You guys call it what you want, I call it opportunity, investing correctly here would yield Much better than what most other markets would. If you bought at the bottom in Florida your probably not too far off from there, in 2009 the house across the street from me sold for $305,000 and today it is $800+
In 2009 I was buying homes for $80k just 70 miles east of SF and now they are $275k
Rental Armageddon hits the ballot boxes in March for Angelinos. One measure that hits particularly close to home is Measure S, dubbed the slow growth measure and sought out to curb large scale development. Now as you are aware and we’ve noted before, Los Angeles County is now a renting majority county. Most of the people that live in the area and haven’t purchased are priced out in terms of owning a home. So it should come as no shock to Taco Tuesday baby boomers who bought “back in the day” that large scale development is going to be the future even if it interferes with them getting lit mid-afternoon. Measure S lost because most people rent and don’t give a crap about your crap shack in Culver City or any other West L.A. hood. In other words, L.A is going to get even more crowded and sardine packed.
Measure S and L.A.’s Future Development
For many of us Los Angeles is our home and the engine of Southern California. But the future belongs to the young. And the young are broke and can’t afford sprawled out crap shacks that really are not utilizing space efficiently. I know you want to have a yard for your hyena puppy and the ability to paint your walls magenta all for the nice sum of $700,000 or $1 million but the reality is, most in the county can’t pay that. They are fine with an apartment or a condo.
Most are going to rent:
It is interesting who is voting for Measure S:
“(Los Angeles Times) When people like me bought their home they didn’t think there would be a skyscraper next door to them … because zoning was supposed to protect them,” said Carole Miller, a Mid-Wilshire homeowner who supported the ballot measure. “City Council has been taking all this money from developers and everybody knows it.”
The support for Measure S was couched as a way to curb city corruption with developers but come on now, L.A. is in desperate need of more housing. And the housing that will fit the economic needs of current inhabitants is more high density rentals, not crap shacks that aspire to be on the next HGTV show. I know it is nostalgic to think of when you bought your home back in the Leave it to Beaver days but things have changed:
“This is the L.A. of Taco Tuesday Baby Boomers”
In 1950 L.A. County had 4.1 million people. Today we are at more than 10 million. Development is going to happen because many of the voters now have no vested interest in protecting small enclaves of crap shacks that they can’t afford. I’ve talked about this many times but people seem to have this weird NIMBYism that their little area is somehow immune to the forces of economic nature.
L.A. will continue to develop and will move forward on the path set forth by rental Armageddon. This wasn’t always the case. In fact from the 1980s to around 2010 the majority of households in the L.A. metro area owned:
This is just the way things are moving. So you have 2.3 million adult children living at home with their parents in California because they are too broke to move out and rent, let alone buy. So why would these people vote for Measure S? I would imagine these people would vote no as to have the chance of having more housing stock to rent from. What would curbing development do? Traffic already is horrendous but put more restrictions and you get something like San Francisco where craziness is the trend of the day and prices are out of reach for more mere mortals. This is simply a battle of the “I got mine so screw you” Taco Tuesday baby boomer mentality.
Sorry folks, L.A. traffic is going to get worse but at least you’ll get more apartments. Look on the bright side, we’re not too far away from autonomous self-driving Uber cars so you can have your tacos while getting lit and not having to fret much about traffic.
California is a high cost of living state. That goes without saying. Yet the level of affordability oscillates up and down with the whims of the bubble economy. As of today the state faces a rental Armageddon trend where many families simply cannot afford to purchase a gorgeous, sturdy, and well-designed home (just kidding, most can’t buy a 700 square foot funky looking crap shack). Whenever people even hint at the expensive nature of California the yelling begins with “then move out!” or “buying always makes sense!” which seems interesting since the housing market really got out of control in many metro areas starting in the late 1990s as Wall Street injected its casino antics into the industry. And many of those that protest the loudest are usually Taco Tuesday baby boomers living in granite countertop paradise that wouldn’t have a chance affording their home today if they had to pay current prices. But in reality, many are moving out. From 2000 to 2015 more people left California than moved in from other states. The biggest destination is Texas.
The Grand Migration
The math on the grand migration out of California is interesting. Here is the data from 2005 to 2015:
-2.5 million people living close to the poverty line left the state
-1.7 million moved in from other states near the poverty line
This equates to a net loss of 800,000 people.
-Net gain of about 20,000 residents earning $100,000 or more
The exodus is very clear on a map:
“(SacBee) Not surprisingly, the state’s exodus of poor people is notable in Los Angeles and San Francisco counties, which combined experienced a net loss of 250,000 such residents from 2005 through 2015.
The leading destination for those leaving California is Texas, with about 293,000 economically disadvantaged residents leaving and about 137,000 coming for a net loss of 156,000 from 2005 through 2015. Next up are states surrounding California; in order, Arizona, Nevada and Oregon.”
It should be no shock that the biggest line item on any household budget is housing (rent or a mortgage payment). And in Los Angeles, you have a ridiculous number of people paying nearly half of their income just on rent or a mortgage payment. That is a big problem especially when you want to plan for other expenses or want to put something away for retirement.
The map above is rather clear in how the trend is unfolding. While those lower income families have no chance of owning a place in California or the rent is eating away at their income, in Texas these families have a chance not only to save some money but to potentially own a home. I’ve talked with older families here in California where that opportunity once existed (not too long ago) so this is their frame of reference and many are angry that their adult “children” cannot afford a home without them gifting a giant down payment (which cuts into their Taco Tuesday outings and ability to booze it up on happy hour). So the current environment is really new.
“The choices facing millions of low-income workers trying to rent in California’s urban centers are stark, Hershey and others said. They can commute from far-away locales.
“People are having to move so far away from their jobs – driving two or three hours,” Hershey said.”
I know of many that take on these mega commutes into LA and OC just for work. The fact that you are wasting away days of your life in a car is difficult to stomach and isn’t good for your overall health. So the choice for many especially those with lower incomes is to leave the state. The data is very clear. People do vote with their feet.
So the question many have to wrestle with is what is that crap shack worth to you? For a large number leaving the state is an option, for some it is mega commutes, and for others it is to mortgage yourself to the hilt.
