Contrary to anecdotal Taco Tuesday baby boomer nonsense, Millennials are not in any position to save the housing market. Millennials have differing priorities some based on generational trends but some being driven by economic necessity. The vast majority of the $1.3 trillion in student debt is being carried by younger Americans, not older baby boomers who went to college when state schools were nearly free and private institutions were dirt cheap that you could work at a fast food joint and pay for your annual tuition. It was also a time when buying a home wasn’t some giant global speculative gamble. Today we have markets where investors dominate, foreign money is king, and flippers are house humping their way into leased cars and plastic surgery. In California, 2.3 million adults live with their parents. As things improved, some went out and formed new households as renters. Some pundits think that many of these people were saving big bucks living at home with their parents but the latest survey shows the exact opposite. 50 percent of Millennials have less than $1,000 in savings. And these are the people that will buy $700,000 crap shacks that were built during the Great Depression?
The signs that the market is now deeper into housing bubble territory are becoming more apparent as each month passes by. In SoCal we have certain areas that rival the nutty tech driven San Francisco housing market. Take Venice for example. This once hipster and artist enclave is now largely being driven by big money. People are listing million dollar crap shacks in hopes they can cash out at the top. What many people fail to see is the real estate market is now a volatile asset class. Because of this, we have wild rides when it comes to prices. Some feel the Fed is godlike even though they failed to stop the last implosion. Some tend to think unlimited funds from China will keep flowing in. Some are still waiting for Millennials to buy even though many are broke or living at home with their Taco Tuesday boomer parents. For now, all of this is happening but however you slice it, middle class Californians have been priced out big time. What is certain is that in some markets people are speculating in epic fashion. Let us take a look at a listing in Venice.
The number of young adults living at home continues to hover near record levels. Just last month we found out that a record number of Millennial women are living at home with their parents. This dates back to when modern day record keeping began in 1940. Millennial men are tracking with this trend as well but are just a few points off the record set 75 years ago. In other words young Americans are having a tough time forming households. And this isn’t a shock for Los Angeles where renter households spend nearly half of their income on housing payments and makeup a majority of households. Those that buy inflated $700,000 crap shacks in many cases are spending 40 percent or more of their income on housing payments. In reality what is happening is that many young Americans are too broke to even set out to find a rental, let alone purchase a home. This is why the homeownership rate is reaching generational lows all the while investors are pushing up prices in markets with low inventory. Local families and young buyers are being priced out.
The money flowing out of China into global real estate is simply astonishing. In Canada, Vancouver and Toronto are fully inflated thanks to investor funds, house humping locals that are deep in debt, and buyers from China. In the U.S. while domestic buyers are largely being priced out, investors are picking up the slack in big ways. In a previous post we noted how one new community in Irvine was bought out by 80 percent of investors from China. This is causing some dramatic changes in particular areas where money is flowing in. We’ve talked about the money flowing from abroad for a few years now since the housing market was largely propped up by various investor classes. For a few years it was big funds from Wall Street and today it is foreign buyers and flippers. China is by far the biggest foreign buyer of U.S. real estate. Even though the Chinese stock market has gone on a roller coaster ride this year, money is still flowing out of the country in dramatic fashion and finding its way in U.S. real estate.
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