The assumption that households are doing much better simply because the stock market is up is really a problematic understanding of how wealth is dispersed across the United States. I vividly remember a handful of parties back during the peak of the bubble where people would often quote how much their net worth went up courtesy of the housing bubble. “My home that I bought in the 1990s is now worth over $1 million.â€Â As all of you know, until you sell the home those gains are largely on paper and many did not sell. In fact, many tapped out large portions of that equity and spent it. This is why even with home prices moderately recovering US households still have close to record low equity in their homes. It probably does not help that low down payment FHA insured loans are such a large part of the market encouraging Americans to make the biggest purchase of their lives with very little down. The Fed reported last week on net worth figures and it is worth digging deep into the data.
Earlier this week I woke up to a couple of e-mails of readers unfortunately confronting much higher rents. “My landlord suddenly hiked up the rents by 10 percent!â€Â This seems to be a common trend for 2012. Especially in locations with investor and flipper activity, many are realizing that they can yield higher rental rates or simply sell the house in the current environment. As the housing bubble burst, more and more Californians became renters thus increasing the supply of those looking for units available for lease. In LA and OC rental construction has been nearly non-existent so supply is limited. Many are simply confronting higher rents in the face of stagnant incomes. Some stories talked about how owners were increasing rents by up to 20 percent in key areas. Yet I have heard very little stories like this for the Inland Empire or the Central Valley. Let us look at the trends that hit in 2012 for California real estate.
FHA insured loans are now a major part of the mortgage buffet available to home buyers. This insured mortgage product has allowed many buyers to go in with 30x leverage when purchasing a new home. So it should come as no surprise that the FHA is now inching closer to a bailout. If we look at the actual FHA standing however, we begin to realize that the FHA is putting the screws around recent buyers for their lax products. First, mortgage insurance premiums are soaring to make up for the capital reserve account that now finds itself $16 billion in the red. Although on the surface you would think that over half a decade into the housing crisis, some would realize that low down payment products were a problem here we are relying heavily on the one insured mortgage product that allows cash strapped Americans to once again go into massive debt with very little skin. That game is however changing and this article will go into some more technical details regarding FHA insured loan products.
One of the more common e-mails that I get regards middle class families trying to purchase homes in California. To the point, many look at their budgets and sky high home prices and wonder what is going on. Over the last decade if we look at the data, it is clear that living what people would think is a “middle class†lifestyle in California is nearly impossible for those that are middle class. Yet I would also question what they include in this middle class lifestyle (i.e., expensive private schools, SUVs, etc). When we examine certain areas home prices are back to peak levels while household incomes remain stagnant. You have inland regions of California with more affordable housing yet employment sectors that are weak. Someone sent over a recent study examining migration patterns for the state and the results are very telling. Many Californians have left the state to pursue what they feel are better opportunities. Fewer people from other states are also coming over.
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