In the housing market, home sales are a leading indicator as to where prices will head.  The priciest county in Southern California is Orange County and it has now faced the worst start of a year since the Great Recession ended.  Sales are low.  Extremely low.  We have more people in the county since that time but this is a question of affordability.  And it is no surprise that we’ve already seen the median price of a home in Orange County dip year-over-year for the first time since the housing bubble burst.  Yet the economy is great right?  Things are looking fantastic, right?  We have multiple bubbles going on right now with student loans, auto debt, and with housing.  While the NINJA loans are gone we are now seeing the housing ATM picking up and people pulling every single penny to overextend themselves into properties on “secure” 30-year fixed rate mortgages.  Now what happens when the inevitable next recession hits?  Just take a look at home sales in Orange County.

People didn’t want to believe it but we are now shifting to a rental nation.  California is now a renter’s paradise and the idea that baby boomers who purchased property “back in the day” were going to stay in inflated properties while Millennials run around voting to protect said inflated properties never made sense.  Interestingly enough many of these Millennial “kids” now live at home with their parents in California enjoying those inflated real estate values.  Yet the political winds are shifting.  A Senate Bill just saw the light of day in which single-family zoning may get removed for higher density housing.  So just imagine your already crowded California street seeing double or triple the traffic (you probably already see some of this with adult “kids” living at home and adding more cars to the street).  Yet this was all foreseeable as a younger generation is priced out of the housing market.

The real estate correction is now showing up where it matters for the press, in home prices.  Inventory has been growing and sales have been declining putting pressure on sellers.  For the first time in seven years home prices have declined on a year-over-year basis in three important counties in SoCal:  L.A., O.C., and San Diego.  This will now put a pause on the FOMO rhetoric that if you don’t buy this year, prices will surge once again next year.  Of course, more people are priced out of the California housing market because household incomes simply do not support current prices without aggressive mortgages or policies that artificially keep rates low.  So now that the trend is shifting and the correction is here, how deep will this go?

I was reading an article where it discussed how a small number of Millennials are now inching back into the housing market.  But what was telling was that many of them were unhappy with their purchases.  Why?  As you might expect, buying a home always isn’t the right choice and there are expenses.  You have taxes, insurance, maintenance, a 30-year mortgage, and other things that many people just don’t factor in.  I’ve made this point before where many people buy a home and then start popping out kids.  Usually the rush to buy is the external considerations of life versus the actual economics.  So you get hit with big expenses all at once.  For many professionals, childcare equates to what you would pay for college tuition per year!  And of course, many Millennials are buying houses at near peak levels using mega mortgages just to squeeze in.  In places like California we are already seeing inventory rising.  Of course inventory is rising as fewer and fewer people can afford homes at current prices.