The Norris Group Real Estate Podcast

Interest Rates, Debt, and Housing with Christopher Thornberg | Part 2 #949

• The Norris Group, Craig Evans

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In Part 2, Bruce Norris and economist Christopher Thornberg examine interest rates through a historical lens and discuss how inflation, political narratives, and global economics shape today’s market. They also explore the role of artificial intelligence, weighing its potential benefits against societal risks, and emphasize the importance of adapting through education and workforce training. 


Christopher Thornberg, Ph.D. is a nationally recognized economist and public speaker, best known for accurately forecasting the 2007 housing crash. He is the Founder of Beacon Economics, one of California’s leading economic research firms, and a trusted advisor to governments, businesses, and financial institutions nationwide. Dr. Thornberg is a frequent media commentator and a contributor to major economic outlooks, offering data-driven insights on real estate, labor markets, and economic policy. 


In this episode:

  • A historical look at interest rates and why another increase could pressure real estate markets.
  • How inflation, politics, and populism influence economic stability.
  • The reality of the U.S. dollar’s global currency status and why it remains the safest refuge for capital.
  • A balanced discussion on artificial intelligence — opportunity versus unintended consequences.
  • Why education and adaptation are critical as technology reshapes the economy.


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 www.thenorrisgroup.com and click the Hard Money tab.


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Narrator:

Welcome to The Norris Group real estate podcast, a show committed to bringing you insights from thought leaders shaping the real estate industry. In each episode, we'll dive into conversations with industry experts and local insiders, all aimed at helping you thrive in an ever-changing real estate market. continuing the legacy that Bruce Norris created, sharing valuable knowledge, and empowering you on your real estate journey. Whether you're a seasoned pro or a newcomer, this is your go-to source for insider tips, market trends and success strategies. Here's your host, Craig Evans.

Joey Romero:

Welcome back to part two of our interview with Chris Thornberg, founding partner of Beacon Economics. Let's get to it. Hope you enjoy.

Bruce Norris:

Well, what's really interesting about what you're saying is the timing of that is very different than between '74 and '80 because of the level of debt that already exists, as opposed to what it was back then, because interest rates doubled in that six year period. And you remember what happened to real estate prices in California? They went from 35 grand to 105 your interest tripled, I'm sorry, your interest doubled. Your your price of your houses tripled, and it was ridiculous. So, you didn't even have a downturn in in real estate, but you did end up having massive unemployment and your payment, of course, if you bought in 1980, which I did at 17 and a half percent.

Christopher Thornberg:

Right.

Bruce Norris:

It was crazy. So...

Christopher Thornberg:

Yeah.

Bruce Norris:

Okay, but we don't have room for that. We don't have room for an 8% mortgage rate at our current median price, right? There's no place to put that dollar. So okay, so let's play that out. Let's say we get an 8% mortgage. What do you see for real estate?

Christopher Thornberg:

How about a 9% or 10%?

Bruce Norris:

Yeah, yeah.

Christopher Thornberg:

I absolutely. Well, at some point in time, interest rates become so high that rate prices, well, I don't sure they're going to come down. I could see the market...

Bruce Norris:

What you just said is, think about what the guy that has the 3% mortgage fees now that the mortgage is 6, I got a deal that 6% mortgage will feel like that at then.

Christopher Thornberg:

Yeah.

Bruce Norris:

And I don't know that anybody will put their house up for sale unless it's an urgent something.

Christopher Thornberg:

Yeah, exactly.

Bruce Norris:

Yeah. You may...

Christopher Thornberg:

And, and, yeah...

Bruce Norris:

...numbers, okay, a balance, but it won't be a, it'll be 100,000 sales instead of 250.

Christopher Thornberg:

Yeah.

Bruce Norris:

Wow.

Christopher Thornberg:

You got it. So, yeah, and so this is what I'm worried about. This is the scenario. And this is where the hits gonna come from. It's, it's, I believe there's a whole other interest rate increase in front of us. And, yeah, and again, all this boils down to where we are as a nation because same with you all about the 70s and 80s, I still think that people were hopeful. I think they appreciated the gains in life. I get 70s were rough. I get that we had to deal with disco was awful. That said we still had, if you will, I think a collective sense of things are going to get better, right?

