California homeowners are getting older and taking homes into the grave. Property turnover has fallen substantially since 2000.
California homeowners are entering into their geriatric phase. The share of homes owned by older Californians has grown substantially since 2000. The Taco Tuesday baby boomer crowd is dominating the ranks of homeowners. This trend is new and because of key items like Prop 13 and Millennials living with parents, very few homes are turning over. The first time home buyer in California is simply getting older and older contrary to the house humping cheerleaders talking about the days of “sucking it up†and having to save to buy a home. Of course many were not contending with hot global money, limited inventory, artificially low interest rates, and a delusion of crap shack grandeur.  Now some yell from their beer belly exposed guts and a savory carne asada taco in the other hand that people should move out if they don’t like it here (and many are). The economics of course are more subtle.
California old folks home
The old dominate the homeownership ranks in California. Fewer properties are turning over because many older homeowners are now having their grown adult children moving back in. Which makes sense since many bought because they were itching to pop out offspring. Now their offspring is itching to pop out offspring but many are hesitant to do that when a “starter home†is $700,000 and many times is in an area with bad schools.
Take a look at this chart of homeownership based on age cohorts:
Source:Â California LAO
The chart is interesting for the two groups in the middle. You can see the homeownership percentage of all homes owned by the 35 to 55 age group decline as it is overtaken by the 55 to 75 age group. In 2005 the 35 to 55 group dominated and now it is the 55 to 75 age group. But that group, your typical Taco Tuesday baby boomer, is now seeing many of their adult children moving back home.
This is keeping property turnover very low:
Why are people not selling if the market is so blistering hot? The demographics should explain a lot of this change. Older homeowners are now stuck in their stucco sarcophagus. If they sell, many metro areas across the country are also expensive. The only time they would maximize their wealth is if they left to a lower cost of living country. Many will not do that – they even hesitate going to lower cost states. They would rather shop at the 99 Cents Store and live in a million dollar crap shack than unlock that sweet tasting equity.
That is one reason but another is the fact that their kids now live at home once again. 2.3 million grown adults live at home with their parents in California. Don’t think this is common as some are preaching as if suddenly California is Italy. This is uncommon. It is happening because people are broke after paying the monthly bills and even rents eat up a ridiculous amount of income.
Also remember that we’ve been in a hot market for 8 years now. The business cycle is bound to rear its ugly head:
The employment market is already looking a little softer. This can only mean that more adult children are going to be moving back home and of course this means home prices are going to go up forever because that is simply how things go in California where the tacos never run out on Tuesdays.
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279 Responses to “California homeowners are getting older and taking homes into the grave. Property turnover has fallen substantially since 2000.”
housing to tank in 2018!
Tanking to Begin Soon!!
Yawn
I was in Pacific Palisades yesterday. I was stunned by how many Open House/For Sale signs there were. Maybe a couple of dozen along Sunset Blvd. alone. Many lined up next to each other. If the “smart” money is looking to sell — what does that mean? I think it means top of market.
So many people have multiple homes. Instead of selling and moving up, they are taking a home equity loan to purchase a move up property, then rent out their old home. Frequently, people in their 50s have three homes, while people in their 40s have two. None of these are being sold. That is their retirement plan.
jt, I have known several people who have done this. A cash out refi is taken on the starter 1000 sq ft Torrance box and magically people have hundreds of thousands to use for a down payment for the Palos Verdes move up home. The Torrance box is turned into a rental and gets $2800/month rent and is cash flow positive. That’s how the game is played here. This is another reason why owning property in desirable socal locations is so highly sought after. When that Torrance box is paid off, that will be a nice monthly chunk of change in retirement. Or the house will be left to offspring.
Don’t fight the system. Learn how to play the game!
Cap rates in CA are terrible. The only RE investing play in CA is the appreciation.
If you want cash flow with returns double that in CA, look to the Midwest.
The cap rate argument is correct. But, when the economy hits a recession, you will find that it is nearly impossible to rent many midwest properties, whereas in a decent Cal location, you reduce your rents and you can fill. So, it is true cap rates are higher in the midwest, but you take that higher rate knowing you are taking the risk of no rental income in a decent recession.
LOL…unfortunately this strategy ignores RISK. What a dangerous and moronic game to play. I’ll feel bad for these people when it all comes crashing down and they are exposed.
@Never Goes Down
Exactly. Stretching themselves thin on debt when prices are high is one of the primary reasons why investors fail. The current cycle represents the biggest debt binge in modern history.
“LOL…unfortunately this strategy ignores RISK. What a dangerous and moronic game to play. I’ll feel bad for these people when it all comes crashing down and they are exposed.”
What risk exists when it comes to owning (and renting out) desirable socal RE for the long term? Unlike home prices that gyrate wildly, rents in socal are pretty steady…the long term trend has and always will be UP. Is socal going to have a mass exodus where we lose millions of residents? This is not rocket science, the renter pays off the owner’s mortgage. The owner gets any appreciation moving forward. Eventually the home is payed off and it’s all gravy.
Is socal going to have a mass exodus where we lose millions of residents? It might happen considering that SoCal is prone to major earthquakes and fresh water and food must be brought in from hundreds of miles away…
Prop 13 is evil
Proposition 13 is evil? No, big government bureaucrats taxing property owners out of their homes is evil.
@samantha let me guess, you benefit from Prop 13 and pay way less in property taxes than your neighbors. Funny how that works…things are fair when you personally benefit, but unfair when you don’t.
How about this…everyone pays a flat fee in property taxes based on the size of your lot, not on the value of the property. Would you go for that?
Throbert Girth: How about this…everyone pays a flat fee in property taxes based on the size of your lot, not on the value of the property.
That’s not a property tax. You’re describing a parcel tax. And parcel taxes already exist in addition to property taxes in Santa Monica.
Some local jurisdictions add parcel taxes to their property taxes, others do not.
If you’re suggesting that we abolish property taxes, and rely exclusively on parcel taxes, I’d be fine with that.
honestly it not a bad strategy Jt, it is part of my retirement plan as well, i have a few other ideas,, but that seems to figure prominently into most peoples retirement plan ,,making your hard earned money work for you , the american dream right?? as long as people love the weather in ca, owning rentals here is probably a good thing but i am moving to cheaper hunting grounds or at least ones with weather i like better norcal is kinda cold in summer..
that might be a good plan, assuming you have great tenants. Many landlords have problem tenants who only pay what they want, and understand the law protects them even if they don’t pay at all. There are many tenants out there who don’t pay at all after their security deposit because they understand how long the eviction process actually takes, and how difficult it is to sue someone with virtually no assets.
is that different in California?
Only stupid landlords have those tenants. Finding good tenants isn’t rockets science. Good credit, high income, long term steady employment. People who have all 3 pay the rent and don’t trash the place. Nobody with a 750 fico score will destroy their credit score in order to get a few months of free rent.
If you overcharge for rent, that’s the experience you’ll have. Very few tenants with families responsible enough to have a 750+ fico and ten years on the job are going to go into it with the plan of getting kicked out in 3-4 months, or however long it takes to evict them. Lower rents get you higher quality tenants. Before you say “if they’re that qualified they would own”, look at the people on this blog. A lot of people are waiting, and some are life-long renters.
Ask the people who know. Biggerpockets.com.
There it is again…Mr. Landlord at his finest: “Only stupid landlords have those tenants.”
If you happen to have a renter that doesn’t pay you are stupid! This wise guy said the same about the 7 Mio foreclosed homes. The people who lost their homes were not smart! According to Mr. Landlord, if these people would have been smart they would have simple held on to their RE!
His reasoning is simple: “It’s really, really hard to lose money in RE”.
Yess Millie. If you are dumb enough to rent to undesirable, you will lose money. It’s not rocket science. And yes if you foreclosed in 2010 and walked away from a money making machine, you were a fool as well. That house is worth 100% more today in some markets. People make stupid decisions all the time, not sure why it offends you when I point it out?
“That is their retirement plan”
And the next part of that plan is to sell to whom? The Walmart worker making $11 an hour? The gardener? The flood of illegals?
OR is the plan selling to some rich Chinese “investor”
the people they are planing to sell all these homes to, on average, make shit money so how are the going to afford that $1.1 million house?
I don’t think people understand how little most Americans earn……half the people I know don’t even have jobs and live off the government
Man, you need to Branch out into different circles of people got run with.
Doctors (almost any medical related profession)
Lawyers
Sales people
Money managers
RE people
IT guys
HR/admin
All of those are examples of people making 6 figures easy.
They don’t plan to sell, they plan to rent it out. That’s the point.
Agreed Dan.
I’m so sick and tired of hearing how EVERYONE is broke and/or working for $10/hr. Sure there are those people. But there have always been poor people. Judging from some of the comments here you’d think that up until 2000, everyone was a millionaire in this country, lighting cigars with $100 bills or something.
There are millions and millions of people making 6 figures who live comfortable, financially secure lives. It’s not all doom and gloom out there.
In the nice neighborhoods of San Diego average household incomes are somewhere between $120k-$150k a year. Which is generally enough to get you into a $500k-$700k place depending on how little you want to save.
People who make less generally are renting sometimes still in the nicer areas if they find deal. The bottom middle income earners are just stuck renting apartments, many times section 8, instead of small homes and nicer condos.
Its not uncommon to hit $120k given that almost every family in San Diego in the nice areas are dual income earners, or high single earner. Avg engineering job with a big company is paying $100-$120k base with experience, sometimes with very little for tech work.
But the real key is the dual income. Makes it a bit harder on families that actually want a parent to have time to raise their young kids, but it is what it is. Even dual income teachers with master degrees are getting $60 in the public school system. More at a college. Between employers like Qualcomm, UCSD, SDSU, General Atomic, the Navy, Air-force , Salk, all the high end medical facilities, biotech and the list goes on there are thousands of jobs beating the $60k mark to bring a 2 income family up to $120k and also many of those reaching above $100k for single earners.
@Mr. Landlord
“I’m so sick and tired of hearing how EVERYONE is broke and/or working for $10/hr.”
Almost everyone is effectively broke and makes far less than the $350K/yr needed to afford (assuming no other debt) a $1.1 million house. Only around 2-3% of all Americans make that much or more money per year.
Even in CA where there will be a higher concentration of wealthy types than other parts of the US there will be very few who can afford a $1.1 million home or any home at all really.
“Judging from some of the comments here you’d think that up until 2000, everyone was a millionaire in this country, lighting cigars with $100 bills or something.”
Hyperbolic strawman. However back then wealth inequality was much less pronounced than now so economically it was unquestionably better. A college degree was generally still a reliable pathway to a middle class income or at least a job that would grow into that back then.
“There are millions and millions of people making 6 figures who live comfortable, financially secure lives.”
There are over 300 million people in the US though. The vast majority earn a fraction of even $250K a year much less $350K.
If a relatively tiny few are doing well but everyone else is getting screwed hard is that the sign of a good economic system?
tts, you need to expand your horizons. Seriously. Virtually everyone in my circle of friends/family my age (early 40s) makes good money and owns a home. Many have a vacation home or ski condo or what have you as well. A friend of mine just bought a sailboat (not my thing, but whatever makes you happy).
And enough of this woe be me garbage. Buck up and make something happen for yourself instead of whining.
As a point of reference I bought my 1st house when I was 28. I was making $63K a year. Cost of the house was $299K with 10% down. Bbbbut bbbbut how could this be? ***EVERYONE**** knows that the most you should spend on a house is 3X income. Well I guess I performed a miracle, because I owned that hosue for 3 years, never missed a mortgage payment and I don’t believe I ever had Tacos on a Tuesday either.
Meant to add…
If I could easily afford $300K on $63K salary, then a dual income family each making $100K+ (which is quite common in coastal CA), should have zero problem affording a $1M house. Now, that’s not to say the SHOULD buy. But if they wanted to buy $1M worth of house on $200K they’d have no problem.
Many states and counties have a Prop13 type of thing for people 60 and older. My county has a program that is a combination of age and income. If income is below a certain number ($50K I think) and the owner is over 60, property tax is greatly reduced and it’s frozen as well. It’s also a good incentive to get retirees to move to the county. And as everyone knows retirees are the best residents…..they have money to pay property tax, but have no kids to send to public schools, which is one of the (if not the) biggest expense item for most municipalities.
There are alternatives to Prop13, if the goal is keeping grandma in her house.
No joke. Your circle of friends are not representative of all buyers.
Just met with and pre-approved 3 sets of buyers this week. 2 Indian and 1 Hispanic.
All with good jobs (6 figures), bringing 20% down, good credit and virtually no debt.
Definitely far from 11 bucks n hour at Walmart.
Yep, that’s my back up plan > to inherit the homes from my parents/in-laws.
I know….the RE cheerleaders are quick to respond and tell me that wont happen because of inverse-mortgage blah blah blah. Lol
So here it is:
Plan A invest all the cash i saved over the years and buy when prices are low after the next crash.
Plan B: If plan A does not work out, perfect….keep renting/saving money and wait for the next crash. The end-game would be I inherit all the real estate from my family eventually.
What I will never do is buy an overpriced house. Reading about the bubble and it’s beneficiaries I just cannot find any justification for paying a high markup to benefit the older generation just because they got lucky and bought when houses where dirt cheap (compared to nowadays). Millennials haven’t had that opportunity yet.
Ya ya we get it, you want to wait till there’s a 70% crash and are willing to wait 100 yrs. You repeat this same theme on every post. Got anything constructive?
winning doesn’t get old.
At least now he has his Plan B strategy:
Inherit real estate
So whether it’s 100 years.. or inheriting real estate at age 60 to start life.. he has his bases covered.
Inherit as a strategy? What could go wrong?
“or inheriting real estate at age 60 to start life”
Because….you cannot start a life unless you “own” a home.
That’s great! Will add that to the list:
1. Buy now or be priced out forever!
2. Buy now or start your life with the age of 60!
3. ….
“Inherit as a strategy? What could go wrong?”
Not sure….you tell me? I am eager to hear it.
I’m confused. Why would Mille want to inherit r/e? It’s the worst thing in the world to own, or so he says.
It’s funny how Mr Real Estate is Evil, is planning on inheriting r/e as his retirement plan.
Dude either you are trolling harder than anyone online, or you have some serious issues.
Millenial,
What could go wrong counting on inheriance?
To put it bluntly:
Everything
Tank in sight,
“To put it bluntly:
Everything”
Nice. Than it should be easy for you to name one or two for me?
Inheritance can go to zero for a myriad of reasons
Are you so dense you need me to sight the infinite reasons inheritance goes to zero?
OK… since you are counting on inheritance as a “strategy” I will give you the heavy hitters:
1. You find out you aren’t in the will or to the extent you thought
2. Healthcare eats it all, which is becoming very VERY common… and the trend is getting worse.
3. Your parents screw up their investments, ball game over
4. The market tanks 50-70%, they sell because they need the money
Entitled hope is certainly no startegy
Thanks Tank in sight!
