The bread and butter of any healthy housing market is having a good amount of first time home buyers. That is what drives new home building and also allows for the homeownership rate to go up. Most of the new household formation since the bubble burst was largely done through new rental households. Institutional investors pulled back from the market starting in 2014. Yet the homeownership rate continued to decline. So who stepped in to fill in this gap? Some of it was filled by first time buyers going in with low down payments thanks to FHA insured loans. But a large percentage was made up by mom and pop investors with a lust for HGTV and their dreams of becoming flippers or landlords. In most manias, once mom and pop are diving in with gusto you really need to think about what is going on. I know Taco Tuesday baby boomers are looking for a little “excitement†in their lives and putting habanero salsa on your Chipotle burrito isn’t going to cut it. So why not take the biggest risk by buying real estate when prices are near a new high?
San Francisco tends to put Southern California to shame when it comes to real estate mania. The tech driven frenzy in the Bay Area is something to behold. What is so interesting is that San Francisco, being the hippie and alt-culture hub back in the baby boomers heyday, is now fully gentrified by tech and investor owners that really have little to do with the hippie and art subculture of the area. I mean how many hippies can afford a $1.3 million crap shack? The Bay Area continues to defy gravity when it comes to prices. People are having to “drive to qualify†if they aren’t the DINK tech couples or investors with large pockets. Of course by definition the ultra-wealthy are a small part of the market but with few properties for sale, if they have a desire to buy they are going to buy. This is why you hear of stories of Google employees living out of vans even though they make what most would view as a fantastic salary. San Francisco continues to march on a unique path.
Being a hipster in Los Angeles is like being a drop of water in the ocean. Apparently one of the requirements of being a hipster is living in certain enclaves. Now in Los Angeles, a renting majority county, living in the right neighborhood is important. The HGTV housing erotica that is pumped out to the masses has conditioned many to accept the “fixer upper†world of crap shacks. Now typically when I say crap shack a bunch of Taco Tuesday baby boomers get offended but just remember that many hipsters actually want a crap shack. They are actively looking for “personality†in a property as if they were swiping right on Tinder. The market capitulated fully last year and now we are in the stage of euphoria. You can do no wrong with housing and Echo Park is home to many lovable hipster homes.
You would have a hard time believing it but California’s homeownership rate is near a generational low but the good news is that hipster pants couldn’t get any tighter without turning into spandex. A large part of the state is now fully praying at the altar of real estate mania lighting incense for the HGTV gods to bring granite countertops alongside host with upgraded body parts. It is an odd sort of Hollywood herd mentality but this is how we do things here in California. While the majority of L.A. County lives in rental Armageddon you have geriatric house humpers salivating at the Botox stretched mouth when a crap shack hits the market. “This makes total sense with a 20 percent down payment! They don’t make land anymore!â€Â They also don’t make more time and life is too short chasing crap shacks. But for some, the crap shack is the ultimate dream like sipping hard liquor in the Caribbean. The culmination of all financial success is being in debt for a beat up house and this is the race many are trying to run.
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