It is hard to believe that there is a market more constrained than the one in Southern California but there is. San Francisco is really in a world of its own and makes the SoCal housing market appear calm. But comparing crazy and crazier might not help those looking to buy. A few colleagues e-mailed me about the massive jump in rents up north. San Francisco has been a very expensive market for a long time. The homeownership rate in San Francisco is very low. In expensive Los Angeles County about 50 percent of households own their home. In San Francisco County it is closer to 36 percent. San Francisco rents have gone up dramatically in the last year or so with the median rent in San Francisco hitting $3,100. Keep in mind this isn’t for a typical home and more likely for your standard apartment. The rise in rents obviously hits the bulk of the city given that most rent. Let us look at what is going on up in Northern California.
From 2010 to 2020 we are going to have a large number of baby boomers entering into their retirement years. Many will look to downsize and the projections have been, that this would add a steady supply of housing. Issues like negative equity have kept many potential homeowners from actually listing their homes on the market for sale. It is also the case that a younger and less affluent generation is going to struggle to pay top dollar for many of the properties hitting the market. Many are resorting to using loans that are insured by the FHA that allow 30x leverage just to get their foot in the door. It is interesting to see this trend unfold because there is nothing that can be done to stop the momentum of age. Banks can alter accounting rules and hold off inventory to create artificially low supply but there is nothing that can stop our inherent biological aging process. Some interesting data is coming to the surface regarding baby boomers and the demographic changes that will impact housing. Will baby boomers add a significant number of homes to the market in this decade?
One of the biggest predictors for future foreclosure is negative equity. In the current housing market, it is hard to tell how many people are still in a negative equity position. The challenge of course has been due to quickly rising home values brought on by investors and historically low interest rates. One interesting tool now added to ForeclosureRadar is the ability to search for current properties in negative equity positions.  In other words, the amount of loans on the property are worth more than the current market value of the home. What is surprising, in a county like Los Angeles where the median price is up 17 percent over the year, we have nearly the same amount of people in LTV positions of 100 percent or higher as we do for homes listed on the MLS for sale. Let us take a look at Los Angeles County more closely and try to get a figure of those 100+ LTV properties.
When it comes to buying a home, the average buyer is at the mercy of what is available on the market. Typical buyers do not have access to REO portfolios or early knowledge of short sales that will turn out to be screaming deals. The current market is one where inventory is scarce like water in Death Valley but access to debt is plentiful. The amount of all cash buyers has been a big factor as well driving up prices on what little good inventory is out there. California also recently enacted the Homeowners Bill of Rights which will slow down an already slow foreclosure process. Because of this, foreclosure starts in California are down to levels last seen in 2005 when the market was raging in a furious mania. We are seeing a very different market today being driven by a low interest rate environment and an insatiable investor appetite. Let us first look at the impact of the Homeowners Bill of Rights.
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