If these are the heavy hitters I should be fine. Both my parents are getting government pensions and great healthcare. Sure, they could decide to start being alcoholics and gamblers and lose it all in a high risk game of poker or they could decide to be converted to Islam and donate everything in their possession to the next mosque. But these events have a probability of happening of less than 1% in my mind. If you think of anything else let me know.
Well said
Being a real Millenial, there. Expecting parents to help by inheriting.
I’m a millenial and I got my parents to buy in 2012 so that their rent wouldn’t keep going up when they get older and have less income. I’ll help them when they are old, if they need it. My husband and I bought a house and we are selling it now to move out of state and kinda have a paid off house, better life, really focus on retirement planning and raising our family too.
“Being a real Millenial, there. Expecting parents to help by inheriting.”
You make it sound like its a bad thing.
As I mentioned, my first choice is waiting for a nice, beautiful crash to pick up a house at 50-70% lower price (that would reflect the true value of the house and you would have rental parity). But, you always should have a backup plan because you never know, right?
Some on this blog said we have Trump now and therefore housing will skyrocket since he is a real estate guy. Also, illegals will disappear and our GDP will increase tremendously (tax cuts and import tariffs). Some even believe that we will have enormous growth by legalizing pot. They call it a pot boom. While I give all this fantasy nonsense a 1% chance for materializing i give an upcoming crash a 99% chance. However, its always good to be prepared for the worst case scenario (That would mean no economic crash).
Time helps build wealth, so the more time you spend doing, the more you have at the end.
I agree a crash will happen. It’s the cycles created by the Fed. Unless somehow we get to audit the Fed and get rid of it, the cycles will keep happening. I don’t know why some people think it will never crash. Because of the Fed, we have bunch of bubbles right now: housing, credit cards, car loans, student loans, etc. and because of the Fed, they will all burst.
I like this idea. in the Southeast, instead of my in-laws renting, I helped my in-laws buy a house and they made all the payments, taxes, etc. at their reduced rates. when they died, it passed on to us and now we rent it out making a 4-5K/yr. we are now taking our savings and able to purchase a couple more rentals and we will pass all this on to the kids. My side of the family in SoCal has several RE rental properties and own it all outright. (old folks don’t see RE as some type of bank account, they live within their means.) So we will have several opportunities to rent out, pass on this to our next generation or live in multiple areas of the country. Thanks Mom and Dad. We will be doing the same for our kids, looking to get a couple vacation props that are rentable while we pay lower taxes and pay those off too before we die. Building wealth is easy if you are conservative, take your time and are willing to look outside your market. Live beneath your means, everyone works, save what you can, don’t buy new cars, don’t get cable….but hardly anyone wants to really sacrifice.
Mr Landlord,
“I’m confused. Why would Mille want to inherit r/e? It’s the worst thing in the world to own, or so he says.”
Yeah, I can see the confusion 🙂 Its not uncommon. For most RE cheerleaders only two doors exist when it comes to real estate. Door 1: BUY NOW. Door 2: RENT FOREVER.
As soon as you mention door 3: RENTING, SAVING AND WAITING FOR A CRASH they have issues comprehending this strategy and/or are confused (like in your case). But the vast majority of RE cheerleaders respond to the strategy of waiting for a crash with the wildest theories and predictions:
“You are an Anti-American Perma Bear” (probably my favorite), “If you don’t buy soon you will never own a home”, “You wont start life until your are 60”, “you will wait a 100 years”….to mention a few. Over the years the list grows and grows. Quite the entertainment.
What would be confusing. You can buy outside your market. It is easy to see the upcoming markets. Look at the Southeast (SC, NC, GA, Dallas area of TX, growing areas of AZ, retirement areas where you would like to live, or vacation areas. You can stay renting in SoCal, get a beach rental in Charleston or Myrtle Beach, SC or a rental property or three in Irving/Dallas TX. Move your retired folks there and have them pay the payments and taxes while they are old and taxes are reduced. Rent out their current home, so they are living rent free. Work together as a family…when you work together options are far more manageable, family is more trustworthy. numerous Property companies to help manage anything you want to do.
35-55 and 55-75 are pretty big ranges. Could be the big change has gone from a lot of 50 year olds owning in 2000 to a lot of 60 year olds owning today. The fact under 35 and over 75 is steady, leads me to believe the change is at the 55 line, going from just under 55 to just over 55, but since the range is so big, the charts look scary.
Also, the entire population has aged so it makes sense that the average age of home owners has increased as well. Plus people are living longer and the retirement age has been steadily increased from 65 to 70. Which means all else being equal, people will work for 5 more years, so they will hold off on selling the house and moving to an apartment or retirement community 5 years.
As for the employment picture, this can’t be. I was assured by very smart liberals that increasing the minimum wage to $15, and turning the whole state into an illegals’ paradise was a recipe for economic success. You don’t mean to imply they are wrong, do you?
@Mr. Landlord
“35-55 and 55-75 are pretty big ranges.”
Lines up approximately with what could be considered a generation (ie. Boomer, Silent, GenX, etc) by some, so ~20yr. Given all the generational talk that goes on all the time regarding the housing market and Millenials you can’t claim numbers skewing is going on there. Its quite relevent.
“Could be,,,,,,,,,,,, but since the range is so big, the charts look scary.”
That is some serious mental gymnastics you’re attempting there. Doesn’t even line up with reality since the under 35 chart is declining not steady. It just isn’t declining as fast as the 35-55 chart. You can’t handwave away a 10yr trend like that, that is a timeline that get approaches a little to closely with what went on with Great Depression.
“Also, the entire population has aged so it makes sense that the average age of home owners has increased as well.”
Millenials surpassed the Boomers as the largest generation in the US back in 2016. So all other things being equal (they’re not) Millennials should have higher or equal home ownership numbers to the Boomers. Instead they’re still declining and are at current historical lows.
“Plus people are living longer and the retirement age has been steadily increased from 65 to 70. Which means all else being equal, people will work for 5 more years”
Living longer doesn’t mean they’re fit to work. Or at least to hold the job they used too. Old people don’t like to admit it but its not just the joints or back that wears out. The brain does too with time.
“As for the employment picture, this can’t be. I was assured by very smart liberals that increasing the minimum wage to $15, and turning the whole state into an illegals’ paradise was a recipe for economic success.”
Most areas that voted for $15/hr voted to have it scaled in over a period of 3yr or more around a year or so ago. It’ll take 3-5yr for the full economic benefits to be felt. And very few areas voted for $15/hr wages. Its not a national min. wage.
Its also a farcical strawman to claim that any attept was made to make the US a “illegal’s paradise” or that $15/hr wage alone was supposed to fix the economy period for wage earners. Its a good start but it won’t fix everything. Lots more has to be done. $15/hr min. wage won’t fix housing prices for starters. That requires price controls of some sort.
“It’ll take 3-5yr for the full economic benefits to be felt.”
The economic downfalls as well. A $15/hour minimum wage will help more than it hurts only in areas where the local economy can support a $15/hour minimum wage. Just slapping it on a city because it’s a nice round number is pretty moronic.
There may be a few areas that could support a $20 minimum wage. Most cannot, just as most cannot support $15.
There should be no government intervention in the minimum wage. There are ONLY negatives and no positives, like all other government interventions. In expensive areas like SF, Seattle and NY which can support a high minimum wage, there is no point to set a minimum wage. The free markets would accomplish the same thing or businesses would not be able to attract anyone for those jobs in a high cost of living. No need of government intervention. If it is a lower cost of living and the government sets too high of a minimum wage both, the businesses and the employees will suffer. The businesses will suffer bankruptcy and employees unemployment. It is Econ 101. Only morons who never took a course in economics and never run a business would set minimum wages or think that they know better than the free markets where that minimum should be set. Bureaucrats just set an arbitrary amount with no relationship to the free markets.
If $15 is better than $10, why not $25 or $50? For sure it would produce more “good” (sarc. off).
The ONLY beneficiaries of minimum wage set higher and higher are the TBTF banks who own the FED. All the population loses and the poor more than anybody else. For those who do not understand why, they should start with a course in Econ 101, and then they will understand – pretty basic.
@John D
“The economic downfalls as well.”
Except according to the $15/hr min. wage detractors it was supposed to start a economic calamity almost immediately. Yet that hasn’t happened.
“A $15/hour minimum wage will help more than it hurts only in areas where the local economy can support a $15/hour minimum wage. Just slapping it on a city because it’s a nice round number is pretty moronic.”
$15/hr min. wage was chosen for solid economic reasons, not just because it was a nice round number, which it isn’t even that. None of the reasons were moronic.
Its also not even where the min. wage should be BTW. If you take a 70’s/early 80’s min. wage and adjust it for inflation as well productivity increases you’d end up with closer to $20/hr.
“There may be a few areas that could support a $20 minimum wage. Most cannot, just as most cannot support $15.”
And yet many other countries, some quite a bit poorer than the US and all with a much smaller economy, have had no issues instituting a min. wage of $15/hr or even higher for years.
If it was a matter of economics as you seem to think none of those countries could be doing that.
Disclaimer: I’m socially liberal.
“Its also not even where the min. wage should be BTW. If you take a 70’s/early 80’s min. wage and adjust it for inflation as well productivity increases you’d end up with closer to $20/hr.”
This is not the 70’s, and our minimum wage shouldn’t be based on what the 70’s minimum wage was. They didn’t have the Internet, or looming automation, or the other things that make ours a different world. In many areas of the southland, rental living expenses are actually MORE affordable now at $10/hour than they were in the early 90’s at $4.25/hour.
https://www.nytimes.com/2017/06/26/business/economy/seattle-minimum-wage.html
The long and short of it is, we don’t have enough data to prove the effects either way. Funny how the liberal media will only show one side of it, though – check out the Washington Post’s articles on the subject for a laugh.
However, common sense will tell you that most small business owners have a low-to-middle class income, labor is one of their biggest expenses, and a 50% labor increase is devastating, period. Imagine you own a bar or large gift shop, and your biggest expense (even more than rent) is your $10k/month labor cost. You make a pretty comfortable $100k income but work 60 hours a week for it. Suddenly (3-5 years is plenty sudden) your labor costs are $15k/month, knocking $60k off your income. You’ve invested hundreds of thousands in this business and probably took out loans as well, and suddenly you’re not making much more than your workers (and probably even less hourly). You try raising the price of an IPA to $10/pint, but that only flies in the downtown clubs, where the $15/hour crowd generally doesn’t go, and besides, a downtown liquor license is $500k+. So you lay someone off and work more hours. Maybe close your doors earlier on some days. Your revenue drops further. Eventually you realize it isn’t worth it when you could work in an office for someone else for double the money and half the hours. No one is going to take your place, because they ran the numbers and saw that small, low-wage, labor-intensive businesses simply don’t pencil out or are too risky to attempt. Try it yourself – start a day care center (or whatever) on paper. Be sure to do ALL of the math – in a TYPICAL area of the city (i.e., not a downtown high rise), and take your typical customer’s salaries into account. In other words, be realistic. At $10/hour you might even get excited at the prospects. At $15, forget it.
“But the money will go back into the economy!” Yes, it will – into the economies of China and South Korea, and Japanese car companies, and the pockets of auto workers in far away states, and Amazon, and the landlord’s checking account, and probably a few loans to a roommate who lost her job at the gift shop. They still won’t be paying $6 for a Big Mac – but they will be paying $4 for one made by a robot.
“And yet many other countries, some quite a bit poorer than the US and all with a much smaller economy, have had no issues instituting a min. wage of $15/hr or even higher for years.”
I hope you’re not saying that second and third world countries have been setting their minimum wage at $15 U.S. (they haven’t), but I am genuinely curious which countries have increased it substantially, and what the real results are, so I’ll look into it.
A UBI would be more fair and far more manageable. The jury’s still out on that one – I need to see it in practice on a very large scale.
“like all other government interventions.”
…such as contract enforcement and building codes. Yawn.
“Its also not even where the min. wage should be BTW. If you take a 70’s/early 80’s min. wage and adjust it for inflation as well productivity increases you’d end up with closer to $20/hr.”
100% false!
Minimum wage in 1975 was $2.10. Using the BLS inflation calculator that is $9.87 today.
In 1981 it was $3.30 which is the equivalent of $8.75 today.
Here’s what happened in Seattle when it went to $15/hr
http://money.cnn.com/2017/06/26/news/seattle-minimum-wage-15/index.html
“Researchers at the University of Washington, who were commissioned by the city, found that when wages went up to $13 in 2016, low-wage workers saw their hours drop by 9%.
Workers ultimately made $125 less each month, on average, the report found.
“For every $1 worth of increased wages, we are seeing $3 worth of lost employment opportunities,” said Jacob Vigdor, one of the study’s authors.”
Ooops! And this is only at $13. I can only imagine the carnage at $15.
WA state also raised the min. wage this year. I know of two local effects this had.
1. A small pottery store than my wife and kids frequented closed down. The owner said at the new min. wage, it just wasn’t worth the effort to keep the business going.
2. A county park couldn’t afford to hire life guards. So not only did several teen agers not have a job for the summer, but swimmers at the lake were put in more danger.
So min wage earners make less, business close and teens no longer have summer jobs. Thank you Democrats.
I have a friend in Mar Vista. She is about 70yrs old. Bought a 1930’s craftsman back in the 80’s near Washington Blvd and Glencoe. She lives off social security. has no cell phone, her car breaks down often (which she cant afford to fix) so she takes the bus until she can save money to fix her car. She cant afford internet so she uses her computer at the local library…. her house is worth clearly over $1Million. Her friends (me included) have suggested to her she sell her home, but a condo for half that amount somewhere else (even as close as WLA) and at least pocket a half million $ but she refuses… she likes where she lives… So Doc, she is one of the people you will see at the 99cent store. Real Estate rich, cash poor. LOTS are doing it. But many are simply renting out a room or two for $600-$800 per month, while many others are AirBnB their rooms.
There is a guy in my neighborhood who owns two houses a couple of doors apart. He used to rent one to some relative of his girlfriend/wife. But now he has it on Air BNB. Must be fairly pricey since the Air BNB clients look nice. It’s pretty much the same size as my place. We’re about 6 miles from D-land. He doesn’t need to have people living with him in the same house so it is a bit different than renting a room out.
But but but… I hear the millenials crying that she destroyed their world with her huge carbon foot print.
LOL
JT – that is so true…. people in their 50s … to have homes as their retirement plan. Investing in actual retirement plans with those voulchers from Wall Street is not such a good idea. the series Billons in HBO has opened my eyes trememdously.
Too bad there is no equality when it comes to owning a home. Middle class people who work really hard also deserve to have an opportunity to live and own a home.
