SoCal housing is a blender of crazy aspirations, delusional thinking, poor quality building, and a market built around incredible hype. A boom and bust machine. When we show homes in San Marino, Pasadena, and Arcadia people begin to realize what they are up against. The argument to buy seems to revolve around the “values will only go up†regardless of your specific ability to pay. Opportunity cost is rarely factored into the equation as if real estate was the only investment out there. There is a flood of big money coming in and this is somehow reason enough to push you into a property that will stretch your family’s budget into a position of crying out for mercy. A few people have e-mailed me with their actual budgets and I find it near comical that some people think that they somehow can afford to buy in Newport Coast, Beverly Hills, or Manhattan Beach with the incomes that I’m seeing. They are shopping with a Burger King budget and expect to somehow buy a very expensive sushi dinner. Instead of telling people that they are lusting at homes like a hormonal teenager, I will give you two cities in L.A. County where the “dream†of homeownership is very doable. It is also a useful example of how the housing mania has filtered into Real Homes of Genius territory.
The housing wealth effect is in full motion. There are many people in the market that see the rise in home equity and are now out buying bigger ticket items and also, upgrading their homes. You also have the flipper brigade being cheered on by house lusting cable television watchers. The Kardashians for the teens, the flipping shows for the Taco Tuesday adults. In California, a large group of “professionals†in the industry are disconnected from what it takes to build a quality home. Most have no sense of value and this is evident by the 1 or barely 2 toilet homes selling for ridiculous prices. On Main Street most people are brainwashed into now thinking real estate is a no brainer. You can only win, says the guy with veneers and pinstripe suit. The bread and circus is out in full fashion. Granite countertops, hardwood floors, and recessed lighting bamboozles the public from actually looking deeper into the bones of a property. If you look beyond all of this noise, the regular buyer is being screwed. Many can’t compete and are leaving the state. We have 2.3 million adults living at home with parents because they financially can’t even afford a rental let alone a home to purchase. A good portion of these folks are the BMW, latte drinking, iPhone crazed, and weekend partiers that want the L.A. nightlife but return after their escapades conclude to their parent’s home. Although inventory has risen this year and the mania has slowed down, the fever is still hot. For California’s shrinking middle class, you are seeing a state with a small section of growing affluence and a larger section of those struggling to hold on.
$1 million does not go very far in prime Southern California cities. While sales volume is still very low, home prices in some markets are making new peaks. Overall, the market has hit a lull in the summer and inventory is definitely returning. House lusting is still very much in vogue and sticker shock is only tempered by very low interest rates. Up in the Bay Area, we see people tapping out equity at a more common interval to upgrade their properties. Today we’ll take a look at three very prime cities in Southern California. Santa Monica, Arcadia, and San Marino are truly prime areas. With that said, your dollars will not go very far in these markets. In some cases, homes are making new peaks. For now, we continue seeing a shrinking middle class while these very selective markets continue to become even more selective. Let us go shopping in these prime areas.
One often hidden story in the housing market is the boring rental market. Sure, we talk about investors and regular home buyers but there is rarely any deep analysis regarding renters in the mainstream press. There is no powerful lobbying group for renters or massive marketing engine out in the market to give a more nuanced view on renting. Any true funding and advertising goes into the buying and selling crowd. What is interesting is that sales figures are still abysmal even with the big 2013 mania with prices (not directly with sales). The rental market is definitely hot since many would-be buyers are being out played for one bathroom crap shacks. You also have professionals unwilling to plunk down $750,000 for essentially a dog house with a yard. While the mania of last year is cooling off during a typically hot selling summer season, the rental market is still very tight. In fact, a good portion of new permits being issued are going to multi-family units as demand for rental housing is booming. In California, you have 2.3 million adults living at home so their likely first step into forming a household would be a rental. You also have many places like Arizona, Nevada, and Florida where investors have been buying up for years now turning their single family homes into rental units. With the tight rental market, are we slowly running out of rentals?
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