We’ve added 10 million new renter households over the last decade. What does it mean when renting is now part of the new American Dream?
Since the Great Recession hit, we have added 10 million renter households. The trend to renting was largely spurred by the crash in the housing market but also over qualifying Americans to purchase a piece of the American Dream. The trend has slowed down but not in states like California where a renting majority is now solidly in place. Even Orange County, a place that was once thought an untouchable red region turned all blue. Then you have places like the Inland Empire that went solidly red. The bottom line is that many new households are opting to rent versus purchasing a home. This decade long trend is showing some signs of slowing however as rent price growth is slowing.
The trend to renting
The stock market has been on a massive bull run since 2009. This is one of the strongest stock markets we have seen in a generation. You would expect that home buying would be hot given all of the wealth being created. But not all Americans are participating in this and many are in deep debt. Student debt is over $1.4 trillion, auto debt is over $1 trillion and credit card debt is also more than $1 trillion. That is a lot of debt Americans are carrying.
In California, it is no surprise that you have millions of adult Millennials living at home with parents. Not enough money to rent let alone buy a home.
The trend to renting over owning is very clear:
The number of owner households is now barely above pre-housing bubble levels. Many that lost their home went into rentals and many younger Americans are opting to rent. So of course, this added some big pressure to rents:
The pressure on rents have come from the large 10 million new renter households being formed. But now both prices and rents are softening indicating a bit of a slowdown. You also have more Americans buying in areas and states where homes are moderately priced. In California, you have a renting majority so of course voting is going to reflect that. Some people feel they can live in gated enclaves while the rest of the population is living 10 to a house just to make the rent. You get a very clear split in the population and the new tax policy is going to hammer many California homeowners who have mega mortgages and deduct everything from SALT and other items. 2019 is going to be a shock to many California homeowners.
The reality of course is that many Americans are having smaller families or choose not to have children. Kids are expensive especially when both parents must work. Just look at childcare costs in many large areas where they can cost $1,200 to $1,800 per month per child. People don’t factor these things in but many Millennials are and this is reflected on the overall trend that we are seeing.
Los Angeles County, the largest county in the nation in terms of population is a renting majority area:
It is also one of the most expensive to live in. So you have many Millennials (those next in line to buy homes) not being able to afford to buy but deciding to either rent or to live with their parents. This trend will continue unless two things happen:
-1. Prices adjust lower to reflect lower incomes
-2. Incomes rise to provide more purchasing power
Since the economy now appears to be slowing, it looks like number one is the more likely option.
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366 Responses to “We’ve added 10 million new renter households over the last decade. What does it mean when renting is now part of the new American Dream?”
What is this “American Dream†of which you speak?
A Realtors dream to sell you an overpriced Crap Shack.
If you are a RE cheerleaders than skyrocketing rent is your American Wet Dream. For all others: We have to be asleep to believe it.
Can someone explain to me why anyone would purchase a home when you can rent the same home for like half the cost?
Buying means 3 out of 4 involved parties win.
Here the winners:
Realtards
Lender/banks
The seller (most likely an old boomer)
The loser:
You!
Buying makes sense if the market is about to recover after a crash. So buying at the peak (like now) is the worst time to buy.
Have you ever heard “buy low sell high� If so, that’s a phrase to memorize. Have you ever heard of buy super high and foreclose when you lose your job? That’s not a path to great riches. Is it more likely the latter happens in this environment? Yep! Is it more likely at some point in the near future we will get a bust (just like every time we had an extrem bull run? Yep! Do market go up forever? No.
So, if you buy high now that is really on you. Don’t cry later when a millennial buys next door for half the price you paid.
If you buy out of compassion for boomers, banksters and realtards that’s another story. Some people might like to make realtards and banksters rich. And some people might like like the boomers to have it all even though they don’t deserve it. I don’t want to talk you out of it. If you buy high now I have less competition during the bust.
What if you never care to Sell?
Just buy?
You may have the intention to buy and hold real estate for the long term. However, reality often gets in the way. 60% of all marriages end in divorce. People get sick, and health insurance has huge deductibles these days. Medical bills are the number one cause of personal bankruptcies in America. You can get sued. If you are in business for yourself, the odds of lasting ten years is about 4%. Being self-employed is a good way to lose everything.
The market can’t be controlled. You can avoid buying at or near the top.
Dude,
You gotta go long on something in this life (marriage, health).
Otherwise, buying RE is always a bad idea.
Well it looks like the recovery is over and now with the yield curve inverting today, a recession is on the horizon (a year out potentially).
Real Estate prices are going down:
https://www.zerohedge.com/news/2018-12-04/toll-brothers-shocks-13-plunge-orders-california-falls-staggering-39
https://www.zerohedge.com/news/2018-12-01/markings-top-price-cuts-bay-area-homes-are-exploding
yield curve has not inverted yet – still at 0.2%
Its a good question, but not everybody buys real estate for the same reasons. We bought last year because we needed a bigger place to live because of a growing family. Waiting 5 years or more for the bottom of the market wasn’t a very good option and who knows if the drop would be big enough to justify the wait especially as interest rates go up.
Compared to renting a bigger house, buying in fact was probably a 30% higher expense per month. But in the long term we believe we will at least break even. Plus the property we bought gave us space to launch a new small business.
Not everybody looks at real estate like they do the stock market, and it does not behave like the stock market either.
Of course Mind1, if everyone would be financially savvy, people like me wouldn’t profit as much. You need lots of people who buy high and foreclose later. A deep economic crash is the best thing since sliced bread. For me but NOT for everyone.most people seek instant gratification. You tell them delay your urge to have everything Now and they look at you as if they have seen an alien. I call it drive through mentality. They can’t wait and time, they have to get into lots of debt. I can’t help them but will certainly profit by it.
Play the game or get played by others.
The housing market in California (and many other places) has absolutely acted like the stock market for the couple of decades. Maybe you did what is best for you, but many of us are renting a halfway decent place in a nice area (for a very reasonable amount of money) and are in no desperate need to buy. Why pay more now when you can pay much less later? I bought a place in the last downturn (it’s now used as a rental), and we’ve made a 60+ percent ROI as of this time. That may very well decrease over the next few years, but it doesn’t matter because we’re keeping it anyway.
In any case, it pays to buy low. We did it last time, and plan to do it again (one for ourselves and hopefully a small rental or two).
Millie, not everyone puts money as their top priority. Some people prioritize quality of life such as living in a bigger own home/nicer neighborhood and walking to parks (as opposed to visiting open houses).
and yes, we know, housing market will crash by 50-70%, you will buy cash, meanwhile your rent is so cheap, nobody besides you has financial discipline and wits. You are very smart and we are all envy your vision and value your advice.
Life does not wait for a market crash.
Surge,
“Some people prioritize quality of life such as living in a bigger own home/nicer neighborhood and walking to parks (as opposed to visiting open houses).â€
Yes, as soon as you buy the grass gets greener. All you’re problems are gone and life is just as sweet as can be. Don’t worry about the overinflated price you paid. Price doesn’t matter! Spend away and live happy! Don’t think about losing your job or back up plans! Financial trouble only happens to renters not homeowners! Everybody knows that! Those 7 Mio foreclosures during the last rodeo where renters disguised as home owners! Buy now and start living! Or rent forever and be a depressed loser!
Number of homes on the market in LA, is 30% higher YOY.
https://la.curbed.com/2018/11/26/18112822/los-angeles-inventory-how-many-homes-for-sale
home prices sure have not fallen correspondingly though. After all, you too can live in scuzzy East Hollywood 750 sqft for only $600K.
https://la.curbed.com/2018/11/26/18112822/los-angeles-inventory-how-many-homes-for-sale
You say:
“”This trend will continue unless two things happen:
-1. Prices adjust lower to reflect lower incomes
-2. Incomes rise to provide more purchasing power””
I disagree.
In my opinion,
This trend will continue unless one of three things happen:
-1. Prices adjust lower to reflect lower incomes
-2. Incomes rise to provide more purchasing power
-3. Prices continues to rise faster than nominal income which means a lower standard of living ( i.e. stagflation ). In my opinion, this is the most likely case.
Were are the buyers going to come from for #3 to be correct ??? didn’t think it threw did yah ?? smh
The FEDS will provide enough liquidity in the system such that the wheels stay on. This is inflationary. They have to … there is no other option. This will be an inflationary recession … this happened in the 1970s. Prices went up during a slow economy.
Maybe from the government again…
I assume the buyers are going keep coming from where they have been coming from for the last 18 years.
If you think incomes rising is the answer, then just wait to hear all the howling and belittling that will occur when LA teachers go on strike in January. Besides, a 6% raise isn’t going to suddenly enable someone to buy a house. $75,000 per year sounds like a lot. But not in this market.
2019 will be a year of transition, in preparation for 2020.
Your crystal ball is working. I had a fortune cookie that said almost that the other night.
Rent in Los Angeles have almost doubled since 2011.
read it and weep Millennial…. rent is flat like the earth is flat:
Month All Beds 1 Beds 2 Beds
1/2011 1,585 1,342 1,730
2/2011 1,597 1,358 1,720
3/2011 1,636 1,386 1,771
4/2011 1,651 1,407 1,787
5/2011 1,670 1,422 1,836
6/2011 1,664 1,407 1,850
7/2011 1,563 1,321 1,775
8/2011 1,641 1,370 1,899
9/2011 1,779 1,512 2,040
10/2011 1,847 1,584 2,095
11/2011 1,852 1,620 2,112
12/2011 1,802 1,505 2,057
1/2012 1,837 1,529 2,090
2/2012 1,836 1,532 2,096
3/2012 1,927 1,590 2,101
4/2012 1,917 1,629 2,082
5/2012 1,933 1,694 2,136
6/2012 1,965 1,740 2,134
7/2012 2,033 1,785 2,262
8/2012 1,976 1,701 2,211
9/2012 2,031 1,759 2,265
10/2012 2,051 1,780 2,290
11/2012 1,986 1,766 2,197
12/2012 2,030 1,797 2,244
1/2013 2,015 1,761 2,275
2/2013 2,018 1,752 2,322
3/2013 2,042 1,771 2,357
4/2013 2,069 1,772 2,400
5/2013 2,040 1,767 2,354
6/2013 2,109 1,818 2,425
7/2013 2,123 1,805 2,460
8/2013 2,105 1,787 2,414
9/2013 2,130 1,858 2,448
10/2013 2,169 1,884 2,503
11/2013 2,064 1,791 2,393
12/2013 2,123 1,827 2,495
1/2014 2,186 1,903 2,551
2/2014 2,153 1,870 2,487
3/2014 2,088 1,821 2,413
4/2014 2,131 1,862 2,435
5/2014 2,096 1,810 2,393
6/2014 2,174 1,837 2,537
7/2014 2,208 1,837 2,553
8/2014 2,194 1,836 2,532
9/2014 2,199 1,888 2,489
10/2014 2,187 1,861 2,502
11/2014 2,222 1,899 2,512
12/2014 2,221 1,908 2,492
1/2015 2,198 1,911 2,528
2/2015 2,215 1,935 2,575
3/2015 2,338 2,022 2,656
4/2015 2,433 2,058 2,666
5/2015 2,550 2,050 2,706
6/2015 2,586 2,012 2,738
7/2015 2,435 2,024 2,731
8/2015 2,422 2,041 2,748
9/2015 2,453 2,101 2,798
10/2015 2,450 2,137 2,812
11/2015 2,461 2,155 2,819
12/2015 2,435 2,143 2,792
1/2016 2,444 2,170 2,822
2/2016 2,432 2,154 2,800
3/2016 2,575 2,292 2,955
4/2016 2,591 2,274 2,968
5/2016 2,595 2,286 2,985
6/2016 2,585 2,282 2,979
7/2016 2,603 2,290 3,006
8/2016 2,612 2,299 3,021
9/2016 2,614 2,303 3,027
10/2016 2,663 2,328 3,088
11/2016 2,601 2,291 3,029
12/2016 2,611 2,301 3,024
1/2017 2,618 2,305 3,014
2/2017 2,625 2,313 3,011
3/2017 2,558 2,243 2,978
4/2017 2,552 2,229 2,996
5/2017 2,503 2,194 2,914
6/2017 2,489 2,194 2,883
7/2017 2,511 2,209 2,904
8/2017 2,490 2,184 2,895
9/2017 2,524 2,218 2,947
10/2017 2,481 2,207 2,907
11/2017 2,445 2,183 2,863
12/2017 2,430 2,168 2,839
1/2018 2,461 2,188 2,901
2/2018 2,512 2,230 2,972
3/2018 2,554 2,252 3,012
4/2018 2,546 2,251 3,026
5/2018 2,742 2,388 3,214
6/2018 2,755 2,397 3,235
7/2018 2,799 2,444 3,286
8/2018 2,784 2,413 3,259
9/2018 2,819 2,437 3,309
10/2018 2,809 2,439 3,288
I guess I’m lucky to be paying 2011/2012 prices.
These are median prices.
You probably live in less than averaglely-desired area, so it appears as you are paying 2012 levels
Ditto!
Dang! My rent is so cheap in comparison! Could you post this list once a month so I can feel great about the deal of a century I am getting? Now I am thinking I should get my old landlord lady a big Christmas present! On second thought, I always tell her made up stories about how hard life is. can’t have her raise my cheap rent for the first time otherwise I can’t brag about it anymore! And Giving her a nice Christmas present might send the wrong signal. Anyways, thanks TankInSight!!!!
What’s most annoying about you is not what you post, but that you repeatedly post the same remarks in every thread, and multiple times in every thread.
We get it. Your rent is low. That has nothing to do with the topic, but okay, you were compelled to post it yet again for the zillionth time.
My question: How many more times do you plan to post about your low rent, in a poor neighborhood, that your landlady who hasn’t raised, in this thread alone?
How many times will you post “Buy now or be priced out forever” or “Making money is easy, just buy low and sell high” in this particular thread?
How many years has it been since you had a new thought?
You need to get your nice old landlord lady:
1) A basket of healthy fruit
2) A healthy veggie tray
3) A nice sweater to keep her warm
4) A good health insurance plan if she doesn’t have one.
Just keep her alive until you buy a house.
Nice old landlord ladies are much nicer than their greedy Boomer/Millennial kids who will inherit your home and notice how much below average your rent has been. .
The kids will likely sell your home or raise your rent. If there are no kids, probate will sell your home.
That is nice of you to think about giving your landlord a gift.
Millenial,
Any time you want to check back in to reality, please let the dear readers here know.
In the mean time, please post more about your BS open houses that you go to every weekend.
TA TA
Millie, for every person like you who pays ultra low rent, there are a hundred people who pay market rate rent. And we have heard plenty of them on this blog over the years complaining about another big rent increase. I sure hope that 1M house goes for 300K next year. I will buy several in cash.
The responses from our last remaining RE cheerleaders made me proud. Hit a nerve there. There is only one story here…..rents are skyrocketing, rents are skyrocketing! Buy now!! As soon as someone tells them a real life story about how ridiculously cheap rent is compared to these lists or compared to buying, our RE cheerleaders flip out. Classic!
The inflation drum and pretending rents are too high are the last resort for our remaining RE cheerleaders. Watch what will happen next year during the bust….they all disappear or turn ugly and our good Dr housing bubble will put them on the naughty list.
Curious. I wonder where your rents are coming from? Because this tells a different story:
https://www.rentcafe.com/average-rent-market-trends/us/ca/los-angeles/
If you dig further, it appears that average rent is incredibly skewed by high end rents and find that most places in each size category are actually under $2k per month.
Going a step further, rents in suburbs, even those with excellent public schools are even less than LA rents.
I’ll go first. Which of these is more likely?
1. Prices adjust lower to reflect lower incomes
2. Incomes rise to provide more purchasing power
How about incomes and prices rise as a result of inflation, but in real inflation adjusted value the prices drop a little.
In both cases -> affordability drops because of rising population and inflation
False premise.
Real estate is already ‘inflation adjusted.’ Real inflation rates for homes is a fallacy.
That is the whole point of housing, that it is tied to income, which is already inflation adjusted.
Joe R may be correct.
It has happened before.
Inflation from 1979-1982 in the US ranged from 10%-13%.
Inflation adjusted house prices during this time leveled off and then fell.
However, non-adjusted prices rose slowly.
https://i0.wp.com/inflationdata.com/articles/wp-content/uploads/2013/06/Inflation-Adj-Housing-Prices.jpg?ssl=1
News Alert:
Toll Brothers CEO blames media reports of housing slowdown for slowing housing
https://www.cnbc.com/2018/12/04/toll-brothers-ceo-blames-media-reports-of-housing-slowdown-for-slowing-housing.html
This is what I have argued … the media is trying to suppress housing with negative housing stories. The media is having some success, but I do not think it will work. And, I also think they are doing this in an effort to stain the Trump administration. Their end goal is to hurt Trump in the 2020 elections. Expect much more of this crap.
I think it has become more fair and balanced now.
During the last 3 years, our local news had segments on people who became lottery millionaires when they sold their home that they bought in the 1980’s for over 1M+ profit and retired in their 50’s.
How many Flip-or-Flop spinoffs are there that have been driving this insanity?
Bad bad media! It’s all the media’s fault!
Btw, looks like more rates hikes 🙂
https://on.mktw.net/2REpDWY
The media is now negatively influencing house prices by purposefully writing negative articles about housing? Man, that is about delusional as it gets. The media has been cheerleading this extraordinary run up and now, 2 years into the Trump presidency, they want to crush the party? When the final borrowed dollar becomes the snowflake that causes the credit avalanche no one will be able to sell these ridiculously priced homes. In all of the history of civilization man has never been able to unwind a debt bubble without a massive forgiveness. And doesn’t appear to be a part of the American soul. Thankfully, California is a walk away state. This time, much of the mortgage debt was issued by non-banks like Quicken, etc. Foreclosures will be faster this time around.
You must be on acid…
All this talk about Millennials and no one is talking about the elephant in the room. Most Boomers are ill prepared for a long retirement and the huge cost of healthcare and long term care. These house rich, cash poor will need to cash out there equity to pay bills.
There is going to be a rush for the door.
