The housing mania is definitely back in California. Low interest rates are one thing but those that are out in the market to buy are finding it tougher and tougher to contend with all cash buyers and people that are simply willing to go with large above sticker price offers. The low inventory environment has shifted how people now perceive the market. One of the craziest stats I saw was that last month, over 35 percent of Southern California purchases came from all cash buyers. This is an all-time record. FHA insured loans made up another 25 percent of all purchases. Given the higher mortgage insurance premium costs, there is little reason to go this way instead of a conventional mortgage. Yet you have two groups; those that are investors with all cash and those that can barely get a down payment together. Yet low inventory is pushing prices up to record levels. The psychology has definitely shifted and you can see this from various examples.
One of the recent interesting studies that came out from the Census revolved around long commutes. The study found that 8.1 percent of Americans have one way commutes of 60 minutes or more. More impressive was what the study found with “megacommutes†or those that are 90 minutes or more each way. The study is an interesting one and is called Out-of-State Long Commutes in case you would like to read it. There are two major points that have come up in recent comments that make a lot of sense in regards to current niche markets. One point is, desirability for certain areas coupled with increased buying power and low inventory has essentially gentrified certain California markets. We’ve seen this with hipster areas of Los Angeles. What I’ve also noticed in the comments is that most acknowledge our unsustainable path forward but the thought process is now “ride it until the wheels come off†which is an interesting perspective. In many cases people are seizing onto the current housing market trying not to miss out. Obviously the Fed with a $3 trillion balance sheet and our national debt higher than 100 percent of GDP should cause for some pause but most see this as a battle for another day. Is Southern California gentrifying out?
Housing inventory in California is back to levels last seen in the late 1990s and for certain areas, the hunger to purchase is intense. Regular buyers are competing with an entirely new ballgame of potential suitors for the few homes available. Sales are not surging. For example, year-over-year sales in Southern California are up 1 percent while the median home price is up 20.9 percent. This is another market that is new to a generation in regards to very low inventory, artificially low interest rates, and distressed properties being slowly leaked out. Uncharted territory again. Many that are looking to buy have their eyes set on very targeted prime markets. It is naïve to think that you will get a rock bottom deal in Malibu or Santa Monica. Foreign dollars and big domestic money is chasing hot markets. Local investors are also back to flipping these properties. But let us assume we are a family with a $150,000 income and looking to buy in a good area of Pasadena. What is running through our minds?
Economic history is a fascinating subject. Yet in our modern day of instant news and second to second market analysis, it seems like the media is bent on skimming over on only what is going on at the moment. Even the deepest financial crisis since the Great Depression is now gone into the vortex of cultural amnesia. What is interesting however, is that many countries around the world being incredibly different culturally, went down into the rabbit hole of housing mania as well. If you ever think Southern California home prices are outrageous, you need only look at Northern California. If you live in the Bay Area, all you need to do is look at Canada. There has never been, from all the history I’ve reviewed, of a universal and unified housing bubble that touched nearly every continent at the same time at such a big magnitude. Let us take a trip around the world and see what other housing markets are doing.
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