The Bay Area tech driven frenzy continues to march forward with no stopping in sight. If you thought $1 million was too much for a crap shack then $1.3 million is going to be out of your price range. The tech gentrification is getting more aggressive and is pricing out people at an astonishing pace. We’ve noted the out migration of native Californians to other states is much larger than people suspect. Foreign money and high income households are the power players in these niche markets. This is simply a fact but also is tied to the bull market that has now entered into its eight year. There are now signs that we are reaching a plateau but this system only understands two states: boom and bust. There is nothing calm about the way our real estate system is now structured. It is about fast gains or big losses. All or nothing. You are either riding the big wave or crashing in fantastic fashion. People forget cycles and have the long-term memory of a gnat when it comes to these things. The Bay Area continues to drink from the cup of housing mania.
San Francisco hits another peak in price
The housing market in San Francisco continues to accelerate at a dramatic pace. Of course if it was expensive last year for your budget these higher prices are likely to do little for you. Incomes are certainly not keeping up to these dramatic shifts. The purchases are being driven by fast money and foreign cash. You also have zero down loans back in the game.
Take a look at how the Bay Area is doing:
The last peak which seemed unsupportable to many now looks like a tiny molehill. This is probably a large reason why so many of the recent purchases are being driven by condos because this is all people can afford:
So you want a home. Only a home will do. Here is what you get for $1.3 million:
49 Ord Ct
San Francisco, CA 94114
2 beds 1 bath 844 sqft
“Nestled at the end of a quiet cul-de-sac in Corona Heights and just steps away to the famed stair walkways of Vulcan & Saturn, and The Castro Village center, this Victorian cottage captures a great sense of community in place – Wild Parrots soar overhead the magical rear garden – the quiet and stillness of this home are a precious thing in the middle of a city”. 2BR/1BA single-family home with one-car garage plus storage on a garden oasis for indoor/outdoor living and green-thumb enjoyment!”
Look at the price history here:
The new homeowner is going to be paying 3 times the level of property taxes for the exact same place and services. Again, Prop 13 is a reason for this even though it is pitched under the guise of “kicking grandma to the curb” type rhetoric. They never mention that grandma is going to have over $1 million in equity if she chooses to sell which will put her in the top 1 percent of households globally.
So there you have it. 844 square feet for $1.3 million. Everything is moving right along in tech driven San Francisco.
It is now official that the United States has turned into a renter’s paradise. Think that is hyperbole? Fifty-two of the 100 largest cities in the U.S. are now majority renter in terms of household composition. And there is no clear pattern here. You have places with incredibly affordable housing like Detroit tipping over into the renter majority category at the same time places like affluent Irvine have tipped over as well. Bottom line, more renter households are forming at a time when real estate values are once again peaking. And where did all of these renter households come from? Well between 2007 and 2016 nearly 7.8 million people lost their homes to foreclosure. Of course this flies in the face of the #YoLo real estate movement and the mantra of “always be buying” real estate because heck, even our current president is a real estate mogul, therefore buy. People have massively short-term memories when it comes to financial spankings.
The renterfication of the U.S.
We have discussed the unrelenting trend of renter household formation for years largely because younger households are having a tougher time paying inflated prices for crap shacks. The flood of Millennials buying households just did not materialize. What did happen is that inventory remained tight, investors stepped in, foreign money hit, and a mania took place. Basically an artificially constrained market made crap shacks look attractive. Look, even old hardened bread must appear like paradise to the starving person. Still doesn’t change the fact that the bread is old and stale.
Many cities have tipped into the renting majority category only in the last few years:
Look at how many cities tipped into the renting majority category since 2009. We see a few California cities here like San Diego, Sacramento, Stockton, and Irvine. This will definitely shift the political perception as we saw with local SoCal measures being slammed down that favored current homeowners. Many people including professional couple households are balking at paying ridiculous prices for dumpy old shacks just so they can say they own and “hey, now I can paint my wall magenta.”
The McMansion dream has probably also soured for all of those people that lost homes via foreclosures. Just look at the nearly 7.8 million completed foreclosures since 2007:
1 million of those foreclosures happened here in California alone and yet you still have people saying:
“Never a bad time to buy!”
“As long as it is near rent, you are always a winner!”
“Nothing beats real estate!”
Yet you have hard facts showing millions got royally screwed betting on housing and this odd mythology built into a deep cognitive dissonance that fails to acknowledge the blind luck of their situation. And many today can’t buy because they simply do not have the money saved for a crap shack down payment. So you have more renter households being formed versus homeowner households. That is how you now have 52 of the largest 100 cities being renter dominated.
We’ve now turned into a renter’s paradise. Many that bought want to own a home and live in a Leave It to Beaver make believe fantasy world. In reality, it is now a grind it out boom and bust market and most simply cannot afford. And those that did buy are riding on a bull market that does look a bit frothy. Many that “own” a home forget that you are basically paying a fixed rent payment to the bank for 30 years. “But once I’m paid, it is all done!” What about taxes? Insurance? Maintenance? What about being locked into a geographic location? Most now early in their career have to pick up and leave to make big jumps. They also play it safer at their place of employment for fear of missing a mortgage payment or angering the boss. Everything has an element of risk but for some, owning a home is the ultimate albatross worthy of sacrificing all. Unlike a stock portfolio or a rental home (big difference) a primary residence is a draw on your bank account. And that equity? You have to sell to unlock it and many Taco Tuesday baby boomers are seeing their grown adult kids moving back home and sticking around a bit longer than expected because things are just that much more expensive. Leave It to Beaver aired for roughly six years – not 35 or 40 years. And by the way, the first two seasons were filmed at Republic Studies in Studio City in L.A. and the final four seasons were filmed at Universal Studios with facades of two houses. In other words, it freaking was make believe with fake houses!
Have you heard the good news brothers and sisters? The housing ATM is now back in working order. Hallelujah! Black Knight Financial Services reported that in Q4 of 2016 44 percent of refinances were cash-outs. Meaning, people are now using their homes like ATMs which flies in the face of all the house humpers who continually act as if people are acting prudent in buying crap shacks. No, people are sucking on the teat of housing mania and now they are drinking from the nectar that is being produced. This percentage was the highest level of cash-outs in the last eight years. What was happening eight years ago? The housing market was imploding in epic fashion and nearly 8 million people lost their homes to foreclosure. Many lost their homes because they took out HELOCs and Home Equity loans to live beyond their means. I have to make this point since people always forget – the vast number of foreclosures happened on traditional vanilla 30-year fixed rate mortgages.
The Housing ATM is back in business
The stock market is at record levels, housing prices are at record levels, auto debt is above $1 trillion, student debt is over $1 trillion as well, and credit card debt is going crazy. I am getting more credit offers in the mail compared to 2006 and 2007. People are once again living beyond their means on debt. Housing is now being used as a piggybank to finance HGTV inspired renovations, vacations, cars, and other non-essential spending. Many are tapping the equity buffer out.
