Last updated: March 22, 2020
by Nick Gromicko, CMI®
The North American home inspection industry is made up of only about 30,000 inspectors in the U.S. and Canada (nearly 25,000 of whom are members of InterNACHI®), and most of you are about to get swamped with home inspection jobs. Start preparing now for the upcoming boom. I'll explain what is happening with this global coronavirus pandemic, what is going to happen economically, and what home inspectors should do now to succeed.
But first, some economics: Every bubble finds a pin. The coronavirus is merely the pin that popped the U.S. debt bubble. We need not focus too much on the pin. Let's begin by focusing on the bubble.
Digital wealth is wealth on paper or online. Examples of digital wealth include bank accounts, stocks, bonds, 401Ks and ETFs. Digital wealth preservation is dependent on third parties fulfilling their obligations.
When you have money in a bank... you actually don’t. You’ve loaned the bank your money. Your bank statement isn’t an accounting of how much money you have, but, rather, how much money you’ve loaned your bank. The bank is obligated to repay you your money upon request, and perhaps pay you a little interest for allowing them to borrow it. You are relying on your bank to fulfill its obligations, and the risk of them failing to do so is the counter-party risk. You can’t physically touch your money at the bank, so, therefore, it is digital wealth and it's exposed to this counter-party risk.
Dollars are notes. Notes are promises to pay. In the case of U.S. dollars, the Federal Reserve issues these notes, and if you have some in your wallet, you have a promise from the Federal Reserve to pay you for those notes. Guess what they pay you with? Other notes. The U.S. dollar is no longer backed by gold. Today's dollar is simply a written promise that entitles you to exchange it for other promises. You have the right to exchange two $10 bills for a $20 bill or a $100 bill for ten $10 dollar bills, or whatever. They are only paper notes, as is all fiat currency. The U.S. dollar is actually referred to as a "note" on the front of the dollar itself, twice. Pull a dollar out of your wallet or purse and look at it closely. See?
Not only are dollars just paper promises (notes), they lose purchasing power over time. Those $100 bills stuffed under your mattress lose purchasing power every minute. In my lifetime (I was born in 1962), everything has gone up in price about tenfold.
Here are the costs of a few common items sold in 1962:
Nowadays, everything costs about ten times as much as it did in 1962. That means that, since I was born, the dollar has lost 90% of its purchasing power. Read my article about Motel 6 for more information about purchasing power.
Since 1919, everything has gone up almost a hundredfold. For example, a loaf of bread in 1919 cost 4¢. That means that in the past 100 years, the U.S. dollar has lost 99% of its purchasing power... and, yes, it will ultimately lose all of it and go to zero. All fiat currency in human history eventually goes to zero. Why? Because of printing. And the Federal Reserve is currently printing a lot of money. Now, they say it is to counter the economic effects of the virus. But, actually, the virus is just providing cover for the real reason they are creating so much money: They have to in order to cover our increasing debt.
Printing money causes inflation. There are only so many $100 bills in the world. Every time the Federal Reserve prints another one (or creates $100 digitally), the purchasing power or value of every other $100 bill goes down. "Purchasing power is going down" is just another way of saying "Prices are going up." But prices going up isn't inflation. It is the result of inflation – the inflating of our money supply.
Right now, everyone wants or needs money. American families want to be bailed out. Airlines want to be bailed out. The state of California wants to be bailed out. And each day that any of them earns less revenue, the more they look to the federal government (run by politicians) to replace that lost revenue. Disgruntled home buyers often complain that it isn't their fault that a drain in their home got clogged, and they want to know how they can be made whole since it wasn't their fault. Americans seem to think that if they suffer damages through no fault of their own, someone else must owe them.
There is a problem with this mindset, though. The U.S. government has no money. It is trillions of dollars in debt. How is this possible? How is it that after our longest bull economy in our nation's history, we now have no reserves saved up? The reason is our debt service. We have to service an enormous debt. Again, it's not the virus, it's the debt. Visit the Debt Clock here.