And yes, as I near my mid 70’s life is good , two pensions , two social security checks ,
one military disability check from agent orange , and the rental income from four paid off rental homes. The guys I worked with always living from paycheck to paycheck, and they laughed when they saw us working weekends and evenings. But now their money is running short, and they are having trouble paying bills, but they still have their memories of Vegas on the weekends and once a year two week vacations to the mountains or the seashore. We are now spending more on cruises and long weeks at the recreational areas than my old friends make during the year. Have a good time in your younger years, but plan for the retirement years because if you are lucky you too may live to an old age with your great-grandkids enriching your life.
You sound very much like my parents. Growing up I never understood why my parents didn’t live it up. They made decent money. But they drove Hondas and Toyotas while all my friends’ parents drove Volvos and BMWs. Well, my parents ended up saving well into 7 figures. And for the last 10ish years since they are both retired, they’ve been living a terrific life, traveling all over the world, spooling their grandkids rotten. And yes my mom bought herself a Mercedes just because.
My parents are both in good health and (knock on wood) have many years to go and they will never have to worry about money again.
I knew a yuppie couple in Manhattan. Husband an attorney, wife a bank executive. Both worked long, hard hours. Wife died of cancer in her early 40s.
Some people enjoy their youth, and suffer an impoverished old age.
Others spend their youth working 60 hour weeks, and die before they reach 50.
Do you live for today, because tomorrow might never come? Or forego immediate pleasures and save for retirement? I’ve had friends who’ve died in their 30s, 40s, and 50s. You just never know.
My 2 cents:
Focus on the things that make you truly happy… mostly those are not material items.
If you have money to save after that, great… get a dog named spot and the rest is history.
I think California needs to repeal grandfathering the property tax assessment when houses are passed to children/family members. The whole point of Prop 13 was to insure old folks aren’t priced out of their own homes. Why do the children reap this reward?
Yeah. I know someone who got a $1.2 million house out of an estate at the time of the great recession (estate closed in mid 2008). Had to pay the Bro & Sis off with a $400-500K loan and the remainder of the estate. Got Prop 13 taxes from the beginning of Prop 13 … that’s 2% per year since the ’70s. Taxes are lower than mine on a house I bought in ’89 for less than $200K.
This law is so flawed, but it won’t be fixed anytime soon. It’s just wishful thinking.
“The whole point of Prop 13 was to insure old folks aren’t priced out of their own homes. Why do the children reap this reward?”
And you believed it? If you did, you missed the whole point. The liberal politicians in Sacramento are good at lying. The point was that the very rich who own very expensive properties and lots of commercial RE will pay less in taxes so they would not have to sell. Ask Warren Buffet. On a 22 million dollar, waterfront home in OC he is paying a little over $2000 per year. Does he need that property tax break???…Why ? So he is not kicked to the curb???….
In a way, I don’t think the politicians should charge property taxes. That being said, if they do want to steal the money from the people they should steal the same % from everyone. But then, how can they pay for the millions of illegals? Don’t they want to make the whole state a sanctuary state? Why do they want to bring millions more? So they can protect the environment. Don’t they say they care about the environment while the GOP doesn’t? The more people they bring in CA, the more it benefits the environment, or so the logic of those who elect those in Sacramento goes – progressives/liberals are green.
Hey here’s a crazy idea: instead of taxing property more, how about the govt spends less?
WHOA. Mind. Blown. Right?
The answer to fiscal issues is always tax more, and never spend less. Let’s try spending less and see what happens. Keeping more of my money is not a crime, nor is it unfair.
Howard Jarvis was a liberal politician? Politics must be even redder than I thought out in Flyover-land.
The founders of Prop 13 were the original Tea Party members. Very conservative legislatures who wanted government out of our lives. Prop 13 slashed property taxes by nearly 60% at the time for both homeowners and businesses.
Previously, the tax rate in CA was at 3% and it was rolled back to 1% in 1978(of the property value 3 years before the passing of the law). The other part of it that we are seeing today is the limit of 2% per year on the increase in taxes per year. That is how older homeowners and their heirs are able to pay a fraction of the taxes their new neighbors pay.
One of the liberal reasons for it was “Poor grandmas and small business are being forced out of their homes due to high taxes.” I agree, taxes were forcing out fixed income residents and shutting down small businesses while at 3%. However, locking in property taxes for a 25 year old new homeowner at the start of their career, was shortsighted. Many states lock in property taxes for those over 65.
As far as the heirs, how else can these move-back-home Millennials afford to continue to live at home after their parents depart his world? The heirs to homeowners in CA have it really good.
The new basis on the property is reset at the time of death if they decide to sell. If they sell the house mom bought in 1975 for $60K immediately after her death for $1.2M, they likely will be able to declare a tax loss on the sale due to RE commissions and closing costs. There isn’t a CA Estate Tax and the Fed Estate Tax starts at $5.4M. The heirs “win” $1.2M and get to write off over $60K in losses against their own taxes. No wonder the State and Feds have a budget shortfall.
If the heirs decide to stay, the Prop 13 property taxes are maintained so they are extremely low and they can continue to live in the basement.
The heirs are either instant millionaires or they own a cheap house on the beach for the rest of their lives.
“legislators” not “legislatures”
Another way to look at it is from an elderly parent’s point of view.
1) If you bought your house in the 1970’s, your property taxes and insurance are likely $2k-$3K per year. Easily affordable on Social Security. If you didn’t own a house, your rent would likely exceed this per month.
2) If you decide to cash out your $60K house for $1.2M, you will not be a millionaire. You may owe CA and the Feds likely nearly $300K in taxes (after the 250K deduction) that your kids will never see.
The morals of the story if you have kids you care about is:
1) Buy early and stay as long as possible.
2) Buy in CA with Prop 13 to keep your taxes low.
Given that, I know many 80+ year olds selling their houses and moving to these $6K per month retirement communities. These communities transition to assisted-living as you need them when you reach 90+. Historically, at 90+, you would be invited into your child’s home. However, if you child has a 2 bedroom small rental house that won’t allow you to move in without sleeping on the sofa, you as a parent should live the life you earned and go live on a land-locked Cruise Ship by the sea. It’s your money.
And this is why Prop 13 is good. The 2% escalator per year let’s someone who’s held onto their house and paid off the mortgage and been responsible for ~30 years stay in their home on Social Security. I think that’s a great thing. Of course there are all kinds of side effects from a government policy, shocking… But can you imagine if this property tax was not locked in and millions of people that are relying on Social Security had to make their property tax payments??? The Prop 13 creators did a great thing for millions of people that were told Social Security would be there for them in retirement. As someone who is younger I know that not to be the case, but that’s another story…
Prop 13 had plenty of intended and unintended consequences. For the first 20 or so years after Prop 13 passed, everybody was happy. Now many people are realizing that their offspring may not be able to afford housing in the towns they grew up in and Prop 13 is a major factor to this. Read the comments on this blog from millennials, they all echo “we’ve been sold down the river by the boomers (your parents).”
I don’t like Prop 13, but it isn’t going anywhere soon!
I get both sides of the Prop 13 argument and how people feel locked out of the market because of high prices because of prop 13. I really think (only my opinion) that if there was no prop 13 the property prices would be relatively similar in coastal big cities, that’s where money flows. The bigger problem would be government constantly coming to property for more taxes/revenue. There only seems to be one solution for our CA government for all their fiscal issues, and that’s revenue/income. It’s crazy. In my business we look at the income side and EXPENSE side. It’s funny how the expense side never really seems to come up… Drives me crazy. I like how prop 13 limits their seemingly unending hunger for revenue for their ridiculous projects. I’m willing to pay a little more for a house in exchange for handcuffing the govt’s revenue stream.
“The morals of the story if you have kids you care about is:
1) Buy early and stay as long as possible.
2) Buy in CA with Prop 13 to keep your taxes low.”
This describes our situation perfectly. And for all the other reasons you listed, we’re not going anywhere anytime soon – modest house, great neighbors and neighborhood, manageable overhead costs, etc. More importantly, we’ve looked at a lot of the “best places to retire” – Florida, Texas, Costa Rica, you name it and no thanks – we’re good.
LA and California have their problems, but so does everywhere else, just different problems. We’ll keep getting the $2 Tuesday tacos at the Hot Red Bus in Alhambra and the $3 killer ice cream sandwiches at Baker Bear in La Canada. And seriously, who REALLY needs a zillion square feet in So. Cal. when you can live outdoors comfortably 9 months out of the year?
People are being quite rational. It’s easy to pull out equity to pick up a new place and turn around and rent out the old home. If you sell, where do you put the cash? The market isn’t that strong and renting is a leveraged return. That’s hard to beat and when an “emergency” comes up you still have the house you can sell.
No slow down in SoCal in the <2 mil range. Check out this gem:
redfin dot com/CA/San-Diego/621-Rushville-St-92037/home/4914494
Last Sold April 15th, 1975 – $50,500
Listed Now- $1,375,000
They'll probably get it too, a 2/1 just 2 streets overs recently sold for $1.55 mil
Call me when we actually institute serious taxes on foreign buyers and raise interest rates. Until then I'm not even looking at buying again seriously.
Vancouver instituted a 15% tax on foreigners and sales fell off a cliff MOMENTARILY, now, sales are back on very strong.
I think only a 50% tax would stop the relentless appetite by these foreigners
Little anecdote, in the 80’s the Japanese investors were on a buying spree in California. Remember the eighties? I don’t, I was just born but the doom and gloom news still remember it:
http://articles.latimes.com/1992-02-21/news/mn-2588_1_japanese-real-estate
http://www.businessinsider.com/japans-eighties-america-buying-spree-2014-9
Apparently, people were dumb back than because they were all convinced the Japanese would buy America. well, it’s easy to say that now isn’t it? after the fact that the Japanese lost their shirt? Fast forward a few decades and switch Japanese with Chinese and your find yourself in 2017. Once again people are convinced foreign investors will own it all and suggest buy now or be priced out forever. For my part, I’ll sit back and enjoy the show.
Up and until the boomers can no longer afford their tacos on Tuesdays, expect more of the same.
Also, people are planning to live longer and retire later. I’m in my mid ’60s with no immediate retirement plans. My Dad died at 84 with bad war wounds and smoking for 40+ years (he quit at 78). My Mom died at 96 (with a rough upbringing without good food or medical care always). I’m inside the recommended weight limits for my height and I’m fairly active. No one in my recent ancestry died of cancer. My modest suburban house is fine for us. (We’re looking into fixing it up this year, but not to sell.) We do have an adult child living with us, but they’re not the marrying kind. The choice is our house or an assisted living group home. And the government benefits they get pay for the care. So downsizing from 1500 sq ft isn’t an option. With no debt, nice neighbors, a good job within 25 miles and the California sunshine, why would I sell? Not every boomer is living for taco Tuesday and living with grown children who can’t go out on their own because of the economy. But there are some I know who might somewhat fit that bill; they are not particularly unhappy either.
My Stepmom died February. The caregivers have been squatting the house in Southern California since. I cannot enter the house, cannot check the mail, cannot go through personal belongings, they objected to me becoming Executor of the Will to prolong the process another 6 weeks. It has been an unbelievably frustrating process. Their time is almost run out, just waiting to get the Letters of Authority, but then I still have to give them a 30 day notice. All you can do is wait it out.
That is the reason is not worth buying a rental property in CA. What you get (in most cases a losing proposition) on the paper is different than what you get in reality. Those who talk about rentals in CA talk ONLY about theory. In practice, it doesn’t pencil out for most of the Landlords. For the most part, the rentals are very old houses, with lots of deferred maintenance in really bad shape. By the time you subtract ALL the maintenance cost, legal cost (@$250-300/hour) for dealing with squatters, unpaid rent you are already in a big hole even if you bought the place long time ago. Buying today, is a losing proposition from the start, due to high PMI and property taxes. After subtracting ALL the loses, year after year, selling cost, even that nominal increase on paper turns into a losing proposition.
I disagree. I have some late paying tenants, and have been stiffed. Just part of the business.
But you can avoid a lot of those headaches by renting to good tenants. I always price my rentals a bit below market and get to pick from a long list of applicants. My criteria is good credit, high income and steady employment. I said this before and I will say it again, nobody with a 750 fico score is going to blow their credit in order to get a few months of free rent. And someone who is responsible financially is extremely likely to be a responsible tenant as well.
I’d rather let a unit go empty than rent it out to a $30K millionaire type or someone with a bankruptcy in the past or anything like that.
I agree.
I would only invest in rental in a landlord friendly state in the mid-west.
There you will find more limited appreciation, but, strong cap rates/cash flow and laws that favor the owner. Buy/invest in a blue state and you’ll have high taxes (although many red states do as well) and have to spend thousands for months to get the deadbeats out.
“it doesn’t pencil out for most of the Landlords”
Right, that’s why no one’s doing it. This is about the dumbest thing I’ve ever seen you say.
I disagree, if the rental is not mortgaged, this is like printing money. There is not a whole lot of maintenance on a Stucco Crapshack, we don’t have weather.
Jed, if you read my previous posts you will know that I am a landlord and I’ve been a landlord for decades on many properties and in many different states.
Not only I have been and still am a landlord on many properties, after years of experience I accomplish what very few landlords accomplish – a clean (NET) profit of at least 12% per year with NO deferred maintenance. That is almost unheard in the industry. Of course it took me a long time to get a “gut feeling” for the type of property and type of tenants I am looking for – what Mr. Landlord already explained (he is correct).
You took my words out of context with the specific purpose to make it sound dumb (that is what most “journalists” from MSM writing fake news do all the time). If you read it again “slowly”, you will see that my comment was referring to rentals in most of SoCal due to a combination of factors which are very detrimental to landlords: bad legal system protecting the squaters at the expense of the owner of the property, very high prices to start with, and very old housing stock with lots of deferred maintenance. All these create a very pour ROI. I think I was very clear and you can not deny that.
JT, again, generalized the midwest with one big brush. Every single city is different, it is a distinct market with very specific factors influencing the rental market. Even at the bottom of the last recession I was able to do excellent on my rentals (temporarily down to 11% per year). Sometimes, the market varies from one zip code to the next and JT characterized the whole midwest with one sentence.
You can tell that Mr. Landlord is an actual landlord because he understands what tenants to look for – Costco demographics.
Slumlord: There is not a whole lot of maintenance on a Stucco Crapshack, we don’t have weather.
The primary cause for roof damage is not rain or snow, but sunlight.
Google “roof damage and sunlight.” Many articles on the subject.
The majority of the US population is renting. CA has more renters than the rest of the US. I agree that screening out bad tenants with a credit check is a good idea.
They should even be charged the nominal fee for the credit check at the time they are applying. No one with a good credit history who is responsible will destroy their entire credit record by squatting or refusing to pay rent.
With our one rental our tenant pays on time every month., However, I do see the tenant adding more people to cover the rent. That is indicative of the times when one person cannot cover the entire rent and that is more wear and tear on the property. I ask less than the average rate, but there are a lot of people who still can’t afford it., I don’t think a standard lease can forbid “guests” ie girlfriends, boyfriends from sleeping over on a regular basis. Or from older children of the tenants parking their cars on the street.
