Share of income spent on rent is at generational highs: In Los Angeles the amount spent on rent remains near 50 percent of income.
The amount of money being spent on rent is at generational highs. High rents make it tougher for potential home buyers to save up for a down payment and this trend has impacted Millennials greatly. What is interesting looking at nationwide data is that while rents are consuming a larger share of income, those with mortgages are spending less. This is interesting because it doesn’t coincide with the big drop in the homeownership rate. But it makes sense. After all, investors are spending a smaller portion of their income covering the mortgage and those that did own, likely refinanced into record low rates. The trend is clear on a nationwide basis but not so much for markets like those in Los Angeles. Let us look at the latest figures.
Share of income spent on rent and mortgages
The math seems somewhat contradictory here: over the last decade we have gained 10 million renter households while netting out at close to zero for actual homeowners. There is massive machinery trying to push people to buy but many simply cannot especially with more than 7 million completed foreclosures over the last decade:
This is an interesting chart going back to 1985. You will notice that Americans that own a home with a mortgage are spending a smaller share of their income on the mortgage payment. But what you will also notice is that renters are spending a lot more of their income on rents.
Price-to-income ratios seem a bit high on a historical basis nationwide:
Overall these figures look relatively good on the home buying front given the typical U.S. home costs around $200,000 in most parts. But take a look at the most expensive rental market relative to incomes, Los Angeles:
While nationwide people that have a mortgage are spending less, in Los Angeles people are now spending more (nearly 40 percent of income on mortgage payments). And it is worse for renters: between 1985 and 2000 the average amount of income spent on rent was 36 percent for the L.A. metro area. Today it is at 48 percent (nearly half of income is spent on rent). And these are the people that are supposedly saving large amounts for crap shacks across the market?
While the price-to-income ratio seems a bit high nationwide, take a look at this chart for the L.A. metro area:
What is important to note is that starting in the late 1990s, the foundation was set to turn the housing market into a giant casino. Glass-Steagall was repealed and the game was on. Ironically the political cover was to increase the homeownership rate. This is the end result:
It worked for awhile until the foreclosure crisis hit and now people can’t afford homes at current prices. Sales volume is low and real estate is a marginal market so one or two sales can set the market price in an entire neighborhood.
Even Realtor.com did a little preemptive work here:
The markets in question are largely in California. But of course, this is no bubble because interest rates are low and some lemming savvy buyer made the 30-year commitment so all is well. Recessions will never happen again either. Memories are short and people live in a bubble. Just travel a bit around the country and you can see the widening gap that is becoming too loud to ignore, even in bubblicious markets.
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153 Responses to “Share of income spent on rent is at generational highs: In Los Angeles the amount spent on rent remains near 50 percent of income.”
Check out this over-priced Woodland Hills flip: https://www.redfin.com/CA/Los-Angeles/22025-Celes-St-91364/home/4186224
* May 2016 — bought for $515,000
Remodeled at a cost of … ?
* July 2016 — offered for $849,000
The pool looks heavily photo-shopped. The sort of pristine, turquoise water one only sees in Caribbean resort brochures.
Oh yeah — and NO GARAGE. Just a carport.
You pay all that money, and you don’t even get to protect your car from burglars.
Wow, that is a juicy one. Carport is good for extra income. You can that out to a mobile home and never be bothered by the tenant.
They should list it as a “Duplex Potential”.
To be fair the Bradys lived in Woodland Hills and they only had a carport.
Eric, the Bradys lived in Studio City: http://www.experiencingla.com/2013/04/brady-bunch-house-studio-city-hollywood_27.html
Reminds me of a manufactured or mobile home. Maybe the flippers pulled the wheel off. 849K for a carport. Where do I sign up?
“Blue Lagoon” color Party Pool dye.
It’s Ty-D-Bol and the little guy in his boat is caught in the filter thingie with a bunch of dead leaves.