Social Security and a Reverse Mortgage should keep the boomers in their homes for many years. Reverse mortgages are already substantially reducing the supply of homes available for sale.
IOW, Boomers will increasingly take out reverse mortgages — leaving nothing for their Millennial children to inherit.
I dont think there will be a rush for the door by Boomers. Remember when 10,000 boomers per day starting retiring and everyone thought that they could sit back with popcorn and watch the housing market tank… it didnt happen.
Why:
here is my guess why the Boomers have not sold their homes en-masse:
a) renting out rooms long term on Craigslist
b) renting out rooms short term on AirBnB
c) renting out entire homes for far more than their mortgage from 20yrs ago allowing them passive income in their downsized living quarters (wherever they moved to, probably Fontucky)
d) allowing grown children to move in (and contribute to the mortgage)
e) allowing grown children and grandchildren to move in.
f) taking P/T jobs in the gig ekonomy (Uber, Lyft, etc).
Many boomers cannot afford to sell out UNLESS they move to Flyover country (Fontucky included) and they are simply too comfy in their old Westside home to move out even if they need to find a Taco Tuesday everyday.
I think I’m seeing it in my neighborhood. Boomers starting to sell those lotto tickets. You cant make it in California on six figures and you definitely cant make it on fixed income. How will they get hospital visits with an extremely overburdened socialized health care system? These houses are 50, 60 years old…do they have the cash for a roof or plumbing repair???
Doctor: The reality of course is that many Americans are having smaller families or choose not to have children. Kids are expensive especially when both parents must work.
OTOH, dirt poor Central American illegals are having anchor babies as soon as they arrive, so they can qualify to stay, and for the welfare benefits.
Americans are not having kids so they can earn more money, and pay more taxes to support illegal single moms’ kids.
We’re paying for our own replacement
Red state to blue state to brown state – a sh!thole where the streets are covered with feces and feces colored/covered people. Would you want to be a kid growing up in that? The only solution is mass extermination of the hordes.
The other thing people often leave out is that rents are essentially parasitic on the productive economy. Landlords for the most part do not produce anything (or very little), they simply siphon off money earned in the real economy that could have been better spent in the real economy. Money spent on rent doesn’t generate jobs or in any way expand the economy — it’s just a drag on capitalism. In fact, the most expensive rentals (in the best areas) are not more expensive because the landlord has done anything at all, but merely because of location. If pure capitalism is about creating wealth, non-productive (parasitic) drains on capitalism need to be taxed mercilessly. This was essentially Thorstein Veblen argument in the Theory of the Leisure class.
Sounds like straight out of Das Kapital. Trouble is with your thinking nobody would invest in long term capital investments. You forget, though we discuss it every time, the capital investment brings the possibility of loss. If you want to eliminate the opportunity to make money, will you also cover all the losses? Or is this just one way? You don’t have to let those grubby passive income people buy houses – you can buy them instead
Rent DOES generate jobs. LOTS of jobs.
* Larger buildings have on site managers and supers. Some have doormen.
* Buildings are serviced by all sorts of maintenance & repair people — roofers, electricians, plumbers, landscapers, painters, carpet installers, even government inspectors.
* Then there are manufacturers and retailers of carpeting, paint, plumbing, and other supplies, that all of the above use.
* And the insurance & bankers who service buildings and landlords.
* Don’t forget the lawyers, judges, legal system personnel (even the occasional private investigator) for all the court cases involving landlord and tenant disputes.
The above list is not exhaustive.
You sound like one of those people who imagine that buildings are self-sustaining money-spigots that incur no labor or expenses.
Large corporate landlords like REITS, I actually sort of agree with you. Non-Institutional owners do not fall into this category. As a small example, I am a landlord and I take old defunct buildings in disrepair with generally miserable tenants and make them habitable and cool and I keep rents low. My tenants are for the most part ecstatic to be where they are. On many occasions they even thank me for creating such well kept inspiring buildings at an affordable price.
So you could say I produce nothing and am a leach but my tenants would disagree with you. Without landlords like me there would be a lot of really low quality housing where large corporate entities treat their tenants like sheep and drag their feet to make even the smallest repair etc.
I don’t argue with you that there are a lot of really bad landlords, as with anything in life, but you cannot paint all ‘landlords’ with the same brush. It may work in a paperback vaccuum but not in real life.
While I agree that rent is somehow parasitic, on the other hand it does not matter who spends the money in the real economy – the renter or the landlord. If the landlord doesn’t spend it all, then he is investing it, which is good for the economy. If no spending and no investing, then the savings do help the banks liquidity for borrowers and other investors. Either way, I don’t see an impact on the real economy.
I rent out a house that I built myself. (I don’t mean I paid to have it built; I hammered the nails that keep all the walls together!) So I don’t care what a silly socialist professor thinks about me. And even if I had paid someone to build it, or bought it second hand, it is still allocation of capital that makes it available to a willing renter (like maybe Millennial?).
Absolutely joe! Anyone here can have me as a renter as long as you are giving me a gift just like my old landlord lady currently does! If you can save lot some of money each month by renting cheap than the question becomes: what’s not to like? You just do this until a nice crash happens and buy RE at a heavy discount. Many RE veterans believe it will be a 50% haircut in prices. I can see it and agree strongly.
If you ever decide to chuck civilization and move out to Bear & Mountain Lion Country, you might be interested in my place. However, I have a current tenant who was born in the Country and doesn’t want to leave. Since they pay the rent on time, I don’t want ’em to leave either.
That sounds all great. My plan for now: I will stay in SoCal for another 20-25 years than retire early. My tech job is here and I don’t want to work fully remotely. I also have never paid late in my life. In fact I pay rent a few days early. Never paid interest on a credit card either, I always pay it off right away and only use it because I play the “points gameâ€. Again, I think you would love me as a renter just like every landlord. It’s a win win until the housing market is ripe to invest in.
Sorry, but this is complete crap. I own rental property, and I would be happy to show you the expenses I’ve paid over the years to maintain it. Expenses for carpet, tile, bathroom fixtures, fencing, subflooring, plumbing materials, appliances, doors, fans, window coverings, air conditioners, heating systems, paint, lumber, drywall, etc. Where do you think all that stuff comes from? Do you think I maybe PAY businesses to get that stuff? Those businesses provide jobs for people to support their families.
I also have to pay a guy to put that stuff in, which helps him feed his family.
I also pay a property manager, which supports her business. That puts food on her table and supports the employees that she has so they can put food on their tables.
My property is also kept very nice, which has contributed to improvement in the area and rising property values.
Let’s also not forget the premiums I pay to my insurance company to protect it in the event a windstorm blows off the roof. Actually, that happened a while back. And guess what, I paid a roofer to fix it, which supported his business and helped put food on his table.
Oh, and the property taxes I pay help keep the roads paved and the schools open.
This idea that landlords don’t support the economy is complete garbage.
I wasn’t saying that landlords don’t have expenses, but they are generally the expenses that anyone living in the unit would have. Contrast rents with tacos: Tacos get cheaper and better because of competition, because of taco vendors working harder and harder. This is good for everyone, and a more expensive taco is going to have to be a better taco, or there will be no buyers. Also, each taco sold includes labor value added to the component parts (corn, meat, etc), thereby expanding the real economy.
By contrast, rents mostly increase without the units getting any better (no new labor value added). Landlords make more money in California solely because of scarcity, NOT because of increased quality. This is exactly the opposite of how wealth is created in a dynamic capitalist system. Every dollar that does to inflated California rents is pulled out of the productive economy and this threatens the entire California economy. Under-taxed (Prop 13) landlords are the single biggest drain on our productive (real world) economy – it’s a class of parasites.
It is laughable that being a landlord is parasitic. There is way more risk owning a rental compared to sitting on your ass buying stocks on your iphone. It’s another form of investment. I have preached over and over that any good investor is diversified…and that means owning RE. Coming up with the down payment, dealing with repairs, bad renters, vacancies is all part of the game. The key is knowing when and where to buy rental property. This separates the contenders from the pretenders. You can complain about boomers enjoying their Prop 13 spoils, get over it!
I am a landlord as well, however I do not see the need to pat myself on the back like you do. I do see most landlords as parasites. That’s what they are.
You could also say every time you take a dump, you help keep the economy going (Plumbers, Sewer workers, toilet makers, toilet paper companies…. etc).
But most people don’t feel the need to pat themselves on the back after taking a dump, I guess you do.
Cheers
I agree that landlords are parasitic (even though I am one, though I only have one unit). Many arguments to the contrary center around the fact that landlords spend money to maintain and fix stuff. However, this argument completely ignores the fact that the same (or more) maintenance and repairs would be made if all units were owner-occupied. You could argue (as some have) that landlords are incurring monetary risk and are rewarded for that risk, but being a landlord is not very risky for anyone that can do elementary school level math and makes investment decisions accordingly. I don’t really see any way around the fact that landlords are parasitic and effectively increase the cost of housing.
What, they can afford to pay rent? Fire up the student loan debt machine. There is still capacity.
What, they can afford rent?
What, these folks have cash flow to rent? Fire up the debt machine!
Merry Christmas:
https://www.wsj.com/articles/chinese-dumped-1-billion-of-u-s-real-estate-in-third-quarter-extending-recent-retreat-1543924802
I have to admit, I used to not like Millennial. I thought he was obnoxious and a loser of sorts. But he is like a fine wine, he gets better with time. I am a Millennial fan now.
I am particularly a fan of his ‘you must be new to RE’ and ‘As a RE expert I advise that you..’ I think he has effectively turned the silly RE bubble humper rhetoric that is so common back into the faces of Bubble Hummers themselves.
Pre-Millennial it was as if the RE agents of the world had a corner on these sort of statements, but no longer. This is maybe too red-pilled of a comment for the PC crowd amongst us, but it is almost like how the African-American community took the “N-word†and now use the term themselves amongst one another.
That is Millennial, he has turned your weapons against you. I’m a fan.
And no I’m not Millennial posing under a pen name as suggested or a Russian Bot.
Keep annihilating the Bubble Humpers Millennial, you are gaining a fan base.
I have challenged and defended Millennial. I disagree with the people who call him an internet troll or whatever. My personal favorite commentator is Flyover. Actually I wouldn’t come in here if we only had one type of opinion on this blog, and most of the regulars say something worthwhile some of the time.
Thank you guys! Like a fine wine…. I like it!
Yep, there are some quality posters here (flyover def one of them). Woody, Prince of Heck, Hotel California, nor cal breeze, etc some come and go.
Party is over. I am all in cash. Epic crash coming next year. A 50-70% crash in housing? I totally agree with Millie!
That’s because you ARE Millie.
Now 3 out of 6 indicators are checked off on master Logan Motashamis recession dashboard. Tick tock and his tone keeps changing quite a bit too.
This message is only for average people and bears.
For RE cheerleaders: nothing to see, this is just the start of a 30 year bull run. Buy now and don’t miss out!!! Next year millions of Chinese millionaires will line up and fight with lethal chopsticks to buy your home.
Buy now and don’t miss out!!!
That’s one. How many more times will you post this same remark in just this one thread?
Sol, trying to understand why you are getting so annoyed. I don’t recall you getting annoyed at the countless occasions when RE cheerleaders were making these statements:
It’s always a great time to buy
There are buses filled with foreign cash buyers touring the neighborhood, ready to buy.
Interest rates will never go up again in our lifetime
QE infinity
Buy now or you will never own
Rents can only go up, stop wasting your money on rent and buy
Incomes don’t matter
They are not building more land
And one of my favorite ones: THIS is The year when millennial go out and buy in droves!
We have no inventory!
The list goes on and on……I am just repeating the RE cheerleaders phrases. Why get annoyed at me? Now that the bubble is popping, I want to make sure we don’t forget these statements. Somehow these statements are only true when the market goes up but RE cheerleaders don’t want me to mention them during the bust? What changed? I didn’t buy 7 month ago when I was told that I need to buy now or else I can never own! I should be priced out forever, no? What happened to all the millennials that were gonna buy in droves and what happened to the Chinese millionaires wanting to buy? Is the bus still stuck in traffic?
What about interest rates? Why are they going up? We heard they will remain stagnant at 3% in our lifetime! Why is my rent not going up even though smart RE cheerleaders told me so? Why the neck is inventory increasing???? We heard there is no inventory!
If you are already annoyed now than the next few month and years won’t be much fun.
Millennial, I’m annoyed because in the last several years, I’ve only heard those statements from you. You repeat them endlessly, multiple times every thread. It’s like a Chinese water torture. Even if one likes water, it gets annoying if it drips ceaselessly every minute.
We on this thread are not stupid. We don’t need to be reminded of anything multiple times every thread. Say something original.
“in the last several years, I’ve only heard those statements from you. â€
Got it! So, when our RE cheerleaders make those statement you just don’t “hear itâ€.
It’s somehow totally fine to spread BS as long it’s coming from someone who profits from inflated prices. As soon as someone comes in and ridicules these phrases you get annoyed. In other words you hate a RE crash and can’t handle hearing the lines that your fellow cheerleaders repeatedly told us. Did you actually think it’s true? Someone can be priced out forever? Are you losing money when the market crashes? Does it bother you that I was right by saying the “there is no inventory†line wasn’t true? Or, are you agreeing with me that all of these statement are in fact bullcrap and you are tired of hearing them?
Milli, my big mistake was NOT listening to the real estate “cheerleaders.”
In 2013, I listened to Jim “HARD TANK” Taylor and his crowd. I kept waiting for a HARD TANK. When prices continued to rise in 2014, I assumed it was a dead cat bounce. I ignored the cheerleaders. Big mistake.
Even if the market crashes now, it’ll just go down to what it was in 2013. If that.
“Even if the market crashes now, it’ll just go down to what it was in 2013. If that.”
So, your thesis is that it would have been better financially to buy in 2013 instead of buying 5 years later for the same price, is that correct?
It depends on the individual and the situation but here is an example based on my model: save for a large down payment by renting a cheap apartment and buying low during a downturn:
In 2013:
Horst Kluppenheimer decides to purchase his first home.
500k, 50k down, 3% interest rate, 30y conventional, no Hoa (nice Horst!), PMI (.05% sry Horst), Homeowner insurance is $840 per year (guesstimate). A little bit of maintenance, lets call it $50 per month ($600 a year). Principal and interest is $1,897.22, thanks to Prop13 the property tax burden is solely on new buyers and boomers get a pass. That translates into $458.33 per month property tax. PMI, homeowner insurance and maintenance is $307 per month. PITI = $2,663.05
bubble inflates, Horst is happy as a clown and makes fun of his best buddy Egon Schniedelwutzer for renting.
Schniedelwutzer is as cheap as they come. He’s goal is to save lots of money monthly. He also doesnt want to pay PMI and rather rents a little crappy apartment for 1k a month.
5 year later the market hits a peak. lets see how they did so far.
Kluppenheimer spends 32k a year on housing for living in a decent house. And he gets a tax refund for itemizing interest and property taxes. Plus he’s got himself a wife. As we all know homeowner get wifes, renters usually watch porn. Since he is married his standard deduction was (until the trump tax reform) $12,700. He pays 18.8k in the first year for interest and property taxes. So being a homeowner lets kluppenheimer itemize and deduct $6,171.52 more as a homeowner compared to him renting. Say his marginal tax bracket was 28%, he gets himself a $1,728.02 refund in the first year. $144.00 a month. the following year the interest payments decreases slightly and the principal increases. Lets keep it simple and calculate the tax refund in favor of the homeowner for the five years (same tax refund for the next years).
So, total cash outflow for PITI is $159,783.09 (5 years), over the five years Kluppe got $8,640.12 back in taxes. Plus a wife, plus a decent house, plus he gets to make fun of Schniedel who rents. Everyone knows how big of a loser renters are. And the equity!! $49,921.36 was paid down during these 60 months. And the best of all, his house is now worth 700k (on Zillow).
Schniedelwutzer’s math is easier. first year 12k for rent. each year his rents increases by 3%. His landlord isnt as nice as Millie’s old landlord lady. Over 5 years Schniedelwutzer has nothing to show for except cash in the bank and stocks. He paid 63,709.63 in rent. Whaaat. Just out the window. What a waste. Makes his Landlord rich who drives a Lamborghini now thanks to Schniedel rent payments.
Now, the bubble pops. Schniedel has been watching the market and wasted his 5 years on open houses and watching the market. Kluppenheimer partied the last 5 years and spent like there is no tomorrow. After all, his house is making him rich (on screen). Instead of spending, Schniedel saved the difference between what the house would have cost him and his rent. $96,073.46 (Cash outflow as buyer $159,887.54
minus the cost for renting the cheap apartment $63,709.63). And he still got the initial 50k that Kluppenheimer put down as a downpayment. Schniedel invested it conservatively in a mutual fund which made him 5% per year ( after 5 years $63,814.08 ). He sells in order to invest in real estate. total cash available: $159,887.54.
Per Lord Blankfein, the prices will not go below 2013. Schniedelheimer buys next door to Kluppenheimer. He pays down 160k on the 500k house. interest rates are now 5%! Total cash outflow (PITI) is $2,403.53. The big difference however, Schniedel’s loan is 340k. Kluppenheimer’s remaining loan is the initial 450k minus 49k (principal in 5 years). Schniedel has no PMI and he can refinance when rates go lower. If he refinances to a 3% loan like Kluppenheimer, his PITI is now $2,011.79.
Over the 30y duration of the loan, Schniedel will pay $724,243.34 and Kluppe $891,198.53 ( I am excluding PMI on Kluppe’s total, evt he will get rid of it). Another simplification in favor of the homebuyer!
Now, obviously, to make this work you have to consider renting a cheap apartment instead of living 5+ years in a decent house. To me the savings and waiting for a market downturn is worth it. That doesn’t work for everybody. Provide some feedback and questions regarding the math. Thanks!
Millennial, this is a great analysis.
A few points.
1) As Surge has pointed out, it is hard to make life wait, so a family of 5 may not fit in a 1 bedroom apartment. Your comparison shows how someone saving by living minimally and renting can come out ahead even while waiting.