And of course, the first areas that will get smashed are the working class areas but then again, according to some, all of SoCal is now gentrified and Compton is now the next Newport Coast. The amount of “tappable” equity is now at levels last seen in 2006:
And of course, we all know that people were diligent and careful when it came to this. People used their home like an ATM and sucked out any equity like a vampire draining blood from an old man. You have to wonder how much of our economy is now running on this debt induced spending. You do have to pay this back at some point.
Of course people are going to try to justify crap shack prices in San Francisco and talk about mass gentrification in SoCal. But here you go with nearly half of all refis in Q4 having a cash-out component. What this means is that when a dip in the economy hits, these people are going to have less of a buffer of protection. And stop this pipedream nonsense that you are not going to lose your home. Nearly 8 million people lost their home in the last decade! Many of those homes were then bought at rock bottom prices by investors including Wall Street firms. Rinse and repeat.
This is a troubling indicator of mass euphoria which happens in bubbles. In many cases, these larger economic contractions happen because of solvency issues when it comes to paying debt. People are locking in future income to current purchases be it with houses, autos, or even going to college. That debt still needs to get repaid.
The entire model right now is built on permanent real estate appreciation. Even a slight decline is enough to burst this train. But right now, you have an entire menu of new excuses that replace the excuses made back in 2007 and 2008.
History doesn’t repeat but it rhymes. Roses are red, crap shacks are beige, my home is an ATM, now let me spend like a drunken sailor before the party ends and I have to pay this bill!
Who doesn’t love a great sequel? The housing market is blistering hot and people are itching to get a taste of the hot porridge served right from an upgraded stainless steel stove. You all know the story of Icarus and the perils of flying too close to the sun. Well there is also a story about getting too deep into the crap shack Kool-Aid pool. This is now a mania. I have a fairly good sense of Southern California living in multiple parts and making it my job to understand various markets by actually visiting open houses in wealthy areas and gentrifying markets as realtors would like to say. Most people like staying in their confined bubbles and really don’t venture out. So once again, we see astronomical prices decoupled from actual value. Today we take a trip into the heart of Los Angeles.
A market in gentrification mode?
L.A. County is massive with 10 million residents spread across wonderfully designed urban sprawl. Things are so well planned that traffic can cause your eyes to bleed and road rage is nearly a guarantee once per day. Prices have gotten so expensive that L.A. County is now the least affordable markets to rent in (this is based on income relative to local rents).
So now that people have conveniently forgotten about housing bubble 1.0 they are now ready to purchase any property that comes on the market. In fact, we are seeing real estate garbage can photography making a comeback. Today we salute you Los Angeles with our Real Homes of Genius Award.
When half a million dollars isn’t worth moving a trash bin:
3525 Portola Ave, Los Angeles, CA 90032
2 beds 1 bath 572 sqft
This place is tiny. 572 square feet. I actually like the trash can being left in the picture overfilled with crap to show you a better perspective on how small this place is. The ad is written in beautiful prose that really makes your heart jump with joy:
“Why Rent when You Can Buy! This House Features 2 Bedrooms and 1 bathroom with lots of potential especially for a First Time Home Buyer. Great Location close to Downtown Los Angeles, centrally located near Schools, Parks and Shopping. This house has been nicely upgraded.”
Time to speed dial your real estate agent! Why in the hell would you rent when you can buy this place? This place sold for $9,000 back in 1972 and now it can be your home for the small sum of $470,000. Not a bad deal right?
So let us take a Google Street View here:
More trash cans! One trash can looks like it is crossing the road or gearing up to strike a pose for another realtor’s ad. Now some might say “hey, this is a working class neighborhood!” And to that I would say, of course it is! That is why it is so mind numbing to see this tiny place listed at $470,000. The adjusted gross income for this area is roughly $36,000. Yeah, these current prices totally make sense. So someone making $36,000 is going to save the $94,000 down payment for this place so they can get rental parity? Any investors wanting to turn this into a cash flowing property?
Today we salute you Los Angeles with our Real Homes of Genius Award.
Foreign money has been a key ingredient in propping up home values in many cities across the United States. There is no doubt about this. If you look at places like Irvine, many new home communities are being sold largely to investors from China. This also applies to house mania happy San Francisco. Yet even if you question your own sanity regarding California crap shack prices, things may look affordable to certain people abroad. The amount of investment flowing in from China into the United States is amazing. A large part flows into real estate. This is how you get lower homeownership rates and also a drop in mortgage application volume yet somehow, you see home prices surging on low inventory. In a global market money can flow in and out of systems easily.
The Chinese Connection
There is a global compression of the middle class and this is impacting people in all corners of the market. While San Francisco and Los Angeles home prices seem wild, just look at prices of real estate in some cities in China:
The market is going bonkers and as we all know, things are relative. This is how you get people suddenly thinking a 1.5 or 2 hour commute is normal just to live in a crap shack. This is how people justify certain prices on poorly built junk and ultimately reconcile their own cognitive dissonance on being mortgaged for life. There is also the pressure that comes from starting a family but many largely don’t factor in the unforeseen expenses that are associated with this. But house horny buyers are simply fodder in this game.
What many don’t see is that real estate markets are now global and will boom and bust with some level of connection. The house humping brigade is now a worldwide phenomenon. “They aren’t making any more Earth!” And right now for California, the biggest source of foreign money is China:
This shouldn’t come as a surprise. Some markets like San Francisco, Palo Alto, Arcadia, San Marino, and Irvine to name a few have massive amounts of money flowing in from China into local real estate. Many professional families let alone middle class families in these markets don’t stand a chance in buying a home short of them buying a crap shack and committing to an insane down payment and a massive mortgage for 30 years. 30 years in this fast changing world where technology is disrupting markets and employment sectors so quickly is telling. Yet somehow you want to chain yourself to a crap shack for 30 years.
And most Americans are too broke to afford these homes. Just look at mortgage volume from the largest mortgage dealer, Wells Fargo:
That sure doesn’t look like Americans are going bananas for buying homes. But you have low inventory and global capital flowing out of markets in massive ways. Who needs a mortgage when you have a suitcase of cash?
Zillow summed up the numbers for the average chump:
Not exactly the best way to go about living your life being chained to a crap shack. But real estate chumps live in various countries. And then you have places like Vancouver that have enacted taxes on foreign buyers:
“(Zillow) In August 2016, the government of British Columbia, Canada, enacted a 15 percent tax on foreigners buying homes in the rapidly growing city of Vancouver. Most now agree that the Vancouver housing market has slowed substantially since last summer, but the data remain inconclusive as to any specific effects on international buyers of Vancouver homes. And there is less agreement on whether the tax has pushed would-be buyers of Canadian homes to instead consider U.S. homes south of the 49th parallel, especially in nearby Seattle.”
