It is pretty safe to say that housing has become like a stock in many markets across the United States. People need to carefully evaluate many factors before buying and things are moving at a much faster pace in our globally connected economy. The market is complex and in some areas big investors and foreign money create even more complicated scenarios. The idea of simply buying a home and enjoying the spoils isn’t so clear cut anymore. If it were a simple decision we wouldn’t be debating the merits and you certainly wouldn’t have the Fed chasing interest rates lower trying to keep the debt game going. But in this current environment, we are betting. Some are betting that home prices will continue to rise despite stagnant income growth and the precarious leverage some households are taking just to own. For many in SoCal their retirement strategy suddenly becomes a “one asset†portfolio when they put their large down payment on their crap shack. Let us run some numbers on buying and renting in Culver City.
I love the hipster perspective when it comes to selling homes in certain SoCal enclaves. Some areas use subtle language like “creative†or “artsy†location meaning they want you to be the new wave of pioneers that gear up and gentrify a neighborhood. Los Angeles is a massive area where per capita GDP isn’t as high as people like to believe. This reality based on household income has led us into a precarious situation where renter households and owner households are living on the edge when it comes to meeting monthly bills. Renters spend nearly 50 percent of their income on paying for a lease while homeowners are blowing through 40 percent of their income. Most mainstream reports never bother on showing you what you get with the actual money you put down. Today we highlight a wonderful little house in East Hollywood.
Rental Armageddon continues to unfold in the Southland as we face triple digit record heat in October. This has been one of the hottest summers on record. The housing Kool-Aid drinkers are now praying to the weather gods hoping an El Niño will grace the land not because we need water as a basic human requirement but because they want home values to stay inflated. Forget the fact that if we have torrential rains, landslides will be epic given our multi-year drought and if you think drivers are bad today, just wait until the 405, 10, or 101 becomes a Dumb and Dumber version of the Fast and the Furious with Taco Tuesday boomers trying to make it home to enjoy a couple of hours in their heavily mortgaged crap shack. The Los Angeles metro area is the least affordable because with 13 million inhabitants, most can barely afford to live here. Half of renters spend half of their monthly income on rents while homeowners are spending 40 percent of their income on their total housing payment. While the L.A. metro area ranks number 2 in GDP, it comes in at 16 for per capita GDP. The end result is Rental Armageddon.
There is still a large amount of foreign money flowing into targeted markets for the direct purpose of purchasing real estate. Not cheap real estate but trophy properties. Usually when people get angry about the money flowing into some of these communities there is an underlying perception that they are being priced out. There is certainly a factor driving home prices up but are you going to buy that $1 million home when it hits $800,000? Most don’t have the funds to purchase $700,000 crap shacks let alone these trophy properties. A few readers sent over the data on Irvine new home sales where a new community sold roughly 80 percent of its properties to what appears to be foreign buyers. It is an easy process to ascertain these details because you can simply look at cash purchases. From what I gather, the vast majority of local professionals will need a mortgage to buy. Irvine has some interesting trends because there are new communities coming online that seem to fully focus on the foreign money trend. In Inception like fashion, the community that sold so well is “Arcadia†in Irvine. As in an already foreign money focused area of Los Angeles now having a community built out in Irvine with the same name. Sort of like the Los Angeles Angels of Anaheim (Anaheim is in Orange County by the way).
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