2) You analyzed the first 5 years comparing rent to home ownership differences fairly accurately (I’d wait to not pay PMI personally but your 3% mortgage may not have been available in 2013. It is likely the rate was 3.5%. )
3) You did not take into account the last 5 years of Schniedelwutzer’s mortgage. Schniedelwutzer’s will still be paying PI of 1,897.22 per month while Kluppenheimer will be paying nothing for PI during the last 5 years. On the back end, that is 60 * 1,897.22 = $144,180 more that must be added on. Of course, in 30 years, $1,897.22 may buy a cup of coffee after the enormous inflation some are predicting.
4) The analysis of principal paid will change over the life of the loan. ie the first 10 years, interest dominates the payments. After the the first 10 years, the principal payments dominate the loan. IMHO, that is one reason why housing should be a long-term investment.
Sorry.
60 * 1897.22 = $113,833.20
Millie,
I will do a high level critique of your example.
You say one guy pays 891k and the other 724k.
Over 30 years.
That is $460/month. (not inflation adjusted).
All the trouble with visiting open houses for 5 years, cramming into smaller place and waiting for something you cannot control. For a $460 / month????
LOL!!!!!
Dude, you can easily do consulting side gig. Like 10hrs/month to get you to $500 after taxes. Instead of visiting open houses
This also reminds me of an engineer co-worker who took a job in Silicon Valley in the late 90’s.
He negotiated for the hiring company to allow him to live in his camper in the company parking lot for free. He used the shower in the company building and cooked his own meals in the camper. He was in IT so he was always close to work to handle any network crisis. He had a high salary and no rent.
He also had no life (and no wife).
Surge,
somehow it sounds like you are not enjoying going to open houses? Thanks to open houses i learned a lot, found my realtor, found the floor plan i like, found the neighborhood i like. What do you like doing in your free-time? Any hobbies?
“Now that the bubble is popping, I want to make sure we don’t forget these statements.”
But, but Millenial. What about the crypto statements? They seem to have been conveniently forgotten. Don’t like mocking your own BS?
I know, I know… like everyone else, you got in at 50 cents and made millions.
The yield curve has inverted, it’s going to get ugly, get ready. Nobody knows where this thing is headed next.
A wise investor once told me “I bought when prices were flat, I bought when prices where high, I bought when prices were low, I always found cash flow and I always accumulated properties”.
12/04/18 (Last day the bond market was open:
1 Mo 2.37
2 Mo 2.42
3 Mo 2.42
6 Mo 2.58
1 Yr 2.71
2 yr 2.80
3 yr 2.81
5 yr 2.79 (wowie .. an inversion)
7 yr 2.84
10 yr 2.91
20 yr 3.05
30 yr 3.16
If you want to call this an inverted yield curve, OK.
Here’s an inverted yield curve from 2-12-08:
1 Mo 2.55
3 Mo 2.31
6 Mo 2.12
1 yr 2.06
2 yr 1.94
3 yr 2.13
5 yr 2.71
7 yr 3.13
10 yr 3.66
20 yr 4.43
30 yr 4.46
Note that you have to go out to 5 years to get a yield better than a 1 month treasury bond. Now that’s INVERSION!
Truth is wage growth is strong. Truth is the job market is strong. Truth is GDP is running well north off 3% on a yearly basis. That has not happened since the Bush was in the White House. Only a Democrat can’t see this because they do not like the current administration. They are praying for an economic collapse just so they can get back into power. That is the story.
JT, it’s getting boring with your political tantrums.
I dont care if we have a Muslim terrorist as president… THe only thing I care about is a market crash so i can buy RE at a heavy account.
Discount
75 % of my SFR property is to newly retired couples who want to enjoy their retirement , and do not want to be tied down to the mundane chores and responsibility of home ownership. I will continue to respond to their requests for maintenance items while using the monies to finish paying off the outstanding mortgages on the properties. Fortunately the rental parity is close, and I have many requests or available rental units. Yes , I am waiting to acquire at least one more property, but not at this current time. I have noticed that my tenants desire to attain, retain, and gain greater social status within their social class, low-status people emulate the respected, high-status members of their socio-economic class, by consuming over-priced brands of goods and services perceived to be products of better quality, and thus of a higher social-class. In striving for greater social status, people buy high-status products (goods and services) which they cannot afford, despite the availability of affordable products that are perceived as of lower quality and lesser social-prestige, and thus of a lower social-class. In a consumer society, the businessman was the latest member of the leisure class, a barbarian who used his prowess (business acumen) and competitive skills (marketing) to increase profits, by manipulating the supply and the demand among the social classes and their strata, for the same products at different prices.
Call me Scrouge is you want, but I will not do anything to stop you from committing financial suicide. It is your responsibility to control your own destiny, not mine. It is never too late to be quiet and listen to the old grey hairs who have seen this before.
Absolutely. But, who is to judge that paying for an experience of opening a nicely package product is not worth it. Or spending hundreds to get chicks drunk in vegas. Or paying extra just to avoiding wasting your time on mingling with those who you do not care to see or avoid frugality disease.
I do not see anything good in store for California right now. Kids ( I consider a kid to be under 30) can’t afford to rent. They can’t get a job that pays enough to buy a car from what I see. If a kid is lucky enough to find a good job, it’s most likely in an area where housing is even higher? What is the feeling from everyone about what is happening? What kind of income is needed to afford to buy a house? What does a starter home go for in most areas? ??????
Resubmitted… I crashed the site…
So much stacked up against the kids. $2500/month for a mortgage payment is likely a bargain? Are 200k jobs available? Seems like that is what is needed to live in California anymore….
Even in Arizona, the housing market is heading higher, fast. I don’t see jobs over 60k often, and that wage takes a pretty good education, likely in tech. Average home now is 350k… 60k salary won’t cut it. Even two incomes won’t cut it.
It seems that parents are taped out too…. can’t carry the kids too much longer?
I see the empty nesters approaching retirement doing well… but the ones I know have a couple of family members sucking off the hind tit….
Do I see things correctly or what am I missing? Seems like a lot of money has dried up? Parents at one time had money in the bank, safe in a CD, getting 4 to 6 % interest…. the past ten years, that quarterly check has been gone, and I think missed very much.
Wallstreet has been a hit or miss… my 401k is doing well, but as we know, it too can be gone in 60 seconds?
Feel free to pound me and let me know where I’m screwed up?
You are too negative and attribute too many of personal issues to external factors
Under 30 is a kid? That right there is why this country is screwed. You set your expectations and they live up, or in this case, down to them. Treat them like adults and make them man up. By 25 they should be solidly into the early stages of building their career, whether on the job or getting the advanced schooling. Back in my day (shakes fist at cloud), we werent given time to find ourselves – we got the boot and started hustling and made it happen. Loser helicopter parents created this loser snowflake generation. Not saying everyone in Gen Z or whatever it is (millenials are in their 30s, they cant be blamed for everything) is a loser but too many are because of the low expectations. It blew my mind 10 years out of college that there were guys in their mid 20s living with their parents – how the h3ll did that happen I wondered? Didnt exist in my day.
I think alot of these loser parents are codpendent or some such – they want their kids to be helpless and rely on them – same with their little rat dogs they have on their lap when they drive. Sure, there are massive impediments to young people – we’ve had near hyperinflation in housing, health care and education in the last 20-25 years (40+ actually) that have taken a massive toll on the culture but those are all government sponsored/financed mafias and the idiots seem to want more of the same – so easily fooled.
Mr. Limberg…. Your completely right! But the real estate cheerleaders here will tell you otherwise.
That’s why we are here picking up good ideas on rental property purchases and some of the ins and outs.
I bought my in laws a house to help them out, because they were being drained by my sister and brother in law. At the same time I had to update their old property with $15K to get it ready to sell. I put them on a budget based on their income, some of the freebie items SIL and BIL changed from free housing instead to a small cash stipend. Paid off all their debts, helped them where needed, but changed their lives, also BIL and SIL were forced to live within their means.
inlaws died, paid the difference (including extra equity I paid for) to the SIL and BIL, now the BIL is renting from me and Sis at 20% discount to what I could be getting, maybe even 30%. Barely break even for us, but in 15 more years it will be paid for and owned free and clear. Plus we help the family. Have had financial discussions with BIL and SIL, they are now beginning to listen and save some money instead of buying stupid shit stuff they don’t need.
SIL and BIL Health is getting better, finances cleaning up, but correlation is not causation.
Put my two through college with side biz that paid 25-30K/yr. Both are out debt free, one making more than $100k/yr in the southeast. the other one just out, moved to denver with boyfriend who makes about $50k, looking for work in 2% unemployment market. Should be at $40-60K within a year or two. That’s the American dream!
Empty nesters me and sis now with extra $50-70k/yr in savings can purchase new vehicles after 18 years driving clunkers that have broken down at 300-350K miles, Looking for more properties to get as rentals, if I cannot find them I will be buying land and developing it myself. I cant wait around and whine about market movements…make it happen instead. I have only 7-10 years to retirement and 7 sounds better than 10. Wife is working 6 years behind me, so i get to hit the trails while she finishes up filling her 401K. Ill take care of a few more rental units, get a couple more paid off and rental units become our SSN payment if SSN fails. We already have income from one unit, farmland, side consulting of >50K/yr. Enough to retire now on a meager existence. if we sell the 600K house, with 500K in equity, we downsize to the development neighborhood and build it a little bigger than the rental units. Then live happy life either way. Mexico riviera can be nice too, have some friends already there on less than 3k/month living the high life. Everyone needs options, as you can tell, I HATE payments, being the one to pay interest is a suckers’s game, be the bank if you can. Renting units makes me the bank. The problem with this board is that hard work is not recognized. I have been consulting and helping thousands, in fact more than 100,000 people have been helped by my consulting medical implement business. Yes, I have been rewarded such that it paid for a little more of a house, and paid for college for two, but I am no multi millionaire. My wife works professionally also in the medical field. She sees the people every day that sit around and complain, the ones who drink cokes like water, stuff garbage down their gullets, resulting in huge medical issues and shortened lives. People are not taking responsibility for their lot in life and until this changes, there is little future in the large cities, where sloth and graft are celebrated. We pay more than $50K/yr in taxes, We gave up on luxuries to get our kids the best schools and no debt. We helped our family members when needed, thousands of loans to them go unpaid. We work our butts off every week, and night and weekends consulting, taking care of then rental unit, paying taxes. And god willing we did it and then some.
We have seen it all in the last 30 years. a high percentage of people are just along for the ride. they get a GED and think they deserve a good paying job. They don’t want to put in the hard work it requires to be successful and they don’t take responsibility for their lot in life. They don’t want to move away to better areas where their income level can afford a home. I am here to tell you, if you are that person, stop crying and do something about it. Quit making excuses, pick up and move somewhere cheaper. Move away from negative family members that drag you down. Move away from stupid CA, there are plenty of other places and small towns that offer something you never had before: FREEDOM and OPTIONS. Quit waiting around for something to happen and make it happen instead! I moved back and forth from CA to Southeast, to CA, to TN to Southeast for better jobs, and to be closer to family members when needed. I could not have done it if I did not pick up and go. Quit whining about Prop13, quit whining about your lot in life, it’s your damn choices that get you where you are.
There are plenty of other DOERS here, learn from them. Make it happen for yourself by doing it yourself. Quit waiting around for something to happen and make it happen instead. It will be far more rewarding and you will gain experience, respect.
In California where we taxed to live in sunny weather, and where a modest single family home can easily be over $1 million, capping property tax write offs is yet another blow to the middle class family. While the middle class is being penalized with limits on property tax write offs Trump is lowering corporate taxes thereby increasing g ever more the gap between the super rich and the dwindling middle class. This isn’t capitalism. Another observation, the generations we are raising now, what kind of a future can they expect when their parents are overburdened with debt, taxes and ever increasing cost of education. Has anyone even considered the cost of emotional health our economy is placing on young families?
Flora, you must be a real estate agent. Only people who benefit from selling overpriced real estate would make such a statement “capping property tax write offs is yet another blow to the middle class familyâ€.
This is total BS. Why give out incentives to own? This is market distortion and these benefits are priced in which causes the housing market to be artificially inflated. That’s the last thing future generations need. They need a market crash so that they can afford to buy a home. Take your RE cheerleaders gear and try somewhere else 🙂
You’re telling her to leave? Who the hell are? You’ve taken over the doctors blog and now you’re shooing people off. Why don’t you start your own blog so I can ignore it.
Jed my buddy,
Don’t get too riled up. I don’t mean for her to leave in a literal sense. I appreciate the last remaining RE cheerleaders. My message is more like: nice try in pretending you are an avg person interested in sticking up for the middle class. Lots or RE cheerleaders are trying to disguise themselves as “normal peopleâ€. In reality they are pushing an agenda. It’s almost brainwashing. I like to expose them.
Awwww… but the picture from her business card is soooo cute!
Besides her points are not completely without merit, e.g. the dwindling CA Middle Class. However, the much bigger standard deduction that we get would offset the loss of the write-off for interest for most properties in the IE or other affordable parts of CA, and the expensive areas would be out of reach even with the write-off for Middle Class folks. The Govt. giveth & the Govt. taketh away, but that has nothing to do with Capitalism.
You are correct.
Sometimes it’s hard to swallow truth
>Middle Class
>California
Pick one. Politicians and their donors have made it so these two terms will NEVER be synonymous again.
The property tax, state income tax, and mortgage limits do not affect the middle class. A middle class person can not afford a 1 million dollar mortgage (as a million dollar home will only have 800k of debt vs 750k allowable and only missing out on 2500 dollar of deductions the first year (5% * 50k)). The million dollar mortgages are the domain of the top 5% which is not the middle class. The problem is one of perspective where people who are not in the middle class have this notion that they are. If you are in the top 20% you are not in the “middle.”
Yes, many people have considered this many times. But what is the point of just considering? Are you expecting a fix?
Flora, you are right. That is the reason I left CA. For me, it was for higher quality of life. Those who decide to stay there, for the most part, live a miserable life due to ratio between income and cost of living. Housing is only one component in the quality of life. It is their choice for one reason or another. However, they are not forced to live there.
Everyone is free to chose, but they can not chose the consequences of their decisions. In the end, the quality of life is the cumulative effect of those hundreds of little decisions we make in life. The government can not micromanage the economy. What is good for one person is not for another.
Friends and followers,
Here an update on the November housing data from Orange County! As many of you already know, OC housing data is a great indicator for whats to come.
Lets take a look. Freakin’ Amazing!
Active Inventory:
Last year at this time there were 4,323 homes on the market. That means that there are 58% more homes available today.
Demand:
In the past couple of weeks, demand experienced its largest drop of the year.
Last year at this time, there were 428 additional pending sales, 26% more.
Luxury End: The luxury housing market continued to slow considerably.
. For homes priced above $4 million, the expected market time increased from 484 to 716 days. At 716 days, a seller would be looking at placing their home into escrow around the middle of November 2020.
Buyers are now in the driver seat. The Expected Market Time for all of Orange County increased from 122 days to weeks ago to 124 days today, a Buyer’s Market (120 to 150 days) and the highest level since January 2011. It was at 62 days last year.
For homes priced below $750,000, the market is a Balanced Market (between 90 and 120 days) with an expected market time of 91 days.
Lastly, here my advice. This is just my personal opinion (based on experience) not financial advice.
For Sellers: Don’t make the same mistake so many others did during previous market shifts/turns/slowdowns: don’t wait too long. If you have to sell, better price below market. Its better so sell now (even with a loss) instead of chasing down the market during the crash (expected to be next year).
Buyers: Sit back and enjoy. Let the sellers come to you, offering you reduced prices and re-reimbursement for closing cost.
Happy Holidays!
Ps.: As soon as the San Diego housing data comes available I will certainly share with you my dear friends and followers.
You should just give it up and relocate to an area where you can afford a home. Or, you should consider going back to college and get an advanced degree so you can get a better job.
Sry JT, I am going to disappoint you. Not slowing down with the updates. Will continue to do so. Also, I could afford to buy but see no reason. Why buy high and waste money?
I do have a BA and a great job. Money isn’t the issue. Overpaying for real estate is what the problem is. Why pay too much and support an artificially inflated market? Lenders, sellers and agents will win in that transaction but not me. I will stick to my plan: save, stay in cash and invest in real estate when we see the crash. You can scream and protest all day long, you won’t be able to change my strategy. After all, real estate cheerleaders helped me with that one. I looked for the past years at arguments at both sides (bulls and bears). Years later I still cannot find a valid reason why buying overpriced real estate would make any sense for me (as a buyer). Let me know when you find that reason. I am a very patient guy!
Millennia;, how did you land up with your low income problem? If the only way you can afford is after a 50% to 70% price drop, your problem is your low income. I suggest you get your tail back into college and upgrade your education. That would give you a better path to success. Because, if you don’t, you will land up a 40 something living in a dreary massive apartment complex with rising rents and no money. Only education can fix your income problem.
JT,
My promise to all RE cheerleaders is that I will share details about the purchase of my first home as soon as it happens! I am thinking I am willing to buy when we get a nice reduction in price. 50-70% is in the cards by looking at the fast crashing market.
You ask what my story is? I tell you, after I started my career I wanted to buy. My realtor and lender lied so much that I asked myself why do all people profiting from my purchase have to lie so much? If buying makes sense why do you need all these cheap sales pitches? That’s when I started digging and I found these housing bubble blogs, read books and stories of first time home buyers. I started to understand the game. The game is called timing! In California it’s all about boom and bust. Now it makes all sense! Because the last thing RE cheerleaders want is a new buyer to understand the game. That’s why you have an army of RE cheerleaders posting on the internet stuff like “buy now or be priced out foreverâ€, “incomes don’t matter†etc.
I am here to share my story, educate others, keep my followers informed about the market and for the entertainment. And once in a while I hear a new funny sales pitch that I add to the portfolio. During the next bust I will have to reduce my postings as I will be busy with my home purchase.
Btw, just watching the DOW, another happy day for bears!!
Thank you for sharing Millennial! Appreciate it… Merry Xmas
In Orange County they buy the house and jack up the prices. If you read Trula, you see a lot of times they jack it up sometimes 80,000 dollars and it doesn’t sell.
In Orange County they buy the house and jack up the prices. If you read Trula, you see a lot of times they jack it up sometimes 80,000 dollars and it doesn’t sell.