If wages were higher, these extra tenants would likely find a place of their own. Except the girlfriend/boyfriend who wouldn’t live there but would have a place to call home if they desired.
Flyover, you can’t honestly slam real journalists, yet fall for a propaganda site like Zero Hedge all the time?
I mean, this article was written well before the current Russia thing was in the public’s eye. Zero Hedge is awful: http://www.smh.com.au/business/media-and-marketing/unmasking-the-men-behind-zero-hedge-wall-streets-renegade-blog-20160429-goit31.html
GH, I don’t care who is behind every journal/site. All I care is the article and content.
Let me ask you now – who is behind CNN, MSNBC, NBC, Huffington Post, Washington Post, and NY Times? Regardless of who is, they are propaganda means for the globalists and I care less what they say. If you enjoy them, continue reading them. I am not going to stop you. As for me, I am not going to lose my time with propaganda rags.
Like I said before, in the first part of my life I heard enough propaganda to last me a lifetime. Also for me, the communists and NWO globalists are the same in goals and practice. You can never convince me to like them – I suffered enough for few decades under communism. I am talking about what the NWO/globalists themselves say.
That really sucks. I’m surprised squatting isn’t more of an issue yet with all of the luxury homes available nowadays. Maybe it will pick up soon?
If the fractional reserve bank system prints up on avrrage 38 debt dollars for every dollar borrowed and they compete equally with and bid agaibst every dollar of savings in housibg, minus the government, and press propaganda kickbacks, then housing, but for the banksters slave owning desires and governments control of the masses desires, houses are a number Times 30 ovrrpriced, or freedom was lost to fascists…divided by 30 is freedom
There are capital controls in place since 2016 january that puts a tax equivalent to 35 percent on everything an expatriot expat has, aof the highedt rate of evaluation or assessment the property properties ever reached…fascist prison state Usa
Plus 6 percent commIssion..?…plus 3 percent obama fees, plus 3 percent fees..=== and any other rentier bloodsuckibg looters take likely gone…ye haw…leave….50 percent poorer to avoid pOVerty..
And therefor the hiuse us 68 percent again price raised to profit….sucker….
If they only own one property and not multiple like jt is talking about than many boomers are stuck due to property tax reasons. Prop 13 is keeping many older people in their homes. My mom has a lot of equity in her house here in CA because she bought low but moving would increase her taxes to unaffordable levels for her income level. Current high prices increase the taxes and many flyover areas have 2-3 times the property taxes of CA so that is not always and affordable option, plus many people don’t want to move when they are older, they need to stay near to their family and familiar comforts.
Lucky for her I have never moved backed in with her during my adult life but I do always remind her how lucky boomers are to be able to own something. For us millenials it is largely hopeless. I did a mortgage calculator on the average house in my Bay Area town and the average crapshack is $850k. That would take around $200k cash for the down payment and closing costs and then with the mortgage, taxes, insurance and average utility costs it would be $5,000 a month and then you have maintenance costs on top of that and the random tax adjustments which could raise that payment even higher over the next 30 years. I make decent money and that is so beyond affordable it ridiculous! And that is just for the average 60s crapshack with a tiny yard, anything nice here is $1mil plus which would cost way more!
Back in the early ’60s our family stayed in a cabin for a vacation that belonged to a friend of my Dad in rural N. California. The water was from a diverted creek that ran past the place. Milk came from a cow on the property. There was an outhouse. It was Summer so we weren’t cold, but I’ll bet that place is cold in the Winter! That… is a crapshack. A ’60s tract house would be a veritable palace compared to that place. I doubt you really need a McMansion so suck it up or move on.
This is a good comment and the numbers are accurate. Older people are comfortable, get the SS checks and have a paid off house with about 750-900 k equity. Moving when you’re 70 is traumatic and describes my parents to a T
Now imagine the 5k + family expenses with a couple of kids. So unaffordable and feels like it’s unfair, but, that’s the market. Beyond frustrating.
Thank you Dan for the sanity conformation. Everyone else makes me feel like a whiny crazy person. I’m just stating facts. Most boomers couldn’t afford their houses at today’s prices and certainly couldn’t afford multiple rental properties. These delusional comments on here from certain people just confirm the trust fund mindset of most of California these days, where people can’t understand that normal working people with decent jobs have limited income! I for one am for Prop 13, I wouldn’t want to see my Mom on the streets after paying for her house for 30 years and working 50 hour weeks to pay for it and then have some trust fund investor creep or tech asshole from Iowa in his sexy new Audi buy her house for $700k. I am glad to have her locked into an affordable tax base and I am glad to inherit that tax base which will probably finally give me an affordable place to retire when I am her age in our family house because rents then will be like $20,000 a month for a ghetto apartment and what middle class of retired person can pay that!?
If Prop 13 was altered or removed it should be for commercial property which would help out the tax base for the state and makes sense since businesses are always growing and changing with the times. I don’t want to see older hard working people out out of their homes by deuchbags and I think Prop 13 and the property tax % is one of the best thing that CA has going for it.
PS. I apologize for spelling errors, apparently my iPhone likes to change words with spell check to the wrong words a lot.
Priced out,
You have a valid point about Prop 13. I think it is good and ideally people should not pay any taxes on their property (they already paid taxes on the money they buy with).
That being said, it is evil to tax a young couple trying to raise a family 10 times what Warren Buffet pays on 22 million property. The old property taxes should be used as a reference and tax the new buyers more or less like the old buyers (use a Board of Equalization). After all, all people use the same roads, libraries, schools and fire stations more or less the same.
Those who bought 30 or 40 years ago are also the wealthiest today. Why should the poor who buy today pay so much more in taxes? That is the most REGRESSIVE form of taxation. It is enough the young couples have to pay a million for a house which 30 years ago they would have paid $100k. Do they have to pay prop. taxes ten times more?
Again, to avoid any confusion, I am against property taxes, period. If the government thieves want to steal, at least they should steal in a fair way based on comparative value of the property (use a Board of Equalization). But do we ever see honest/fair thieves???…
” For us millenials it is largely hopeless.”
Are you serious? Every generation faces the same struggles. But, being young is everything. I am retired in my 40s. But, I would give up all material items, but keep the wife and kids, to be 20s again. Time is everything. So is an optimistic attitude.
Lol,bwahahahahaa!!!!!! Are you serious? Older generations had it waaaay easier buying property. I don’t know any boomers making $200-300k and even boomer I know owns a house or two and maybe a vacation house in Tahoe or some lake somewhere. I work my ass off 6 days a week and make over $100k and I only qualify for a $450-550k house which would cost me a big chunk of my income and the cheapest house in my area is $3-400k more than that, so I would need to make another $100 plus thousand a year to buy here. In cheaper housing areas of CA I would t make as much $ so it would balance out even if I was willing to move, I’ve looked at jobs elsewhere and have seen the numbers.
Honestly I can’t believe that people think it’s that easy to put $200k down on a house, or including savings for retirement, average backup/solid saving plus living expenses.
The truth that jt obviously doesn’t get is that most millenials are being forced to pay super high rents and either can’t save any money or their saving could get them an average priced $200-400k house but those don’t exist here anymore!!!!!
PricedOut,
the last buying opportunity was between 2009-2012. That was only 5-8 years ago. Since 2013 prices have surged due to manipulation/market distortion and you have no rental parity meaning its much smarter to rent and wait for the next downturn. RE cycles are within the 10 year range. As we all know the crash is coming. So, by 2019-2022 we should have another buying opportunity. That’s great news for people on the sidelines. 2-5 years more of saving lots of cash while enjoying flexibility as a renter. It’s much less stressful to rent from a private landlord long term at a highly discounted rate than trying to buy a house during a bubble. The way I see it, my landlord is giving me a huge gift. You need to have the glass is half full mind set and abandon the California drive-thru mentality and instant gratification need. This situation/market has nothing to do with fairness…you cannot expect fairness from the world. You need to look at yourself and have some discipline and be thankful for what you already have. If you put your happiness in temporary things, your happiness will be temporary. On the other hand, there are people who really suffer in California and cant live with their parents….for those people its probably better to move on to greener pastures somewhere else. And there are some millennials I know that struggle financially but have the opportunity to live with their parents. These kids tend to not leave California or might give it a shot to live in another state but decide to come back to Mom’s hotel.
Millennial, I agree that the market is at a peak but currently the extreme lack of inventory isn’t too promising that it will crash anytime soon. I am grateful for what I have but I feel the point of this blog is the ridiculousness of this current housing situation, so I don’t mean to come off as negative but just putting the steaming pile of bullshit into real and basic terms. The truth for our generation is that we have to make the inflationary equivalent of 5 times out parents to buy a house today and for most without family money that is impossible and/or imporabable at these ridiculous prices and with what 90% of real jobs and careers actually pay. Let me ask you, do you have $200k cash for a house down payment? Could you pay $4-6k a month for a house for 30 years? If your answer is yes then is your place of employment hiring? I’m supposed to be in he too 10% of America or something with my income and here in the Bay Area I am working/lower class in the current economic climate.
Priced Out, I made this statement many times on this blog – it doesn’t matter how much you make. What counts is what can you buy after ALL the taxes you pay.
In Zimbabwe everyone is a billionaire. That doesn’t mean they can a afford a good standard of living. In SF you need at least $500,000 per year to afford a decent standard of living. If you earn a lot, you pay top % in taxes. If you earn a lot, most likely you live in a high cost of living where you can not save anything. If you do your homework well and know math, you may discover places in flyover country which can give you a far better standard of living even if you earn less than $100,000. I am not saying that can happen everywhere. You have to search each individual city which offers employment in your field and compare.
It’s not hopeless.. if you want to own check out other parts of the US.
@PricedOut
I hate to burst your bubble (pun intended) but making a $100K a year is not that much money (especially in the Bay Area). My dad made that in the 80s. It was good money then, maybe even in the early 90s.
My first min wage job was $4.25. Based on 2080hrs a year that’s $8840. Now you have baristas making $15/HR X 2080 (40hrs/wk X 5 days) making $31,200 a year. So how does it feel to make 100k working 6 days a week? It should make you feel pissed.
I don’t want to brag because I’m certainly not considered wealthy here in LA but I’m making just over $200K year for working around 12-14 days a month. Pension is gone but company puts 16% of my pay into 401K (maxes out and contributes the rest on Jan 1). We have excellent healthcare. My pay will increase to over 300K within the next 10 years or so. My wife also works a regular job and makes about $90k plus bonus. Life is good. I’m also not a boomer. I paid my dues for years though.
I’m thankful for our union negotiation. I look at these tech guys working for say Google making mid six figures. Meanwhile Google made nearly double my companies revenue ($90Billion) yet their average employee pay is less. That’s what you get without a labor contract.
I have a few friends who work for the port authority. Something I also considered once. Average pay is $150K plus another 35K in benefits. Two brothers I went to high school with (that barely graduated) are easily pulling down $200K plus. Mind you these are not doctors, lawyers, not very educated people.
I know it doesn’t seem like it but there are plenty of people making a lot more money than you. They are just not in your circle. There are 13,500 of us in our labor group at my company and I know what everyone is making based on seniority. There are no games. There are no favorites for promotion. You are a number based on date of hire The longer you put in the more you make while working less hours.
And the more you make the more everyone else has to pay. That’s why unions are dead outside of govt and a industries like airlines.
That’s why I work for the airlines. 😉
Burbank is a wonderful place to live and retire. The only people that move out are in a box. Once they come, they never leave any other way. Burbank homes are just the right size. Too small for many people to live in, e.g. 1,450 is average size, unlike the suburbs where the occupancy is so high which brings noise and undesirables, if you know what I mean.
A couple of comments … as homeowners age in place, the maintenance and upkeep of those homes begins to become a lower and lower priority. Having gone through this with 2 set of parents, I can assure you that this happens even to those who have the means to keep up with things! We sold my Mom’s house in So. Cal. as is for 7 figures. My Wife’s brother kept their folks home and has spent down much of his savings in the proverbial ‘money pit’! I’d be safe in saying that as these Californians age in place, there will be many homes that will simply need to be bulldozed! Second comment, as we travel extensively, and this ‘age in place because I can’t afford to move’ phenomena is common up and down the west coast based on people we talk to. But, I do see more young people and more vibrant urban cores in places like Seattle, Denver, and Portland, than I’ve ever seen in L.A. … makes me wonder if the young smart ones are fleeing places like So. Cal.
I visited an open house in Santa Monica for a 1920s craftsman house offered at $2.6 million.
Inside, it looked like a slum dwelling. Decades old carpet. Kitchen at least a half century old. Decades old linoleum tiles. Sagging paneled walls from the 1970s.
The realtor confirmed that it was a tear down.
A HUGE lot in Santa Monica’s northeast area, north of Wilshire. Hence the huge price tag for a slum dwelling.
I suppose the Taco Tuesday owner finally died, and his/her heirs are cashing in.
@son of landlord…you still looking for property in SM? Whats your idea on this? It seems to be wayyy overvalued to me. Im looking at picking up another piece of property but Santa Monica seems cray prices. Shed some light on your thoughts…
I wasn’t considering that house. I live in Santa Monica and was passing by. An open house happened to be in progress, so I went in out of curiosity.
Yet not matter how highly priced, prices still seem to be rising even more crazily. This $1.7 million townhouse just went pending: https://www.redfin.com/CA/Santa-Monica/846-21st-St-90403/unit-3/home/8113402
I can’t believe how much people are paying for mere townhouses.
So the argument of cheap credit, business cycle, recession would not apply to these retired house rich boomers who intend on sitting in their million dollar free and clear house until they die (my parents included) AND the Chinese millionaire buying cash.
So, low supply and strong foreign demand; where/how will this crash occur? This is a serious question, and not just RE cheerleading; however, I would like some further analysis than the typical Yellen/zerohedge/nobody has a decent job argument.
Dude, there are endless reasons why the crash is coming. You think old farts sitting on RE make a difference? The only acceptable question in this context is WHEN will the crash happen. For that, you need a crystal ball or simply some patience.
Well did you actually read the article? Turnover is extremely low and those “old farts” are going to sit in their paid off houses b/c a recession will not matter to them since they are all on fixed incomes.
Looks to me like they are not planning on selling any time soon and yes that does affect the market b/c it limits the already tight inventory.
If you are in your 20’s and stacking cashola, then it doesn’t matter that much. But, if you are in your 30’s, 40’s, 50’s and have a family and want to buy to settle, then ya it does.
One word, Heathcare.
The whole industry is focused around milking as much life savings and wealth from the boomers final years.
Retirees may not cash out now because life is good and the tacos are cheap, but when their age catches up and they are no longer able to wipe their own asses, the priorities will change. They will need cash to pay for home health care or nursing facilities, and their over extended dual income children will not have the time or money to help. They will sell, or reverse mortgages their way out of the mess.