Capital is going to flow where it wants to flow. The middle class of California is already priced out and many are leaving to places like Texas. That is why California is now a renter’s paradise.
One gut check that you need to do when markets reach this fever pitch in mania, is simply look at the product. People get fully disconnected from value and simply assume that every crap shack is going to sell because every single second a sucker is bred into our economy. There is now a blind consensus that prices will not drop. And if they drop, it will be a tiny drop. What is telling however is that virtually all large US metros are seeing price increases. This is a nationwide trend despite house humping beer belly cheerleaders acting as if it is only happening in their tiny niche market. So the euphoria is running rampant across all areas. This brings back the idea of decoupling. The markets are as coupled as an old Taco Tuesday baby boomer couple that is building up heart disease on a massive cruise ship. There is too much bubble psychology in the current environment. Have people already forgotten that the unexpected tends to happen (just look at our President!). Yet people just forget about Black Swans and keep on trucking forward taking on mega risk. Let me show you what is happening in Compton.
Straight Outta Compton
At one point in our Real Homes of Genius series, we were attempting to find the smallest house possible in Southern California. A reader sent this example in and I think we have a new winner:
558 W Compton Blvd
Compton, CA 90220
1 bedroom, 1 bath, 378 square feet
“OPPORTUNITY KNOCKS !!! NEED CASH OFFER. .. .ONE BEDROOM HOME. .. . NEED TLC, ,. .. INVESTORS !!! BRING YOUR CONTRACTORS AND HANDYMAN . .. . SOLD “AS IS “. .. .. .. .. .”
Now I know you are itching to purchase this place. “Dr. Housing Bubble, I’m calling my agent right now! This place with 20% down is totally making sense via my rental parity calculations and Taco Tuesday logic.” This place is 378 square feet and just look at the beauty here. The ad is very subtle with saying “need TLC” and that you should bring your contractor and handyman. How much for this place? $179,000. In Detroit you can get something like this for $1,000:
So far, there hasn’t been someone diving in on the Compton home:
Someone has had the interest in selling this place since November of last year. I pulled up the Google Street View and you flat out have a cop car in the picture:
Yes, looks like the area is definitely in gentrification mode. All this needs is a Whole Foods and you are suddenly able to talk like a house horny pitch person. And by the way, that Google Street View is from December of 2016.
People are absolutely delusional at this point. They assume that they can lock in for the next 30 years as if change isn’t accelerating. And many work in industries that are one step away from being automated out or cut completely. Yet they have a crystal ball that allows them to buy a crap shack and assume the past is a perfect road map to the future. But if you are really honest, the recent past shows a mega housing bubble bursting because people paid too much for homes and took on too much debt – and again, most of the foreclosures came from traditional 30-year fixed rate mortgages.
Who is ready to turn this place into a hipster flip?
Two days ago we looked at the latest troubling development in US home price trends: a new bubble appears to be emerging in all the "usual suspect" places. As we noted on Thursday, "home prices in markets that bubbled over back in 2006/2007, like Las Vegas and San Francisco, got cut in half in 2009 but have since doubled again of their lows. Meanwhile, markets like Denver and Dallas that didn't participate as much in the 2007 mania are now surging to all-time highs, with Dallas prices up 55% over the past 5 years."
The Wall Street Journal added that some of the home buying behaviors of consumers, like paying prices well above appraisal values and waiving home inspections, are starting to be eerily reminiscent of 2006:
In some markets, bidding wars are breaking out. Agents said some buyers are kicking in extra cash when properties don’t appraise for the asking price, and some are waiving their right to home inspections.
“It can’t be sustained,” said David Berson, chief economist at Nationwide Insurance and a former chief economist at mortgage giant Fannie Mae, referring to the frenzied buying. “It can’t go on forever.”
Other signs of overexuberance have emerged, including surging levels of licensed Realtors all chasing a quick buck.
The number of licensed Realtors has jumped by nearly 25% since 2012, hitting a nine-year high in 2016 and sitting just 9% below the peak in 2006, according to real-estate consultant John Burns. In Denver, homes are selling briskly. The median number of days that homes spent on the market declined to eight in the first three months of the year from 61 in 2012, according to Redfin. Home prices rose 8.5% in Denver over the year ended in February, according to Case-Shiller.
Nicki Thompson, an agent in Denver, said she recently had a listing that was on the market for two weekends at $1.2 million and she received multiple all-cash offers above the listing price.
“It’s just crazy,” she said.
And for a practical example of just how crazy it truly is, take this renovated 2-bedroom, 1,948 sq. ft house first built in 1951 in the Eagle Rock section of Los Angeles, which was listed in mid-March for $699,000, was estimated by Redfin at $780,000, and sold yesterday for $980,888 (more than $500/sq foot) and 40% above asking, just over a month after it was first listed.
In the 1960s-80s drums played on some of the most famous pop songs known (Good Vibrations, Mrs. Robinson, A Little Less Conversation, to name a few) were built in this garage in our beloved Eagle Rock. A. F. Blaemire and his wife, Kirsten, filled this home with music and creativity for decades, and now it's ready for its next inspired owner! With freshly refinished hardwood floors and repainted interior, 5208 Monte Bonito is a blank canvas with great potential. The rooms are bright and spacious, including a downstairs recreation room perfect for a jam room, art studio, den (or all of the above!). The two-car garage has direct access to the house and an additional storage room. The back yard has plenty of space for entertaining and gardening - there is already an avocado tree, an orange tree, and a pitaya to get you started! Views of the Eagle Rock from the master bedroom, and sunset views from the front porch make this the ideal setting to call home.
Then again, maybe not.
So what do you get for just under a million in LA these days? Not much: two bedrooms, less than two bathrooms, a 2 car garage, a decorative fireplace, a rec room, and a 7,195 sq foot lot.
Here are some photos showing what a "million dollar house" looks like in the latest US housing bubble.
I can attest to this, personally, wife's family lives in nearby Alhambra. Arcadia & San Marino were high class to begin with, but the rich Chinese came in & escalated the prices.
I grew up near what is now Irvine. It was NOTHING back in the 60's, now it's a hell hole of traffic.
I sold my home in Huntington Beach, in 1992 in the mid 100's. It sold again in 2002 in the very high 100's. Today it is valued well over a million. It ain't that nice !! But it is close to the ocean !