Alex, I had an entirely different visual of the little man in a boat……
Dweezil you probably missed the golden age of commercials in the 1960s and 1970s, Lifebuoy soap makes you able to levitate, OK maybe only an inch or so but it sounded good to me, there’s a little guy in a motorboat trapped in your toilet water reservoir forever doomed to extol the virtues of bright blue toilet water, there’s a little Ku Klux Klan knight who will fly in through your window in a teeny white tornado to help you clean … dishes? Laundry? I forget and I doubt anyone remembers, little flying knights are cool.
Cut the price in half and its STILL overvalued. My heart goes out to those of you in SoCal, especially HelLA. Home prices are nuts where I live, but at least my rent is cheap and quality of life is very high, especially compared to SoCal where I lived for 17 years.
Someone help me out with this one:
http://www.zillow.com/homes/for_sale/South-Pasadena-CA/fsba,fsbo_lt/house,mobile,townhouse_type/20696609_zpid/27183_rid/34.133689,-118.121396,34.090554,-118.191004_rect/13_zm/0_mmm/?3col=true
Sold 7/13/16 for 1.2MM, one week later listed for 1.1MM?
Foreign money cleaning services?
……. ” A fool and his money are soon …. “
In addition to a high PITI, they’ll be paying an arm and a leg on heat and water for that pool. Friends with a pool always complain about paying 300 – 600 extra
Pools are expensive. Looking back to when I was a little kid and we lived on Portlock Road, why in hell did so many people have pools when the ocean was literally either in their backyard or across the 2-lane street?
It’s also amazing how much time we kids spent in those pools, too, as well as the ocean (well, the ocean makes sense).
48% of income can’t be sustainable in the long run. I live in LA and have noticed how empty the bars and restaurants have been lately, strange considering how creative they’ve been getting with their happy hours. LA is a town with very few good paying jobs, especially in the film industry. Has any else noticed how many Uber drivers are on the road? Surely the money from that can’t offset the cost of living very much.
Uber is a job for desperate people. Uber drivers make, after expenses, about $10 an hour. I’ve got a friend who drives for them and it’s perfect for him since he’s happy to get anything over $9 an hour, and he likes to drive drunk.
HAHAHA! Alex, that was really funny.
Mr. Miyagi -it’s funny ‘cos it’s true! The guy really is happy with anything over $9 an hour, and does he ever like to drive drunk.
drives drunk? Won’t be driving for Uber long. My understanding is 3 complaints and you’re out.
Markar – I wonder if he can keep the complaints from racking up if he shares?
Somehow someone who lives for the joy of driving around plastered not only got his driver’s license back, got insurance, and got his hands on a late-model Prius, and may be your next Uber ride. I suspect he’ll offer you a “vodka and cran”.
Did Zillow include in the cost of the mortgage Taxes, Property Insurance and PMI? I’ll bet not. Those items add about 25% to most people’s monthly mortgage payments making the comparison to renting much closer.
Also probably not including maintenance, repairs, and replacement costs.
Queue the mortgage interest deduction crowd… oh wait, with rates near the zero bound, the net difference from the standard deduction either barely makes a difference or none at all anymore.
Here’s the math on a $450k home @10 and 3.675%:
P&I: 1858
Taxes: $450
PMI: $105
Insurance: $50
Total: $2463
In the first five years you’ll be paying $19,800 in mortgage interest/property taxes. At a 25% tax rate (which you’ll easily be at if you make enough to buy this house) your deduction will get you back about $420. Probably more with the depreciation deduction (there are probably more deductions there). I don’t think that’s “barely a difference” as HC stated…anyone making the income required to buy this house is paying a TON of taxes. Typically in LA, the deductions end up paying for the property taxes, the way the math works out.
Now the monthly outlay for buying it is $2043+maintentance/repairs. But wait, there’s also the $600 that you’re putting into principal, really your “money out” is $1,440. Let’s say you incur $560 in monthly repairs/maintenance. Back up to $2,000.
In some places in LA that $450k house rents for $2,000. The purchase also ends up costing you $2,000.
