The housing market is in a state of adjustment. Inventory is up dramatically in many places. In the last housing correction, Las Vegas was a leading indicator for California and we are now seeing some dramatic increases in inventory in the area. Las Vegas inventory is now up 106 percent year-over-year. In Seattle, inventory is up 168 percent year-over-year. For anyone looking to buy, the market has dramatically shifted. There is no urgency anymore and the tides have turned as affordability has collapsed. In California, many counties are now renting majority areas and the government is looking to cater to the majority of voters. Last time inventory rose this sharply price adjustments followed. What is in store for the housing market in 2019?
Read the rest of this entry »Price cuts. Cookies at open houses. Listings lasting longer than a few weeks on the MLS. The housing slow down is now officially here. Delusions usually end up on a direct path with reality. Housing is always a lagging indicator of underlying economic activity. People will fight to the bitter end to save their homes. Unlike the stock market, prices do not adjust overnight. However, in places like California the weak performance in the stock market last year is going to hit the bottom line for state tax revenues. It is also giving pause to VC money that was chasing absurd companies with nonsensical P/E ratios in search for the next billion-dollar unicorn. But little by little inventory is starting to pile up. People are opting to rent versus buy or in California, or as over 2 million adult “children†have opted to do, move in with their baby boomer parents. So what does the rise in inventory signal for 2019?
Read the rest of this entry »Since the Great Recession hit, we have added 10 million renter households. The trend to renting was largely spurred by the crash in the housing market but also over qualifying Americans to purchase a piece of the American Dream. The trend has slowed down but not in states like California where a renting majority is now solidly in place. Even Orange County, a place that was once thought an untouchable red region turned all blue. Then you have places like the Inland Empire that went solidly red. The bottom line is that many new households are opting to rent versus purchasing a home. This decade long trend is showing some signs of slowing however as rent price growth is slowing.
The housing correction has arrived. This should not come as a surprise given that the level of affordability is near historical lows. The real estate cheerleaders continued to mention that money from China and other factors would keep prices moving up at an unsustainable pace. However, you need more traditional factors to keep the housing market moving up. Historically in the U.S. the number one factor in housing demand was household formation. The other was economic growth. Household formation has favored rentals and also moving in with parents in the past decade. The economy on paper looks good but for every one good paying job created you had two new “gig†like jobs popping up with lower wages and fewer benefits like healthcare. Millennials are now in their prime home buying years yet the trend is not supporting the housing market. And in California, nearly half of Millennials live at home with their parents. How will that save the housing market when they can’t even afford a rental let alone buying a house?
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