I’ll tell you my personal opinion (and I have owned many homes). Only buy what you can afford and plan on owning for the long term. Factors for buying a primary residence and corresponding rules are different compared to an investment property. Buying an investment property is a pure math equation. When buying, many other factor need to be taken into account: proximity to jobs, transportation, buildable land, amenitites, schools, safety, etc. Policies that have left a housing shortage in CA won’t go away anytime soon. Everybody on this blog should have an advance degree in rental parity analysis at this point, it’s the single best indicator how cheap or expensive houses are at any given time.
“Everybody on this blog should have an advance degree in rental parity analysis at this point, it’s the single best indicator how cheap or expensive houses are at any given time.â€
Exactly! That’s why it’s so easy to tell that the current market is waaaay overpriced. My thesis all along… rents are dirt cheap compared to buying! Fight me! Show me the calc! Prove me wrong!
It’s Happening: San Francisco House & Condo Prices Fall
https://wolfstreet.com/2018/12/05/san-francisco-house-condo-bubble-prices-fall/
Why California’s Housing Market is in for Serious Trouble
https://wolfstreet.com/2018/12/04/california-housing-market-in-for-serious-trouble-foreign-home-buyers/
House prices in San Francisco are crashing hard. Check this out. Already down 15% from peak!!
Is somebody here still doubting we will see a 50-70% crash?
https://wolfstreet.com/2018/12/05/san-francisco-house-condo-bubble-prices-fall/
This will be a crash of epic proportions! I expect foreclosures to increase in the near future. If you bought recently and you see you “equity†evaporate you have little to no motivation paying that highly inflated mortgage! Especially if you see your millennial neighbor buying for half off next door. Walking away from that enormous debt is a smart idea in that case. Why overpay tremendously for the next 30years?
Mortgage rates are falling … I mentioned this a few times recently … Merry Christmas … except if you are Millennial … Millennial, repeat after me “Rates Are Down” … you were just telling he they were going to the moon.
https://www.cnbc.com/2018/12/06/mortgage-rates-drop-to-2-month-low.html?&qsearchterm=mortgage%20rates
Rates are a small component of affordability. Incomes are king and cash is the Joker. (See my next post about current interest rates on Govt. bonds. ) It is not the rising rates that will crash housing. Historically, rising rates are in a rising economy which gooses housing prices upwards. (A previous post of mine.) When people start losing employment and defaulting on debt is when the prices will go down big time, and especially in the most strapped communities of home owners. Same as last time. Big bargains in more “affordable” communities as working class owners get nailed again.
JT told us at the beginning of the year this 2018 spring selling season will be epic. In reality we hit a wall. Than he told us rising interest rates have no impact on prices. Lol.
Now, he is celebrating that rates can slightly decrease. Let’s take a look at what he is cheering about:
“The average rate on the popular 30-year fixed has fallen 19 basis points in the past week, from 4.94 percent to 4.75 percent on Thursday, according to Mortgage News Daily.
The drop comes after the 30-year fixed hit a recent eight-year high of 5.05 percent at the start of November.â€
In other words:
No way! Rates are down! Rates are falling! Hurry, lock in your rate today! It’s a great time to buy! Rates might go up! Buy now! Buy now! Before it’s too late!! You might be priced out forever!!
I am glad You still find things in this crashing market that gives you hope JT. It would be a shame if you disappear as well. Let’s keep this going. You are one of the top suppliers of RE cheerleader BS lines.
The spring season was epic. Record high prices. You missed your chance to share the wealth because you thought prices were going to crash in 2013. Bad call that set you back financially.
The RE market hitting a wall in spring was epic! I agree on that one. Since then we have rising inventory and decreasing prices. This will excellerate as we move forward. I saved money – lots of money – the last few years. Rent cheap during good times and buy during downturns seems to be a smart strategy. I’ll let you know when I buy, just have a bit more patience. We are not quite there yet 🙂
Treasury Yield Curve Rates 12*06*18
1 Mo 2 Mo 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5Yr 7 Yr 10 Yr 20 Yr 30 Yr
2.36 2.42 2.41 2.56 2.70 2.75 2.76 2.75 2.80 2.87 3.01 3.14
This is almost as flat as Kansas; from 1 yr to 10 yr differs by 0.17 %!
A couple of weeks ago the curve was starting to actually look what you would think would be “normal”. The inversions that people see in this are just the noise in a flat rate curve in my opinion. We aren’t seeing a jump in short term rates yet.
Mind blowing what’s happening in seattle:
https://seattlebubble.com/blog/
“NWMLS: Home listing inventory skyrocketed in November as sales and prices both fell further”
“November’s year-over-year listing growth was an all-time record at a whopping 114 percent.”
114%!!!!!!
You got to check out his YoY graph!!
“The massive surge in active inventory has forced me to adjust the y-axis on this chart. We’ve hit new all-time records each of the last four months.”
Prices started to fall. We should see dramatic price crashes in seattle within the next few month and years.
JP Morgan article claiming fake news by those trying to spread discord for political reasons are rocking markets. Millennial’s posts sure fit the bill … he ishttps://www.cnbc.com/2018/12/07/why-are-markets-so-volatile-jpmorgan-guru-thinks-fake-news-to-blame.html trying to spread garbage …
Yelling “fake news†sounds like defeat!
Why don’t you counter with inventory/housing data?
You know the data doesn’t fit your narrative so you try to spin it in a political way.
The buyers sentiment has shifted. Potential buyers no longer fear of being priced out….they fear of catching the falling knife in a fast crashing housing market!
This is the death sentence for RE cheerleaders and this bubble.
You can yell, it’s the bad media, it’s a conspiracy, it’s the libtards, it’s the socialists, it’s fake news all day long. Nobody doubts the party is over. We all know it and by yelling fake news you are just saying “ I haven’t nothing left in the tank. Out of ammunition “
Yelling ANY news is a defeat. All these news/graphs/data you post is news because very few can put it in the proper context. You just gotta operate with your ears atuned to all the noise. Some people do it like millie (wait for a crash and live in frugal poverty meanwhile). Others focus on income and healthy finances and become imperveous to the actions of others.
What about being a relatively high income earner and living frugal temporarily to achieve a goal?
Millie, that is fine also.
And thats what i am doing….
Tons of open houses this weekend! Too many to see them all but I picked some interesting ones to check out. Usually, there is nobody there besides the realtor. Let’s see if it continues that way. The Buyers appetite for overpriced houses seems to be gone.
I also noticed that many houses that sat for many months and were taken off the market are now back on the market. With a much lower price! Now this makes sense again. For a while I couldn’t understand why you would not lower more dramatically or at least rent it out. In all fairness, some tried to rent it out but the asking rent must have been too high. The houses remained empty which didn’t make sense. Now they are back on sale for lower prices which means the seller gave up on the market. It’s smart. You don’t want to be caught chasing down the market during the bust next year.
Well it is holiday time, people are rarely buying in december. Some better deals to be had in December. You are getting desperate with this thing to convince yourself that RE is crashing
True, now that the market is crashing it becomes more and more fun sharing it.
Millie, I am waiting for your next update on open house situation and how agents are yawning. Please send out. I want to enjoy it over my $5 latte with ocean views.
Surge, Over Christmas and New Years I won’t get to it. I am overseas (Europe). I will send open house updates beginning of January. Until then, I will certainly continue to share articles about the housing crash. We just got good news from Las Vegas and San Diego (skyrocketing inventory!). I will keep you posted.
I know there has been some hyperbole from the doom and gloomers for a while, but they are about to be right soon. Anybody sweet talking rents or home prices has missed the memo that the downturn in RE has started throughout the US, esp. throughout inflated CA. The coming drop will be massive, there doesn’t need to be a crash just a slow and steady bleed. Investors won’t come back for a while and buyers will be missing as well as the 10 year expansion deflates. If you’re a flipper or want out better sell now and fast with a hefty price cut, if you’re a landlord prepare for much lower rents, though rents should hold up a little better than house prices.
Rents are so detached from the value of the underlying asset, that I don’t expect rents to change at all. I expect home prices to fall to meet where the rental market currently sits.
exactly!
I just paid a pretty penny to remodel my kitchen, I had ppl driving by if I was getting ready to sell or rent when they see contractors there. I’ll keep my 5 bd home in the valley for now, I can’t beat a $1900 mortgage unless I move out of Cali. If I cash out, I’ll be paying 2500 plus just for 3 bd for my kids.
Article from Robert Shiller. His claim is no one knows when the current housing boom will end.
https://www.msn.com/en-us/money/realestate/analysis-the-housing-boom-is-already-gigantic-how-long-can-it-last/ar-BBQDXjk?li=BBnb7Kz&ocid=mailsignout
But unlike you he knows it will end. That’s the point.
Plus, if the last bubble taught us anything it is that economists and so called experts are often times completely out of touch with where markets are heading. You remember that right? Bernanke in 06 etc.
“Experts” and “aware winning economists” simply interpret data and draw a conclusion like the rest of us. They still sit on the toilet.
Clearly, Millennial = nor cal fella
He’s also Done Deal in this thread and a dozen other handles.
Anytime you see a new name and he’s parroting Millie’s lines, it’s usually silly Millie pretending to be someone else.
JT, Jed,
I totally understand the concern. If a lot of people start talking about a crash etc. it scares the RE cheerleaders greatly. A change in buyer sentiment seals the deal for housing. Once the herd stops buying the market will collapse quickly. Therefore, all people that favor a crash and dislike higher prices must be one and the same person. If that helps you, please keep telling yourself that. It’s all good!
The Democrat socialist thugs who completely control Commiefornia have welcomed millions of criminal illegal invaders into the state. Illegals are crammed into houses and apartments turning what were once nice family neighborhoods in LA and the rest of SoCal into crime infested turd world sanctuary sh*tholes with their junk vehicles clogging the streets. Damn Commiefornia Democrat socialist thugs and may they burn in Marxist hell!
yep, but who is going to pick the fruit and clean the bathrooms? Americans? Yeah, we know, all we need to do is increase wages by 300% and Americans will do these shitty jobs. As if that’s gonna happen. The housing bubbles are not the illegals fault nor the democrats nor the republicans. Its a greedy society. People want to make money off the house and need to sell high to the greater fool. The results are more dramatic boom and bust cycles. We all participate in this game (active or passive) and everybody tries to blame someone else. If you are a millennial you are upset about boomers who bought ridiculously low and enjoy ridiculously low property taxes. If you are a boomer you blame either the other political party, illegals or millennial’s for refusing to buy high.
I’ve seen white Americans doing those jobs in small towns in the West and Upper Midwest where there are few foreigners. But they get to live among their own people. In California, they are not able to afford to live in that sort of situation so they move back to where they are the majority and hope it stays that way. I see fewer and fewer black Americans every time I’m in South LA. They are moving on too.
You’re right more or less, but what is your point? Just stating the obvious? Preaching to the choir? Just venting?
JT, this is not a partisan issue. It’s not a Trump issue or a fake news issues or a Fox News issue or a GOP issue or Obama issue. Nor is it an issue related to Milli’s tax bracket.
This housing bubble was debt fueled by global central bankers inject monetary crack cocaine into the system in the form of ZIRP and QE. It is really that simple. Bubble 1.0 exploded and it was simply re-inflated and here we are today. It is the exact same bubble from before.
Sure, lending is different, who cares. Not all bubbles are NINJA bubbles. There were no NINJA loans during the Dutch Tulip Crisis.
It is so simple to see that this RE Bubble is also an Everything Bubble and it is already cratering. The only thing JT is right about is that inflation is coming, thinking that massively overvalued real estate holdings are a great hedge during this time is where you are sadly mistaken. It will get deflationary before it gets inflationary. It’s already happening, no crystal ball needed.
Nor Cal Fella, you are right on that one. JT is correct about inflation, too. Powell knows about the existing inflation. Like I said before, the FED put themselves in a corner – if they don’t raise the rates, they lose control on inflation and if they continue to raise the rates, they crash even the bluest of the blue chip companies along with RE, banks and the bond market.
I’m not blaming Powell, but I am blaming the FED which created this bubble in the first place using ZIRP and QE. At this point, regardless what Powell is doing, it is going to end badly for most players (for potential buyers, massive job losses).
nor cal fella: I completely agree. I’m entirely perplexed why so many people think that housing prices can’t decrease substantially just because there are no NINJA/liar loans. Houses (and anything) are only worth what others are willing and able to pay. In the near future, if consumer confidence is zero, jobs are disappearing, and the Fed is nearly out of ammo to fight the problem, it really doesn’t matter if mortgages originated as NINJA/liar loans or not. House prices are still going to decrease, and probably substantially.
Just like nor cal fella, I also don’t know how the “everything bubble” can be ignored. Assuming I (a layperson) understand everything correctly, the values of everything are inflated (stocks, housing, etc.), all directly or indirectly fueled by debt courtesy of QE. Every component of the economy is mired in debt at or near all-time highs- personal debt (including credit card, student loan and car loan debt), corporate debt, government debt, etc. With QT underway, it’s becoming obvious that the emperor has no clothes. To think that this is not a scary time might be rather naïve to say the least.
Bad loans can create massive liquidity crunch for their holders even in good economy. Take enough ARM loans which reset in good times and this cause significant and sudden uptick in monthly payments. Add a liar loan – and you won’t be able to refinance at a later time.
With fixed rate mortgages, people have less risk of sudden liquidity crunch and thus less risk to be forced to sell when market transitions to a seller’s market.
Remember, 2008 crisis was caused not by bad economy…rather economy tanked because of housing crisis and liquidy crunch (which is acutally a reverse of normal)
1 year update.
Bought a year ago (Dec close).
1) Premium area (new, excellent schools, location..)
2) Sold Price of identical home is up by ~80k (6%-7%).
3) Supply of home priced in this range is very low, and <1 month to escrow. Things are a little bit slower compared to last year.
Outcome: I am happy. Excellent home. Rates are up and prices are up. I only care because I have little more downside protection in case I am forced to sell in a downturn.
“Bought a year ago (Dec close).”
I am so sorry! No wonder you are on a housing bubble blog…..You are desperately trying to keep the market up by posting your propaganda!
Millie, I am not delusional. I know that me posting anything on this forum has ZERO impact on house prices.
Cool; good to hear. Properties in good locations PRICED accordingly still get snatched up very quickly. Average location with unrealistic price point; sit n sit n sit.
What are some of the specs for the curious?
County?
How much down did you put?
Debt to income range?
Good ol’ Dan!
You seem to be a bit out of it lately? Here a quick update regarding the OC market in case you are interested in data and stats?
“Active Inventory:
Last year at this time there were 4,323 homes on the market. That means that there are 58% more homes available today.
Demand:
In the past couple of weeks, demand experienced its largest drop of the year.
Last year at this time, there were 428 additional pending sales, 26% more.”
Despite all the mud being thrown at the housing market by those that want it to sink for political or personal reasons, home prices continue to rise.
https://www.scotsmanguide.com/News/2018/12/Home-prices-are-still-rising-in-most-states/
you are looking at old data. Wait and see, the prices are falling left and right but there is a delay until you see it in the stats. In SF for instance prices have already fallen 15% from peak.
LMAO, jt, thats a mortgage trade magazine, you think they’ll report the truth? they pick irrelevant markets to promote their nerative, you have lost all cradability.
Hi JT, It’s me Millennial, I mean, ummm, Nor Cal Fella. Ya.
Nice source dude, why don’t you quote Lawrence Yun next or your local neighborhood realtor that says it’s a great time to buy and sell real estate! How old are you? I’m guessing your not above 30. Here I’ll start, I’m 38, but I’ve been a full time RE investor since 2004. But you must be even younger than me if you are sourcing market projections from Realtors.
The OC Register’s Real Estate columnist Lansner is now referring to his Sunday column as “Bubble Watch”. He examined the linkage of stock market drops and California real estate slumps. 1982, 1987/1988 and 2001 had stock market woes that did not translate into California housing slumps. The 2008 stock market drop followed the California real estate drop by more than a year and started recovering more quickly. Only the late 1991 stock market drop preceded a housing drop in California. Lansner attributes that drop to job cuts in Defense. In the 90s the stock market easily beat California real estate in appreciation. I agree that jobs not stock appreciation is the housing market’s driving force, so if hiring continues in California, the national stock market won’t have much effect either way. So rather than the stock market, we should be focusing on which California industry (or industries) might be facing large scale job loss.
I witnessed the 2001 stock market drop. At first, beach properties stopped selling and a few buyers came in and got excellent deals. After about 3 or 4 months, the market bounced back and prices started rising again.
Not sure about 1982 (too young) but 87 while severe recovered quite a bit within a year or so. 2001 Greenspan cut rates to zero after 9/11 attack, the stock market has already been going down quite a bit for a year and a half. This mirrored the japanese stock market bubble which I believe burst in 1989 and all the money then flowed into real estate, including much in hawaii and california.
Right now we’ve hit peak pricing and stupidity and this suckers going down. 25% decline in the median for CA and probably at the national level too. Some places will be down 50%, some 10-15%.
Mr Lansner used quarterly data deliberately to smooth out minor bumps like what jt described. The 2007 drop just kept going and going quarter after quarter past 2008 to 2009. That was the real deal and that’s what Millennial is looking for.
I went to three open houses today. A townhouse in Santa Monica. Two houses in Pacific Palisades. In all of three, I was the only one there (apart from the realtor).
Is real estate crashing? Or is it a normal December slowdown?
All three realtors were lackadaisical. One sat in her chair, reading. One sat in a comfy chair, relaxing. The third wandered away. I called to her several times to see where she’d wandered off to.
Did they figure I wasn’t a serious buyer? It’s not like they were busy attending to anyone else.
I told the realtor in the comfy chair, I emailed your partner with some questions. She never got back to me.
That’s because she doesn’t know,” he answered.
Did he know the email I’d sent to his partner? Or was he just guessing, or covering up for her?
So I asked him, I was wondering about how well sound-proofed the common walls are?
Oh, the seller doesn’t know that, the realtor answered.
Okay. So don’t nobody know nothing.