It could still be a bad call if rates go up a bunch and prices come down. Then again every time prices came down in CA they came back up and beyond 10 years later…but maybe this time is different…
Spending time on the bullshit deception in these over simplified “break outs” gets tiring. There are a lot of assumptions made in the parameters which A conveniently doesn’t provide. The MI deduction means jack shit these days to more people than ever due to low rates. Principal paid stays on paper until cashed out, that’s how it works.
The shills never let up with the deceit. Ask yourself, if it’s so simple and so assured, why would they bother coming to a housing bubble blog to tell you how to get in on the good action? Especially the born agains who were here skeptical years ago but now tell us that prime international coastal everyone wants to live here areas are always a never lose proposition.
The answer is that they aren’t sure (that’s why they’re {still} here), it’s not simple, and nothing is assured.
DHB often points out the millions of foreclosed whose stories and circumstances are lost in the smoke and mirrors show. The shills have us believe that these same folks are now renters forming the market for “skyrocketing” rents, but somehow couldn’t make the “rent parody” equivalents. If you’re actually interested in the truth of the matter, think long and carefully about that.
LOL Hotel. Thanks for running the numbers.
And there are some financial “advisers” who will tell anyone who’ll listen that you’ll take the extra you’re saving from all the “deductions” and keeping your own money liquid, you can invest in the stock market and get rich.
Even if you’re a senior citizen.
A quote: “You’re going to have property taxes and maintenance anyway”. No mention of making that huge monthly nut. Especially in retirement.
So: never pay off your mortgage,always have a mortgage, keep those deductions and buy more stawks. Worked so well in the last bubble blow out.
And I really really want to die a debt slave worrying whether I can make that beneficial mortgage payment.
I meant, thanks for running the #s, A.
And Hotel, I’m in total agreement with you. Suggesting “arbitrage” or hedging techniques to the mob will only bring disaster given the lack of economic and financial education in the house humping crowd.
It’s akin to convincing people they should spend a dollar to save 30 cents. In the case of the MI deduction with ultra low rates, it’s closer to 5 cents.
This was my question as well. To be realistic, they also should include some figure for repairs, upkeep, some utilities, etc., that renters don’t have to worry about.
Housing To Tank Hard Soon!
Hmm, let’s see. As we move into the future, general rate of inflation over the decades will result in things like bread @ $10 a loaf, gasoline @ $10 a gallon, small entry level car priced @ $40,000 – and homes at only $99,000. That does not even make sense as general inflation over time will result in prices going up, never down to the levels they were in the past.
It *does* make sense if most of us are making our own tortillas, or bread, or crepes etc all cheap forms of bread, getting around by bike, etc. I can easily imagine the prices you hold up as unlikely.
We’ve been fortunate enough to be homeowners since the late 80’s and have been riding the interest rates down. Our payments with respect to income have been falling since then. Our first mortgage in 1988 was a 10.5% adjustable loan. People said we were crazy in 1988 to buy a house in Santa Barbara for $230K and the mortgage payment at that rate was over 50% of our income. The same house in the late 70’s sold for 60K. Not a bad deal in retrospect but who knew???
Unfortunately in the long run, all other home ownership costs rise whilst the dwelling physically depreciates.
Nope, not the biggest expense – it doesn’t rise on a house you already own (mortgage).
steve, do you understand what the word “other” means? Reiterating P&I or “payments” as a fixed cost doesn’t change the fact that all other costs are variable.
Insurance, taxes, fees, maintenance, repairs, and replacement costs immediately come to mind.
Please do let the rest of us know when you find a house that will never need upkeep and fixing. As a special bonus, we’re also on the look out for a house that future buyers won’t discount against the competition for having outdated features.