There will be no house or wealth to inherit, just an old ass to wipe.
Been thinking about this recently.
I think reverse mortgages will be on the uptick in the next few years as they will allow these boomers to remain in their homes.
Reverses are pretty expensive, but, seems boomers will have no choice.
The fact that you still assume that investors are buying with cash tells me that you’re not seriously considering to any opposing point of view. Why would RE investors not take advantage of the largest expansion of cheap debt in modern history? Do explain how an ordinary Chinese investor would be sneaking out millions of dollars when the Chinese government only allows $50K per year.
I absolutely consider all points of view and constantly have an evolving opinion. I would say you (and millennial) are the ones too stubborn and blinded by articles on doomer sites to consider opposing views.
And yes, there are still cash investors I see it every day in the industry. As a lender/ broker who pre-approves buyers, that report back after a couple months of bidding on properties and as a buyer that has wrote offers on several properties; I can assure you with certainty that Chinese cash investors still exist.
I also don’t think it’s so easy for a govt to keep track of 1 million millionaires and 1.2 billion people.
As a prospective buyer I would love nothing more than to see a pull back in the market (crash),however, to ignore many of the realties affecting and distorting the market is nieve. I cannot speak for the rest of the country, but, for CA demand is strong and supply is extremely tight and to deny these basic facts means you are not serious or open about debate.
What makes me a doom and gloomer?
What doom and gloom sites have I cited?
The Chinese government has a restriction of 50k/year per person that can be transferred overseas. How are they buying millions in real estate without borrowing it?
Prince,
It’s cute that you think a “law” in a communist country means anything. These laws are nothing but a way for bureaucrats to make extra income via bribes. I thought everyone knew that.
POH,
You often cite zerohedge (which I read daily) however I believe contains way to much fear porn n Doom and gloom content. That is what I was referencing below.
Furthermore, just bc it’s illegal to immigrate to the US doesn’t mean people don’t find ways to do it (easily). That is a response to your 50k Chinese limit.
Lastly, interesting article: https://www.mingtiandi.com/real-estate/outbound-investment/us-still-tops-the-list-for-migrating-chinese-millionaires/
Part of the article seems to support your thesis that Chinese cash is drying up due to capital controls or becoming “increasingly challenging” to get money overseas. But, also think about the raw numbers, according to the same article there are 800,000 MILLIONAIRES in China that want to emigrate aka buy property in English speaking countries with popular cities on the west coast of the US being a favorite Target. 800k!!! Even if only 1% are looking at CA and can get their money out, that’s still a big number!
In filtering for 5 cities with my criteria there were probably 100 total houses on the market.
Think about that supply versus demand (of only Chinese buyers).
Another interesting article (from one of your favorite sources) http://www.zerohedge.com/news/2017-07-26/spot-outlier-seattle-home-prices-go-vertical-laundered-chinese-money-flows
Looks like these guys are finding ways around that 50k cap
@Dan
You make claims that you have absolutely no proof of. In what posts do I cite zerohedge? In fact, zerohedge draws from a variety of sources to formulate their opinions.
@landlord & dan
I am NOT claiming that the Chinese don’t circumvent the 50K cash limit. My point is that they circumvent it by borrowing much of the “cash” for their overseas purchases; why wouldn’t they when rates are so low globally? The Chinese themselves are domestically drowning in debt and overcapacity generated by that debt. When the dust settles, a lot of financial institutions that do business globally with them will be in trouble.
See Dan, you can find some useful articles on Zerohedge like anywhere else. Pick and chose and keep an open mind. All MSM has an agenda and that doesn’t mean I am not scanning them once in a while.
I am long term real estate bull … but for very long term investments only, and in the right location. But, you need to be careful. Right now, there is real estate frenzy in the air. I see smart deals being made. And, I see just as many dumb deals that might be the result of too much optimism. Just like a bad marriage can wreck your life, a bad real estate deal can hurt your life badly. I encourage long term investment in real estate, but you need to be careful and pick the right investment. You also need to be careful … real estate agents are always more interested in the deal than your investment. You need to do your homework extensively before signing the dotted line such that in 20 or 25 years, you are grateful you signed.
Record Apartment Building-Boom Meets Reality
http://wolfstreet.com/2017/07/21/record-apartment-building-boom-meets-reality/
Flyover,
That can’t be right, lol. We are being told by the RE cheerleaders that rents never go down. They are ever increasing! And if you rent, you will never own and remain a renter with skyrocketing rent ever year.
From the article:
“his building boom of large apartment buildings is starting to have an impact on rents. In nearly all of the 12 most expensive rental markets, median asking rents have fallen from their peaks, and in several markets by the double digits, including Chicago (-19%!), Honolulu, San Francisco, and New York City.”
Who ever said rents NEVER go down? There is always short term fluctuation in all assets. But *LONG TERM* both real estate prices and rents go up.
And that article is cherry picking. Yeah probably some $4K a month apartment from last is now going for $3500. But what they don’t tell you is that the $1400 apartment is still going for $1500. There will always be examples of extremes. What counts is the median. And median rents have been increasing consistently as long as I have been alive.
https://www.apartmentlist.com/rentonomics/rent-growth-since-1960/
“These trends are repeated in cities and states across the country. Since 1980, incomes in expensive areas like DC, Boston, and SF have risen rapidly, but rents have increased roughly twice as fast. In Houston, Detroit, and Indianapolis, incomes have actually fallen in real terms, while rents have risen by ~15-25%. The only urban areas where incomes kept pace with rising rents were Austin, Las Vegas, and Phoenix.
First, we took a look at median rents in the United States, from 1960 to 2014. All data was adjusted for inflation, allowing us to compare rents across decades. Median rents have increased steadily during that time period, from $568 in 1960 to $934 in 2014 – an increase of 63%. Rents rose the fastest during the 1960s (18% increase), followed by the 1980s (16%). In contrast, the 1970s and 1990s saw relatively small rent increases, at 4% and 2% respectively.
he decade from 2000-2010, however, was the worst for renters. They were hit by rising rents (+12%) and declining incomes (-7%), making them significantly worse off overall. That decade was also the only decade in which real household incomes fell. Things have improved a bit since, as rents and incomes flattened from 2010-2014, but it’s not surprising that many Americans say that they are worse off now than eight years ago.”
Don’t worry, So Cal is different. At least the extreme coastal properties. Those inland properties (not within a mile of the coast) no longer count.
Nice news today. Weakest selling summer selling season since 2011! We are on the right track!
http://www.zerohedge.com/news/2017-07-24/exisitng-home-sales-slump-june-weakest-summer-selling-season-2011
Sales are down because inventory is non-existent and starter homes are being snapped up at record pace. Yay!
Yep; and tomorrow it’ll fall 70%!
Uhh; or how about low volume of sales because there is such a low inventory. Been looking at 4-5 cities in OC the past couple of years and recently (past 12 mos) very closely; and this is the LOWEST inventory has been.
700-850k houses that need updating
850-1mil houses that are updated
Guess what; people are buying these houses. Not only foreign investors, but, 1-2 income families. You need 10% down minimum and 43% debt to income ratios and people are qualifying.
Contrary to what many posters here believe, there are people around that make more than minimum wage.
You forgot to mention – this is not winter season; it is top selling season.
But but but but….lack of inventory. Just ignore the listings that have been sitting for months.
How about a comment from this excerpt from latest case shiller:
Housing is not repeating the bubble period of 2000 to 2006: price increases vary across the country unlike the earlier period when rising prices were almost universal; the number of homes sold annually is 20% less today than in the earlier period and the months’ supply is declining, not surging.â€
“The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices,†Blitzer said. “New home construction, higher than during the recession but still low, is another factor in rising prices.â€
https://www.housingwire.com/articles/40772-case-shiller-housing-is-not-repeating-the-bubble-period
The monthly number of homes for sale is about the same if not more than what is was during the period prior to the last downturn. According to Blitzer, there are about 4M currently available. Guess what, same as in 2000. Why we’re prices back then a fraction they are now?
https://fred.stlouisfed.org/series/MSACSR
“However, in looking at the available data going back to the beginning of 1999, the explanation that relative inventory levels drives home sales is misleading and erroneous. The data shows that, if anything, since 1999 an inverse correlation exists between the rate of home sales and the supply of homes.”
https://seekingalpha.com/article/3563066-low-housing-inventory-myth
Millennials dream about a housing collapse which will devastate our economy and leave individuals jobless and homeless, just so they can pick up a crap-shack on the cheap. This is why they are not and will never be the greatest generation.
Inbred Jed,
“Millennials dream about a housing collapse which will devastate our economy and leave individuals jobless and homeless, just so they can pick up a crap-shack on the cheap. This is why they are not and will never be the greatest generation.”
A few side notes:
I am not dreaming about crash, i am saying it makes no sense to buy an overpriced house if a crash is around the corner. That’s just being realistic (and smart).
My bet is you profit somehow from these housing bubbles and want it to continue. If that’s true than you are no better than someone waiting for housing to reflect true value (50-70% less)
“leave individuals jobless and homeless” Have you been around much? Do you know how many homeless people we have already? Millennials did not create 18 trillion in debt and started BS wars that cost trillions and just benefited certain entities. And just because a crash works in our favor doesn’t mean we are responsible for someone who bought an overpriced crap shack during bubble peak and walks away after seeing his house value plummeting.
“will never be the greatest generation” You can have that title. I couldn’t care less. I don’t think this is the greatest country either.
You should give those who wait for a crash some credit for being financially responsible and disciplined.
http://www.cnbc.com/2017/07/24/this-house-had-22-offers-heres-why-the-owners-didnt-take-the-highest.html
Dude like the crash is here!!
“The national median price of a home sold in June hit $263,800, a record, according to the National Association of Realtors. In addition, the average number of days a listing took to go under contract fell to just 28, down from 34 a year ago”
The article talks about cash buyers pushing out buyers who need a loan as well.
Foreign cash buyers and boomers willing to wait and die in their houses; ya that 70% crash is right around the corner.
Retail investors jumping in at the height of the bubble where very few organic buyers exist. The game of musical chairs must go on. What could go wrong?
Jumping in? Uhm, you do realize investors have been buying up everything in sight for the last 6-7 years, right?
Ok so according to you there are “very few organic buyers” and no real Chinese cash investors as stated in a previous post above. Who then are buying all these houses???? I am very curious to know.
POH, tell them about Angelo Mozillo, and how he hasn’t seen a soft landing in 53 years. lol.
@landlord
I have pointed out early on that “institutional” investors were the early buyers on numerous occasions. However, they are sellers at this stage. That is why I specifically stated “Retail” investors as being the buyers.
@Dan
Did you get the memo that the percentage of private ownership adjusted for population growth is at an all time low?
Also, when I say that many Chinese buyers are not real cash buyers, it means that they rely on hard loans rather than on mortgages. Many reports have come out about Chinese not being able to settle. The point of all of this is that now is not different. It is still a debt driven recovery searching for yield due to the repressed global rates.
Mr Landlord,
Very true. Plenty of investors have been buying for 4-5 yrs. Not limited to the big boys, but, mom n pops too.
Fair enough Heck. I didn’t get the distinction you were making.
But where is the proof that instututionals are selling? Not saying I don’t believe you, I’d just like to see some data.
@jed
I prefer Mozilo’s bluntness over the RE cheerleaders’ song and dance about things being truly different every time prices become unsustainable.
@Landlord
“Zell is selling his real estate holdings. Last fall (2015), he unloaded a quarter of his portfolio, buildings totaling about 23,000 rental apartments, to Starwood Capital Group for more than $5 billion…Zell next sold off apartment buildings in South Florida and Denver, with complexes in Phoenix, Boston and other metro areas expected to be sold before the year is out.”
http://www.valuewalk.com/2016/06/sam-zell-indicator-real-estate/
“Now that most of those larger institutional investors have eased back, smaller investment cohorts are capitalizing the remaining opportunities.”
http://www.heraldtribune.com/business/20150525/small-real-estate-investors-taking-over-in-southwest-florida
Mr. Landlord sure is an expert on human behavior- since tenants never lose jobs or have unexpected medical/other bills.
Of course, maybe Mr Landlord has all Section 8 tenants.
It’s funny how on the one hand, every renter here makes $200K a year and has $1M in the bank ready to buy at 70% discount when the crash comes. But on the other hand, landlords will all go broke because none of their tenants can afford to pay rent. Come on dude, which is it? Can’t be both.
And yes I am an expert in human behavior.
And as I have said numerous times, one can mitigate the risks by getting quality tenants. All my tenants are top tier. That is high income, steady employment, excellent credit, no criminal history. I do credit checks, I do background checks, I ask for W2s, I call employers to verify employment, I ask for references, and I actually call them. Can someone with that lose a job? Sure. But people like that, plan ahead and have savings and are most likely going to get another job quickly. I’ve lost jobs over the years and I have never missed a mortgage payment or a rent payment when I rented. That’s because I had money in the bank and a professional network that led to getting another job very quickly. Same with unexpected bills….you have money saved up for that. That’s what people with 750 FICO scores do. That’s why I don’t rent to anyone with scores under 750.
I also rent to the “right type” of tenants. My first preference is empty nesters. A 50-something couple who sold the $1M crapshack in CA and moved up to flyover country. I’ve had these renters before pay a full year’s rent in advance. This is the holy grail of tenant. Second it’s 30-something families with school age kids. Kids keep parents (usually) from doing stupid shit like deciding to move to Austin 1/2 way through the lease. Given that kids are in school 9 months a year, parents will do everything they can to keep their kids’ lives stable. Also pretty low chance of 30-something parents with an 8 year or a 58 year old couple old throwing keggers and trashing the place. The 30-something families are also the ones with plans to buy a house in the future. Which means they will do all they can to NOT screw up their credit, ie pay me the rent on time.
Absolutely no roommates, huge risk of one or both deciding to bail because they can’t stand each other anymore. No situations with a mom that has kids and her boyfriend or crazy shit like that. Recipe for disaster. No bf/gf living together who on a whim can decide to break up, and 1/2 your rental payment is gone.
To further mitigate the risk of a loss of income, if you work for the govt (or are retired from the govt on a sweet, sweet pension), you move to the top of my list.
Another thing I look for is what car do you drive? Not so much the make/model, but the year/price. Someone driving a brand new $70K car is a huge red flag to me. Someone in a paid off 4 year old $30K car….shows me you are financially prudent.
Do all these things absolutely guarantee that I will get paid on time every month? No. There are no absolutes in this world. But I can mitigate my risk almost down to 0 by screening well.
It tells me a lot about who some of the posters are, if they have the attitude of “lose a job, stop paying rent”. Very revealing. I wouldn’t rent my dog house to you, let a lone a rental property.
Mr Landlord, These are great screening tip. I will use them in the future.