Bruce Norris:

Well, in the 70s and 80s, your wages went up. You know, what's interesting about that? Because I've done the math of that. I was fortunate enough to get access to data breaking down the cost to build a home from 1970 to 1980 every labor part, every like plumber supply. Yeah, it's fantastic. Now, what was really interesting, as I took that, I'll send you those charts. You would love them.

Christopher Thornberg:

Yeah.

Bruce Norris:

so you go out and, okay, the cost of the labor went up 120% let's say your plumber was five, and now he's 12, or something like that. Well, you know what happened to his buying power? It was 75% of what it was in '70 he got all those raises, and his net was not a gain in purchasing power, it was a loss. So, here's, our problem is that we don't have room for that to be negative right now. So a 10% mortgage rate from here would be devastating, because there's no place to put that, nowhere.

Christopher Thornberg:

Yeah. Well, again, I think that people are better off now in a lot of different ways than we're in the 70s. I think gay real incomes are much, much higher. Quality of life is much, much higher from my perspective. Again, I'm going to push back because you have you continue to go back to whatever called the standard newspaper conversation argument, which is that somehow or the American households today are struggling, when they're not. It's as simple as that. Again, we are in a period of time in which consumption at every level of the economy is at an all time high level. And that's the measured stuff. It doesn't include the unmeasured stuff. In the 1970s you couldn't get on a FaceTime call with your grandma on the other coast. You had to make a long distance phone call or write a, you remember this, a letter, and then you had to wait a week to a week and a half to get a reply letter.

Bruce Norris:

Right.

Christopher Thornberg:

And you had to buy these things called stamps to send those things. You couldn't do it in email. You couldn't simply order something from Amazon and have it on your doorstep the following morning at 5am but we live in a world that people in the 1970s and'80s could could only dream of in terms of convenience and consumption, we had to watch commercials, Bruce, remember those things?

Bruce Norris:

That's right. We didn't have to put skip.

Christopher Thornberg:

Yeah. You know, actually, my kids actually watch a TV show now on some network, and they'll just sit there and look at me, like, what are these commercial things? Why do we have to watch these? And I'm like, suffer kid I had to live through, you can too. But it's true, but, but we are so wrapped up in this weird idea that we're struggling and suffering and people, are starving in the streets. I've never heard anything like it.

Bruce Norris:

What I meant is, if you gave us a 10 percent mortgage rate...

Christopher Thornberg:

Oh, yeah.

Bruce Norris:

That's what I meant, nothing well, but that would begin some problems.

Christopher Thornberg:

Oh, it would create huge problems, and it would be all of the reset in the real estate market. And this one could actually bring cause prices to come down, at least in real terms, not nominal, but real terms, they probably will come down. It's worth noting that, yes, real estate prices went up in the 70s, but if you controlled for inflation, they actually went down.

Bruce Norris:

That's right, it's...

Christopher Thornberg:

...and so that's yeah, that's part of the conversation. You got to keep in mind, in an inflationary environment, yeah, yeah, no, no. And, and, of course, remember that once that kind of inflation surge kicks in, those interest rate premiums stay up for a long time. So even after you get rid of the inflation, well, think how long mortgage rates were inflated?

Bruce Norris:

A long time.

Christopher Thornberg:

Past that point in time, a long time. So there are long run consequences to what I'm talking about here. But to me, I think economically, the reality is, we can. We can survive it. We can manage as a nation. People can tighten their belts a bit. Maybe they could spend a little less here and there, and more or less, we can get through this. That's not the problem. The problem is, is that people think they can't.

Bruce Norris:

Okay.

Christopher Thornberg:

And it's the politics that worry me more than anything else. Look what's happening in both political parties right now, the populism that infected both parties and are making both parties, I mean, Looney Tunes is the only way of putting it. This, this constant, non stop rhetoric of everything's terrible, and it's all the other guys fault because they're evil.

Bruce Norris:

Right.

Christopher Thornberg:

That is that populism that is driven by these false stories of decline, and when we are forced to tighten our belts because of basic economic realities, my fear is how that plays out from a political standpoint. I mean, who do we elect next, and what are they going to tell us that we want to hear?