That is true, Hotel CA. Maintenance costs will rise with an aging house. However, I would argue that maintenance costs for a landlord are typically higher than for a homeowner and the landlord has to cover these and still make a profit. My point was that if I had a crystal ball and knew that the 12% Fixed Rate mortgage of 1988 would fall to 3.3% now, I would have invested in more housing. That is a difference of over $1000 /month in a 30 year mortgage payment and covers all of the maintenance. Someone who buys now can’t expect that benefit over time. I don’t think they can. Can mortgage rates drop below 0%?
I see your points, Bob. While there may not be much more room left in rates to hit the floor, it’s possible terms get extended out to 40-45 years. The bankers could argue that people now live longer and since most mortgages these days turn over around seven years, it’s of little consequence. They could also sell it by claiming such a change would have no impact on qualification parameters. Might be problematic though from a profit model perspective.
Agree that homeowner occupants are more likely to defer maintenance and repairs although that catches up with them when it comes time to sell. On the other hand, homeowner occupants are also more likely to perform upgrades that don’t fully ROI. I’m sure someone can chime in with exceptions, but most homeowners do all sorts of specific changes that the next guy changes again.
80s buyer. You’ve still got to sell it yet, to truly get your ‘mad-gainz’ cash.
_______
London UK early 90s.
James Ferguson: (recounting houses he bought cheap in the early 90s): “£57,000 yielding 16-18%” – “now worth over a million and some.”
James Ferguson: “I think all bubbles should be sold. The reasons why bubbles persist is not because people don’t appreciate they are bubbles – they all know they are bubbles – think back to the Dot Com, there’s a good example. We all knew it was a bubble; we didn’t care. The reason we didn’t care is very rational, we didn’t care because you could make more money in the near term – actually 2 reasons – you could make more money in the near term than you could make in a normal market over 5 years, and two, “It didn’t matter because I would get out in time’.
The point about a market is you can’t. Mathematically you can’t. Only a minority of people can get out in time. By definition.”
Galaxy Brain: and two, “It didn’t matter because I would get out in time’.
Similarly, many of Bernie Madoff’s “victims” — the more intelligent ones — knew that Madoff was running a scam. They didn’t know the details — and didn’t want to know — but any financially intelligent person, seeing Madoff’s ROI numbers, knew that somebody, somewhere was getting screwed.
Yet they continued “investing” with Madoff because they figured that somebody else was being victimized. That they were “in” with Madoff, among the beneficiaries of Madoff’s scam. And they pretended not to suspect anything, so as to claim innocence should the scam fall apart.
Their miscalculation was that they were the somebody, somewhere that Madoff was screwing. Madoff was screwing everyone.
Sounds about right, Son of a Landlord.
Also complacency of course. A lot of people did peer review rather than due diligence.
_____
Maybe you misunderstood what I meant by due diligence. For instance, maybe investors should have done that before entrusting money to Madoff.
What most did was “peer review”, -because everyone agreed it was making good returns and everyone else was putting money in.
The point of due diligence is that you make sure things are correct independently, rather than taking someone’s word for it because they are widely respected in their field, as let’s face it, Madoff was for a long time.
Just read an article at CNBC that notes that the Federal minimum wage in 1968 was , inflation adjusted, the equivalent of $10.90 today. While the Federal minimum wage was never a real factor in California its worth recalling that most of the minimum wage workers in California in 1968 were teenagers pumping gas or working at McDonalds. FWIW, state and local sales tax was only 5% in 1968 and 7 cents on a pack of cigarettes!
Population growth, wage stagnation and the soaring cost of government lie behind the soaring price of housing in California. You just can’t move 10% of the population of Mexico and Central America to California and expect to have the same standard of living and quality of life as in 1968. The competition for low skill work drives wages down and the needs of low wage workers drives the cost of government up. Providing housing for the additional 20 million people requires more than doubling the housing inventory on a static land area.
While the rich,who typically only have about 10-20% of their net worth invested in their home, have lots of wiggle room to absorb higher housing prices, the middle class do not and it is here that the competition for housing is most intense.
“…Population growth, wage stagnation and the soaring cost of government lie behind the soaring price of housing in California…”
Be sure to add in distorted monetary policy which encourages speculation.