The last hurrah in the previous housing bubble included a massive desperation of people to buy any sort of real estate. Forget about crap shacks, let us go with crap condos! That is the point we’ve now reached as well. A recent report shows that condo prices in Orange County have now reached a record level. This makes sense given the blistering horny buyers that can’t get enough of the tiny amount of inventory out in the market. The same shtick is being pumped out there from last time including “condos are a great way to build equity so then you can buy a home.” How convenient! Of course people got massively burned by condos in the last bust because condos in many cases are apartments with 30 year mortgages. And in Orange County, you have absurd levels of HOAs that actually can go up. Buy that condo now or be priced out forever.
Condos are simply a way to get into the real estate market and given current home prices, many people are jumping in because this is all they can afford. Why rent an apartment when you can own one? It isn’t any surprise that during the last bubble, the peak in condo prices was nearly identical to the peak in housing values – this is just a cheap alternative.
But take a look at this timeline:
Source: OC Register
The last peak was reached in 2006. At that time condos in Orange County were running at $470,000. Prices then corrected and hit a bottom in 2009. So let us just say that condos track inflation overall. What should the cost of a condo be today?
So if you bought at the trough in 2009 for $252,000 that condo if it tracked inflation would cost $288,835. Instead, that condo today is now going to cost you $475,000. That is an 88% jump in prices since 2009. Did household incomes go up by 88%? Interest rates in 2009 were low as well. But right now everyone is humping any piece of real estate and condos are the less than attractive person at the club looking for someone at 1:59am. “What the heck” you might say since many are drunk off of the current mania.
The market is hot with the little inventory that is out there:
That is what is pushing the market. But really condos are nothing more than apartments with mortgages. Take a look at this condo in Irvine for example:
93 Greenfield # 100,
Irvine, CA 92614
2 beds, 2 baths listed at 1,159 square feet
This place last sold in 1983 for $101,000. The current list price is $549,000. Plugging this into the inflation calculator yields a current price of $251,778 which is very close to the trough price seen in 2009.
But here is where the fun comes in. Take a look at the HOA:
All this nonsense rhetoric that once you pay a home off, you have no expenses is a lie. In this case, you have HOA, property taxes, and insurance that you will pay forever. Sort of like rent. Funny how that works out. In this property, HOA + Property Taxes + Insurance will likely run you close to $1,000 per month. I’m just saying that this is far from being free. You could rent a similar place for $2,100 to $2,300 per month.
But of course, you will never get this kind of math being sent your way because of the delusional mania we are currently in. People have forgotten that stocks and real estate do correct. Orange County has once again shown why it is the number one most expensive county in Southern California.
A record number of young people are living at home with mom and dad in California even in the midst of a very low unemployment rate and record in the stock market. Millennials in particular are carrying large levels of debt and many are still struggling to get out into a rental, let alone purchasing a home. There is a housing apocalypse for young Americans and in California, many Millennials are simply waiting until their baby boomer parents kick the bucket so they can own a piece of the California Dream. But Taco Tuesday baby boomers are not going away and many are angry that their offspring are unable to buy a home like they did when housing wasn’t consumed by house horny buyers and prices were actually affordable. The numbers are startling because when we brought attention to the issue a few years ago the number was at 2.3 million young adults living at home. Today it is now up to 3.6 million – if we combined these people it would be the third largest city in the U.S.
Young and living at home
There was this “fake news” narrative that many young Americans would be the second wind that would keep the housing market going strong. That never materialized. What did happen is that you had investors, foreign money, and wealthier older households buying the slim inventory available in the market. In California where rent prices are high and housing prices on crap shacks are insane, many are simply living at home.
And yes, this time it is different when it comes to young people living at home:
Source: Cal Matters, Census.gov
Back in 1980 20 percent of young Californians lived at home. It was actually lower than the national number of 22 percent at that time. Even in 2005 the state and national figures were similar. But fast forward to today and you have nearly 40 percent of young Californians living at home versus 34 percent nationwide. Make no mistake though, this is a national trend.
Staying at home and working
The notion that younger Americans are lazy is absurd. You see this being posted on ALL CAPS rants on Facebook where people have a basic clue of the technology powering our new world. Those that largely understand it and code it are the young we talk about.
And most are working:
Most Millennials are working but they simply do not earn enough to pay for sky high rent or to purchase their first starter crap shack. And here is the rub: the median earned income for an older Millennial living at home in California is roughly $21,000 for those with actual earnings.
Of course a lot of this has to do with how many are not marrying:
Many Taco Tuesday baby boomers followed a very prescribed path:
-Get a job
-Pump out a few kids
-Slave away on a 30-year mortgage
Yet many of those kids are now those Millennials that are not getting married even though they have jobs (although most pay very little and are transitory positions). There is a major housing crisis for young Californians but many are simply living at home with mom and dad. At least tacos are very affordable!
The lap dogs of the housing industry are getting louder and louder as each day goes by. There is now a wide consensus that housing values only go up and the mania is losing all perspective. Crap shacks are still selling as beer belly cubicle slaves buy into the cult-like mentality and go against their common financial sense. “Well this area might gentrify soon and it might be the next Santa Monica!” The notion that by you buying a crap shack you are living the dream is somewhat hilarious. No, you are not living in Bel Air just because you “own” real estate. There is so much “all hat and no cattle” in Southern California that it is hard to believe. Yet this housing mania is nationwide. So it is hard to fathom that you have over 5,497,000+ that are underwater right now with a good number seriously underwater. And this is in a hyper-crazy market. You also have a large number of equity rich owners but they need to sell to uncork that wealth.
Seriously underwater property owners
The housing market has recovered nearly in tandem with the stock market. The stock market has been on a virtual nonstop bull run since early 2009. So people have forgotten about our recent financial history. While stock market investors and traders seem to be a bit more sophisticated, house humpers tend to live by the HGTV school of economics.
Back in 2012 you had 12.5 million underwater properties. That number has fallen to 5.49 million today. But that is the thing, you still have a large number of people that overpaid and yet somehow, Kool-Aid drinkers are trying to convince people to buy at the peak when there is clear evidence of those that over paid still out there today!
Take a look at this chart:
Source: Attom Data
This is really interesting. While the number of underwater homes has decreased dramatically as property values have increased, you wouldn’t know that we still have 5.49 million underwater homeowners today based on the rhetoric we are now seeing. There is now this near uniform chanting that “housing is great” yet this is coming from those that perceive luck as investing acumen.
