So much for learning from history.  Once again Americans are tapping into their inflated home equity as if it were an ATM.  Of course we heard from housing cheerleaders that everything is different this time and that people were being very cautious with buying crap shacks.  That lasted only a few short years!  Now people are leveraging record low rates courtesy of the Fed and are using their homes like ATMs.  This massive growth has caused the FHA to pause and try to incorporate some breaks on this behavior.  Here in California, people are remodeling and tapping out equity to create that “new” $100,000 bathroom to add the final touch on the crap shack.  Without a doubt, what people are doing is setting up a limited economic buffer so when the next correction hits, they will once again face difficult choices.  As a reminder, most of the foreclosures that happened in the last housing crisis came at the hands of traditional mortgages, not the No-Doc No-Income market boogie man. 

Apparently there is a limit to how many houses Chinese investors can purchase in the U.S.  Foreign real estate purchases largely driven by Chinese investors plunged by 36% as internal controls in China made it harder to move money out of the country and trade war talks are having an impact in this sector.  While some might say this is small relative to the overall U.S. real estate market you need to realize that money from China was hyper focused on certain areas.  At one point there were new developments in Irvine that were seeing 80% purchases from Chinese investors.  This has a lot of potential to hit markets where volume and inventory is low and prices are valued at ridiculous levels inflated by outlier buyers.  There are many areas in California like that.  This also applies to areas like New York, Boston, San Francisco, and Seattle to name a few.  So what does this mean for these inflated markets?

So much for the spring and early summer bounce.  Southern California is seeing a large increase of inventory.  And some of this inventory is coming in the form of new condos and homes.  The housing bull market was so good that builders jumped back into the mix to get top price for properties.  But of course these projects take time to map out and build out and here we go with this inventory coming online with inventory rising across the spectrum.  But as we will see in this election, this is a time when Millennials are largely cash strapped and renting is not seeing as a ridiculous albatross.  Many of these younger buyers saw their parents lose their homes in foreclosures or stress out over an inflated asset that is now going to be split multiple ways among the heirs that can’t afford to buy.  Welcome to an economic market where the snake is eating its own tail.  And of course this is the reality contrary to what the spin masters are trying to peddle out.  This is why you hear politicians now talking about wiping out student debt as a main pillar of their platform.  Mind you that the majority of Americans don’t even have a college degree.  But here in SoCal housing inventory is booming and price reductions are becoming more common.

The housing market now sputters into the summer selling season with very little momentum.  Home sales are at post-recession lows and the labor force participation rate is collapsing because you have an army of Taco Tuesday baby boomers roaming the streets of California enjoying inflated real estate values while enjoying Whole Foods delivered to their front door without taking more than 5 steps on their Apple Watch.  Yet many of these same boomers are now getting frustrated as their adult children are unable to purchase homes in the area and over 2.3 million are living at home.  This notion that Millennials are going to save the market is simply not going to happen.  You already see growth in other more affordable markets but in places like California, we’ve become a renting paradise.  Let us look at some recent Millennial figures and understand why they are not going to save the California housing market.