“…While the rich, who typically only have about 10-20% of their net worth invested in their home, have lots of wiggle room to absorb higher housing prices…”
Exactly.. This fact is rarely written about or understood.
(Would be a great future Dr. HBB article – wink, wink).
The truly wealthy could really care less about housing prices, other than for conversational fodder at cocktail parties.
Don’t forget the role of the Fed and the very low interest rates in pushing up housing prices.
Now you have 40 and 50 year olds fighting for those $10 an hour jobs. This is why I laugh at people who say it’s not that bad out there and the median family income is $45k or whatever, because in reality that “family” is a couple, maybe a kid or two contributing however they can, plus one or more grandparents kicking in what they get from SS. Each maybe making $10k a year, or a bit less.
Alex, if you’re referring to the stat I quoted in the last thread about median family income in Phoenix, let me see if I can respond to your criticism.
First – you have chosen to live in an area with an extremely high cost of housing and that seems to be clouding your perception on the topic in the more general sense. Obviously SF/SJ/LA are all areas that are the exception rather than the rule for US housing prices.
If I recall correctly from the last thread, somebody was complaining that a mortgage of $750 was too much. Is that really too much for a family grossing $4k a month? Assume father, wife, and a kid, their income tax on that is going to be what, 10% at the most? So that mortgage is well under 30% of pay – seems pretty reasonable to me. Does that seem reasonable to you?
You keep mentioning personal anecdotes of people who are paid very little. Sure, there are plenty of folks like that around. But do you agree or disagree with income figures that have been cited? Most of the rest of the country is still affordable to the masses.
The fact that some places aren’t affordable isn’t a surprise. So sure, it’s bad for folks making $40k that expect to live in SF, LA, Palo Alto, Sunnyvale, etc. But for most of the rest of the country, $40-50k can get your a roof over your head. So I’m not exactly sure what you’re laughing about because I’m not particularly convinced that it’s so bad out there. It’s not like we’re living through the first depression.
Want a house and a mortgage? Then of course a person might need to choose a line of work and a location where that’s going to be possible. Hasn’t it always been that way?
Average individual income in USA in 2014: $44.6k. from: http://www.cnbc.com/2015/10/20/the-average-american-made-446k-last-year.html Median house price is $189k, so just a little over 4x avg earnings. Is that so bad?
There are lots of things wrong with the US, but housing affordability isn’t one of them for a great swath of the country.
Jeff – in my own case I can make $12k a year here in San Jose or move to flyover country and collect cans and live in a hole in the ground, committing minor crimes to get thrown into jail to survive the winter months.
No, $750 for a mortgage for a family of 4 is not bad, assuming they’re very thrifty, the kids are out running a lemonade stand, busking, something, to pull their weight also. 2X minimum wage plus maybe 1/2 to 1 minimum wage between the kids. It can work if they live like Mexicans do now, which is how us whits folks lived in the 1950s.
Absolutely true. The wealthy will never feel this except for occasional forays onto crowded freeways shared with old jalopies spewing pollution. You can’t move millions of poor Latin American entry level workers here without cratering the Middle Class and creating a 3rd World environmental nightmare. LA will be indistinguishable from Rio de Janero with favelas and gang shootouts. The people left behind in the “old country” will have more kids now that the emigrants give them breathing room. A complete disaster. I hope someone feels good because they feel they are somehow helping somebody. Not us.
Indeed, the same reason Trump will start all the wars he can, invest in war material stocks and watch the working and middle class people get drafted. Does it matter to someone like Trump if the country turns into a huge favela? Hell no, if anything it’s more fun for him, he can shoot proles for fun from a helicopter etc.
This seems to be the trend in markets with shrinking to non-existent middle class. You go to third world countries and shop around for a house, you’ll find that most of the housing is quite affordable for your American incomes. Then you find out the average person in that country nets $500/month and wonder how the hell people can afford to buy there. That’s what the US has become with the widening income gap. The average American couldn’t possibly be able to afford a house in LA but the wealthy global buyers see bargains (or at the very least “reasonable” prices).