Bruce Norris:

Yeah, that we want to hear that we really shouldn't hear, yeah.

Christopher Thornberg:

Yeah, because bad people come to power during these kind of crises.

Bruce Norris:

That's right.

Christopher Thornberg:

And it's the kind of thing that we as a nation, you know, we like to think we're above that, we're not.

Bruce Norris:

You know, I had a moment when I was at a game, a baseball game. It was after 911 and national anthem began, and 45,000 people stood and sang. And I was like, Whoa.

Christopher Thornberg:

Yeah.

Bruce Norris:

Everybody here is an American today. There's nobody that's different. We're all American. That was a very cool feeling, and you don't get that one very often. So let me...

Christopher Thornberg:

And it's sad that it takes a tragedy, yeah, it is to realize that.

Bruce Norris:

Exactly, yeah, yeah. Are you concerned about the risk of the United States losing world currency status?

Christopher Thornberg:

No, no, not, not in that sense, because where are they going to go?

Bruce Norris:

That's exactly right.

Christopher Thornberg:

And mind you, the scenario I'm talking about that that as I see it playing out, will also include a big decline in the value of the dollar, it will give our much less buying power and on the world stage. But that said, where are they going to go? I mean, the one thing that buffers this scare scenario is the reality is, as much as we're the biggest problem in the global stage, we're also still the safest place to hide your money, at least for now. That may change in the future, but for now, we still are and as our problems expand around the globe, you may find people wanting to put money here, just because they still believe that the rule of law here operates better than it does most anyplace else. You know, look, you can put your money in Europe. It's got a very good legal system. It's a very safe place politically. But that said, you're not going to get a lot of return on it.

Bruce Norris:

Right.

Christopher Thornberg:

You're not going to go to China.

Bruce Norris:

No.

Christopher Thornberg:

Certainly not going to go to Russia. India is still a basket case, the emerging markets, while there are dots of promise and prosperity for the most part, they're not places you trust your money for the most part. So yeah, you know, it's, you're not too many places to go. But just because we remain the world reserve currency doesn't mean that somehow or other, we're not going to have to suffer the consequences of the excess that we're dealing with right now.

Bruce Norris:

Okay, last topic is, yeah, artificial intelligence. What's your take on that progression? Because I guess that's the word that I am most concerned about, because it seems like the end game is a very powerful entity, country, company, and getting there first seems to matter a lot.

Christopher Thornberg:

Does it?

Bruce Norris:

What's that?

Christopher Thornberg:

that. In fact, that's one of the reasons why I'm so dismissive of these stock market valuations. Look, Google was way behind, and they went okay, and now they have the best engine, and the Chinese just basically said, Oh, that makes sense. They read a couple articles, and they're coming up with their own engines, and they're not as good as ours, but they're a hell of a lot cheaper. I actually don't think AI is, shall we say, that hard to reproduce. We're learning very quickly that there's lots of ways of doing it, and that's one of the reasons why I don't think that this is going to be, that this is a bubble, that these valuations don't make sense. Again, doesn't mean it's not a transformative technology.

Bruce Norris:

Okay.

Christopher Thornberg:

But you look, let me take a step back. Is it a transformative technology? Sure. Have we had transformative technologies enter our world in the past? Oh, hell yeah.

Bruce Norris:

Yeah.

Christopher Thornberg:

Electricity, computers, the internet, the telephone and telegraph. Railroads. Railroads are classic example. You want to talk about a transformative economy. Holy cow. I mean, what railroads did to the economy from 1850 to 1900 Wow. I mean, they changed everything, right?

Bruce Norris:

Right.

Christopher Thornberg:

So we've seen this game before. There's no big surprise here. By the way, we had two mild depressions in the United States caused by rail stroke, railroad bubbles popping, okay?

Bruce Norris:

Okay.

Christopher Thornberg:

Despite even as the railroad changed our world, we also had major financial crises driven by it. So again, what I'm saying about the perils of this bubble and the value of this technology is backed up by history. I'm not just blowing smoke. I mean, you've seen this game before, and also this idea that's going to transform everything. Well, what about the new economy? Remember the new economy in the 1990s. Wow, we have pictures on the web. It's a new economy. Okay. Well, now we have a computer that we can talk to, as opposed to writing printing code for, to me, it doesn't really solve the some of the fundamental problems that we've been talking about. Again, they oversell everything. AI will become more of a more of a force. It'll hopefully create productivity gains. And that's good because, you know, we saw last verse to be big worker productivity growth from about 1996 to about 2008.