We inherited a 30 YO renter for a detached apartment when we bought our house 4 years ago. He has consistently paid his rent on time. This is despite multiple girlfriends. However, he has taken over the garage with his multiple motorcycles, snowmobiles, sailboats, pool tables, etc. We don’t mind since we rarely use the garage but the spread has justified us raising the rent. Also, we have a 2 bedroom apartment so he has rotating roommates. The apartment is 1K per month and with his roommates, he is paying about $500 per month with a garage. We think he is getting a great deal and deep down with all of the garage space and shared rent, he knows it too. He’s a good 30 year old kid.
Bob,
Yeah sure. I didn’t mean to imply 30 year old single dudes were bad people. I just look at risk. And to me, the single 30 year old is a higher risk than the married 50-somethings or married 30 somethings with kids. It’s also why car insurance is cheaper for married people than single people. Risk.
“I also rent to the “right type†of tenants. My first preference is empty nesters. A 50-something couple who sold the $1M crapshack in CA and moved up to flyover country. I’ve had these renters before pay a full year’s rent in advance. ”
Mr. Landlord, I had 2 of these type of experiences in the last year in my neck of the woods and I was surprised when they offered the whole year rent in advance, cash. It is true that where I live the rental market is on fire even if it is in flyover country. When I put the for rent sign, the phone was ringing off the hook. In few days, one 50 year old lady paid me rent and deposit for one year in advance for a 3/2 house with yard and garage, just to beat the competition. She took it.
Let me share with you another trick – look inside their car. If it is trashy (inside their own personal property) can you imagine how someone’s else property will look like? If someone is clean and likes order, they will keep their own cars in top shape in terms of cleanliness. That is why I don’t like property managers – they don’t vet the renters the same way like you and I. They don’t care; it’s not their property.
Mr Landlord,
Nice stuff. I fit right in. You would love me as a renter. I guess that’s why my current landlord loves me too and keeps offering long term leases for the same rate.
Too bad you are located in Spokane, WA (if i am not mistaken) and not SoCal. I am not sure I would want to live there but I just googled home prices. I could buy a nice one in all cash in Spokane. But then, I would have to live there.
Millie,
We beg you….please don’t move here.
Thanks
– All of Spokane
Flyover,
We’re in the same neck of the woods right? So yes, I know exactly what you speak of. It’s pretty amazing right now.
I thought the explosion in building, especially in Post Falls would have lowered the supply/demand imbalance for rentals. But it hasn’t. People just keep moving here. I kind of wish they’d stop though. There is bumper to bumper traffic on I-90 now, which was unheard of 10 years ago.
“We beg you….please don’t move here.”
Mr. Landlord, you have nothing to worry about. Promise.
Hey Millennial, you can move here if my current millennial tenant ever moves out. Our state has the most jobs and lowest unemployment rate in the country. The Democrat governor and Democrat legislature seems to be making that happen. It is getting more crowded but nowhere near S. CA so we should be able to take you as a refugee. We are not even a coastal city and border that great Republican experiment called Kansas which seems to be a colossal failure as far as job growth. But you can get a cheap house in Kansas, or come here for a good paying job and a reasonable priced house.
There are several sweet spots to rentals, and those involve location, size, price, and demographics. One of those sweet spots is a well-qualified 2-income family with kids in a 3/2, at a price point where it’s only a couple hundred more than a 2/2 apartment. With a long record of being responsible, those parents will not fail to pay their rent even with a job loss. There is always work for someone who wants it badly enough, and those parents will. So they both lose their jobs – they will sooner give 30 days notice than squat until forced by the courts to move. The vast majority of people would not remotely consider that battle. If you vet them well and charge below market, there is little risk.
If any of you have studied the number crunching of RE investing; rule #1 is always subtract 10% of the gross rents for a vacancy factor. From there you deduct the other costs: maintenance, repairs, taxes, insurance, capex, etc…..
Lastly you then deduct the P&I and you arrive at your NET. If you buy at the right price and ran the figures accordingly (before buying); your bottom line figure with or without recession should work and you get the ROI or cash on cash return you are looking for.
From what I understand about Californians after living here for a little over 2 years, they love their cars and are in denial about how the system just DOESN’T work. I mean weekend traffic is the worst, you honestly don’t want to go out and do stuff because of this fact. It’s the weekend you just want to enjoy your time off from all the day-to-day BS.
Californians also love debt. They love it so much that they surround themselves in debt. Yes there are a few responsible ones but generally speaking they love debt. And if you cannot embrace huge piles of debt you are viewed as a “loser.”
Californians are very controlling over everyone, I am not a home owner but would not be surprised if they required permits to put in a bird bath… My apartment lease alone was 32 pages! One line i will never forget mentioned that i need written permission from the landlord to eat snacks in our courtyard and snacks must be in an approved bowl.
Their obsession with cars and suburbs has put a strain on their economy for may years. Cars are treated as a right rather than a luxury. Eventually it will give, that is the direction we are headed, when there are too many renters they will eventually vote to overthrow building height regulations. California could be so much more if people would let the free market do its thing.
I am 26, I am here to work and learn and take my skills elsewhere someday. I value personal freedom, otherwise we are pretty much living in a glamorized prison.
The Californians you describe aren’t the Californians I grew up with. I’m from the California that elected Ronald Reagan Governor, and voted in Prop 13. This state is nothing at all like the one I grew up in except for the weather. The only thing that’s better now is the smog problem, but that’s due to technology and is true most places in the US with cars. My folks didn’t like the direction things were going and moved to rural Oregon. I came back for a job in the field I went to college for. Oregon has changed a lot too. The rural areas have a lot less clout politically, and a lot of weird newcomers have taken over. So many old Californians are living in exile now it’s pathetic.
California’s weather has worsened. Santa Monica used to have dry summers. But these past few years have been far more humid.
California always has had wet and dry cycles. I remember back in the 60s in August when a violent thunderstorm hit our neighborhood while we were listening to records at my house. A bright flash from up the hill exploded shaking the neighborhood. One kid who lived at the crest bolted for his house and found his Dad scared out of his wits. A one foot wide hole had been blown in the roof. Wet humid summers and thunderstorms have come before and will go away and come again.
Cars are a severe issue but hardly restricted to California… aside from a few pockets of the US like NYC cars are king.
The weird thing is that CA cannot meet its aggressive climate goals with the current car crazed culture so we will see what happens.
Seattle is getting to expensive even for Chinese money launderers.
http://www.seattletimes.com/business/real-estate/foreign-buyers-drop-off-as-seattle-housing-market-hits-hottest-tempo-since-2006-bubble/
too
I am with the Millennial and Priced Out. I make 100k in Bay Area, no debt…and I cant afford anything. Is this the new normal or will the prices come down. I have a feeling that this might be the new normal. If I was married to a lady w/ no debt that made 100k. I might be able to afford a 400-600k home.
The people that I see buying homes in CA that are 25-35 years old are the following:
Trust Fund babies. These people come from families with millions.
Foreign Asian buyers. These people have lots of money and would love to get it out of China
I think for the near future you will be seeing obscene prices, etc. Eventually things will get a bit better but hard to say when that is. 20 years is a long time to wait!
I am with the Millennial and Priced Out. I make 100k in Bay Area, no debt…and I cant afford anything. Is this the new normal or will the prices come down. I have a feeling that this might be the new normal. If I was married to a lady w/ no debt that made 100k. I might be able to afford a 400-600k home.
The people that I see buying homes in CA that are 25-35 years old are the following:
Trust Fund babies. These people come from families with millions.
Foreign Asian buyers. These people have lots of money and would love to get it out of China
2 young professional couple with zero debt and each has a 6 figure job. These people typically also get help from family in the tune of 50-100k.
Single person who gets down payment from family.
I don’t have any friends that are under the age of 35 that have bought a home without significant help from mommy and daddy.
My other problem is if i move…I will end up taking a 1500 a month pay cut. So I might as well live in CA and spend that extra 1500 on rent. The big problem with living in CA is the barrier to entry in buying a home.
@ Priced out in CA,
“The big problem with living in CA is the barrier to entry in buying a home.”
Only until the next crash. 2009-2012 was a great buying opportunity. Houses where priced right and you had rental parity back then. Due to being young, we did not have the same buying opportunities as many boomers had. Boomers surely react very hostile towards these statements which is only human. The greed takes over and they want to see ever increasing housing prices. Econ 101: economies are all about cycles. There is no doubt i my mind there will be another severe crash. If that happens buy at 50-70% off ( i guess 30-40% would be okay too). If it does not happen you are much better off renting a cheap apartment from a private landlord. Rents have not increased since 2009 here in my area. (i dont include professional managed apartments).
Another reason to consider…..i know people at my work (tech company) who make good money like me and they decided to buy recently. Boy, the way they talk about the experience, their monthly payments and their facial expression say it all. One thing I can guarantee you is that buying an overpriced house does not make you happy. These buyers will never catch up with you financially if you wait for next crash and get into a house much cheaper with more equity to start with. It really is a no brainer. Another thing to consider, youtube or google a good buy vs rent calculator. It shows you how much more excess cash you generate each much by renting versus buying a comparable home/condo/apartment. Housing is waaay overpriced. These old houses are not worth half of what the asking price is. We all live in a box. You can choose to save money and rent the box or you rent money from a lender to purchase the overpriced box and pay much more for it that way.
Millennial, I agree with what you say but not the way you generalize all the boomers. I am a boomer, Prince of Heck is a boomer and we never advised you to buy at these bubblicious prices. I always said that those with patience are rewarded and it is better to buy after a correction. For years I was consistent in what I said. Most of the boomers I know they give the same advise to their children.
We don’t chose our age. We are born when we are born and trying to do the best given the circumstances, the same way the millennials will do when the prices correct. Like you said, they will; it is just a matter of time.
The boomers are not more at fault for these circumstances than millennials are. This situation was created entirely by the FED who makes decision ONLY for the TBTF banks. Like good communists/globalists/statists/totalitarians they pick winners and losers. They are the equivalent of the Central Committee in the former communist countries trying to run a central planned economy. They are the enemies of free markets. They created the bubble in housing and also in student loans. I am sure that your parents, I and the rest of the boomers do not have anything to do with the current bubble in RE.
I do believe that you are misguided in your frustration with the system. True, that some of the boomers are cocky; so are some of the millennials. The boomers do not have a monopoly in that area. They come with all kinds of personalities the same like the millennials.
“A house is just a place to keep your stuff while you go out and get more stuff.” — George Carlin
I am also an older millennial who is just screwed and I feel that I work for nothing, because there’s no hope for a better life for my wife, my 1 year old child and I.
-I make around 100K (wife take care of baby)
-I have about 90K in liquid cash to buy as downpayment
-I add about 11K to 401 and rothIRA
-I drive a 05 honda civic w/ 170K miles -wife drives 01 rav4 with 120K… (so no car payments)
-I have no student loans…(wife didn’t go to college, just community college – no debt)
-I have NO real debt other than 5K on 0% interest for (new couch and bed and great new mattress) I sleep tight every night…
sometimes I get depressed that I can’t get a home for my family… even trying to be frugal and do things more or less proper. But I don’t let it keep me down.
One thing for sure is I won’t buy 550K falling apart shack… and I can’t afford the new 750-900K new houses around here… and sure as hell won’t buy the 460-500K 2bd condos. * it takes minimum 160K household income to buy.
I have lost hope to buy in Cali… the economy is booming… money everywhere plumbers making 120K… construction everywhere…somehow people are loaded… what crash? one can not find parking anywhere you go on weekend… traffic is insane…
**my date is December 2020 to pack up and leave CA. I’ll move to Texas then and buy a house under 200K with a 25% down and 15 year loan. I know i’d make less salary 30-40% less in TX… but fovck it !
Flyover,
good post. Yes, you are consistent with what you say and I agree with your statements. It seems to me though the majority of boomers advise us younger ones to buy now. But as you stated, generalizing all boomers isn’t helpful.
Chico: why wait? Make that move now.
If I was a young, single guy making a lot of money, say 100K, it would be hard for me NOT to buy a truck with a camper shell and call that home, living discreetly in quiet neighborhoods or parking near a playground, taking showers in a gym and saving every bit of money I made for 3 or 4 years. It might be lonely and painful, but after that much time, you might have 400K stashed away. That would be a damn good start.
@Flyover
Although I am not of the same generation as you are, my philosophy coincide with yours. I am observant enough to recognize that the top-down supply side approach by the central banks to revive consumer-based (demand side) economies is bound to fail.
Do our common outlook signify doom and gloom? Only if you believe in unicorns and faeries who will show up at your doorstep with a bag money and no strings attached.
@ Jeff. I won’t move to TX yet. because I still have a Job and with bonuses. I can still save a few grand monthly on top of my 401 and rothIRA. build up savings and retirement some more… there’s no rush..
my point is that I won’t pay 700K for a shack… and pay property taxes up the @$$ so my kids go to same school some section8 and subsided healthcare easy going people demand…. free sh!te… while I brake my back working 60 hour weeks
@ Jed – If you make a 100k a year after tax you get around 65k. So after 4 years of living in your car you would have more like around 200k.
Isn’t it amazing how the state that is 100% controlled by Democrats – the party that claims to be for the middle class – has destroyed the middle class?
Things that make you go….HMMMMMMM……..
It’s always funny how smug liberals brag about how high incomes are in CA. Well great you make $100K while you counterpart makes $60K in flyover country. You live in an apartment, he lives in a 2500 sq ft home with a yard.
Isn’t socialism awesome??!?
I would argue both parties have contributed to the erosion of the middle class.
Democrats aren’t remotely socialist. They’re neo-liberal, free-trade, war-mongering, elitist Wall St ideologues who only differ with Republicans on social issues like abortion, transgender bathrooms, and flag-burning.
Americans politics is little more than a cesspool of tribal symbolism where policy that would actually improve the standard of living for working people is _never_ discussed.
This is true. I’m now treating the CA dollar as a different currency. $1 here is .20-30 cents anywhere else in the US. We should probably have our own currency printed because the value of money here is skewered. Making $100k in the Bay Area or LA is like $20-30k anywhere else.
Two Beers said “…where policy that would actually improve the standard of living for working people is _never_ discussed”.
And that policy would be ….????
How about sparring policies?
In this corner… Rand Paul… in the opposite corner Berrrrniieee San….ders!!!!
Everything here is a joke! The prices are so out of whack with reality and the boomers are drooling and gloating over how high their property values are now, they love it!
It makes them feel wealthy and special with no conception that this market is pricing out everyone else under 40 that isn’t wealthy. They are also able to collect sky high rents so why would they complain? That extra house they inherited or owned with their ex-wife/husband now rents for $4k a month, or renting their 500sq ft granny studio for $2,800 a month, they are stoked!