Unfortunately, in those countries that isn’t a bubble. It’s the norm. That’s what I fear will happen (if it’s not already happening) here. A $700,000 crap shack becomes normal and it’s only when it climbs to $1.5M will you start calling it a real bubble. But don’t take my word for it. Look at areas with the most ridiculous real estate prices (SF, NYC especially). When the Great Recession hit, were those markets affected? Barely, if at all. It’s already become the norm there and OC, LA and SD aren’t to far behind.
Yep each person bringing home maybe $500 a month, they get upper or lower bunk in a bedroom with 4 people in it, shared meals, maybe someone scores a bucket of fish heads from work and they get extra fish once in a while (there’s some good eating on a fish head) and everyone walks or gets around by bike.
This is what I find annoying about Hawaii where I grew up. People from the mainland US want to move there but they want to live like they’re on the set of The Brady Bunch, with a big house, lots of cars, and all their “mainland” food shipped in. Maybe the occasional glass of pineapple juice (now pineapples are grown in the Philippines and in S. America and it’s shipped in) or some Kona coffee to remind them they’re in Hawaii, but otherwise they want to live exactly like they’ve live on a huge income in Santa Barbara.
And guess what? This takes a huge income.
If you live like a local person, it’s much, much cheaper to live there.
But truly living like a local means multiple generations in one house, and more relatives just down the street.
@ Alex. I am actually on Maui this week on vacation and cant help but notice the demographics here and lifestyle. Seems to me that if you are a beach/mountain lover then it can have its appeal, but where are the real paying jobs in Maui? the locals are camping out at the beaches fishing, the wealthy with their lanais are living behind 8 foot fences in upcountry and along the shore. A friend of mine told me that most people are shacking up 2 in a 1 bedroom apartment and working at local hotels and cafes in order to make ends meet…..?
QEAbyss – in other words, they’re living like the vast majority do everywhere else in the US, local conditions causing adjustments (you can hunt squirrels in Colorado, there are no squirrels in Hawaii).
The analogy in California would be all those millennials living with their parents, then having children and still living with the parents … we are headed to multi-generational households, not due to culture, but due to economic necessity!
JNS – that’s where that “culture” came from in the first place.
Do you think I grew up writing letters to relatives rather than calling them on the phone, because of “culture”? Long distance phone calls were very expensive and only for real emergencies only, and that’s if we had a phone. We didn’t even write that often due to the cost of stamps.
Culture, right.
when the great recession hit last time, even the housing in most desirable areas were hit badly…
True but it also depended on the location. In SD North County, zip codes 92064, 92127, 92128, 92129 – desirable neighborhoods – dropped to the 500-600K range from 2009-2012 (for approx. 1800 Square Feet SFH to approx. 2300 Sq Ft). That still seemed expensive if one thought about the house age and potential maintenance expenses for these homes with postage stamp lots built from the 70’s to the 90’s.
A friend in East Palo Alto’s house dropped back to what she had paid for it when it was newly built in 1999 -> $499K -> after going up to about 835K at the height of the bubble.
Now prices in both areas are all back up again, as we on this post are only too well aware.
Overall, what I noticed during the downturn living in SD North County was that many people with desirable properties in desirable locations simply held on to their homes and rode out the downturn.
My spouse and I refused to buy from 2006 onward. We ended up purchasing in the fall of 2013 when we recognized that the market was no longer based on domestic fundamentals and that the properties we desired in solid locations would not go down as low as we had hoped. We realized that with the rigged market (QE and Equity Funds buying properties for pennies on the dollar in bulk courtesy of the US Gov) and the increasing number of individual foreign purchasers – what’s logical based on the US domestic economy is no longer what necessary manifests.
