When you are deep in the euphoria of a mania it is funny what you will come up with to justify shoddy construction, aged properties, and ultimately a profound delusion of value. People are willing to pay outrageous prices because other lemmings are willing to walk alongside them holding their sweaty palms and chanting “real estate only goes up, real estate only goes up, real estate only goes up.†I’ve recently looked at older areas in more desirable cities and you will find older homeowners inching along in a million dollar home yet unable to unlock their equity. Instead of living like a millionaire homeowner, they are counting their pennies for their next gourmet meal of Fancy Feast with a side of Purina Dog Chow. Many do not want to give up their lottery ticket even though they have incredibly out stretched budgets. Some complain about taxes, insurance, and other costs but live in homes with incredibly high assessed values. There is also an interesting movement for minimalist living in parts of this country. However, in California, folks are trying to jump on this bandwagon yet at the same time, maintain the not so tiny price tag which is at the core of the tiny homes movement. California has a big push with this overpaying mentality. You see this with the whole foods movement. I’m all for eating good and healthy and this is absolutely important and critical to your wellbeing. But paying $15 for a tiny bottle of freshly squeeze orange juice? Either eat a freaking orange out right or squeeze the damn thing yourself! Today we’ll take another look at Pasadena and see what the market has to offer us if we went shopping right now.
Investor buying continues to be a major player in the current housing market. Over the last two weeks I’ve had the chance to drive down neighborhoods were international money is flooding in. It does give off reminders of when Japanese buyers were purchasing tons of California and Hawaiian real estate. When it comes to California, there are certain cities where international money is pouring in. This matters when sales margins are razor thin. What struck me about these areas is the marketing is heavily geared towards international buying. After all, when escrow closes there is no loyalty where the cash is coming from. California continues to draw heavy investor money from China alongside their massive boom over the last decade. Apparently buying tons of consumer goods eventually will have a bigger impact and we are simply seeing money repatriating back to other places. While the US is seeing some signs of housing mania, we are nothing compared to the nutty Canadian housing market and what is occurring in some major Chinese cities. Yet a big part of this is speculation and we actually see this via rents. Rentals are more reflective of what local families can pay. It is interesting to see in some highly desirable areas that rents go for $2,500 to $2,700 while homes are selling for $700,000 to $750,000. Foreign money is a big player in the current market and this is also very dependent on foreign economies sustaining their booms.
As we dig deeper into the summer selling season it is becoming more apparent that this summer is going to be a dud for Southern California. From Compton and Inglewoodto San Marino and Arcadia the insanity has reached another apex. Inventory is growing, price gains are stalling out, and sales volume has certainly fallen. Aspirations are certainly different from what your budget can afford. Whenever I see comments about “people are always willing to buy†I tend to agree. People are willing to buy a $700,000 McMansion while making minimum wage as we witnessed in the last housing bubble. Give buyers enough credit and they’ll go hog wild. When it comes to housing, #YoLo seems to be the motto. The will to own a home will make people do some seriously ridiculous decisions. Need we remind you that 7,000,000 people rolled the housing dice and actually lost their homes via foreclosure just in the last decade?  You don’t get any cable airtime for “This Failed Flip†or “Stretching our Budget for a Crap Shack.†Who would you get as a sponsor? Maybe Fancy Feast for the baby boomers lounging in their granite countertop gold plated sarcophagus. The housing market is turning in SoCal yet again. But real estate cycles turn with the speed of a sloth. Will we see a minor correction or something bigger?
If you really want to see the impact of cash buyers pulling out of a market look no further than Las Vegas. Las Vegas was the poster child of real estate mania and many California home owners contributed to the previous boom by tapping out equity and purchasing properties for flips or for the occasional gambling trip down the I-15. The latest boom is being driven by large Wall Street cash and lusting investors coveting “cheap†properties. That boom appears to be turning. A recent report from Zillow shows that inventory in Las Vegas has jumped up a whopping 51 percent year-over-year. At the same time, you see cash buyers pulling back from the market. Back in May of 2013 roughly 60 percent of all purchases went to the “all cash†category while this year it is closer to 40 percent. So it should come as no surprise that home sales are now down by 22 percent year-over-year during the hot summer selling season. What does the future hold for Las Vegas real estate?
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