The latest sales figures for Southern California show a market with very little action contrary to all the positive news regarding real estate prices. The latest data for February sales shows the weakest February on record only second to February 2008 when the market was fully imploding. To put this into context, we had 22,484 sales in February of 2002 and 23,004 sales in February of 2004. Last month we had 14,027 sales (a drop of 38 percent from the peak reached in 2004). This also helps to explain why some in the industry, including real estate agents are not all too pleased with this high priced market but with very little churn. Of course the higher prices are coming because of the low amount of inventory and banking manipulation. Capitulation is high and some have jumped in head first into the shark tank and ignoring financial shenanigans by saying “hey, if you can’t beat them, join them!â€Â Initially there were some that were forecasting a flood of homes on the market thanks to baby boomers selling to downsize. As we have mentioned, there is no indication of mass downsizing and many would rather lock down in their zip code instead of cashing in on their golden sarcophagus lottery ticket. 90210 and Purina Puppy Chow? Dog food is easier to digest when living in a prime zip code. Those that proclaim that somehow everything is fine fail to account for the fact that sales volume is abysmally low. Affordability is horrific. Even when we look at mortgage figures we find that many are simply stretching to buy.
You can’t stop the internet when it comes to real estate data. Zillow is a great example of technology revolutionizing the way people view real estate. Some of you are old enough to remember when the closely guarded MLS was only accessible by your local real estate agent. Unless you were ready to do some digging, finding out what a home sold for took a bit of time. It was also hard to view a list of available homes for sale. That is no longer the case. When Zillow initially came out the housing bubble was still raging. My initial thought was that access to information would only serve to create bigger booms and deeper busts. Keep in mind that the entire housing system is still built upon the appraisal system. Basically each home is only as good as the last few sales. When a market is booming and people are now able to see the boom in real time the temptation to buy can ramp up. When the boom bursts as it did in 2008, you can also see how quickly things will reverse. Things are already slowing down and sales are dropping dramatically in some areas. Does access to data liberate us from the old model of buying and selling real estate?
Baby boomers with their infinite housing lust have largely forgotten about one thing on all those blurry tacos Tuesdays. What about the kids? Many boomers in high priced California cities find themselves house rich but cash poor. The notion that somehow your home valued at $700,000 or $1 million is throwing off cash is counter to what most investors understand. You have taxes, insurance, and your regular upkeep on a property. And how many boomers sniffed the HGTV fumes and upgraded their homes with granite countertops, stainless steel appliances, and polished off hardwood floors? Home Depot isn’t successful because people frugally maintain their homes. In large part, boomers in their golden sarcophagus have forgotten about their offspring. Recent data continues to highlight the growing divide in wealth disparity. California led in the growth of millionaires but also those on food stamps. Sales reach a multi-year low last month yet 12 zip codes in So-Cal reached non-inflation adjusted highs in prices. Boomer wealth versus those in their 20s and 30s coming to terms with being part of the renter generation.
I really enjoy Canada. A beautiful country with great cities and fantastic food. Leave it to our neighbors to the north to show us how it is done for a real housing mania. For the first time in history we have experienced coordinated global housing bubbles courtesy of central banks following very similar policies. The addiction to debt isn’t only a U.S. born condition. While the recent U.S. market is dominated by low supply and massive investor buying, Canada continues to see rising home prices even right through the global Great Recession. The Canadians interestingly enough also face similar dilemmas between older and younger generations. Many young professionals are fully priced out of the real estate market even when they are working at relatively good careers. Many battle it out in the condo markets were even in this market prices are inflated. Canada has an incredibly heavy reliance on real estate, more so than the United States and their household debt ratios make the U.S. look like a frugal uncle. One fascinating story highlights a similar story to what many baby boomers here in the U.S. are facing with their offspring. They face the reality that they are house rich but cash poor.
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