As I dig through the monthly data on home sales, one trend continues to intrigue me when it comes to California housing. Call it the broke versus the big cash buyer. For example, over 23.2 percent of Southern California home buyers used FHA insured loans last month. These loans are no longer good deals even though they require only a paltry 3.5 percent down payment. Yet they are popular for those chasing the middle class dream in a state where it is becoming much more difficult to follow a middle class lifestyle. On the other side of the spectrum, we have the all cash buyers. A record 33.8 percent of all sales last month came from those with all cash in SoCal. In total, over 56 percent of SoCal buyers are diving in with 30x leverage loans or are investors going in with all cash.
This might sound like the start of a riddle but really, where did all the housing inventory go? In the latest piece of data we find that listed inventory is now at levels last seen in January of 2001. That is right, today we have the same number of homes listed for sale that we did 12 years ago. This continues to be the biggest underreported story in the housing market. A large part of this has to do with the external forces interacting with housing. One has to do with banks holding on selectively to distressed properties while another is the dragging out of the foreclosure process. Next, you still have roughly 10 million Americans that are underwater on their mortgages. Think of that when you realize that only about 1.8 million homes are listed for sale. Those 5 million homes in distress either because of foreclosure or missing payments sure would relieve some of the pressure current buyers are facing.
Stated income loans? No contingencies on offers? My equity just went up 10 percent in the last month? These are some of the current conditions in the California housing market. A couple of contacts in the industry have been mentioning that some of their prospective buyers were outbid by others that were coming in with no contingencies on their offers. In a previous article we discussed how people in Orange County were now trying to include PowerPoint presentations to win over a seller. It is understandable to make an argument based on low interest rates and looking at various opportunity cost scenarios but now you are having people rushing to buy because they are worried they are going to miss out on gains. The stated income loans appear to require a decent down payment but they are now back. Jumbo loans now make up a good portion of the market as well.
Flipping activity is getting so out of hand that you can practically see which properties are going to end up as flips right when they hit the market. Some of the hottest neighborhoods in Los Angeles are those that attract the hipster crowd. We’ve featured flippers in Silver Lake and today we will feature a home that just hit the market in Eagle Rock, another bastion for flippers and hipsters alike. The rush to flip is bringing back some fond memories. What is making this market even more dramatic is the drastically low inventory and the renewed belief that housing prices only go up. In fact in a recent survey, missing out on future home gains is the top concern, not our ridiculously high debt, or massively indebted youth, or even an older generation that will cause a rise in healthcare expenses. No sir! The real concern is about missing out on those juicy gains on hipster neighborhoods! Today we’ll pick out a home that is still for sale in Eagle Rock but you can rest assured that it will go under as a flip shortly.
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