After the 9/11 attacks, the U.S. borrowed $7 trillion and wasted it on attacking, invading, and occupying the wrong two countries when they waged America's longest two wars in our history on Afghanistan and Iraq. That $7 trillion is a third of all debt we had run up since George Washington was president – all spent on two countries that had nothing to do with 9/11. We must never forget that not a single 9/11 hijacker, mastermind, or financier was Afghan or Iraqi... not one.
Now, as the founder of InterNACHI®, I'd love to be able to set the minimum price of a home inspection at $1,000 for the entire industry. But price-fixing is illegal. The Federal Reserve, however, fixes the cost of money all the time. They set interest rates for all of us. They do this because if interest rates were allowed to float, they'd rise, and we'd all have savings earning interest (which would be great). But the government wouldn't be able to service their debt and the U.S. would have to default again.
The U.S. defaulted once before when it went off the gold standard. The "notes" I discussed earlier used to be redeemable for physical gold. But then, in 1971, President Nixon announced that we would no longer honor those obligations. And this meant that politicians could spend even more money.
Now we're defaulting again. But instead of defaulting honestly by telling the Chinese government that we simply aren't ever going to pay them back, we're defaulting by paying them back with dollars that are worth much less. Worth much less because we've created so many more of them... out of thin air.
China recently figured out how dumb they've been for loaning us money to use to buy their hard goods and has stopped lending us money altogether. They finally wised up. So, where is the money for the bailouts coming from? Tax revenue is certainly going down. Answer: The Federal Reserve is simply going to print it. The last thing we need is more cheap money, but that's what we're going to get. There is a silver lining for inspectors, though, and here is how this helps inspectors.
Let's first discuss why more people will want to sell their homes:
Some industries, like toilet paper manufacturers, don't enjoy pent-up demand. People aren't holding back bowel movements until the virus pandemic ends. So, when it finally does end, there isn't going to be an increased demand for toilet paper. Americans may be hoarding toilet paper now, but they aren't going to need more in the future.
To illustrate: I usually eat out at my favorite restaurant on Friday night. My favorite restaurant is currently closed. When it re-opens, I'm not going to eat two entrees each Friday night to make up for not dining out now. Their lost revenue is lost forever.
The inspection industry is different than the toilet paper manufacturing and restaurant industries. The inspection industry enjoys pent-up demand. Many homeowners simply aren't going to list their homes and have strangers coming in and out of them until the risk of contracting the virus from those visitors has ended.
Furthermore, there are these the "stay-at-home" orders. It doesn't much matter that home inspectors are exempt because home inspections are an "essential service" (because we find safety and health issues). The orders prevent real estate transactions from occurring. These real estate transactions will eventually happen, though. This is the first reason we are going to have high demand for inspections after this pandemic is over. We have an ever-growing, pent-up demand.
With all the shut-down orders, it feels as if our industry's health is correlated directly to the health of the economy. It is not. I mean no disrespect to those whose health or finances have been negatively affected by the virus when I say this: The inspection industry thrives on disruption. Disruption ultimately increases the number of real estate transactions, which, in turn, increases the demand for home inspections.
So, you may be asking why this particular economic disruption will increase the number of real estate transactions. There are many reasons:
These are the four reasons people are going to sell: They wanted to earlier but waited, they have to move for a job, they need to downsize, or they die.
Now, let's discuss reasons why more people will want to buy homes:
But we aren't done yet. Let's throw the federal government and Federal Reserve into the mix. You'll note that I refer to them as two different things because the Federal Reserve is not part of our government. The federal government doesn't need postage. But I once got a reply from a letter that I wrote to the Federal Reserve and it came with a stamp on the envelope.
So, how are the federal government and Federal Reserve helping increase demand for inspections?
The stars are basically aligning for home inspectors. I predict that so many homes will be sold that housing inventories will dry up to the point that desperate buyers will be paying well over appraised values and even waiving inspections in an effort to make their offers more attractive.
Here are four ways you can respond to the forthcoming increase in demand:
But until this boom hits, here are some things you can do right now. Treat your inspection business like a real job. Every night, set your alarm clock, and when it rings in the morning, get up and go to work, even if you don't have an inspection scheduled.
But what can you do when you don't have an inspection scheduled? Here are some things you can do to help your company and yourself.
We're coming up on the best seasons our industry has ever enjoyed. I'm looking forward to them, and so should you.