Wow! Does anybody still doubt the housing bubble is bursting? Maybe, you want to listen to this….
https://wolfstreet.com/2018/12/09/west-coast-housing-bubble-bursts-even-without-tech-bust/
Whats everybody’s thoughts on price compression, where traditionally higher value homes drop in value quicker than the low end starter home, narrowing the gap between the two.
I see the beginning of this now, but will it continue? It could be a rare opportunity for the move up buyers to score a deal before the bottom falls out.
This is what will happen and unless there are major job losses the bottom won’t fall out.
Remember, the prices in premier locations are influenced by the wealthy, not the wager earners. These premier locations also skew the median price higher so just because median prices may be dropping it could simply be because these premier locations are cooling off.
I think that for a clearer picture of what is really going on people must look at real estate that falls within the conforming loan limits. Most entry level folks buy what their monthly payment can afford and fall within the conforming loan limits. Conforming loan limits are going up in 2019 again, to a max of $726,525 which means that folks in the entry level arena can take on a larger loan next year without putting 20% down to get there.
Conforming loan limits are a driver of entry level home prices. If prices for entry level homes in good neighborhoods move up next year but the premier locations cool you’ll definitely see price compression. If this goes on for a couple years their will be move up buyers that will fill part of the gap in premier location sales.
If prices are dropping and inventories are rising in good neighborhoods within the conforming loan limits then I think we’ll have a problem. Right now I’m not seeing that where I’m at, Central Contra Costa County, SF Bay Area.
How would the owner of a low-end home move up to a high-end home? If prices are comparable, then to whom could he sell his low-end home? His potential buyers would also be aiming for higher end homes.
There is more competition at the lower end of the market, maintaining a minimum barrier into home ownership. Anyone who can afford to buy a home, can afford the low end.
There are far less that can afford the high end of the market, so less competition leads to longer listing times, more price reductions, and larger decrease in value in dollars and percents.
What we saw in 2008 was when the bottom fell out and very few could afford a home, dragging the whole market down.
Every time SoCal house prices drop, there is a recession.
And every time there is a strong job market, there is no recession.
Today’s newspaper shows there is no recession … the job market is nearly the strongest ever …
https://www.cnbc.com/2018/12/10/job-openings-back-over-7-million-and-near-a-record-high.html
Perhaps Millennial, or nor cal fella, or what ever name he goes by can see the jobs jobs jobs. With so many jobs available, there should be enough high paying jobs for everyone with the correct education. Econ 101 … a high paying job first, then get that seven figure dream home. That is the American way.
The pinko communist way is crash all the prices then just pray that I get into one for a song.
JT,
“Every time SoCal house prices drop, there is a recession”
Very true!
Yes, the job market is strong! We certainly see it at our tech company.
Can that continue forever? You already see the stock market and housing market changing. The business cycle is ending.
Millennial, nor car fella, and all the other ID’s you post under. The NAR has some bad news for you. Better sit down. Here is a quote:
“Inventory will continue to increase next year, but unless there is a major shift in the economic trajectory, we don’t expect a buyer’s market on the horizon within the next five years,” said Danielle Hale, chief economist for realtor.com. “Unfortunately for buyers, it’s only going to get more costly to buy, especially the most-demanded entry level real estate. To be successful, buyers should think through how they’ll adapt to higher rates and prices.”
“To be successful, buyers should think through how they’ll adapt to higher rates and prices”
Thanks JT for sharing. I believe i thought it well through. Now, that the market is tanking I’ll sit back and enjoy the show. As soon as prices are 50-70% lower from peak I will buy.
yeah JT might as well shut this blog down…Carolyn Hale of realtor.com has this all figured out.
LMAO, you beleive this crap ??? thats says it all. It’s like taking advice from a used car salesman, as PT Barnum said, A SUCKER IS BORN EVERY MINUTE.
JT, you are like Joseph Goebbels, Hitler’s propaganda minister, of the real estate blogosphere.
You are like a madman in a tinfoil hat blaming ‘fake news’ and ‘fake blog handles’ for this market meltdown. If it wasn’t for Millenial’s multiple usernames and that darn fake news then prices would be skyrocketing right now instead of collapsing.
Come on, let’s do a $10k bet that Millennial is not me and I’m not Millennial. It will be fun.
It would be funny if Our Millennial is really Dr Housing Bubble.
Think about it. They both believe there is a housing bubble so they must be the same person.
Most Delusional Flip Award: https://www.redfin.com/CA/Santa-Monica/2809-Virginia-Ave-90404/home/6764406
This Santa Monica house sold 15 months ago for $500,000. Now they’re asking for $1,799,999.
Sept 2017 ….. sold for $500,000
March 2018 ….. sold for $1,010,000
Dec 2018 ….. listed for $1,799,999
Listing says: “Tucked away in a highly desirable neighborhood of Santa Monica.”
NOT! This house is “tucked away” behind the 10 freeway wall.
It’s in Gandara Park, the worst area of the Pico District, which is the worst neighborhood in Santa Monica. Gandara Park is an isolated few blocks, wedged among a trailer park, a freeway wall, a huge industrial block, cheap stores, and the small Gandara Park itself.
I could have bought a house here a few years ago for $750,000, but I didn’t want to face a freeway wall. I still wouldn’t pay $750,000 for a house on that street, much less $1,799,999. I’d be shocked if anyone pays even close that.
You can pick and disect outlier cases with poor pricing all you want…but you are still missing the picture. On average, RE has became more expensive. Does not mean it will continue to do so, but I am absolutely sure that affrdability of RE will decrease over time.
Looking to buy for the last couple of years, I can tell you that these are not outlier cases (at least in Southern California). The typical listing goes something like this:
1. Sold at least two or three times in the last 2 years
2. “Turn-key property†and/or “great investment opportunity†in “hot hot up and coming neighborhood†where in reality, the schools are poorly rated and the crime is generally not-so-great.
3. Photos of generic looking house with new (but cheaply good looking, think stainless steel) appliances, wood chip landscaping and desert plants in the yard (have to keep those monthly costs down!), and generic IKEA decor (think big pictures in the kitchen saying “HOME†or other kitschy type sayings).
It’s easy to see that a lot of the buying has been purely speculative. As I recall, the bigger issue in the last bubble wasn’t so much the NINJA loans (though those played a part), it was a lot of the speculative buying that brought it down.
Take a look at population growth numbers in LA, they’re not as high as you would think (in the city, I believe it’s grown by about 8% in total since the year *2000*). Also look at wage growth. Something doesn’t add up here.
I’m not on board in thinking that prices will decrease by 50-70% like Millie, but a smaller percent decrease can still have a big effect.
Millennial,
Can you explain again how you did not buy in 2013-2014?
Famous Jim Taylor started his “Housing to Tank Hard” posting in December of 2012. Right at the bottom of the housing market LOL
TankInSight,
Yeah sure! What do you want to know?
You keep going back to Jim Taylor…..you have been here since 6 years? Wow!
Well, stick around for the grand show thats coming….Do I get an additional prize if the 50-70% crash happens besides that fact that I will be buying for a bargain?
We haven’t heard form Jim in the last 6 months.
Is this a sign that housing will actually “Tank Hard Soon”?
It will be interesting to see what it sells for. Crazy.
Sigh. Sometimes I wish I were 25 years older.
Mar 16, 1970 Sold (Public Records) Public Records $25,500 —
I missed out on most of the terrifying inflation of the 70’s and 80’s
Looks like CNBC has been reading my posts and they agree …
https://www.cnbc.com/2018/12/11/housing-could-be-an-unlikely-place-to-hide-out-if-a-recession-is-coming.html
We do see signs of everything-bubble popping. I wouldn’t say it already has, but signs of it sure are there: The credit cycle and central bank balance sheets are at totally ridiculous levels: 17 trillions new credit since 2010.
While industrial production increase is only 3 trillions. The rest is inflation.
https://safehaven.com/markets/economy/The-Everything-Bubble-Has-Popped.html
JT and Jed are at peak-paranoia right now. They think I’m the poster Millennial and believe that fake news is what has caused the massive real estate shift that is underway. Are you guys off your meds?
If you want to sack up and make a bet, I will bet either one of you $10k cash that I am not Millennial and that can easily be verified by the Doctor who can compare IP addresses etc. Will one of you Bubble Humping House Jockeys man it up and bet me? Let’s do it. Or we can do a youtube video reveal as long as you sign a contract committing to the $10k you will owe me.
These Bulls are so flustered it is hilarious. It is becoming an actual medical issue for them.
I will bet either one of you $10k cash that I am not Millennial and that can easily be verified by the Doctor who can compare IP addresses etc.
No, it can’t. The same person can used multiple IP addresses through a VPN (Virtual Privacy Network). Google it.
Surely anyone who works in tech (e.g., Millennial) knows all about VPNs.
Ok I clearly know nothing about tech or IPNs, Ive admitted that. I am only a real estate expert and pretend to be nothing else. Former high volume multifamily broker and last 15 almost a landlord. I will do a youtube video reveal with my identity if JT pays me $10k when I prove I am not Millenial. Honestly $10k doesnt even motivate me at all but Id do it for fun to prove he is confused and delusional.
I bet JT doesn’t even have 10k in free cash. He seems so worried and angry which indicates his last flip didnt sell.
A youtube reveal? lol good one!
Relax dude, I own my home outright And have no dog in this race but silly Millie posts as other names such as Done Deal and a half-dozen others. That’s just the truth. Right silly millie? And don’t lie.
Jed, I think you might want to consider a more balanced thought. What i say makes a lot of sense. Based on years of experience I can gauge the market very well and provide helpful guidance. Buying at the right time isn’t easy for some readers. So its best to read, understand and follow my advice. After all, people work hard for their money. Why waste it on overpriced houses? Just follow RE experts like me and buy low! Its seems logical.
Seems logical?
High IQ, low EQ
https://www.zerohedge.com/news/2018-12-10/canary-coal-mine-house-flipping-reuters-crash-six-year-low
A Canary In The Coal Mine is an early indicator of danger. As Real Estate experts know, “Home flipping acts as a canary in the coal mine for a cooling housing market because the high velocity of transactions provides home flippers with some of the best and most real-time data on how the market is trending,”
Well, “We’ve now seen three consecutive quarters with year-over-year decreases in home flips.â€
These are further signs that the party is ending.
There are still some reasonable prices in good areas. Here is a great starter home. It is in the right area, and the lot is big enough so you can a room or two later. Plus, you might find the owner is one of those “house market is crashing” psycho nut cases, so you never know if a deal is to be had. $775K would be a steal. Anybody who has a good enough college degree should be able to pull this off fairly easily.
https://www.redfin.com/CA/Torrance/5519-Rockview-Dr-90505/home/7710050
JT, it comes back to that one question you cant/wont answer: Why buy now if you can buy during the crash for 50% off?
Think about it…..there are two shovels, one cost you 7 dollars the other one 3.5 dollars. Why would you buy a shovel for 7 dollars and shove it up the sellers butt? Just save half and shove it in your own pocket.
A deal? Pathetic, 1k per sqf? Torrance is not Manhattan Beach, relax, only a complete idiot that has more money than sense would pay anywhere near listed price.
I have a coworker that lives in Torrance, it’s not the same as 5 years ago, a lot more riff raff. Good luck when this market dumps and this home is worth 450k.
JT,
I agree this is a nice starter home for someone who qualifies for a 700K loan (140K per year income).
Starting engineers make about 70k-80K/year now. They can’t qualify.
Starting doctors/lawyers are mostly in debt with student loans.
Who can qualify?
Are all of these new jobs paying 140K/year? Or are they paying less than the median LA family income of 60K? Show some data showing that the new jobs being created are paying enough to buy this starter home and your post might be believable.
A friend sold their house for 850K last year. The pool of buyers was very small. They sold a 3 bd 2 bath to a 35 year old couple where the wife was a physician and the husband was a tenured professor. They were nervous about the huge payments. However, their rent in the area was about 4K/month so they were paying about $600/month more to buy (plus any home improvements).
Are they buyers with help from their parents who have made 300% profit in the stock market under Obama? People are nervous and fleeing the market now. Are they giving their kids boatloads of money when the market is sinking?
The reason for a possible housing crash is apparent just like it was in 2008. Even a psycho nutcase should be able to see it. I think the bubble will deflate slowly down about 25% and inflation will rise. The effective drop over 5 years will be about 40%
A married couple who together make 150K per year with a 10% down payment can afford this property. A lot of young professional couples can pull this off.
Let’s not get crazy here with the “starter” homes. Unlike flyover country, college grads can’t buy homes as soon as they land their first job in socal. It’s pretty normal to work and save for a decade before buying a home. The Torrance home will sell, it’s in a fantastic location (probably about a mile from the beach and Riviera Village). After 10 years, that engineer will be making well over six figures. Combine that with their spouses professional income and buying this place is a walk in the park. If you want to live in any of the desirable areas of this city, you better have good earning power.
I wouldn’t call this “house†in Torrance a starter home. 800ish sqft is like a small apartment. During the crash you can pick this up for 150-175k. For a nice 3k sqft house in OC you will probably pay 450-500k at the bottom. It’s okay to wait another couple more years in order to save hundreds of thousands of dollars IMO. With all that excess cash you can buy an investment property, invest in the stock market or just sit on your cash.so, why waste your money by buying at the bubble top?
Jt and The Lord,
I agree this would be a great starter home for a professional married couple with no kids who are 10 years out of college.
It wouldn’t have worked for me 10 years out of college because I had 2 kids by then and my wife and I would never have purchased a 1 bathroom house.
We used to call the dual income, no kids couples DINKS back in the day. They lived a luxurious life and likely bought a mansion rather than 3 bd 1 bath house. Times are getting tougher for all of us.
Millie, you honestly think this place will sell for 150K sometime soon? That is delusional to say the least. The premium you are paying is for the location, in the south bay one mile from the beach. The land value relative to the structure is massive.
Bob. As JT mentioned, somebody will buy this house and likely add a bathroom and a bedroom. Now you can have your family of four reside there with no problems.
Lord B,
As a real estate expert I am pretty good at determining what a house is worth. 150k is what I would pay for it. However, some people might be willing to pay a bit more for it. House prices at the moment are overpriced by about 50-70%. That should provide you with a good starting point as to what you want to pay for real estate in order to get a good deal.
Adding a bathroom and a bedroom combined with the location, would make this an ideal house for a 2 earner professional couple with 2 kids 10 years into their career.
After buying this house, and putting nearly 200K down, does the couple have enough cash to add an addition?
In my example above, the couple was using ALL of their cash for the down payment.
They needed a move-in ready home that fit their family.
To restate:
This home would be ideal for:
1) A dual income professional family 10 years into their career.
2) They would need enough cash for the down payment plus enough for additions.
My friend above found that finding this buyer was extremely difficult when they could buy a mansion 50 miles away.
There’s nothing reasonable about this house. Why would anyone pay $4600+ per month (assuming they can afford the $175k 20% down payment) in PITI to “own” this piece of crap? The schools are okay, but everything else sucks. You could rent a similar place for ~$2,000.
In a time like this, it seems that anyone thinking about buying a house should not only be asking whether they can afford the payments, but also what would it cost to rent a similar place, and how will you feels if the value goes down by 10% or more. In the case of this piece of crap tiny home, a 10% drop from the current asking price would be $87,500. That’s a pretty huge loss. More likely, the market value of this glorified hovel (some single-wide trailers have more square footage), will be below $200k. In any other city this garbage might sell for $100k in a great seller’s market.
Anyone saying this is a good/reasonable buy at $875k is demonstrating the housing bubble has officially hit irrational exuberance levels.
“You could rent a similar place for $2000.”
One word, NO. You can definitely find places for that price in much lesser neighborhoods. 1 bedroom apartments fetch $2000/month in that area.
It’s 875 sqft… are you saying it would bring much more than $2,000 per month in rent? Maybe a little more, but it’s not going to bring anywhere close to the $4600 per month cost to own it at this asking price.
Anyway, the point is that this isn’t reasonably priced, and anyone stupid enough to buy it at the asking price or anywhere near it is making a terrible decision.
Agreed, that place is a DUMP! FMV might be 300K, maybe. I wouldnt even pay that though because its in Clownifornia where everything is taxed up the wazoo and the schools probably look like a third world bazaar. An “educated” couple making enough to buy it as a first home are damn fools to do so. Better off to just go #vanlife!
Weekly jobless claims reach 49 year lows. Got that one? No recession. No house price crash. Easy. Weekly jobless claims reach 49 year lows.
https://www.reuters.com/article/us-usa-economy-unemployment/us-weekly-jobless-claims-drop-to-near-49-year-low-idUSKBN1OC1QU
JT,
People with a background in economics and familiar with recessions know that after such jobless claim statistics, a reversal happens very quickly. The stock market and housing market are already in a bear market. There are strong indicators that an astronomical crash is around the corner. Something you probably haven’t seen in your lifetime before!
Buy low>enjoy excess cash>find better dance floors. That’s how its done for winners. Trust me, i have been through the cycles many times.
My wife works for a 3rd party labor company in irvine, we live in CO. 3rd part labor are the sales people at BestBuy selling Moto products, they dont work for Moto or BestBuy, they work for a 3rd party, they are hired, trained, paid and all HR done by the 3rd party labor company. These companys and their clients, ie Motorola, hire millions of people through out the country, news flash, they are laying off people rapidly, the clients know a major recession is coming and they are cutting overhead, sales force, trainers, HR people, in anticipation of a major recession. These are 10, 20 million dollar programs, it’s coming, and housing will take a beating, it’s already started.
I work at the largest employer in Carlsbad and we continue to exceed hiring projections…we’re in the process of opening 4 new buildings to accommodate growth. Millie, sorry with all these jobs, you’re gonna be stuck renting from mom. At least she won’t ever raise the rent.
Thank you Robble!
I do get this question once I a while. Basically, the question you are asking is: How come inventory is rising rapidly and house prices are declining while the job market is still good?
Its a fair question and usually I get asked this question by younger people or people who are not familiar with housing cycles, economics and recessions. I assume you are too young to remember the last downturns and the underlying background.
Here a chart in case you are a more visual learner. In 2007 we had record low unemployment. However, unemployment rose very quickly in 2008. We had a stock market and housing market crash.
https://data.bls.gov/timeseries/lns14000000
Basically, to break it down for you:
Jobs today don’t mean jobs tomorrow! In other words, you might have a job today but during a downturn (e.g. recession) your employer cant guarantee you that job if they are losing money rapidly. They refer to it as layoffs.