I think eventually things here will continue to get worse and guys like us will be forced out or just so disgusted that we choose to take a pay cut and some worse weather just to be able to find a real life and a home somewhere less competitive in a different part of CA or another state. I mean even finding a rental here now is near impossible let alone buying a crap shack for $950k or a mediocre condo for $700k.
LA median home price hits new all time high of $569,000.
https://la.curbed.com/2017/7/25/16027372/median-home-price-los-angeles-june-2017-corelogic
Is this what a crash looks like?
Nope, this is what the peak looks like. All you need is some patience. Give it a few more months or maybe years and the downturn will come.
Dude it’s like 1933 out there! Doom and gloom forever. Right Millie?
http://www.reuters.com/article/us-usa-economy-idUSKBN1AA267
“WASHINGTON (Reuters) – U.S consumer confidence jumped to a near 16-year high in July amid optimism over the labor market while house prices maintained their upward trend in May, which could boost consumer spending after recent sluggishness. The reports on Tuesday underscored the economy’s strong fundamentals, expected to keep the Federal Reserve on course to raise interest rates for a third time this year.
The Conference Board said its consumer confidence index surged to 121.1 this month, the second highest reading since 2000, from 117.3 in June. The rise in confidence came despite the healthcare impasse in Washington. The index hit a 16-year high of 124.9 in March. “
When the homeless numbers reach 1M and people are dying in the top 10%’s driveways and favorite jogging parks, it will be a crisis. We will call them Trumpvilles instead of Hoovervilles this time around.
http://www.sacbee.com/opinion/op-ed/soapbox/article97425342.html
It’s pathetic how the Sacramento Bee and the rest of the Democrat propaganda media ignored homelessness that grew to crisis levels during the Obama regime. We’ve had Obamavilles for years.
And by cutting food stamps, Medicare, housing assistance under Trump, everything will get better? The current homeless want to live in tents on the side of the road and are just lazy? I just see it growing from 100K to 1M+ people under Trump policies. A repeat of the hands-off Republican Hoover policies, so the next President will have FDR policies. We’ve seen it before in the 1930s and will see it again.
Seen it all before Bob,
First, Trump did not do ANY of things you complain and there is no guarantee he will do anything.
Let’s assume he will do those things. What is your suggestion? Tax out of existence the remaining middle class to keep afloat all the drug addicts? Is it fair to you for 2 parents to work 60 hours per week hoping that they will ever afford a child because the amount of taxation and inflation? Or you are one of those who after decades of proving the opposite, you still believe that governor moonbeam will tax himself and his cronies who put him in power to provide for those benefits?
Since taxes were invented they are always levied on the middle class to provide for the wealthy and crumbs for the poor to allow the wealthy to buy the votes. That is the sad reality. There are only 2 ways to provide those benefits: taxes and printing money to finance the deficit. The second one is the most REGRESSIVE form of taxation on the middle class. However, both of them contribute to decimate the middle class – taxation and inflation.
People are free to drink and use drugs but they are not free to shift the consequences of their behavior on the middle class to produce more desperate people who will use drinks and alcohol to escape reality. That is a form of genocide. If people are not responsible, don’t shift their responsibility on others who can barely survive. The rich who have compassion and make laws, they should express that compassion using their own funds.
Flyover, I agree with you 90%.
The middle and upper middle class are being hit hard with taxes to pay for the poor.
I still believe that if we have the Trump policies that he is promoting:
1) Cuts in Food Stamps.
2) Cuts in Housing
3) Cuts in Medicare
That we will have over a million homeless people marching on Washington and they will call them Trumpvilles within 2 years.
You claim that Trump is not pushing this but just do a Google search for
1) Food Stamp cuts under Trump
2) Housing cuts under Trump
3) Medicare cuts under Trump.
You will see thousands of well-written articles backing my claim.
Will he get these passed? I don’t know.
“Doom and gloom forever. Right Millie?”
Not forever, its just cyclical. Right now, the sun is shining bright (it’s been a really hot day in California) but soon the sky will fall. Just a little bit more patience.
In todays LA Times…
‘Home prices in parts of Southern California are at record highs — and keep rising’
http://www.latimes.com/business/la-fi-home-prices-20170725-story.html
“Economists said that absent a recession or a surge in mortgage rates, California home prices could keep climbing at 5% a year for the foreseeable future. That’s faster than the long-term average of 3% nationwide, but it’s difficult to build housing in California and the economy is strong, said Richard Green, director of the USC Lusk Center for Real Estate.
“It could go on for another four or five years,†he said.”
Housing to tank hard in 2022!
For all the people guaranteeing a correction, you will get one sooner or later. However, this market may run for a few more years and then we’ll be back to what…2015 prices? Save, save, save, cut out all the unnecessary expenses and stick to your plan!
Lord,
Nah, 2015 prices were wayy overpriced. I want 2009-2012 price levels. If that does not happen I’ll wait for the next crash. That’s the issue with little corrections, they happen but are not enough to push prices down 50-70%. If I buy my first home it has to be a steal.
Hence the bargaining phase of RE depression….a shallow correction.
I was reading some older posts here, from way back in 2011 / 2012. There was mention of this: 53143 CALLE LOS HERMANOS Coachella, CA 92236.
At the time it was listed for $70K. And it was poo-ppoed as still too expensive here.
Well just for grins I checked that property now and homes around it are going for around $200K. Well played, buyer, well played indeed. And if you bought that with a 3% down FHA loan? I don’t think my calculator has numbers high enough to figure out that ROI, lol.
WOW! I didn’t realize just how cheap things got in the CA desert. I’m envious of the investors that bought this stuff. Even at $70K, this would have been a hell of a buy.
That’s a pretty funny example.
There are a couple Crashers on here that still believe they are going to buy today’s 1 million dollar house for under 300k.
That did happen in the Bay area and in Santa Barbara in 2012. The housing crashed so hard in 2008 that the $1M houses in 2006 were going for 300-400K in 2012. A couple of Public School teachers I know bought a house in the 2012 window. They could afford it then. I don’t know if it will happen again, but it has happened before.
Who in the heck wants to live in that hell hole?
It will be interesting next 5 years, I would expect home prices to be 20%+ lower in that time frame…
“Who in the heck wants to live in that hell hole?”
Uhm, the people who paid $200K to buy? Just spitballing here.
The real estate industry has destroyed home ownership for anyone who is just a kid right now and might have wanted to buy in 20-30 years time. No wonder that kid’s grandparents don’t want to sell when the main hope is to pass the house down. You’ll have generations living in the same house as it gets passed on an on to each successive generation.
The core problem is not enough supply. Also foreign buyers and airbnb.
Ycombinator in Silicon Valley now suggesting 30-40% tax on foreign buyers.
When homes are rare they get hoarded in the manner you get described.
Things will change, there are a lot of cheerleaders on RE. I witnessed this 3 other times in Cali……all three ended and prices went down.
I see nothing to change the cycles of RE
I agree. Homes being sold like stock market certificates. Bidding up on speculation which right now the average owner does not want to have to deal with. Also you are competing with the agent/investor on occasion. I can’t see how this will unfold, but based on passed sales activity there maybe a correction coming soon.
The good doctor did a comprehensive article about this when it first became a problem around 2000. It’s all about land use and supply and demand. Around that time our wonderful politicians erected a series of barriers to building new homes here – the supply was dramatically curtailed. The California Coastal Commission set up to protect our coastline and ocean from misuse was only the start. Around the same time they threw the door open to anybody who could crawl their way here – the demand was dramatically increased. Did you guys pass the business Econ class? What happens when supply dries up and demand is pushed up? Nobody should be surprised.
Our first house was in Palms and it wasn’t very special. We borrowed and scraped together 5% and the loan broker put together a “quiet” 5% Second – not easy to do today, but we squeezed in and were tight for years. The first house is rarely easy to pay for and usually isn’t in your perfect locale but it’s a place to start. Some people might want to set their sights lower – maybe the Inland Empire.
Having said that though, the government has really made it difficult. All in the name of the environment and helping the poor disadvantaged potential voters, oops, I mean potential workers from Nicaragua. You didn’t think they gave even a tiny thought to what’s best for you, did you?
“All in the name of the environment and helping the poor disadvantaged potential voters, oops, I mean potential workers from Nicaragua. ”
There, in one sentence you very well summarized the idiotic policy of the esteemed politicians from Sacramento. They also exposed themselves, for all with minimum of 2 cells in their brain, as the biggest liars to the electorate – trying to protect the environment by bringing millions and millions of illegals to be supported by the taxes of the middle class.
The middle class in CA can not even afford to get married, forget about ever having children unless they are trust babies.
2 cells? You are overly generous.
Agreed. The only reason for allowing immigrants in when unemployment is low is:
1) Humanitarian reasons. This has a religious connotation that we shouldn’t allow poor people elsewhere to be brutally killed, tortured, raped, or starved to death in other countries. This should be the policy of both Republicans and Democrats no matter whether Christian, Jewish, Muslim, Buddhist or Atheist. It should be controlled.
The ramification is:
2) If you bring in millions and millions of new workers, no matter how hard they are willing to work, it will drive down wages. It is basic supply and demand economics. The minimum wage today is not enough to survive so of course these new hard-working people will be:
1) On government benefits
2) Living and dying in a used tent by the side of the road. Basically making the US a 3rd World country.
Neither is desirable unless you are greedy.
The greedy side effect of this is that allowing more people in than the number of jobs, drives down wages. The business owners love this because they can hire people in to pick fruit and vegetables, scrape barnacles off of yachts, do their lawn mowing, painting, drywalling, roofing, etc for dirt cheap. Meanwhile, do the costs of these services go down? Or is the increased revenue being rolled up to the wealthy?
The wealthy benefit mostly from 2 above directly.
The poor and middle class benefit also, but pay for it with taxes to avoid Hoovervilles in the public parks.
We didn’t have this problem up to the 1980’s until Reagan slashed the tax rates for the wealthy. The CEO’s lived in middle class neighborhoods and never had enough after taxes to buy $100M mega mansions with security gates. The last CEO points to prior CEO and claims they need more money since the prior only made $100M.
At a 90% tax rate, all CEOs made about the same above a certain level so we did not see this kind of insane salary structure before that.
Seen it all before Bob,
Neither Democrats nor Republicans want to increase taxes on the very wealthy, because those pay for their campaigns.
When they say to increase taxes on the rich, those they have in mind are the rich comparative to those in the ghetto: like small business owners (who create the vast majority of the jobs in this nation), doctors (who study the whole life and accumulate a mountain of bad debt which is not tax deductible), in a word, upper middle class who work like crazy and have a mountain of debt and keep the economy moving. They are just aspiring to be rich and the very rich who make the laws hate to have them compete for true wealth. It is the same like the TBTF banks making all kinds of laws against the regional banks to avoid competition.
You will NEVER see Democrats or Republicans proposing laws to increase taxation agains Bill Gates, Zuckerberg, Warren Buffet, Rockefelers, or Soros. Without taxing the super wealthy (0.0001%), any increase in taxes will have a very negative effect on the economy. I think that Trump and Banon proposal to increase taxes on those over 5 million per year is good. Actually, they may increase the taxes to those above a million per year. Lower the taxes on the middle and upper middle class. Of course, I am not that naive to believe that it is going to be done. That is for politics and propaganda.
If housing starts correcting with more people walking away from their homes I think the rental market prices may likely stay high for a while. Probably a disconnect from the housing slump as rental apartments are the only game in town making out like bandits.
I really doubt that rents will stay high during an economic downturn. Much of the recent rent hikes were created by investors turned rentiers who overpaid for their properties. Many renters are already stretching thin at current prices. When the recession hits, expect many of them to downgrade their lifestyles and housing.
I also expect a rental downturn due to overcapacity as new multi-family properties are rolled out to compete against existing ones. Many of the new buildings cater to incomes higher than most of the local population couldn’t afford. Not exactly a good strategy to weather a potential period of falling incomes.
There’s been a ton of apartment building all over the country. So yeah on the apt. front, rents will fall as all that excess supply comes online. But rental homes – in desirable neighborhoods – will be fine since the supply hasn’t increased at all.
Apartments are great for 27 year old single guys. Not so much for married couples with small kids who want/have a dog. And those couples with kids will always pay a premium for a quality home with a yard in a good school district.
I guess it all depends on how many properties become strategic defaults or people just squat in their underwater mortgages. If we have a repeat of 2008 I would think the banks/FED may just do the same thing and withhold properties as they do now. I suspect if the banks/fed keep propping up housing and don’t do mark-to-market accounting or withhold REO properties it will be interesting to see what happens with rent prices.
“I love how today’s 26 year olds spend $6 on a cup of coffee every morning, buy a $1000 phone every year and only eat organic non-GMO gluten free nonsense that costs 3X regular food, and then complain how they have no money to buy a home.”
I hear you, I’m a boomer by age, not by choice, but if housing was out of reach, and I mean WAY out of reach, I’d probably do the same thing.
“Apartments are great for 27 year old single guys. Not so much for married couples with small kids who want/have a dog. And those couples with kids will always pay a premium for a quality home with a yard in a good school district.”
The heart says one thing (house and picket fences), but economic reality says another. This top heavy “recovery” has shut out many first time homebuyers or forced them to stretch their budgets thin.
My family has lived with my mom in her paid-off 3/2 Burbank house for several years, now. It was the best way to assure the kids entrance into the good Burbank schools, and the best way to stay in California. We also care for my mom, so she can stay in her house. We’re lucky that she has a great government pension along with Social Security.
My parents purchased this home in the early 60’s, and they both worked hard to pay it off and improve it. I don’t know where we would be now without their hard work and good planning. So yeah, this is another So Cal home that won’t be coming on the market any time soon! (We are surrounded by mostly elderly neighbors who never left, either! We recently lost three elderly widowed ladies who were original owners of their homes, from 1951! All three homes were purchased by younger families with substantial parental help. Like, hundreds of thousands of dollars-type help!)
Laura,
I’m confused. I hae been told numerous times here that every boomer in America is broke and needs $1 Taco night to survive. And yet here you are talking about young people buying houses with hundreds of thousands of dollars from their parents.
It’s almost as if the doom and gloom types have no idea what they’re talking about or something.
The boomers who bought a house in the 60’s, 70’s and early 80’s and have held on are incredibly wealthy. Especially the boomers who are collecting public or private pensions. Can you imagine having a PITI of $500 per month today on a paid-for house while collecting SS and pensions of nearly $4K per month? The only reason they are eating free tacos on Tuesday and drinking free coffee with donuts at the local bank at the is that they were raised that way. Free food is good. The only question is do they want to give up some of that to help their kids buy a house.
The PITI for someone who bought a house in the 60’s or 70’s is more like $200 per month and the income from a pensioner from the 1980’s is more like $5K per month today not counting any savings.