Bruce Norris:

Okay.

Christopher Thornberg:

And that was basically wrapped around the World Wide Web. So, yes, the World Wide Web ad didn't create a new economy, but it did help worker productivity, and ultimately that benefited everybody. And I think that that's one of the things that AI can do. I don't think it's going to take everybody's job. I think it's so violently overstated. We'll take some jobs in some places, sure, but that's how the world works, and we just have to learn how to change, right? We need to learn how to learn. Look, labor is a resource, and if labor less labor is needed in some places, it will go find other uses in the economy. The one problem we really have in the United States right now is we don't have enough workers. So great. Let it replace some of the dumb jobs. Let, please, let's have aI drive every single truck, and then all those people who are driving trucks can go out and do other things. They can be teachers, they can be, you know, nurses. They can be whatever. There will be other opportunities for these folks in the economy, as long as we have the resources to help them shift gears. But I want to say something about AI, because again, I want to go back to the idea here about the miserabilism, this idea that everything's terrible and everything's tragic. And you think about how people get pulled down these rabbit holes, like, how do they start believing this stuff? How does this stuff get into them? And guess what? A lot of it comes from, well, the internet.

Bruce Norris:

Yes.

Christopher Thornberg:

A lot of it comes from, from the news stories were fed. You know, there's a great book called The Chaos Machine by Max Fisher. And in this book, he discusses how, for example, Google wanted people to watch more YouTube, and what they said was, well, let's stop having people deal with this. Let's have an AI engine, because AI is not new. It's been around for a while. There's nothing particularly new here. They said, let's let AI figure it out. So AI, we set up an AI engine that basically figured out how to keep people watching longer, and it would just feed people random stuff, and it would see what keep people glued to the screen longer. Seems relatively harmless until you look closer, and what you realize is that what keeps people really glued to the screen is being scared or angered.

Bruce Norris:

Okay.

Christopher Thornberg:

And as a result of that, what you saw is AI, more or less feeding people more and more dramatically negative things, until people became absolutely terrified of the world, right? Absolutely a positive until they're showing up at a pizza parlor with a gun looking for the pedophiles. Okay, we all know about pizzagate and all that stuff, right? Okay, now this is on a relatively simple form of AI. Now go back to what I was saying about the political situation and the miserable ism and the fact that we are so convinced about an economic reality that is not reality in any stretch of the imagination, and now put us into, if you will, the target of all these new AI engines. My fear about AI like I see the promise of AI and the increase in worker productivity, but I see the peril of AI, of taking our sense of persecution and magnifying it even more of making us convinced of more false concepts of the world around us.

Bruce Norris:

So as, a would have a very negative society attitude.

Christopher Thornberg:

Yeah, and that could be way more dangerous than the promises it gives us.

Bruce Norris:

Right.

Christopher Thornberg:

And that's, that's where I start to really get worried about this stuff. I'm not worried about lost jobs. I'm worried about lost sanity.

Bruce Norris:

Right. Okay, I think, I think it's a great way to end, and I appreciate I get...

Christopher Thornberg:

...everyone, but, yeah.

Bruce Norris:

I always enjoy talking to you, because I get to ask stuff I don't know the answer to.

Christopher Thornberg:

Oh, and I some of this, I don't know the answer to either, Bruce. You know, I gotta tell you, look over the last 10 years, I've gone through a big transformation, because I continued to watch people tell me how terrible everything was when I looked at the data and saw good things were and I might had to take a step back and start to recognize that a lot more of what goes on to in the economy is a function of this gray stuff between our ears and what happens up here, and the fact that what we think is going on is an incredibly biased version of what's actually happening. And to be clear, I'm not the first guy to figure this out. I'm pretty sure it was Jesus who talked about sooner will you see a speck in another eye than a log on your own right, when he was talking about the same stuff.

Bruce Norris:

You know what's interesting...

Christopher Thornberg:

And it's all been intensified.

