The renting revolution continues in Los Angeles. For the first time in history the City of Los Angeles tops 4 million people. Much of this growth of course is being supported by sardine like living in multi-family units. Which of course, is only going to add to additional traffic congestion. But who cares! Prices went up and that is all that matters. Quality of life be dammed. L.A. is consistently ranked as one of the worst places for traffic in the entire country. House horny enthusiasts of course will try to use this data as some kind of great thing but in reality, even for those buying homes in the city you will still need to access those roadways which are now going to have more people on them. And yes, it is very likely those people are going to be renters since L.A. and L.A. County in general is a renting majority county. It is amazing to see the population of L.A. now top 4 million. I can’t wait to jump on the 405, 10, and 5 freeways with all these new people!
It is common wisdom that prudent investing requires diversification. If you were saving for retirement, you would want to buy a pool of funds to spread out your risk. This is why many people will buy index funds that represent the market. Sure, you only hear about the superstars that bought Google or Microsoft at an early stage but you don’t hear about the many more failures. Consider this survivorship bias. So it would be foolish to have your entire portfolio riding on one stock. Yet some people have most of their wealth locked up in one piece of property in one locked in location. Taco Tuesday baby boomers in high priced areas are sitting on an equity goldmine but many are unable to tap out their lotto ticket without selling their property. Yet when owning real estate diversification also helps. You don’t know if you have a future Detroit or San Francisco in your hands. Yet some people mistake blind luck with fortune telling capabilities. Housing right now is inflated when looking at historical data.
Everything is relative. I’ve known a couple of wealthy people that live in nice neighborhoods but their home is modest to the area. It is modest because even being wealthy, they live among even wealthier people. So their Mercedes which is a fantastic car looks like a Pinto next to Ferraris and Aston Martins. They actually feel as if they are not doing well but in reality are in the top one percent of the nation. This is the current situation in the U.S. where crap shacks across the country suddenly appear better than they are because of a lack of inventory from a manipulated and distorted market. Housing inventory is low in the U.S. At open houses you see lemmings trying to make offers on beat up shacks waiving inspection rights just so they can “own†a property with a 30-year mortgage of course. It is manic. There is a sense of panic in the air. You also have Taco Tuesday baby boomers living in inflated shacks trying to rent out rooms via AirBnB so they can go out to Whole Foods and buy some kale and raw milk. Builders are not building because of NIMBYism policies in many cities around the country. So what happens is millions of households become renters and those lustful enough to buy are diving in at what appears to be a peak.
Typically at the height of any bubble, you have housing cheerleaders talking about a “new normal†as if they have magically figured out a new secret. California is a land of booms and busts. We just had a boom. So counter to all of the history we have and common sense, somehow there is no correction to follow, this time. That is the logic. First, you have the idea of ignoring income. Second, you have the idea of every area being a candidate for gentrification. Finally, you have the “if you can’t afford it, leave†argument. Forget about any Black Swan like events that are bound to happen. The middle class is already leaving, many into inland areas of California but many to more affordable states. Many house humpers use emotion to base their arguments. I understand this. Go to any open house and you have people looking like lemmings trying to buy a home. Most of the time, there is this deep source of desperation in their eyes. You do realize you are locking yourself into a crap shack for 30 years right? That is assuming many can compete which they can’t (hence the domestic out migration). Many are leaving to places like Texas. Texas as you know has incredibly affordable real estate relative to SoCal. And SoCal domestic residents have figured this out.
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