In case you need more clarification around what a recession is:
“a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”
Let me know if that helps. I am here to assist and share my knowledge.
Millennial, why would anyone ask your advice? If they did the opposite to what you have been saying for years, they would have made money. I think you had a different ID that you changed to Millennial since you were wrong wrong wrong.
Great follow up questions JT,
Basically you are asking, 1) how come it’s better to rent during a bubble instead of buying and 2) what happens to buyers equity during the crash ?
Both question can be easily answered. In case you prefer a calculation let me know.
Answer to 1) rental parity! Rental parity calculations will show you why renting is better instead of buying overpriced real estate. It’s basically just math. The only trick is to make sure you consider all factors that impact your PITI.
Answer to 2) rising home values look good on paper. Problematic is when you count on that money and see it evaporating during a crash. Therefore, experts like me advise to buy during a downturn. You will have upside and ride the market up instead of buying high and riding the market down. Buying high and seeing home values collapse is no joke. There were 7mio foreclosures last time. This time we might see more. People lose everything and live in trailers. Counting on fake equity is one of the biggest financial mistakes a man can do in his life.
Let me know if that help! Always happy to elaborate more!
Job participation rate, thats how you look to see if the economy is doing well. smh
https://www.google.com/search?q=job+participation+rate&oq=job+partic&aqs=chrome.0.0j69i57j0l4.4794j0j7&sourceid=chrome&ie=UTF-8
California is turning into northern Baja…..its as ugly as this lifetime resident has ever seen it, Like Paradise lost, this state is going to be wiped out by illegal asylum and immigration financial terrorists. Here comes Newsome, you will see more of your money to support these leeches than you see for the old lady citizen down the street. I look at my wife in disbelief that were still here, I can work from anywhere. The liberal sheep of America and open border policy will bring in disease, death and leave people in the future wondering how current citizens are letting this immigration invasion render most of the poor, middle class to taxation oppression….
Anyone buying in this state with current political and fiscal state is guaranteed to lose money….
True! All alarm bells are ringing. All lights are flashing red. Buying now would probably the biggest mistake in your lifetime. It’s maybe as bad as going to a dirty and poorly maintained jail. In Jail, you have at least a roof over your head!
Illegal immigrants aren’t stopping in California. They have plenty in Iowa, working in chicken processing plants. Washington and Oregon have their share. So does Nevada, Colorado, New York, New Jersey, DC, the whole American southwest.
I’ve hard growing illegal Third World presences in all those states. And I’m sure I’ve missed many.
This is a fact.
Heard of Wilder, Idaho?
Ya, the whole city council speaks Spanish and is from Mexico. Is that racist or just a observable fact supported by real life demographics?
Viva Mexico, the “reconquista” worked. Most Lilly white libs don’t even know what the reconquista is.
The subject of the good Dr’s post is the trend to renting rather than buying.
I think we should discuss it instead of the interminable time to buy / time to wait arguments.
Here’s the question:
Is this trend in California a generational shift or is it a demographic shift to relatively poor foreign newcomers (legal or illegal, I don’t care for the purposes of this question but maybe you do) or other newcomers from elsewhere in the US?
50:50, 80:20. 20:80 … what do you think?
It would make a difference to those contemplating buying rental real estate I would think.
And already the weekend again! Visiting open houses are the very reverse of wasting time! Exploring neighborhoods/houses as well as merry conversations with realtards lie ahead of me! I had the joy of visiting many open house lately due to skyrocketing inventory but one thing is missing and one thing alone: Potential buyers!
Buyers have absquatulated the housing market!
“absquatulated”…..that is a cute new word.
That is a good word.
absquatulated
I will start using it. Thanks to Our Millennial I have learned something today
the global housing bubble is popping. You hear reports from all over the world and country regarding tumbling housing prices. Here an example of Seattle:
https://www.zerohedge.com/news/2018-12-08/seattle-home-prices-plunge-again-down-11-six-months
A collapsing housing market is what experts expect over the course of the next years.
My forecast of 50-70% price reductions in California seems very conservative at this point.
I can definitely see drops at the low end of your estimate in inflation adjusted prices in working class areas with the next major recession. With less creative financing and more big buck tech/entertainment/foreign speculation money in the high rent district, I think the drop there will be much less. Look for good buys in rental real estate, wait for the money to roll in and then buy your Beverly Hills mansion at the next recession.
The trend to renting and the restricted supply will be the key.
From the New York Fed:
For !0 yr Treasury rate vs 3 Mo Treasury rate
Estimated Recession Probabilities for Probit Model Using the Yield Curve Spread
Four Quarters Ahead from 1960 to
1995, are presented in a table showing the values of the yield curve spread that correspond to estimated probabilities of a recession four quarters in the future. As the table indicates, the estimated probability of a recession four quarters ahead estimated from this model is 10 percent when the spread averages 0.76 percentage points over the quarter, 50 percent when the spread averages -0.82 percentage points, and 90 percent when the spread averages -2.40 percentage points.
Recession Probability Value of Spread
(Percent) (Percentage Points)
5 1.21
10 0.76
15 0.46
20 0.22
25 0.02
30 -0.17
40 -0.50
50 -0.82
60 -1.13
70 -1.46
80 -1.85
90 -2.40
For Friday (12-14-18) the spread was +0.47. That would be a 15% probability one year from now of a recession according to this data. This is what I’ve been saying that the yield curve is flattened but not inverted. As the curve flattens, you will see some noise …say a 5 year rate higher by 0.01 o 0.02 % that a seven year rate.
By the way, I hate flattened yield curves for buying long bonds for an IRA.
The problem with using the yield curve currently is the Federal Reserve fixed the 30 yr in the 90s and now they have fixed the 3 month after the crisis. With both ends of the yield curve completely controlled by the federal reserve instead of the market so using historical analysis becomes problematic.
That sounds like nonsense to me. Just look at the treasury yield curves:
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2018
In the beginning of January, the 3 mo yield was 1.44 and the ten year yield was 2.46. At the end of last week they were 2.42 and 2.89 respectively. The thirty year rate went from 2.81 to 3.14. That made the 30yr-3mo spread 1.37 in January and 0.72 Last week. The ten year/3 mo spread went from 1.02 to 0.47 since January. Have you been reading too much Zero Hedge?
PS Some types of treasuries pay all the interest at the end and are sold at a discount. The discount is based on the current auction rate, but the calculation is a bit more complicated.
As you can see from this graph the 3 month treasury has followed the federal funds rate pretty closely since the crisis.
https://fred.stlouisfed.org/series/TB3SMFFM
From Wikipedia:
In the United States, the federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis. Reserve balances are amounts held at the Federal Reserve to maintain depository institutions’ reserve requirements. Institutions with surplus balances in their accounts lend those balances to institutions in need of larger balances. The federal funds rate is an important benchmark in financial markets.
The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions is the federal funds effective rate.
The federal funds target rate is determined by a meeting of the members of the Federal Open Market Committee which normally occurs eight times a year about seven weeks apart. The committee may also hold additional meetings and implement target rate changes outside of its normal schedule.
The Federal Reserve uses open market operations to influence the supply of money in the U.S. economy to make the federal funds effective rate follow the federal funds target rate.
Here’s a graph of deviations from the 3 month treasury minus the Federal Funds rate. See it go strongly negative when a recession looms. Since the 3 month is a little longer than the Fed Funds rate (very short term) going negative is an inversion:
https://fred.stlouisfed.org/series/TB3SMFFM
We are seeing the 10 yr – 3 Mo number cut in about half so far this year. I think this is a useful number to watch at this point. It could go negative and then watch out.
SAN DIEGO HOUSING MARKET – UPDATE
HUGE Inventory increase in November! Month of Inventory is up 77% YoY!!
“This measure of supply vs. demand is now 80% above where it was a year ago. ”
Condo prices have fallen 7% MoM. Sales are down 11% MoM.
Fascinating how the bubble pops all over the country, especially in California.
Great times ahead!
Millie, you are sounding like good ole Jim Taylor ‘hosing to tank hard’.
dont hold your breath. No tank UNTIL there is a job loss recession.
I purchased in 2012 and frankly could care less of hosing tanks hard. but for some it will be a great opportunity. 2021? 2022?
QE Abyss, I totally agree! Jim Taylor forecasted a hard tank and he appears to be spot on. Housing flippers, sellers, real estate agents, lenders and builders are in pure panic mode. Stock market is crashing and so is housing (check out various reports from San Diego, OC, Seattle, San Francisco, NY and Las Vegas). #RecessionComingFast
Last chance to capitalize on your equity by selling very quickly way below “market .otherwise watch that equity evaporate during the upcoming month/years.
Merry Christmas Perma Bulls and RE cheerleaders:)
I think it is time you increase your open house visits significantly. Time is coming. By doing that, you can definetely make the drop go from 50% to 70%. As a real estate pro, I am telling, this is what you need to do. And if you really want to push it, and get 80% drop, I would recommend (and it is only with you, Millie, I am sharing this) also calling some agents and arrange for additional visitations? This way, you will gather more data and be ready to catch that extra 10% drop from 70%.
Surge, great advice! Thank you
Decades ago when my wife and I were looking to buy our first house, we visited many open houses to:
1) See how they could justify such a high price for the house. S. CA housing prices were
outrageous back in the late 1980’s.
2) To look at house floor plans to determine what was the most efficient.
3) Look at interior design and decide which Formica counter tops and wood paneling looked the best.
4) Look at the backyard and over the fences to see how the neighbors were keeping up their houses.
Back then we were affectionately called “Looky Loos” by the RE agents.
Looky Looing was a hobby back then. I don’t know what they call them now.
When I go to an open house, particularly in the 2M and up range, I head straight to the fridge to see what I’m going to snack on. This shows the fat RE agent I give zero —– about the place. They figure I’m some tech guru sitting on a mountain of money with no people skills and they try extra hard to talk the place up thinking they might be able to make an easy sale on some fool with more money than brains. I then proceed to point out all the poor design elements of the house which whittles away at the agents confidence. By the end the agent knows they have another meal of cat food to look forward to. Boom!
Govinda,
Assuming what you said is real/true; I feel very sorry for you.
I love it Govinda! Thanks for sharing and great job!
Las Vegas Tanking HARRRRRDDDDDDDD!!!!!!!!!!!
Oh yes baby! Just like other markets like SF, Seattle, OC etc
The OC Register is reporting on a Chapman University forecast for Real Estate. The are predicting a 12% drop in sales and a 13% top in housing starts for California. But they are predicting a small growth in construction jobs. Income and spending will be up, though; 5% increase for income and 4% increase for taxable sales.
Another article states that a local tracking firm Attom Data Solutions says that in the US, housing flips are down12% over a year ago for Q3. LA/OC showed a 8-9% drop. However LA/OC had the fifth largest number of flips nationwide. Greater Phoenix was #1. Cooling price increases and rising interest rates make flipping less profitable. A flip is defined as any arm’s-length sale of a single family house or condo within 1 year of its previous sale.
“13% top ”
I typed 13% drop but the stupid spell checker must’ve decided that “top” was what I meant.
I love reading all the “no bubble to see here”, “strong economy means cant be a bubble”, “no job loss means no bubble”. anyone denying there isn’t a major bubble that has burst has blinders on. this is more than a correction, its a pop.
Not every market correction is a bubble pop. Bubbles have 5 stages according to Minsky (call him “Mr Bubble” if you like).
1) Displacement
Investors get a new paradigm like the falling interest rates from 2001 to 2003.
2) Boom
Price momentum shifts with media coverage, which causes people to fear missing out on an opportunity.
3) Euphoria
Caution thrown to the wind and excessive leverage, like in 1989 Japan or the internet in March 2000.
4)Profit Taking
Smart Money’s answer to a bubble: Like the Big Short or BNP Paribas halting withdrawals from US subprime funds in Aug 2007.
5) Panic
Prices drop rapidly followed by margin calls and asset liquidation and foreclosures.
I think we may have seen stages 1 and 2 but #3 hasn’t happened as burned children are afraid of fire, so the widespread collapse like that due to the subprime mortgages isn’t in the offing. The displacement was foreign money looking to park in CA RE. Clearly the boom was the run-up since 2013. But where is the euphoria? This means we will see the normal market correction from the economic cycle. That correction will probably be tied to some other debt crisis, possibly in Europe. The very wealthy areas that saw the biggest run-up have a lot of cash transactions or minimal debt to equity, so they can withstand paper losses.
Wrong! While different area may be at different stages, in CALI, we are definitely at 4 heading to 5 real soon. There is a reason why inventory is exploding … in the WINTER too! Either everyone all decided to move at the same time or speculators trying to time the market but missed it in the Spring (Seattle, Santa Clara, etc.) or Summer (SF, LA, OC)…
In 2006 my Wife was hearing about people at her work that were speculating in houses, in OC, IE and places like TX, Atlanta and AZ. Other folks from church were talking up RE as if it was the only sure thing in the world. I’m not hearing any of that talk this time. Like the story of Joe Kennedy and the shoeshine man, when the little fish think they can swim with the sharks on a borrowed dime, then you have euphoria.
Vote and get a chance to win a Christmas gift
1) Dow 15k by next year
2) Dow 10k by next year
3) Dow 10k and housing to crash hard (50-70% price drop) by next year
I vote for 3! Don’t let that influence you though.
I am going to go with a write-in vote to restore sanity. However, If Trump does something stupid, like hold the Huawei CFO hostage and starts a shooting war with China, then you may be correct. Otherwise:
4) Dow at 20K, Housing prices down 25%. Rents down 15%. (That is the point of this article.)
The Trump bump in the Dow from 18K to 27K was insanity (Some call it irrational exuberance). The irrational exuberant are also prone to irrational panic which has started this week. The Dow is at 23K now. Almost halfway there. I expect a slight undershoot at 18K then the irrational panic will also stop and fundamentals will be restored to sane levels.
25% decrease in housing for the median should bring prices back in line with the median wage. Also an average of 5%/year wage increase (ie inflation). That is all that is needed to get buyers back in the market. A drop of 15% in rent will also postpone buyers from jumping in until the inflection point is reached. ( A good way to determine the bottom is to wait for gun stock prices (RGR, etc) to start falling. That means the panic has stopped. )
But again, my crystal ball broke in the Northridge quake and I’ve been relying on real data and fortune cookies ever since. Nobody can predict the irrational human mind.
I think Dow 15k is very likely, not even aggressive. Of course housing will tank too, which is an easy call since it already is. Unless you are JT and Surge on Fantasy Island. I have a lot of sidelined cash ready to buy your bad flips JT.
You are violating copyright laws by using word “Tanking” (it belongs to Jim Taylor)
Dow – 15-18k, housing 0%-10% down (where you want to buy) and 10%-25% (where you can afford to buy).
More open houses for you to visit in Spring.
Update-Las Vegas housing market
It’s dead. Not much more to say. zero offers on majority of houses. No buyers are left to sucker in before the crash
https://www.zerohedge.com/news/2018-12-16/residents-should-not-panic-thousands-las-vegas-homes-get-zero-offers-november
Glad to see reality has set in and you are looking at the LV market which is more in line with your income level. At a boy.
Thanks for the comment. Yes, I have decided to include additional US bubble markets as examples for housing crashes. More and more cities are joining the list. It should be a fun activity to watch em go down. We could even make fun games out of it. But for now, the report outs are entertainment enough. I’lol keep you guys posted.
It’s epic watching this “crash” and the 3 different comments Millenial post about 100 times on each new article:
His 3 comments:
1. His fake commentary on the open houses he goes to every weekend. I really hope these are fake because if he waste that much time at open houses when he is expecting a 50-70% crash he needs a hobby
2. Obviously his endless ranting about the pending epic 50-70%…. making up all kinds of data or pretending actual real data is fake.
and my personal favorite:
3. His straw man post where he has an open dialogue with himself about the epic pending crash…. jesus christ who the hell can spend more than 20 seconds reading a comment?
The best part is going to be when he turns into Jim Taylor in 3 years…. when he continues to post about a 50-70% “epic crash” right at the bottom of the correction/recession…. and does so for another decade.
Finally! Someone is really excited at my posts! I have the best news for you TankInSight! I won’t slow down in 2019 🙂 I will continue to post rental parity examples, articles and good data from markets (Seattle, Oc, Sf, Las Vegas, San Diego etc). Gotta keep the fan base updated! I just got an update from OC… will post that shortly!
Yet you keep feeding the troll.
Whatever,
Millennial doesn’t need me or anyone else to feed him.
That dude is not going to be slowing down 2025 after he misses the bottom and continues to post here just like Jim Taylor did a decade ago.
As soon as the market crashes by 50-70% I am happy to purchase! Why buy if there is no rental parity. Also, wouldn’t you hate it if I slow down and stop sending market updates? How else would you be informed about inventory and sales data?
That guy has some major psychological issues.
“That guy has some major psychological issues.â€
Says our friendly OC lender.
Btw., he also forecasted a year ago we will experience a major POTBOOM in California resulting in skyrocketing house prices.
He also forecasted that inventory will remain record low because boomers aren’t selling. That and his wife being on his back were his reasons to buy last year!
Have I mentioned this guy is a lender? #WorstCallsEver, #ourFriendlyOCLenderNeverLooksAtData
Millie, since you like reminding people of their past predictions and forecasts, I’ll take it upon myself to remind everybody that you were pounding the table HARD with the crypto garbage just a few months ago. “Old people don’t understand it and I’ll keep adding to my positions when things take a dip.” Crypto not only took a dip, it fell off the cliff. Most of the stuff was modern day tulips. I work with a guy that loaded up on Etherium earlier in the year…bad move. He should have went to Vegas instead.
As always, buy a home that you can afford and plan on owning for the long term. I’m right there with you cheering for a big pullback so I can scoop up one or two rental properties.
Blankfein, you are too funny. You are now jumping on the wagon and talk about discounts. The last few years you were advising everyone to buy as soon as one can afford it. You also said the next downturn will be very minor (5-10%). So you want everyone else to buy high and you yourself are waiting for the discounts. This is how I expected this….most RE perma bulls will just disappear, some will quickly change their tone and jump on the wagon and one (JT) will keep telling us that the next spring season will be epic while citing realtor.com writers.