By far a big reason for this has to do with the lack of inventory:
Nationwide prices are at peak levels yet look at that massive drop in inventory. There is still very little inventory on the market. So if you want to buy a home, you may only be left with crap shacks as options. People get extremely house horny especially when they are in the family planning stage. But we’ve talked about how Millennials are bucking the trend in home buying compared to Baby Boomers.
So what to make of this? We have yet to see any stock market correction. Given the current uncertainty in D.C. you see what happens when people now assume tax cuts are off the table because you will need bilateral support to make that happen. This is being driven by hot money at the top (i.e., investors, Wall Street, etc). And ultimately, people need to be confident long-term before they dive into a 30-year mortgage commitment.
You would think that home builders would be building in mass but they are focused on building out multi-unit buildings to cater to a less affluent younger generation. Also, we are living in a major trend to renting in California and nationwide. What happens when the majority of your area rents when it comes to voting?
So the underwater inventory may add some additional information to why we have low inventory even in this market. A lot of people are still underwater. And those that have equity will need to pay inflated prices to go from crap shack #1 to crap shack #2 with hardwood floors.
The housing market is deep into mania. You can see it in the eyes of the house lusting buyers and the overweight Taco Tuesday baby boomers drooling at their mouth trying to justify why their World War II built crap shack is worth $1 million. The market has gotten unhinged and in this environment you keep hearing things like “crazy” and “insane” and “what the hell is going on?” over and over. That sure inspires confidence and stability! Yet people want to commit to a 30-year fixed mortgage on a dump. In a time when flexibility is key and being nimble in your mind is paramount, you have old thinking boomers trying to infect people with this old paradigm of how business is done. And the telling thing is what is happening right now is not any different from what happened in the last crisis. Mortgage debt is down because a large part of recent buying has come from investors! Of course mortgage debt in aggregate is down when many investors pay in cash – that is why the homeownership rate is also down. Duh! But overall household debt is up thanks to people loading up on student loans, auto debt, and credit card debt. Yet this is somehow better? Just look at some of the wild examples in the real estate market.
Seattle: $200,000 for a permit
A reader sent this example from Seattle highlighting a teardown that was bought in 2015 for $540,000. It was listed to sell at $745,000. Why the big price jump? Because they got permits to update the place!
142 NE 56th St
Seattle, WA 98105
2 beds, 1 bath listed at 1,130 square feet
“Attention Builders / House Hunters: Prime Green Lake / Tangletown location – Approved Plans/Permits ready for Immediate Construction: 4 bed, 3.5 bath house, with 3rd floor master suite, 2 decks and territorial views. 2 car detached garage, 2,884 square feet plus garage (260) for total area 3,115 sf. Prime location close to Green Lake, shops, restaurants in coveted McDonald Elementary area. Existing home sold as-is. Homeowner could purchase and sign fixed price contract for customized build.”
And the place sold. Not for $745,000 but for $741,275. Here is the pad:
The only value added here was the permits. Yes, makes total sense.
Let us now go to California.
Encinitas: Crap shack testing the water
Someone wanted to see how nutty and horny people were when it came to buying a home. So this place was listed for nearly one million dollars:
After people were “LOLing” it was delisted:
Here is the Google Street View from 2012:
Yup, totally makes sense. You have cactus right behind the “Private Property” sign. Sounds like a million dollar crap shack to me.
We now have a reservoir of cases of why we are in a housing bubble. According to NASDAQ that knows a thing or two about bubbles (Economic Bubble definition):
“Definition: A market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset. Bubbles are often hard to detect in real time because there is disagreement over the fundamental value of the asset.”
Just look at the comments. It is a mind field of disagreements but the last two years there is probably a 3 to 1 ratio of bulls to bears. Even in 2015 to 2016 it was closer to a 2 to 1 ratio. Ironically most of those championing the “all is well” line are not in the market buying. If it made sense wouldn’t you be buying even for investment properties?
The housing market is running on opioid induced euphoria and the tentacles of mania are deep into every large metro area. You would think given all this unchecked optimism that mortgage originations would be near a record level since you would assume people are out buying in mass. Yet that is not the case. What is happening is people are fighting over the scraps with low inventory and are bidding prices up on crap shacks to ridiculous levels. And there is data to back this up which is important because people are living in an alternative reality. Loan origination volume hit a three year low this year. What? How is that possible when all the cheerleaders are out in the streets preaching the good gospel of buying real estate? Well the reality is that a good portion of the market is still driven by investors.
If you need a loan, you can’t afford prime property
You can go on many forums and people are doing mathematical and budget gymnastics all so they can afford a crappy starter home. Some of these homes are in bad areas but who cares? Everything will eventually gentrify, housing makes you more attractive, and 30-year mortgages are awesome. At least that is the logic and people are buying in stretching their budgets like spandex.
Loan origination figures show a rather dull market:
Isn’t the market blistering hot? On the price side, yes. You have people fighting over scraps. And you should keep in mind that the economy has been on a massive bull run since March of 2009 (over 8 years now). Some people have forgotten what it is to live in a correction. I even see people on credit forums saying:
“So I lost my house to foreclosure 7 years ago. But now that is off my record and I’m ready to buy again. Is this a good plan?”
Yes. A great plan. Perfect timing too. Go out and buy that crap shack. There are some hard rules you should adhere to:
-Do not spend more than one-third of your monthly income on housing costs
-You should be ready to stay put for 10 years in the house
-You need to save for retirement outside of housing
-If you can’t afford 20 percent down you probably shouldn’t be buying
Inventory still remains very tight. Just look at the below:
Nationally inventory is down 7.7 percent year-over-year. For Los Angeles, it is down 11.3 percent. And this is down from already record low levels. There is simply too few crap shacks available to buy. So that bodes well for prices right? Well that assumes the economy keeps chugging along and optimism runs supreme. But that is the telling thing because many are somewhat negative on the economy (that was a large driver for the election even though stocks and real estate were back near peak levels). Yet this is the perception.
We are setup for a boom and bust cycle here. That is the nature of our current economy. People want to redline the car and wait until the engine blows. You just need to do your own analysis here. I go to open houses often and people are out to lunch. They usually are in the house humping stage (aka adding people) and most are being driven around by emotions versus logic. So how can you argue data with that?
What we do know is the homeownership rate is down, there is a renting revolution, and loan origination data shows a different world.