Bruce Norris:

I've never, I didn't even hear this is, this is a shame on me type thing. I really didn't know what AI was three months ago. So not that, obviously, I'm not an expert on it, but I've been trying to get myself and I Well, here's, here's the embarrassing thing. We have a seminar next month where, you know, I'm talking about charts and stuff. But I had to delegate the AI chapter because I bought three AI books, the one of them was AI for Dummies, and I read the first chapter, and I had no clue what I just read, and I said, 'I have no business teaching this chapter'.

Christopher Thornberg:

Yeah, yeah. No, I hear you. But with all that being said, remember, the World Wide Web was pictures on the internet, and the current version of AI is a fancy version of machine learning, but machine learning that now allows computers to deal with us in words that we understand, rather than encode that it understands.

Bruce Norris:

Right. Okay.

Christopher Thornberg:

But that said, machine learning is nothing new. It's been there for a very long time. It's just a new, glorified version of it, which, of course, they're selling as something completely different. It's not, it's just another step in the process of this technology's growth.

Bruce Norris:

Let me mention one thing that I learned, and I had to think about that being so impactful. There are cities now where you don't have drivers in transportation, cars, right? You have...

Christopher Thornberg:

Yeah, Waymo, yeah, yeah, San Francisco.

Bruce Norris:

Well, do you know who Sean O'Toole is? I think you'll recognize something. Okay, yep, very, very smart tech guy, and he told me, what's interesting about those cars is they actually learn from each other, from every experience. Every car is connected to, like their brain is connected to every experience simultaneously with every one of them you know, said to that. There's a guys that are way up in the AI world, the only companies and all that. They just said that about surgeons. When you have an electronic surgeon, a robot, that robot is learning from every other surgery that's going on.

Christopher Thornberg:

Yep.

Bruce Norris:

And their learning curve obviously goes up. So I was, whoa, that's interesting.

Christopher Thornberg:

Yeah, yeah, but that said they still don't have a robot that can do an open heart surgery.

Bruce Norris:

I think, you know, I want us to talk about two years from now. Not that I'm hoping they have, but I think they will.

Christopher Thornberg:

We'll see.

Bruce Norris:

Yeah.

Christopher Thornberg:

It might make it might make medicine a lot cheaper.

Bruce Norris:

Well, will, oh no, see, that's, you think about that. that's exactly what's part of, what's that, you know, they're always talking about, what do you call it, where you get paid for doing nothing? That there'll be that world, and I don't want that world either, but a lot of the jobs will be devalued in the sense that a machine that can work 24 hours a day and be perfect at this, at the task, apparently, is it coming in a few places, I haven't bought into all this, Chris. I am studying it now and realizing how far behind I am and how my vocabulary is to comprehend it.

Christopher Thornberg:

But they always oversell every technology. And you're going to get into it, and you're going to find it's way harder than it looks.

Bruce Norris:

Yeah, well, you know, I don't buy stuff I, you know, looks like other people's statistics. That's why I finally decided to figure it out on my own. Because I'm going, 'I'm not buying it. I want to know.' Well, that's what I'm trying to think about. AI is, 'Okay. I'm gonna, I'm gonna learn it, but I'm going to not buy the journey everybody is saying', I'm gonna, I'm gonna try and understand it, but, it's a topic that's over my head right now, that's for sure.

Christopher Thornberg:

Yeah, yeah.

Bruce Norris:

All right. Thanks for joining us, Chris.

Joey Romero:

That's going to do it for this week's episode. Be sure to tune in next week for part two of our interview with Chris Thornberg of Beacon Economics, and be sure to get your ticket to Beyond Uncharted what's next has never happened. Bruce Norris's newest market timely report to be released on February 7 in Ontario, California, 20 years after the California Crash, Bruce Norris is set to deliver another can't miss event. For tickets, visit www.thenorris group.com and check out our events page. Hope to see there.

Narrator:

For more information on hard money loans, trust deed investing, and upcoming events with The Norris group. Check out thenorrisgroup.com. For more information on passive investing through the DBL Capital Real Estate Investment Fund, please visit dblapital.com.

Joey Romero:

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 to thenorrisgroup.com and click the hard money tab.