I remember reading a book on the Dutch tulip bubble and could only shake my head thinking that people were trading property, jewels, and other valuables for what amounted to a basic plant that you can get at Home Depot at the checkout line. I’m sure when the mania was over many people must have thought “what in the world was I thinking?â€Â You see that facial reaction in Las Vegas when someone hunkers out of a high roller room with empty pockets. Yet today in San Francisco, you have absolute craziness going on. The median price for a home is over $1 million dollars and most are pieces of crap. But someone is paying for this, right? Of course. Someone paid a lot for those tulips as well just like someone bought at the top AOL stock or any other failed investment. I guess my point is that human psychology still hasn’t changed much over this short historical period. Need proof in terms of housing? Housing values were up in the stratosphere just in 2007 and the mind had every useful reason to justify prices. Today we highlight a home in San Francisco that sold for more than $186,000 and was charred like a forgotten hot dog left on the grill by a Taco Tuesday baby boomer.
High housing costs have put extreme financial strain on working families in Los Angeles County. There has been a rental revolution over the last few years causing rents to increase. Despite the idea that this is being driven by income, this is merely being pushed by limited housing options. Income has been stagnant for many years. Since the crash, housing values have been pushed up by investors, flippers, and foreign buyers. Starting in 2015, the economy slowed down and housing hit a wall. 2016 is off to a poor start. What few realize is that many in L.A. County are living in densely packed areas through options like: living with parents, roommates, converted rooms, and pseudo-housing like garages. We can label converted rooms as “informal housing†and in Los Angeles we have over 200,000 people living in these units. In fact, parts of Los Angeles have population densities that beat out Queens, The Bronx, and Brooklyn. And you wonder why street parking sucks.
It is very telling to see how people are reacting to what has been a minor correction in the stock market. People have a hard time figuring out what they will do when things move down. We’ve had a great run in both stock values and real estate prices thanks to investors and hot money. This doesn’t do much for the cash strapped household that is now largely opting to rent. People do realize that renting is an option right? The crap shack peddlers seem to think that everyone is just itching to buy a $700,000 crap shack. Surveys of Millennials, the next group in line to buy houses in mass is largely reflecting a cooler attitude towards real estate. In most cases this attitude stems from the inability to afford a home. Keep in mind the homeownership rate has been trending lower for some time now and this is on the back of a raging bull market. What happens to housing if we have a correction in the stock market?
There is a major environmental disaster happening in the Los Angeles County suburb of Porter Ranch. You wouldn’t know it from delusional house humping cheerleaders that seem to think that nothing can happen in SoCal that would diminish the value of real estate. In fact, there are already lawsuits being put out regarding trying to keep home values inflated (forget about the health impact this disaster is having on local residents in freaking L.A. County!). This gas leak is major. Governor Jerry Brown just declared a state of emergency but this is a late notice for something that has been going on for some time. Many local residents have been evacuated and this is a bigger story than is being reported.
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