California has millions of young adults living at home with parents because they are unable to venture out into an expensive rental or a dilapidated crap shack costing close to $1 million. It is interesting to see many articles written by baby boomers sporting beer guts and how Millennials are “destroying” many industries like chain restaurants (i.e., TGIFs, Buffalo Wild Wings, etc) or retail stores (i.e., Sears, K-Mart, etc), or are simply not buying homes. Of course Millennials have different habits. And getting stuck with an absurd 30-year mortgage on a dump is not a big aspiration for many. They are more into health and wellness, life experiences, and many are delaying marriage. So why do they need a home? The data is backing all of this up of course contrary to the house humpers that continue to sing the praises of $1 million crap shacks. California is in a major rental revolution. And Millennials will continue to live at home in mass for a few reasons.
Reason #1 – Demographics
If you are a Millennial in California you are more likely to live at home. This is simply how things are playing out. Take a look at this chart:
There are millions of young adults living at home because rent is too expensive or they simply cannot venture out to buy a home. And many city revitalization efforts are targeting adding more apartments instead of houses. Just look at Los Angeles.
Reason #2 – Failed Savings for Down payments
When rents are incredibly high it is hard to stash away money for a down payment. For example, the typical house in Orange County is getting close to $700,000. So a standard 20 percent down payment is going to be $140,000. Now a $700,000 home is nothing spectacular in many cities thanks to the crap shack mentality.
Now let say a family is pulling in $120,000 a year. This would put the family in the top 25 percent of California households:
To save $140,000 over 5 years they would need to save $28,000 per year (roughly $2,333 per month). In other words, they need to save roughly one-third of their net income per month just for a standard 20 percent down payment – over 5 years. And a typical rental apartment in many nice areas will go for $2,000 to $2,500 or a rental home will be $2,500 to $3,000. After that, there isn’t much for retirement savings, food, and other bills.
Basically this is a one asset class strategy and you are aiming for a crap shack.
Reason #3 – Buying Power is Already Maxed Out
We’ve been in a low interest rate environment for well over a decade. Rates can only go up. So every little ounce that can be milked out of the market has already been done. Also, you are competing with all cash buyers and older home owners that may have equity and sell out. Yet many are not selling out because taxes would get reassessed and many of these older baby boomer owners can’t afford anything higher without shopping at the 99 Cents Store but living in a million dollar home.
In other words, sales volume is likely to stay low.
Reason #4 – Millennials are Different
Millennials don’t have the same desire of buying a home and pumping out 3 or 4 kids like older generations. Ironically many are now living back at home in their late 20s, 30s, and even 40s. They also enter into an economy that is hyper-competitive, with little company loyalty, and many will have multiple jobs with various companies over their career. Long gone are the days when vast numbers of people enter into good paying jobs and were able to chase the American Dream. In fact, this current political season shows how out of touch those with wealth are from the rest of America.
Millennials also value financial flexibility and many came of age during the last housing crisis and witnessed firsthand the nonsense their parents went under. Many parents were rocked to their core when housing values crashed for the first time nationally in our modern history. And what about the kids that lived in those 7,000,000+ completed foreclosures that happened in the last decade? You think they are eager to buy?
Reason #5 – Lower Home turnover
As it turns out, many current home owners are just reaching break even. Since many thought their homes were piggybanks they are now left having to delay retirement since guess what? You can’t live off the equity until you sell! You can live in a $1 million crap shack but you still need to pay taxes, insurance, and upkeep. How do you access that $1 million? By selling. But many want to live like millionaires without unlocking that equity. So here we are. A stalemate. And guess what? Many of those adult kids are living at home.
Builders in California are smart. They are targeting multi-family units over single family homes. In some areas they are building out condos because if the market takes a turn, they can simply turn them into rentals since there is big demand for that.
The idea that Millennials were going to save the market is off base. Prices are high but for reasons that go against a healthy housing market.
Lots of people park in the street in California too because limited garage space and putting too many people in a home.
In Florida the building boom continues, but with more multi-family crap built wood frame apartments. You can hear your neighbor take a leak in the middle of the night. Lowest entry cost making rents higher than existing older, but still affordable.
I prefer single family new homes with split plans, big kitchens and lots of bathrooms. Also need a 3 car garage. Some builders charge $125/sq. ft. and build a few homes while others charge $100 and own the market. Plus the production builders have newer designs and decent warranties. The best custom builders are unaffordable to me.
There are some mobile homes in Florida, but there are more beautiful homes too. I shot both pictures, first is Delray Beach on the Intracoastal and the other is Madeira Beach near Clearwater on the west coast.
San Francisco real estate is deep into a tech driven mania. Home prices in the Bay Area are comically out of reach for most families and people are getting squeezed out like ketchup in a disposable packet. What seemed like a new peak was once again surpassed. The housing market is running on massive fumes and delusions run rampant. The justifications for current prices run abound. Yet the truth of it all is that we are deep into a manic phase of the market. The current median price for a home in San Francisco is now $1.5 million. This is for your standard crap shack flavored box. People are still buying even though volume has trended lower but just look at the current price range. A lot of this is being fueled by wildly high tech valuations and people believing that prices will never adjust. In other words, a bubble.
Tech driven mania in San Francisco
Home prices are up nearly $300,000 in one year simply because San Francisco is going through a housing mania. Tech valuations are off the charts and there seems to be this belief that prices will never come down. The consensus seems to think that buying real estate at any given point is a smart move. They simply cannot foresee a correction in the cards. What is interesting is that some think that since people didn’t buy in the last dip why would they buy this time? So therefore you should buy today. The problem with that line of reasoning is that it doesn’t focus on the most important economic item for most people – the actual jobs they hold.
So take a look at current prices in San Francisco:
This is how a mania looks like in the form of home prices. People seem to think just because we don’t have NINJA loans or no-doc products that somehow no bubble can ever occur again. Have you been to Las Vegas? People routinely put actual cash on the table and lose it. This isn’t a shock. Just because you use cash or have a sizable down payment doesn’t mean a correction can’t happen.
You already see sales volume trending slightly lower:
There is something going on and it doesn’t seem all that clear. But what is clear is that sales volume is moving slightly lower. Prices are in another dimension. The stock market is also in record territory and you have big deals being made like Amazon buying Whole Paycheck Foods. We all know that when corrections hit valuations do get adjusted.
So what can you buy for $1 million in San Francisco?
You don’t even get 1,000 square feet for $1 million. Someone is already trying to cash in here:
It sold for $750,000 in 2015 and here we are two years later and somehow the place is now worth $250,000 more. Totally makes sense.