Millie, I’ve went on record many times claiming that I want to buy a beach close rental property, but not at today’s prices. Any pullback is good for me. I already own a primary residence that I don’t plan on selling. So yes, I am hoping for a pullback.
That is correct that I was pounding the table HARD several years ago regarding buying based purely on rental parity. I almost got run off the blog by some of the resident bears. Talk about a disappearing act, these guys finally threw in the towel after being wrong year after year. Hang in there, if you are doing what you are claiming (saving and sacrificing), you will be rewarded in the future.
“So yes, I am hoping for a pullback.”
There you go! you changed….welcome to the ride!
I’m a late Millennial and I agree with Millennial.
I missed an opportunity in 2012 to buy but I also bought stocks. I’ve amassed at least 350-400K to put as a down payment should the housing market crash in 2019 and 2020.
I know plenty of people who overextend to buy within the last 2 years. Should a recession hit, they are screwed especially with $4000/month mortgage for 30 years. I like to play a little safe and I rather have me pay for all the bills in case life happens. I wouldn’t be surprised if the market crash with Trump in the WH, possible impeachment, and there are more tension between US vs China.
“impeachment” lmao, you are a millennial, it aint gonna happen, he’ll take down half of Washington before anything happens to him.
Great news for potential buyers, Fed has raised rates again!
https://www.marketwatch.com/story/us-stock-futures-climb-ahead-of-fed-meeting-trade-optimism-returns-2018-12-19
“Stocks tumble after Fed raises rates again, lowers expectations for hikes next yearâ€
Bubble fan base will be disappointed. They tend to like lower rates to push house prices artificially higher. Higher rates isn’t good for flippers either. More and more flips are going bad which is a nice thing to see.
Actually, the increase was baked in awhile so. Today, mortgages rates are the lowest they have been in 6 months.
Patience Dan, it will translate into higher mortgage rates eventually. Just wait and see.
Higher mortgage rates are great for the industry. It pushes prices lower. Lower house prices are good for people who wait and buy low. RE experts know that it is much better to buy at higher rates and lower prices. It will benefit you in the long run and you can always refinance later to lower rates.
Interesting visual graphic, showing the hottest markets in US.
3 happen to be in SoCal ( Bev Hills, SM and Manhattan Beach)
https://www.visualcapitalist.com/map-where-real-estate-prices-are-rising-fastest/
Hottest market? Lol
The stock and housing market is crashing left and right. Are you sure you are mentally in 2018? 😉
Housing bubble in Orlando is also popping (just like everywhere else in the US).
https://www.zerohedge.com/news/2018-12-17/orlando-homes-sales-tank-and-inventory-floods-market-markings-housing-slowdown
Sharp increase in inventory and no buyers left to buy at these prices seems to be the story throughout this crashing market.
On the radio news station they had an interview with someone from the Realty Association and she was touting a window of opportunity as prices “stabilize” and interest rates haven’t yet gone up. The commentator added after the recording of the woman stopped that the Fed Funds rate going up is a short term rate while long term rates are currently going down. That last statement is true. Add that to what she said and maybe it isn’t such an opportunity if a rate inversion is looming on the horizon?
A very small inversion. A large one is bad but given the volatility of the market, it takes a few days for rates to settle.
I look at this weekly to check.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield
I agree with you Bob that an inversion hasn’t occurred. It is the future that I’m talking about. The Real Estate folks make predictions and I’m not fully confident they know what they are talking about. ( Same is true of the most bearish folks, but that is another story.) I posted again today about current Treasury rate data and their statistical meaning. See below.
The Trump Crash!! Here it is ladies and gentlemen.
Mr. Landlord must be crushed.
Sonoma county – housing market is crashing.
https://www.zerohedge.com/news/2018-12-17/correction-happening-now-sonoma-county-housing-market-plunges-november
Happy Holidays everyone!
THe most importnat thing – please do not worry! Nobody will buy at the bottom or sell at the top in this blog. Do not worry, the world will not collapse not matter what you observe. California will not become 3rd world country. If you rent or own, it is all going to be OK. Nobody is smarter than anyone.
Please, enjoy your Holidays and stay healthy. Everything else is a moot point.
Surge
Rofl
“Nobody will buy at the bottom or sell at the top in this blog.â€
Surge bought in 2005 and 2017 (his own words). Yes, damn right surge you are not buying during a bottom and not selling at the top. Quite the opposite for you pal!
You doom yourself for a rat race, instead of listening to my advice and being independent from others greed/panic (chasing peaks)
Damn right Surge, the last thing I am going to do is follow your advice. You bought high in both cycles (last 2 decades). I am going to do the opposite.
Yes, bought at peak in 05 and not at the bottom in 2017.
Still, so much better off financially than you.
Price is only “relevant†when you doom yourself to a rar race
2017 is the bottom?! You are really trying hard to embarrass yourself.
And How in the world would you know if you are better off than somebody else without knowing any numbers? The fact that you state again price doesn’t matter shows you have never calculated the financial impact between buying a house at price A versus price B. In your mind it doesn’t matter. Why? We don’t know. You keep saying rat race…. what ever that’s supposed to mean. This blog would be boring without our clowns.
Inflation is a great equalizer but only if you buy and hold for at least 10-20 years.
I bought my first house nearly 30 years ago for 200K. It is now 700K-800K.
I sold and made a little money after 6 years for tax purposes but I don’t think I made any money if you consider rental parity
My mistake was I didn’t buy a large enough house for a growing family. Otherwise, I might still be in that house.
My point is that after 30 years, it won’t matter if you bought at the peak of a bubble. Inflation will make your house sound like it was an incredible deal at the time.
There will be an iGeneration poster on this blog claiming Surge and Millennial had a unfair deal and how houses are too expensive in 2040.
Millie, I bought in 2017 which is NOT the bottom in the cycle. Not quite the peak, but could be close.
Regardless, even though I have not bought at the bottoms, I am still ahead of you in RE.
My point is, playing only the rat race (only timing the market) is a losing proposition. You might look smart on this blog, but you are losing slowly in real life. Your entire proposition is Money (buying low selling High, Frugality). You go to open houses in your free time to talk to people you despise. You wish for a recession because you think you can make a buck out of it.
Surge buys in 2017 at 1 MIO. Millie buys in 2019 for 500k. Surge thinks he is ahead because he bought 2 years earlier. No wonder we had 7MIO foreclosures during the last crash with people like that…. LOL
Happy Holidays, Surge,
Thank you for your enlightenment.
Thanks mostly to the Good Dr for presenting all of the great data and for keeping the discourse civil and clean.
Thank you everyone for your great discussions.
Best of wishes for the New Year and best of luck with home buying.
Whatever you say Grimace…Bought at the end of 2008 and Cashed out at the beginning of this year. Made a good amount of shekels by knowing when to eject during this run up.
After I sold I rented a 2 bed condo at a reasonable rate to ride this rollercoaster to the bottom. The gravy train is over for all you soon to be 1% shills cuz this market is going down like the steelers did today. I’ll keep driving my Yugo while watching prices tank and jump back in as soon as I see blood in the water.
National downturn in housing
https://wolfstreet.com/2018/12/19/deteriorating-local-housing-markets-hit-national-averages/
Buy now and catch the falling knife. Financially, you will be screwed forever. Be smart and wait. Next year you can most likely buy for half off.
Where has Mr. Landlord gone? Is he putting out fires as his stock portfolio plummets and his overpriced negative cash flow Spokanistan rentals bleed?
He made me embarrassed to be a conservative, please don’t hold it against all of us. He couldn’t type a sentence without calling someone a ‘socialist.’
Mr Landlord in probably embarrassed that his theories and predictions are currently not happening. It is likely hard for him to admit to being wrong.
His input was the polar opposite of Our Millennial so I found it to be very educational.
JT has stepped up to provide this now without calling names.
This blog reminds me of our family dinners. Uncle Steve always quoted Reagan and Ayn Rand and Cousin Troy related his adventures saving whales and hugging trees.
The rest of us were somewhere in between.
haha. That is funny. Good analogies.
Merry Christmas, or whatever holiday does not offend you.
His arrogance is only surpassed by his hatred of ‘the left’.
I luv to see guys like him get smacked-about by life’s Karma.
Millennial, after you read this article, you will need to hire a therapist.
https://finance.yahoo.com/news/9-housing-mortgage-trends-watch-130051279.html
Stocks … down YTD.
Bonds … mostly down YTD.
Crypto … down YTD.
Real Estate … up YTD.
PRICELESS.
What’s priceless is the crappy resources you cite. They’re good for a laugh.
Reader, JT isn’t a real person, he is a just a parody acting like the quintessential dumb bull. Think of him as anti-comedy.
Wait, that is true right JT, you aren’t serious?
Hahhahahahaha, certain lines in this article give it away:
“Realtor.com economist Hale saysâ€
“Says Robert Dietz, chief economist for the National Association of Home Buildersâ€
So writers for realtor.com and the NA of builders say prices will go up and it’s a good time to buy? Bahahahhah, have they EVER said it’s not a good time to buy or that prices will fall? Quick reality check, have you looked at ANY data lately or is realtor.com propaganda the only thing you can read so you get a good night sleep?
Inventory is rising fast and home prices are falling left and right. I guess your choice is now: a) read realtor.com, buy sky high and catch the falling knife or b) follow the real data and buy a nice home within the next years for half off.
Stock market is crashing hard!!! Nice!!! That means the housing market is following shortly! Housing to tank haaaaaaard!
Today the Dow had its single biggest rise in unadjusted dollars ever. That means as little as the Christmas Eve plunge. Daily trading is loaded with all sorts of noise.
I entered the data for treasury rates into Excel from 1 month to 360 months and calculated the correlation coefficient. It was 0.92 which is a pretty good first order linear fit. Very low positive value for slope, which shows the flattening of the yield curve, but no real indication an inversion…. yet!
Interesting.
I should look at the correlation, slope, and std deviation inversion data before the last recession and use it to determine when to sell everything.
Logan Motashami, the great American bull who told us we will see 20 years of bull markets in the US has changed his name on Patrick.net now……do you need more signs?
Noticed how most perma bulls have disappeared on this blog as well?
Wohooo! We are officially in a bear market now!
https://www.zerohedge.com/news/2018-12-24/longest-bull-market-history-over-sp-enters-bear-market
Longer bull run finally over! Housing to crash hard!
california housing tanks hard!
Watch the biggest economic crash -in our lifetime- to unfold. I hope you didn’t buy real estate within the last few years?!? It will take several decades for real estate to recover. This crash will make look 2008 like a walk in the park. Soon you can buy RE for 1970 price levels.
What would be your response to the following statement:
(you can find this quote on la.curbed.com)
it’s a mistake to think home values will tank the way they did during the last recession, since mortgage providers are still shying away from the kind of risky home loans that fueled the housing market’s last collapse.
XAnder, you seem unfamiliar with lending practices. A lender doesn’t care about risk. The loans are long sold to Fannie Mae and Freddie Mac. If you default or not is none of the lenders business. All they have to do is get you to sign and sell the loan as fast as possible. Most people can’t afford the house they live in. They are just waiting to stop paying their mortgage. As soon as prices collapse they have a great reason to stop paying the mortgage.
1970 levels? lol I also think we will see discounts but when you say idiotic things like this people can’t take you seriously. I mean if we see 1970 prices, don’t you think anyone that already owns even if they are indebted to the hilt would be buying a second home? I know I do. I bought at 40% discount in 2017 because I bought a family home that was a fixer on top of it, market would have to drop 40% just for me to be even thank God. I could buy 2 more homes at 1970 levels and have 3 properties!
Fake news! Yeah sure, and I bought last week at 65% discount.
You haven’t been through a crash yet? people lose jobs And financial institutions go bust. During such a crash people don’t just keep cash and buy. Most people don’t even have 1k of emergency funds. Some people here are just too young to understand what’s coming.
Hilarious Goodtimes….you buy in 2017 (pretty much the peak) and hang out on a housing bubble blog….what’s up with all the buyers who need to justify their purchase during the peak? I thought when you buy a house the Grass instantly gets greener and all problems vanish? Haven’t we heard multiple times by our RE cheerleaders that renters are desperate poor souls and buyers (no matter what the price was) are as happy as can be? So Why waste your time on a housing blog?
Also funny how he makes up a 40% discount on his 2017 purchase. Keep telling yourself that!
Westegg inflation calculator says 1970 dollars are about $6.42 (2017). BLS site says $6.67 as of last month. $27000 was the average house cost back then, so that would be $180,000 or the cost of a cheap Western flyover country house (but more than a big old house in Fargo!). So flyover country houses are pretty much already priced for 1970. I can see some IE houses dropping down to close to the inflation adjusted 1970 price, but barring massive deportations of illegals, I don’t see that happening in Metro LA/OC. Houses for $27000 in 2019 dollars anywhere outside of the rural upper midwest in a dying town is nonsense.
I bought in 2013, 2017 and plan to buy again in 2019/20.
I could never exactly time the market so I’m not going to try in the future.
That’s absolutely awesome. I want everyone to buy high besides myself! It’s great to tell your neighbors (hopefully a boomer) that you paid half of what he paid.
Millennial… I don’t know if your posts will prove insightful but in many ways hope they will As I find it hard to justify current RE valuations. I am also technically a Boomer… born at end of era … And I wonder why you are being so disrespectful to the cohort? For example Telling someone on this blog you hoped they would tell a Boomer they paid less than they did. Maybe I’m missing something but it’s very divisive. Again I’m in your camp here But perhaps you lose credibility with statements like that?
Hi credit,
My issue with boomers started With reading their responses to the housing bubble. Many boomers blame millennials for not saving enough and state that as a reason why millennials don’t buy. They blame the victims and are mad because millennials don’t support (involuntarily) the housing market and its overpriced values. Not all boomers but many! Dr housing bubble calls this out very often too: “This is the land of the Jimmy Buffet Taco Tuesday baby boomer crowd. People that talk about how easy it was to buy a house on one income while working a blue-collar job rail against Millennials for not saving enough. Blue collar work unfortunately does not buy a house in most of California. â€
I would argue that most boomers own homes, bought extremely low, profit from prop13 and want millennials to buy high. They also come with their wisdom of “we were able to buy and it wasn’t easy back then†or they say, “prop13 is a good thingâ€! Or they say, “just don’t buy 18 dollar avocado toasts.â€
I’m siding with the experts. Appreciation may be slowing, which won’t please sellers. But prices aren’t crashing either, which won’t please buyers. Probably entering a more normal market, but that’s been going around for several years now while prices continued their steady rise. Economic fundamentals don’t support crash theories, even the ones bouncing around in Perma Bear’s heads. Ignore stock market gyrations. That’s just the herd mentality speculating on the future, and they’re rarely correct.
If you’re unnerved, take a wait and see attitude. Just don’t wait your whole life.
Thanks for the advice! That’s what everyone is doing. Lets hope you saved all your commission checks the last 6 years…You’re gonna need to eat
Definitely a “soft landing” like last time. This means it’ll be perfect equilibrium to where it’s a great time to buy, and it’s a great time to sell. Realtors will be in nirvana as they rack up astronomical commissions, and homeowners will continue their spending spree on Teslas and European vacations. No doubt this is Goldilocks at its best.
If anyone wants a reasonable / non-biased view on the housing market in 2019…… continue to follow Calculated Risk. (link below) Bill McBride was excellent predicting the last recession and also excellent at predicting the bull run when everyone else continued to be bearish. He helped me make a lot of money in that time frame.
You are welcome in advance:
https://www.calculatedriskblog.com/2018/12/question-9-for-2019-what-will-happen.html
yes! Nothing wrong with the economy. Housing market is about to skyrocket soon. Buy now and get rich! Great time to get into flipping houses!
Millenial,
Not sure where you get any of that. Your really need to start following Calculated Risk and stay the hell away from ZeroHedge.
https://www.businessinsider.com/bill-mcbride-of-calculated-risk-2012-11
Oh and Wolf Richter has been wrong so many times at wolf street it’s ridiuclous. He is more reasonable to read than Zero Hedge however… ZeroHedge will help you lose tons of money.
As a real estate expert I would advise against following just one individual. Experts like me recommend to follow the data no matter who reports it. Recent data suggests the real estate market is crashing. Seattle, sf see price declines. Inventory data for Oc county and San Diego show a similar picture. Money is to be made if you can sell fast and wait for th bottom. You have no 2 sellers competing with one buyer. Demand is in the toilet. I hope you are not invested in any flips?
Good ol Billie lost me when he stated “debt is not an issue in this cycleâ€. Household incomes have never been more disconnected with asset prices due to a policy of cheap money. All you need is interest rates to go up or a job-loss recession. Epic crash ahead.
Yes, but he didn’t even address the elephant in the room, that being the new tax rules on Schedule A write-offs, Line 5. Specifically, the $10,000 cap on State and Local taxes for both single and married (yes, a married couple is limited to $10,000 total, and married filing single is limited to $5,000 each, according to the 2018 Schedule A draft). That’s going to whack house prices, particularly in high state income and property tax states like NY & CA.
very reasonable perspective…
Seen it all before: “My point is that after 30 years, it won’t matter if you bought at the peak of a bubble. Inflation will make your house sound like it was an incredible deal at the time.”
There is something false with that statement. You and many perma bulls on this blog “ASSUME” that the next 30 years will be the same like the last 30 years. There is no basis for that type of extrapolation. Actually, the opposite may be true for this reason: in the last 30 years, the interest rate went from over 20% (during Volker years) to less than 4% recently. Why would you believe that it is perfectly logic to believe that the interest will continue to drop another 16% to MINUS -12% to replicate the same type of increase in asset (RE) prices????!!!!…..
In terms of practical life (not theory), what I see was just a little bump (a little over 1%) in interest slowed all the RE markets significantly.
I do agree with inflation, but for everything which is not getting financing and the government meddling. If you admit it or not, higher inflation and almost stagnant wages (due to globalism) leaves less disposable income for people to save for down payments. Higher inflation translates in higher interest (bond investors want to be covered for inflation). Higher interest means less ability for people to buy for higher and higher prices.
