There was another article showing that the LA/OC metro area is the most unaffordable housing market based on incomes of those living in the area. People point to rising prices or rents as somehow a condition of economic resurgence but all it means is that more money is funneled into real estate. And speculation again is rampant. Just look at the number of rental households we have added. If voting with money is a true indication of “want†people are going towards rental housing. Even for a $700,000 crap shack the numbers start to pencil out with a 20 percent down payment ($140,000). But even a couple making six-figures will have a long journey to save this much even with low interest rates. And this is what has changed over time. The down payment strike point was easier to save in the past versus today where people are diving into more expensive mortgages with down payments in the 10, 5, and even 3.5 percent range. Of course lower mortgage rates allow for an underlying inflated value to emerge. From 2006 to 2013 LA saw an increase in the rental population by 11 percent. Today we look at a Glassell Park HGTV home to see how marketing is done to the hipster crowd.
Some of you may remember San Francisco as it was in the 1970s. It was a place where those with very little income still had the chance to be welcome regardless of earning potential. In fact, much of the city’s vibe went against the machinery of capitalism or old forms of traditionalism. So it is ironic that today, it has become one of the most expensive cities and many that live in the city practice a magnified version of NIMBYism causing housing values to rise to stratospheric levels. It is no surprise then that the typical rent in San Francisco is $3,200 per month for a basic apartment and only 36 percent of households actually own. This in a market where tech workers earn good income. You have many tech workers doubling and tripling up just to cover the rent. Others are living at home with their parents. In California if there is a will there is certainly a way. The interest only loan is making it possible for those on tight budgets to speculate heavily on real estate. What if I told you that you could buy a $1 million home with a $2,000 mortgage payment per month?
The current homeownership rate has fallen to where it was two decades ago. The demand for home buying from traditional buyers is simply not there. Recent surveys find that the majority of Millennials would rather rent than buy. This is the group that will need to pick up the slack moving forward should the housing market return to any normal environment. But what is truly normal at this point? Over the last decade we have added 10 million renter households while actually losing 1 million owner occupied properties. The recent buying spree of 2013 and 2014 came in the form of investor demand. Real estate has become simply another speculative silo for Wall Street to speculate on. And many buy it up. Across the nation, home prices with current interest rates seem reasonable with the median priced home running close to $200,000. So why is the trend still pushing towards more people renting? Is this simply a nationwide trend or is this also impacting high cost states?
One of the dirty perceptions put out there is that home buyers stay put in their homes for many decades counting their days until the mortgage burning party arrives. The real estate pitch is always built around longevity. Think about your future kids, dogs, and the ability to paint your walls hot pink. In reality however, the average home owner was staying put for roughly 6 to 7 years before the housing market went off the edge. Many current owners are staying put because they still want those juicy peak prices and many were underwater. Others are staying put because they leveraged the daylights out of their properties. The latest figures show that current owners are staying put for longer because of the economy and this has had a big impact on the available inventory on the market. This is why those in the market to buy today are largely relegated to competing for crap shacks in areas where schools are subpar and construction is shoddy. There is an odd sort of capitulation going on today. It is speculation masqueraded as prudence. Even though momentum has stalled as smart investor money pulled back in 2013 and 2014, you have some ready to dive in just because “you only, live once†as if this was reason enough to plunk down a crazy amount of cash for house that looks like it belongs in a Hooverville. But for most of the country, real estate is priced to move. So why is inventory so low?
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