The Federal Reserve recently released household net worth figures and what was found in the report continues to follow the theme regarding a shrinking middle class. Wealth jumped nicely at the upper-end of the income spectrum but overall, the cubicle hamster isn’t doing all that well. The recent improvement in home values has helped but this largely has helped investors since in the last decade we have gained 10,000,000 renting households while losing 1,000,000 homeowners. The figures are interesting and are already creeping up in the pontificating that comes with any political season. At the core, a healthy housing market is one where owner-occupied buyers dominate the bulk of home sales. That is simply not the case. This is how you have well paid tech workers in San Francisco cramming into a 2-bedroom apartment like a clown car simply to get by. One thing that is certain from the overall trend is that larger investors are pulling back from the market dramatically.
I usually get e-mails from people mentioning that no deals are to be found in this market. Unfortunately some of these people are targeting very specific markets. As of today, the LA/OC market is the most overpriced in the nation based on what those in the area make. Yet there are deals to be found that meet many of the criteria of buyers: proximity to city hub, weather, and being in L.A. County. Today we’ll show you three homes that are currently on the market and are apparently targeting potential investors. All these homes are in Los Angeles and meet the proximity, sunshine, and traffic prerequisites. As we know all areas will gentrify eventually so why not be part of the expedition troop to hipster out these properties? Let us take a look at three properties in Los Angeles that carry a $100k price tag.
What constitutes a bubble? It is always difficult to call a bubble while you are living deep in one. For housing, a good metric was looking at local area incomes and what those in the immediate area were able to afford. But in a place like San Francisco where foreign demand is incredibly high, a high percentage of demand is coming from abroad, in particular from China. You also have big investors jumping in. Sure, if you want to qualify for a mortgage you will have to demonstrate sufficient income to purchase a home but what if you come in with cash? While the LA/OC area is the most unaffordable real estate market in the nation based on local area incomes, the San Francisco market is the most insane based on market prices of homes. Home values in San Francisco are up a stunning 72 percent from Q1 2011. Incomes don’t even remotely come close to keeping up with this. In fact, people in the San Francisco market are having a very tough time making their rents, let alone trying to chase after million dollar crap shacks. San Francisco makes SoCal look relatively mundane when it comes to real estate.
One of the many interesting dynamics of the current housing market is the lack of new home sales and also, new home construction. New housing construction tends to be a boom for the economy across all income levels. Why? People when buying a new home also tend to fill the house with the general crap that occupies a place (i.e., new beds, stoves, microwaves, televisions, etc). This crap filling exercise sets off an avalanche of economic activity. You also have construction and the inherent supplies that go into building a new McMansion. Yet the new home buying audience in Millennials tends to be in a tighter economic position than their Taco Tuesday baby boomer parents. For these reasons we have an unusually large number of grown adults living at home with parents. It is highly doubtful that these grown adults are suddenly going to cause a surge in more expensive home buying. But the new home buying that is happening is going to a smaller group of people pushing prices higher on a small amount of inventory.
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