I think he's one of the smartest people out there when thinking about financial markets and economics, and there are so many interviews of Milton talking about what actually can create success. Here's one of my favorites, him talking about the recipe for economic policy and how to create success for American citizens.

9:43What measures should the government take to try to restore economic health to the United States? And I have very little doubt about what the major measure is there. But let me say first, you're not gonna do it overnight. We've gotten into our present pickle because of three decades of mismanagement of the economy. And we're not gonna get out of it in six months. but what you have to do is number one you have to move to cut down government spending to hold down the rate of growth of government spending in dollars and to cut it in terms of purchasing power number two you have to have a restrained monetary policy not a shock treatment not an over not a real cut in the quantity of money but to hold down and have a gradual reduction in the rate of monetary growth.

10:31Number three, you have to eliminate as many of the regulations that now bedevil the economy as you possibly can. The most important area there is the energy area. We have created the energy mess because of governmental intervention. The most effective measure we could take for both foreign policy and domestic policy would be to get rid of the Department of Energy to get rid of this mislabeled windfall profits tax, to let the private enterprise economy go to work. So there you have it. Cut taxes and regulations to much lower levels. Keep the money supply growth nearly zero and have stable monetary policy.

11:11And of course, cut federal spending, including the Departments of Education and Energy. Milton Friedman understood free markets should rule the day. The more the government gets involved, the worse off the people are. And so if we can stop jacking up the federal debt, we can stop growing the money supply, we could simply allow the free market to go to work. It's better for you. It's better for me. It's better for the American economy. That's it for today. Thank you guys so much for watching. Remember, we have 37 ,847 subscribers. With your help, we'll add one more. Hit the subscribe button and I'll see you guys live tomorrow from the desk of Anthony Pompliano.