The Boomers were savers by not spending much money on food or coffee. Most are still eating cheap tacos by choice and not by need. A friend recently had a boomer parent pass away and left them a $1M house and nearly $2M in savings. All 4 siblings had moved to flyover country in 1990’s because they couldn’t afford and saw better value for housing and jobs back then This boomer parent never offered to help their children with college or with buying a house so the kids left by need rather than by choice even back then.
The Boomer parents had a good retirement of travel and cruises. The kids are now able to send their kids to college and likely retire early in flyover country.
To be fair, my parents were Depression babies. We all seem to be late-in-life parents in my family! They were raised to be very frugal. My neighbors’ parents all appear to be boomers–I’m not sure how they got their money. They were certainly generous in helping their kids purchase $900K plus houses!
It is true that the parents mentioned above were early boomers (Born in the mid to late 1940’s). They had some Silent Generation beliefs. They bought houses in their 20’s in the early 1970’s after college.
“The Boomers were savers by not spending much money on food or coffee. Most are still eating cheap tacos by choice and not by need. ”
Yep. I love how today’s 26 year olds spend $6 on a cup of coffee every morning, buy a $1000 phone every year and only eat organic non-GMO gluten free nonsense that costs 3X regular food, and then complain how they have no money to buy a home.
Mr. Landlord,
I am a millennial (who would have thought). I dont drink coffee, my phone is a iphone 4s and i dont buy gluten-free stuff. In one way you and I are similar….we are generalizing too much. It’s fun and makes it easier to argue but it’s not so black and white with generations As people mentioned here before millennials come in all shapes and sizes, just like the boomers.
4s? What a looooooooooser!! LOL. Just kidding. It’s good that you don’t fall into the trap of always needing the latest and greatest gadget. But I think you can agree than you are a very atypical millennial. Yeah tehre are tens of millions of you, so obviously you come in all shapes and sizes and behavior. But your generation – as a whole – does spend money foolishly on shit like the latest iphone and Starbucks more than previous generations. I think you can admit that.
Gen-Xers are I think are the most financially conservative generation, and also kind of a silent majority generation. We just go about our business quietly while millenials get all the attention from the MSM and boomers are vilified as the cause of all the world’s problems.
Low turnover. The boomers are not liquidating or downsizing as expected. They are letting the adult kids move in and when they pass, the kids will inherit the paid off property with low tax base (prop 13).
This is constricting supply significantly. Whether demand is strong or not seems to be less relevant as the supply is very low.
Just did an online search in the city I grew up in with the following criteria:
$900k and below
Single Family House
1750 sq ft min.
4500 sq ft lot min.
8 houses!!!!
California needs a state paid and supported relocation plan to other states. This would pay off because it would drastically reduce homelessness and poverty here. Help people build lives where there is affordable housing, not here.
This is another confirmed bubble:
http://www.zerohedge.com/news/2017-07-27/next-us-housing-bubble-has-arrived?page=1
Hanson? Might as well call him JIm Taylor b/c both have been calling the burst or tank for the same amount of time and both have been wrong.
Also; when Fannie made an underwriting change announcement; Hanson wrote a blog entry about it and as someone who writes loans every day I had to correct him on many things as he was providing mis-information and mis-interpreting the changes. I wrote it in a professional manner, and he did not let my comment/explanation post. Enough said.
Dan, the crash will be good for you. As soon as prices are cut in half millennials will go out and buy homes. You will write many more loans compared to now.
Which year(s) did Hanson call the current bubble to burst? Although he’s clearly a skeptic of the fundamentals, or lack thereof, behind the current price rally, he admits that specifying dates is nearly impossible.
Millennial,
You are correct, my business would definitely increase as my buyers would actually be able to have more options and higher likelihood of buying.
I too, would benefit as I’m in prime position to buy.
But, I cannot escape reality and everything I see in the market makes me believe we will continue.
When I was a young man, I built 2 houses on rural lots with my Brother. One He lived in, and one I owned, but my folks moved into it as it was bigger than their little house (that we also helped build earlier). I was moving back to California to get a job. I still own my house and my Brother still owns his. We own my folks’ house together. All are rentals now. They aren’t real money makers, but if things ever crashed everywhere, the lots are big enough for a nice produce garden, plus there is a lot of food growing wild in the woods that you could gather. Oversight on self built houses was pretty lax back then. It probably would be difficult to buy a dirt lot in suburban or urban SoCal and camp on it to build a house like we did. A lot of bureaucratic red tape and harassment would probably come your way. You need to be in the flyover sections of the US to do that (including flyover California).
I suppose it might not be a bad thing for someone young to drop out and build themselves a rural redoubt. I’d suggest going to a lot of the kinds of seminars that Home Depot gives, and read a lot of building code manuals if you aren’t already in construction. You’d probably want to build it as close to town as you could afford to as houses in the wilderness have not a lot of resale value from what I’ve found. Find a small non-conforming rural lot unless you plan on farming after you build it. Large acreage suitable as a farm costs too much.
Some here think that the interest increase is too small to affect the RE because the economy is strong.
Bill Gross, the king of bonds, disagrees in the article below. He is the top expert in bonds and the bond market is 3 times bigger than the stock market. So, can the RE market be resilient in the face of what is happening in the bond market? After all, RE depends on the bond market directly or indirectly 100%.
https://www.regalassets.com/blog/bond-king-bill-gross-warning-central-banks-set-blow-global-economy/
Interest rates will always have an effect on r/e regardless of how good or bad the economy is.
Anybody catch the current amounts of household and corporate debt? But I’m sure that very little of it found its way into the real estate market — especially where foreign investors are concerned. *sarcasm off*
Anecdotal of course and take that for what it’s worth….but earlier this week, a couple of friends of mine both bought houses. Coincidentally they bought in the same development, both new construction. They did the math and realized they could buy for cheaper than renting.
Obviously the math doesn’t work the same in all parts of the country and/or the type of housing. But for these two, it made sense and they bought.
Cheaper to buy than renting? I’d love to see that “math”. Please share!
“Cheaper to buy than renting? I’d love to see that “mathâ€. Please share!”
You should know by now that real estate is local. You can buy below rent parity in much of the country. And I’m not just talking about hicksville.
Anecdotal. Back in 2005 or 2006, an acquaintance was bragging about how he had recently scored a RE bargain. Of course, he had to endure a constant turnover of renters to help pay for his mortgage. During the downturn, he was desperate for some sort of bailout to lower his monthly payments.
Moral of the story: be fearful when others are greedy, and greedy when others are fearful.
@ Mr. Landlord, you have some good advise on tenants, etc.
However, since you live in Eastern Washington…it is a completely different RE animal than LA or SF. Spokane is four hours from the coast, doesn’t have big, high wage employers (like King County) and is pretty conservative, not to mention Coeur d’Alene racist history. In short, it aint someplace anyone on this blog would normally aspire to.
Why are you on a primarily California RE blog? Its like comparing (Washington) apples to (California) oranges.
First off, r/e is r/e. The fundamentals are the same everywhere. Despite what you think, LA isn’t all that special.
And despite what you may think, LA isn’t that much richer than us rubes out here in the middle of nowhere.
LA County median income: $55K
Kootenai County median income: $49K
Median home LA: $550K
Median home: Kootenai: $211K
So you make $6K more a year in LA yet your housing is $230K more expensive. The weather is nice, but it’s not THAT nice. And if you account for the absurd taxes in LA vs Kootenia that $6K difference is probably gone as well.
Which is why the population here has been increasing exponentially over the past 10-15 years. As I mentioned earlier, all my tenants are ex-Californians and both my neighbors (of my home where I live) are from California. These people don’t just come here and get jobs at McDonalds making $7/hr. They are professionals earning good money. But if you want to live in your bubble thinking everyone who lives 100 miles away from an ocean lives in a double wide with a meth lab in the kitchen, be my guest.
And CDA’s racist history? LOL. There were like 15 skinheads that lived north of town in the 90s. Funny enough, their leader was from….wait for it…..CALIFORNIA!! I’ve lived here for 10 years and even when I got hear that was ancient history. And I have no idea what that has to do with r/e valuations. A more interesting historical aspect of CDA is the true story of the local kid who ran a pot smuggling mini-empire. There was a movie made about it too, called Kid Cannabis. Oh and Wayne Gretzky spends his summers here, I’ve seen him around town several times.
Does my thinking make sense?
Been looking for awhile in multiple cities. Identified 2 houses in 2 different cities.
City A is a newer home in a new community dominated by young families with schools rated 10.
City B is an older home in an established/seasoned community with a mix of families and older (retired) people with schools rated 8-9.
Is City B more protected against the downside if there is a job loss recession due to the spreading of the risk over multiple demographics? Older/retired people in paid off homes w/ SSA and/or disability will not be affected whereas younger families w/ a few kids that are new(er) homeowners with large loan balances could be in foreclosure rather quickly.
What are your thoughts?
Be easier to judge if you gave the names of the cities.
City A is Ladera ranch
City B is mission Viejo
Stage in life is raising a couple kids 1 and 6 yr old
Dan, I don’t think you can go wrong with either one. Ladera got hit really hard during the last bust. That was a factor of a few things, it was a new community, many homes were bought during the run up to the bubble. Also, younger families moved into Ladera…the recession hit these people extremely hard relative to older folks who owned for decades in MV. Since we are almost a decade past the housing bust, I think it is much safer to buy in Ladera today. Maybe it’s just me, but some areas of MV are really starting to show their age, where Ladera is still relatively new.
Like I said, I doubt you’ll go wrong with either if you can “afford” it and have a long term plan regarding home ownership.
@ Dan – Both are good for different reasons. Depends what stage of life you are in…kid raising?
Do you think City A will get a lot of high income job growth in the area over time? That is what will increase its value relative to City B, where, presumably there are lots of jobs and potentially short commutes and more time with friends and family and less time commuting. There is a reason Rancho Cucamonga is cheaper than West LA.
One of the rule of thumbs with r/e is buy the cheapest house in the most expensive neighborhood and NEVER do the opposite. You don’t want the $500K house in a neighborhood of $400K houses. You want the $400K house in a neighborhood of $500K houses.
I’d go with B as well. Older established is better than new IMO. I’m a big fan of older established areas with old growth trees, wider streets, etc. New construction is also suspect quality with houses thrown together in a few days using illegal alien labor. And older areas have character, vs cookie cutter homes.
Ya; good point.
House in city A is the lower priced house vs others on the street while house in city B is the higher priced house in the neighborhood. Although, city B house has great value in terms of $/sq ft (b/c it needs some work).
For the realtors frustrated at millennials for not buying overpriced houses: how about a little side business selling RV’s? Apparently, RV Sales are through the roof and instead of finding millennials at open houses they are shopping RV’s! Maybe people were right, millennials are finally moving out….just not into homes! Well, according to the IRS, RV’s are considered homes….so there you go!
“RV manufacturer Thor saw sales skyrocket 56.9 percent to $2.02 billion from last year. Winnebago’s surged 75.1 percent last quarter to $476.4 million.”
Interestingly, whenever RV sales spiked in the past, a recession/crash was around the corner….Mhmmm sounds about right.
http://www.zerohedge.com/news/2017-07-30/perfect-crash-indicator-flashing-red
From the link:
“What we have here is another classic short. During the past couple of recessions, RV stocks plunged as everyone came to their senses and stopped buying $60,000 motel rooms. Based on the above chart that’s a pretty good bet to repeat going forward. Let’s revisit this play in a couple of years.”
$60K? That’s one hell of an RV. A typical small or mid sized trailer can be had for $15-20K. But it’s an interesting chart. I’d guess the same chart exists for boat sales. RVs, like boats are things you should never buy new in the first place. Those things depreciate like crazy.
RV’s? Had any of us even heard of a “tiny home” fifteen years ago? Necessity is the mother of invention and humans will find creative ways to survive. Don’t be surprised when, if in another decade, we have “container communities.” How can we let all those huge shipping containers go unused when they can be easily converted to low income housing.
Container homes….that sounds like the old Soviet Union. Imagine we start that here in the greatest country in the world……26 years after the cold war has ended. Can we still claim we are #1 in the world? Retired school buses could also be utilized to house the poor. And what about all these empty malls we are hearing about? Sounds like the perfect place to house the flood of homeless people and millennials.
What to know about gentrification before buying a house in LA
Plus, how not to be a gentrifier.
https://la.curbed.com/2017/7/28/16053522/gentrification-definition-boyle-heights
Because when you buy in the ghetto, you damn well want it to remain a ghetto.
They call it BORROWING because you HAVE TO GIVE IT ALL BACK!!!
Stupid sheeple think they can get ahead by borrowing and short circuit the reality of having to WORK to EARN cash and buy what you want with what you EARNED. Borrowing will always bite you in the ass.
Enjoy those huge ass mortgages, mofos!
The repo men and sheriff’s sales are going to be very, very active when these sheeple get processed – and they certainly deserve it.
Humble workers and business owners who didn’t take the bait from banks have nothing to worry about.
Funny, the sheeple always bleat and bahh about predatory lending….well, my friends, the real story is one of predatory BORROWING (i.e. greedy sheeple wanting to get something for nothing).
What they do is akin to walking into a grocery store, buying a week’s worth of groceries and saying to the checker “oh, here’s a quarter down. I’ll pay you the $197 later, like, and stuff.”
Sickening – these creatures are not even human. Not even subhuman….sub-sub-subhuman perhaps.
Why are you mad though?
Are you trolling? If so, not bad, solid B+.
If you’re not trolling and you truly believe that nonsense, I feel sad for you.
That sounds like massive trolling to me.
RE is one of the few “investments” that is truly a necessity. The amount of leverage is massive and the tax breaks you get almost seem unfair.
It was just announced that LA is hosting the Olympics in 2028! Where will RE be by then? And will this cause it to spike or dive? Or nada?
by 2028 the avg home will be 3MIO. And every third person in the US will be Chinese. USA! USA! USA!
Yes there are people who are retirement age staying in their homes. That’s nothing new. I plan to do the same.
However, in my business their have been quite a few people retiring in the last few years. Most people I know who are retiring are leaving the state for two reasons. 1. Equity cash out to buy a home in another state. 2. No Income taxes in that state for pension and income.
They sell their old 1800 square foot ranch shack in Sherman Oaks for $1,000,000. They can take the $700,000 equity and buy a beautiful big home in another ‘income tax free” state for $350,000 and bank the rest, or invest in another property.
So I don’t think there is one magic formula for this. There are many factors that drive the prices up.
One of the things people don’t always consider is building costs. Have you wondered why new housing starts are so low relative to the massive increase in house prices? Why aren’t more developers going into R-2 zoned neighborhoods, tearing down single family homes, and building two townhouses on the same lot? Zoning permits it. Why not? because everything from lumber, to drywall, to copper pipes and brass valves have skyrocketed in price. So we have no new housing starts. Builders are still hesitant to do this in some areas. You’ll see flipping going on in high end neighborhoods for sure. That’s because the profit margin is high enough to justify it. However, some of the other areas don’t justify the building cost so they don’t do it.
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