So you have to wonder how long this Bull Run can go. We’ve been in a very strong bull market since 2009. Eight years of moving up for stocks and real estate is a long time especially at the speed of how things are going. When crap shacks are going for $1 million you have to wonder where do we go from here.
San Francisco is in another world when it comes to real estate and the justifications being given remind me of tech bubble 1.0. Will tech go away? Of course not. But many companies will and with that tons of high paying jobs. I wonder what happens after that?
I love getting tips from Uber drivers especially when it comes to buying real estate. We are now back at that level where real estate can do no wrong, the house humpers are confusing luck with investment acumen, and of course the sheep dive in head first at the most frothy time. It is clear that we are in a mania and hot money is flowing everywhere. Credit card offers are soaring and lending is booming across all areas: credit cards, auto loans, student debt, and housing. With housing, we are now seeing one of our favorite past-time events in treating a home like an ATM. Home equity withdrawals are now moving up in a direction that is not exactly positive if you believe in actually keeping your equity locked in instead of cementing your belief in the bubble and adding more debt. You do need to pay those loans back by the way which many tend to forget. Home equity withdrawals are simply one of the final steps in the delusional mania.
The housing ATM is back
Real estate is blistering hot. It is fully disconnected from incomes or any sane measure of valuation. The only thing beer belly house lusters can say is that “well comps are selling for this so therefore the market has spoken!” Cult chasers were also buying tulip bulbs, beanie babies, and itching to get a piece of Bernie Madoff’s investment sauce. Now the hot thing of the day is buying a crap shack at all costeven if it means you are living on rice and beans to pay the mortgage.
The Fed knows we are close to having a turning point. Just look at how many times interest rates have been changed in various decades:
Hah! The Fed knows we are s-c-r-e-w-e-d. The Fed needs to “try” to keep rates low but the market can become unglued at any moment. After all, everything seems stable in our current economy and political system [/s]. I can’t help to think that we are aiming for a Black Swan type event shortly that simply is off the radar. By definition, these events are unforeseen and yet if you look at history they are replete with them. We know they will happen. To think otherwise is to be naïve and to ignore history and avoid the basic tenets of scientific inquiry. Markets by definition are operated by herd mentalities. The herd is running rampant.
Using your home as an ATM is dumb. Yet here we go:
Home equity withdrawals are now getting back in fashion. People are already leveraged up to their eyeballs in other forms of debt (see later in article). So what if they don’t have a NINJA loan. What happens when there is a correction and the next recession hits? Just look at the balance sheets of many tech companies based in California. They are ridiculous. And these companies employ hundreds of thousands of high paid tech workers. Many of these workers are keeping the bubble afloat in places like San Francisco. Does it matter that you put 20 percent down on a $1 million crap shack but lose your job? Many of these tech companies have balance sheets that are not performing.
So the stock market is hot, the housing market is hot, and now the mania is making people think that using your home like an ATM is smart. It is not. This is simply “cheap” debt that is secured to an inflated asset. You need to pay this back. All debt requires a payment. And yet the issue in the last crisis wasn’t liquidity but solvency. The notion was that if you only fixed a couple of things, all would be well. But no, people made absurd bets on inflated valuations and it all came crashing down. People over paid on a grand scale and it imploded.
And make no mistake, there is a lot of debt out there:
Total debt is now at a record. And you know what is even more nuts? We have more debt in items that are more volatile than housing:
-$1.4 trillion in student debt
-$1.1 trillion in auto debt
-$1 trillion in credit card debt
People are in debt up to their eyeballs and many Taco Tuesday baby boomersare unprepared for retirement especially with their Millennial kids now moving back home. Time to tap that home equity to pay off those college loans.
Los Angeles now takes the award for having the lowest homeownership rate for Millennials. As it turns out most young adults are either living at home with their Taco Tuesday baby boomer parents or are living like sardines in rentals. The options are limited short of forking over a massive amount of money and committing to living in a crap shack. You will have to eat rice and beans (and tacos) for a decade but at least you will own a piece of the California dream. That dream is clearly that – an illusion for most. The figures back this up. Of course the audience on this site tends to lean to higher income households and those with higher levels of education but the house humping rhetoric is still intense. Most realize that buying a home in the greater L.A. metro area is just one giant pipedream. Less than 18 percent of young adults own a home in the greater L.A. metro area.
Living the SoCal dream
The figures are startling but not all that surprising. You have crap shacks selling for ridiculous prices yet household incomes are still growing slowly. So what do younger people do? They either live at home with their parents or rent. The results are rather clear.
Take a look at this wonderful chart:
The greater L.A. area has the worst homeownership rate for younger buyers, even worse than tech drunk San Francisco. Why? Because in the Bay Area, even though home prices are insane so are salaries for young professionals. So even though the Bay Area is nuts and has a massive amount of tech froth, people do earn higher incomes. Here in SoCal especially in the greater L.A. metro area people don’t make high enough incomes to justify current home prices. Thus the low rate of ownership from younger buyers.
The data dug deeper and examined how long it would take to save for a down payment sans mom and dad loaning you all the money they saved from those Taco Tuesday blowouts:
According to the analysis, it would take the typical young L.A. couple 32 years to save for the standard 20 percent down payment. Hey, if you start at 30 you can buy when you are 62! Just around the time you can collect on your Social Security benefits.
So you have this weird trend going on where people are critiquing young people for eating avocado toast and other nonsense and that is the reason they can’t afford a crap shack that looks like a rundown property in Detroit. So that is the reason they can’t buy a $700,000 dilapidated box?
We’ve discussed in detail that Millennials were not going to save the housing market. What you have right now is a massive amount of NIMBYism, grandfathered in older buyers, and foreign money flowing into certain areas. That is keeping the market afloat but what has made the housing market healthier in other areas is actually allowing for young professionals to buy without going into insane levels of debt for World War II built stucco boxes.
So this data which is based on reality (not fake news) is showing the true nature of our housing market. I know house humpers will say “lay off the lattes!” to save for that down payment but it is more complicated than that.
Take a look at this:
LA Median Home Price: $226,000
Median Household Income: $42,189
Price-to-income ratio: 5.35
LA Median Home Price: $585,000
Median Household Income: $56,196
Price-to-income ratio: 10.4
Even with lower interest rates, the bottom line is you are still paying a much higher amount for a home relative to household income. And that is why it is no surprise that you have a record low in terms of young households owning property in L.A. Now you have Taco Tuesday baby boomers confined to their gold plated granite countertop HGTV inspired sarcophagus with locked in low property taxes and their offspring moving in at record levels as young adults. On the bright side, that means more income under one roof for delicious gourmet tacos!