That is my angle and I believe that it is pretty logic.
Great response Flyover!!
Flyover,
I agree with you most of the time and I am not a bull. I believe there is a housing bubble.
However:
“In terms of practical life (not theory), what I see was just a little bump (a little over 1%) in interest slowed all the RE markets significantly.”
From historic data, 30 year mortgage rates increased 1.5% from 2003-2007. Housing prices increased 40% during this time.
From 1978-1981, mortgage rates increased nearly 10% from 8.5% to 18.5% Housing prices tracked inflation +/- 5%.
I can’t see any correlation between mortgage rates and housing prices based on historic data.
However, from 1970 to 1998, housing was very correlated with inflation +/- 5%.
Inflation from 1998-2018 was relatively low at 2.75% yearly average increase.
The rise of bubble from 2002 to 2007 deviated from this correlation. Inflation was low. Mortgage rates were flat or slightly rising during this time. Housing prices were inflating well beyond the inflation rate with even a 1.5% rise in mortgage rates not slowing the increase. Mortgage rates and inflation have had little correlation on housing price increases from 2002-2007.
What is interesting is that in the darkest hours of 2011 when housing reached a bottom, it bottomed out at the inflation rate line. This means that the bubble may blow up in housing but the low still tends to track inflation. Housing fell about 40% during the crash in real dollars but only about half that in inflation adjusted dollars.
Given that….
1) At the bottom in 2011, a $1M house has likely increased today to $1.45M with a 45% increase in housing values. The new inflation floor for the house value is $1.24M with a 2.75% inflation rate for 8 years. This would be about a 15% decrease in the house value if the inflation rate is the floor.
2) Barring any pseudo Black Swans, I predict housing will drop 15% with a 5% overshoot to get back to reality (ie track inflation again).
My point is: Given that the inflation rate stays at 2.75% for the next 20 years (The Fed prevents inflation from repeating what happened in the late 70’s):
If Surge bought a $1.45M house this year at the peak, (worth really 1.24M) in 20 years that house will be worth at least $2.1M. He will be feeling sorry for all of the iGeneration people complaining that housing is too expensive.
If Our Millennial waits 20 years for the 50%-70% crash, he will also be still complaining and waiting for the Black Swan to arrive.
You have a point that wages have not been increasing with inflation. The Fed is currently trying to balance inflation with wages by raising interest rates in an overheated economy.
Seen it all before,
My argument was related to the subject at hand – long term (30 yrs, the time frame you were debating). Mine was a macro analysis; I looked at the big picture. You kind of got lost in the details (microanalysis) of the year to year noise.
Also, none of us looked at the position of the US in the world today with most of the manufacturing gone, most of the middle class gone, most of the unions gone, most of the wages can’t keep up with the inflation, US turned from a creditor country to a borrower country with the debt passing 20 Trillion on the way to 30 Trillion. If you consider all these factors on top of the interest long term tendency you can have a very hard time duplicating the past 30 years for the next 30 years. That was my point – to extrapolate the past 30 years for the next 30 goes against my logic and observation.
20years? More like 2 more years.
I’m not sure if my first post went through regarding Millie and his ‘old landlady’ that never raises the rent, but here’s Part 2, that of the life of a longtime renter.
Eviction #1:
The first time we got a 60-day notice to vacate a rental was in 1998, through no fault of our own. The complex where we had lived for 4 years had been bought out by a consortium, and they wanted to get rid of the existing tenants so that they could raise the rents. The city was building a harbor connection for ferries that would carry passengers to San Francisco, and they wanted those high income passengers that worked in SF, and us out. We were all immediately hit with dozens of new rules. My next door neighbors were harassed for leaving their baby carriage under the stairs, cars were towed for having their tailpipes face the apartments, we had to park outside the gates for a week so the parking lots could be re-surfaced, and we were given a 24-hour notice literally every week or two that repairmen would enter our apartments, even though there was nothing broken. It was nonstop harassment. I couldn’t keep taking time off work to be home when they entered, as I would have had to take a day off every week, which was ridiculous. Finally, they turned our pet-friendly complex into a no-pet complex, and it was either get rid of your animals or move (existing pets were grandfathered, but you could only keep two, and I had three). Pets also were no longer allowed outside off leash, and cats started disappearing. Management denied they had anything to do with it, but we knew better. A very loved tuxedo cat next door to us vanished without a trace, and every cat owner was freaking out. We had to move. Reasonably priced rentals in safe areas that took in pets, however, were so scarce at that time that we couldn’t find ANY thing we could afford. So I ended up buying a house.
2nd eviction:
I kept my house for 7 years, then sold it for 2 1/2 times what I paid for it. I rented in the neighborhood for over 7 years. Then one of my landlords (a gay couple) lost his job, and they had to sell their house and move into our condo. Again, the rents had skyrocketed, very few places allowed pets, and we ended up in a desperate search again. We found a place in the armpit of Alameda County, in San Leandro. Higher rent, worse neighborhood, longer commute, and smaller place.
3rd eviction:
We were renting a house in San Leandro. With rents skyrocketing, the owner decided to sell this house and buy a 4-plex, which was a smart move for him. Subsequently, just 2 years after moving in, we got another 60-day notice. Our search this time was futile, because the rental market was red-hot. In desperation, and since we both had parking spots at work, I looked into renting one of the 2-bedroom, 1000 SF apartments across the street from us, and storing our stuff in Santa Rosa, where my sweetie had inherited a small house. This was a cookie cutter IKEA-type complex. I walked in during one of my lunch breaks one day, and was told that their 2 BR/2 BA apartments were renting for $5300/month!!!! Parking not even included in that price! That was my entire take-home pay for the month, and I’m a civil engineer.
We said screw it, moved into the Santa Rosa house, commuted for 2 years, and then pulled retirement. We were lucky we could do that, since the 4-6 hour RT commute was literally killing us. I don’t know how younger people that aren’t in a sky-high income bracket can even break even around here.
This is a story I’ve posted before, but it needs to be repeated. You have no say over the place you’re renting since you don’t own it. You need to get your own place, or you lose control over your life. Millie, pray for your landlady’s health and well-being, because once she’s gone, you may be out of luck. And Surge, don’t even say to get rid of the pets. I mean it.
And by the way, we have impeccable credentials, paid our rent early, and kept our places up better than when we moved in. We weren’t at all like the tenants I inherited (see previous post). The first eviction came from an impersonal corporation, but the last two landlords loved us. But none of that matters if you don’t own the place.
“Millie, pray for your landlady’s health and well-being”
Huh? Are you nuts? I dont give two shi** abut the well being of my old landlord lady.
If we run out on old landlord ladies that keep rents dirt cheap i move in to my in-laws or parents. That’s why we have in-laws and parents, right?
As a bonus, the fridge is full and the rent is zero. Why waste money on rent? You need a nice war chest when the market tanks…..
One more thing, and this is in regard to your (Millie’s) response to Flora on December 5th, which I will post after what I have to say about this. You must be brain dead if you think concern about the $10,000 cap on state and local income taxes on Line 5 of Schedule A could only come from a real estate agent. State and local taxes include state income taxes, property taxes, personal taxes such as car registration, and general (sales) taxes. Let’s say you have 20% down. To qualify for a median-priced home in any of the major California cities, you’re going to have to have enough income to have to pay around $10,000 in state income taxes. On top of that, your property taxes on that house will be close to $10,000, once you add on all the parcel taxes and bond measures. So close to $20,000 total. However, all you can write off is $10,000 if you’re single. It’s worse for married couples, since they can only write off $10,000 together, and $5,000 if they file married filing separately. Here’s what it says on the Schedule A draft for the tax year 2018 (note that line d is the total of all state and local taxes):
Line 5e: “Enter the smaller of line 5d or $10,000 ($5,000 if married filing separately)”
My sweetie wants to buy a house yesterday, and I’d like to wait around 3 years, since at that time I will be all-cash, and housing prices will be pretty far down from here. He’s pressuring me a lot, but I told him flat-out that I will not make an offer with him on a house before April 15th of next year, since that is the day that most itemizers will have that line shoved in their faces. THAT is when the real estate markets in over-priced states like California and New York will go into panic mode. I have been saying this since the my first post on this site months ago. It’s called the SALT cap (state and local tax cap).
Anyway, here’s your silly reply to Flora:
• Flora
December 5, 2018 at 7:29 am
In California where we taxed to live in sunny weather, and where a modest single family home can easily be over $1 million, capping property tax write offs is yet another blow to the middle class family. While the middle class is being penalized with limits on property tax write offs Trump is lowering corporate taxes thereby increasing g ever more the gap between the super rich and the dwindling middle class. This isn’t capitalism. Another observation, the generations we are raising now, what kind of a future can they expect when their parents are overburdened with debt, taxes and ever increasing cost of education. Has anyone even considered the cost of emotional health our economy is placing on young families?
o Millennial
December 5, 2018 at 12:06 pm
Flora, you must be a real estate agent. Only people who benefit from selling overpriced real estate would make such a statement “capping property tax write offs is yet another blow to the middle class familyâ€.
This is total BS. Why give out incentives to own? This is market distortion and these benefits are priced in which causes the housing market to be artificially inflated. That’s the last thing future generations need. They need a market crash so that they can afford to buy a home. Take your RE cheerleaders gear and try somewhere else
 Jed
December 5, 2018 at 11:42 pm
You’re telling her to leave? Who the hell are? You’ve taken over the doctors blog and now you’re shooing people off. Why don’t you start your own blog so I can ignore it.
 Millennial
December 6, 2018 at 12:51 pm
Jed my buddy,
Don’t get too riled up. I don’t mean for her to leave in a literal sense. I appreciate the last remaining RE cheerleaders. My message is more like: nice try in pretending you are an avg person interested in sticking up for the middle class. Lots or RE cheerleaders are trying to disguise themselves as “normal peopleâ€. In reality they are pushing an agenda. It’s almost brainwashing. I like to expose them.
“. You must be brain dead if you think concern about the $10,000 cap on state and local income taxes on Line 5 of Schedule A could only come from a real estate agent.”
That’s true. Not only agents and others who benefit from selling overpriced RE would make such a statement. There are also dumb people who believe that government subsidies are actually benefiting the middle class. I should have including that the first time. Thanks for giving me the opportunity now!
I wouldn’t call the write-offs ‘subsidies’. They are one of many manipulations, along with low interest rates, that drive up the prices of housing, making them increasingly unaffordable to both the middle and the lower classes. I feel that the loss of these write-offs will make it easier for people to get back into housing. In fact, in countries where people can’t easily get loans on houses and have to pay cash (more common in South America, for example), the price of housing is both much more reasonable, and MUCH MORE STABLE.
I’m looking forward to the loss of these ‘subsidies’, as you call them (I call them just being able to keep the money that YOU earn, instead of giving it to our useless governmental bodies that just want a handout for doing nothing). No write-offs mean more affordable housing. Not for people who recently purchased, because they’re kinda stuck. But for those of us waiting for prices to come down.
You don’t know much about economics, do you, Millie?
Karin, Exactly! No matter what you call it, it makes housing more expensive. Take away incentives, write offs, subsidies and housing gets cheaper. My thesis all along. The ones who scream the loudest about taking away those “whatever-you-call it†are those who profit from higher house prices but they disguise it as “ it’s bad for the middle classâ€. The opposite is the case. Cheaper house prices benefits most people.
You don’t get that we are saying the same thing?
I am in the top 10% of income earners yet only paid $5016 in state taxes in 2016 and $4402 in 2017.
I am not even middle class and yet the cap doesn’t even effect me unless I owned a personal residence which was over 500k in value. The tax policy once again is not against the middle class it is against high income earners who own expensive real estate in heavily taxed states (read democrat controlled).
You mean affect, not effect.
Thank you so much for your comment pointing out i misspelled the noun instead of the verb. It has helped to further the housing discussion.
Woody, you also should have capitalized your “I†when referring to yourself. Lol.
Good luck. You can’t even buy a 1 BR/1 BA condo in the larger CA cities of towns for $500K.
People buying $1M+ homes are not going to be deterred by SALT
reductions. No matter what the MSM tries to hand you. However,
I could see them pausing to see if the stock market stabilizes and
if interest rates back down a bit. If the housing market normalizes
this spring take some of the cash you might be squirreling away and
look for some under priced deals, while you’re waiting for that big crash.
Whenever that happens. Might as well make a few bucks while waiting.
For some like “qt” who can’t stomach any risk, the 2% bank CD is always
there.
Market Man, you’re wrong. Maybe people buying $10Million homes don’t care, but $1M is another story.
And I didn’t get this from the MSM. I’m an engineer, but one of my hobbies is looking at taxation. I’ve studied taxes ever since I got my first paycheck at the age of 17, and was incensed at how much money the government had stolen from my paycheck. As soon as I saw the SALT cap, I knew what the ramifications were going to be. Just watch the housing market as this tax season unfolds.
As for the 2% bank CDs (currently a 28-day T-bill is 2.4%, with no state tax due on it), it beats watching your wealth wiped out in an hour on the stock exchange. This has happened to many within the last few weeks. I spoke with a lady recently who had a profit of $60,000 in Bitcoin, but her financial advisor told her to hold her investment for a year so as to get the lower long term gains tax. She did, and her profit dropped to only $10K while she was waiting. I invested $90K in 1998 right after I opened my first brokerage account, and lost over a third of it in just a few days. It took me 7 years of cautious investing to break even, and then I was out of the market for good. I don’t need the roller coaster ride.
No thanks, I’ll stick with the T-bills for liquid cash, and PMs for the long term.
Oh boy, looking at some pre-inventory numbers for December…..The housing ship is sinking fast
Karin, you have been evicted 3 times?? Can I please have your last name so I never rent to you? Thanks in advance!!
Rofl
Darn, I typed my zinger by misspelling my screename. If I ever become famous on this blog like Millennial then my foes can mock my posts by posting as “Not Cal Fella.”
Did you read the reasons why? Prior to the first eviction, I had rented for 24 years without a problem. The first and third landlords wanted higher rental income, and the second had lost his job and needed to sell his house. What I was trying to convey was that being a renter is a very unstable way to live, no matter how timely you pay your rent or how nicely you keep the place up. At the second place, we even did repairs for free, since we had the skills. The landlord felt horrible, but he himself needed a place to stay. How does that make me a bad tenant?
3 eviction looks terrible on paper, no matter what the circumstances are. I wouldn’t make the rounds and telling people that. It’s like a driver who gets into not-his-fault accidents and complains about a premium increase due to higher risk Profil. The driver says, I wasn’t at fault! The insurance says, we know, but somehow you keep getting involved in accidents and we have the right to categorize you as a higher risk profil. Renting provides more flexibility and less risk compared to buying high. If you have to move you might lose money if you bought recently. As we know there is no rental parity during a bubble. So you can’t rent out your home and cover your costs. Also, most buyers end up buying a house they can’t afford. During a job loss recession they are at risk to lose the house if they can’t make the payments. Renters just stay put or move to a smaller place. being evicted as a renter is much better than foreclosing on a house.
The OC Register has several interesting RE articles today. The big headline is “Surging Southern California Housing Costs Crashed Wall Street”. Columnist Lansner points out that outside of the West, inflation is running below the Fed’s 2% target. And the one thing in the West that is driving up CPI is housing cost. Therefore without the West’s runaway CPI, there would be no need to raise the interest rate.
Columnist Lazerson congratulated himself on calling the 30 yr fixed rate for 2018 correctly, he came close to calling the 2018 US residential loan volume (it didn’t drop quite as much as he thought) , he was low on the rise in first time buyer prediction, pretty much nailed his cash out refi prediction, but totally flubbed his reverse mortgage prediction (he said up 15 percent but HUD says down 11%). He also blew his housing starts prediction for the US (he said 15% but data says 4%). And he really got the number of Fed rate increases wrong (he said 1, they did 4). He admitted error on his prediction of a change in CFPB policies. AND MOST IMPORTANTLY FOR US ORANGE COUNTIANS, HIS PREDICTION OF SALES DROP (5% VS 7 %) AND PRICE INCREASE (5% VS 6%)WERE CLOSE TO RIGHT ON.
He has a bunch of 2019 predictions, mostly bearish.
I’m waiting to see people on this blog who made specific predictions with numbers and dates go through them like Mr Lazerson did. He was right for about half of them.
A leading indicator for the coming market crash is the dissapearing act of Mr, Landlord. The use of “LOL†and “socialist†is almost non-existant now. PS why did have a comma after Mr. for all these years?
There are Socialists who believe that free markets will all eventually collapse and be replaced by a Socialist command economy with economic justice for all. This has never quite worked out as planned. There are free market Capitalists who have a faith in efficient markets, and blame government interference for big drops in value. While government programs do play a role in some bubble buildups, they aren’t necessary for bubbles as past history has shown.
The rest of us understand that both rational and irrational decisions are made when investing because of fear and greed. That doesn’t mean that in the end true value will not win the day in the marketplace. It just means it might not win today. That is why we look to assess value vs price rationally and don’t act on fear or greed. And that is why most of us favor the free market system and laws against fraud. This blog does us a great service as a place to discuss fear, greed, value and fraud.
Lets have a contest where we guess how many ID’s Millennial is posting under. Millennial will review the results and pick the winner. Lets start the new year off with a little contest. Happy house hunting to all in the new year!!!
“A leading indicator for the coming market crash is the dissapearing act of Mr, Landlord.”
Really ? Maybe that’s one of those Obamanomics indicators. Or maybe he just got tired of chasing the Bears around on this site. Probably hear from him in a few months, saying “I told you so”. Who knows. LOL.
It’s even harder to rent in Toronto, Canada when a basement costs $1,500/month, and a room inside a basement costs $1,000+/month, and this is located in some s-hole suburban part of Toronto such as Scarborough.
Millennials can no longer rent much less buy these days. I blame the influx of laundered foreign money that jacks up the prices of real estate.
Hey, even the escorts here cost more than NYC and LA escorts on average, because they have to pay their $5,000+ month rent, or condo payments.
Unlike LA, even getting a job working at McDonalds is very difficult because hundreds thousands of people move to Toronto every year.
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