Americans are realizing something is wrong with the system. You can see it this year with the rise of outsiders in both political parties. People realize the system is rigged. Instead of some folks that kowtow and simply move forward like subservient lemmings, millions are mobilizing and taking action. Many are voting with their wallets. The number of renter households has increased by 10 million over the last decade while net homeowners has been stagnant. The bailouts were supposed to help American families but what happened is that many were kicked out of their homes (for missing payments) and then giving them to banks that also missed much larger payments (too big to fail). People got a quick education on how things work. This is why the homeownership rate fell dramatically yet somehow, homes sold to investors and now rents are at all-time highs while incomes are stuck in neutral. This is a major problem and people are taking notice.
Every time a housing bubble forms you get the same typical housing cheerleaders talking about massive gentrification. Many areas have gentrified in dramatic fashion but at the end of a housing bubble, you start seeing wild prices in areas where it is questionable if gentrification will or has occurred. In Southern California, the trend has been unrelenting to adding renter households. Some think that raising the minimum wage to $15 is going to inflate housing prices but this is simply nonsense. All this does is eat into more disposable income – that Big Mac will cost more or Taco Tuesday won’t be such a bargain. As if this new push will allow people to buy $700,000 crap shacks. When you read reports on housing from the media you get a deep sense that they’ve never been out to many of the zip codes in L.A. County. Take a look at an area that is very frothy but rarely talked about. Paramount.
It is hard to believe but home values in San Francisco have doubled in a matter of four years. Since 2012 the typical San Francisco home went from $600,000 to $1,200,000. The Bay Area is under a tech based hypnotic spell and foreign money just can’t get enough of million dollar crap shacks in San Francisco.  As we all know trees do not grow to the sky with unlimited potential and at a certain point the laws of reality have to hit. Only 11 percent of households in San Francisco can actually afford to purchase the typical $1.2 million crap shack. And that is why home prices in San Francisco have been waffling for the past year. It looks like an interim peak has been reached. Of course this also has to do with the stock market moving sideways and people digging deeper into all the venture capital money chasing unicorn tech companies. It seems like people are denying a bubble because we just had a bubble. The bubble was in real estate. The bubble hit California. So of course it can’t happen twice in the same place. But this definitely feels like an echo bubble brought on by foreign money, investors, tech money, and a stock market that has only gone up for 7 years now.
“Capitulation: the action of surrendering or ceasing to resist an opponent or demand.†There seems to be an air of capitulation floating around the air. No, not the toxic fumes floating over Porter Ranch but something akin to giving up. It is actually a weak form of giving up since you are talking about hipsters and house humping adults looking to overpay for a crap shack. Forget about the fact that last month the median price on your typical California home fell. No, it is time to buy now or be priced out forever. You get the selection bias going: I bought at X time and now I’m X times richer. Let us ignore the 7,000,000+ households that recently lost their homes to foreclosure. At least some are willing to admit their “investment†was basically blind luck. At a few open houses, you can see people as if they were entering a cult with their eyes dilating like the cat in Shrek. “Can you please let me buy this place and take on a massive mortgage? Pretty please?!â€Â To be honest, it is rather shocking to see people waiving contingencies and throwing caution into the wind. In many cases, people are buying old crap shacks that actually have a ton of deferred maintenance. One open house, a standard SoCal stucco box, looked like it hadn’t been touched since the 1970s and the aroma of cat urine and dog poop whiffed around the room as people elbowed each other to “examine†the place. The only sense you had was of panic of missing out. In other words, mania.
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