That being said, I agree with Falconator. The people I know who are the most financially secure are the ones who bought real estate and have paid their properties off over the years. One of these folks also made the least money career wise of all my friends — and yet is retired with three properties (two paid off, lives in one and rents out the other two).
I look at the many years I rented as primarily wasted money that is now long gone. Yes, it provided easy access to job mobility; but, I would have done better had I purchased and just rented out the place if I ended up moving for work.
In the city, in outer richmond, sunset, ocean, inner sunset you could pick off a home in 2011 for $499K-599K via short sale, foreclosure
today it would be $999-1.2M+
Gee, Looking Forward, wonder why you’d waste your time here when you’ve got it all figured out?
Yeah Looking Forward, listen to this Hotel guy, how dare you come on a public site like this and post anything that disagrees with their narrative? This is supposed to be site with only one view, either agree or don’t post. What a joke.
The funniest thing is that the wealthiest people I know spend the most time on internet forums, way more time than those friends that are grinding at their jobs trying to build wealth. The idea that someone who is wealthy wouldn’t be here chiming in is comical.
Keep your head in the sand Hotel Cal guy, and just block posts from anyone who doesn’t conform to your narrative. You seem to be the one who has it all figured out anyway.
Nailed it. 48% of income for housing? Nothing in the 2nd and 3rd world. The more the US dives into that type of economy the more this becomes the norm. Comparing now to the 50’s…hell the 80’s…is useless as with the path we’re on now, we’ll never see anything like that again.
The reason it’s like that in other countries is because they literally have 0 other option to store and invest wealth. We have a pretty good equities and bonds market, we also have the most innovative economy in where regular people invest money to start their own business. For example, there’s a profitable LA business that sends gift boxes of comic convention swag to people all over the world. You can’t do this in Guatemala or even France. It’s just within the last 10 years that Asians even invest in the stock market – it was only for institutions and rich people.
Another thing. In other countries, housing is passed down over many generations. In Italy, every single person owns some piece of property. When they want to buy somewhere else, they sell grandpa’s old vineyard. We don’t really have that base of wealth in most of the population to finance new purchases. We have to do it in cash.
I like figure 1b showing the price to income ratio imploding when it reached 11. 11 is a bad number(Except on Spinal Tap). There is still room for prices to increase from 8.9 to 11 before implosion. We’re only at 2004 levels now.
Wasn’t it approaching 20X just before the last crash?
Vote for me. I’ll let Americans call their home a “Trump home” increasing its value, believe me.
Will you do the upkeep with your little bitty hands?
you don’t really want to make America great again. You really are dog-whistling the fact you want to make America ‘white’ again.
you say that like it’s a bad thing…
Dog-whistling? You must watch too much CNN, quoting that pos analylist that kisses Hillary’s butt and sucks Muslim Barracks yoyo, yeah you know who I’m taliking about. Gosh you liberals are so dumb sometimes.
He’s dog-whistling that, but in reality American citizenship will be for sale, $1000 on the check written directly to Donald J. Trump, two-for-one specials if you’re a radical Muslim and want to bring in your 17 kids and 3 wives.
Trump is only loyal to … Trump.
David Duke would literally be a better choice and he’s actually running at the state level again …. he’s pretty young and fit too, if things get bad enough I could actually see him having a realistic choice to become Prez.
I guess you hope if you say it enough it will somehow come true. The first Democrat president was Andrew Jackson who had a lot of slaves. Lincoln was the first GOP president. MLK was a Republican. The KKK was a Democrat institution and precious few Dems voted for the 13th, 14th or 15th Amendments. The Civil Rights Act was carried by the GOP in Congress. The large cities in this country have been run by the Dems for years and they have descended into 3rd world hell holes.
Yeah, sure the GOP wants to return to a white ’50s model with segregation. That is Orwellian double speak at its best
Fensterlips just took Jed out behind the woodshed and gave him a good ole whipping. Lay off the MSNBC and CNN, watching that shit is almost comical.
IMF seeks ‘urgent’ response to stagnating global economy:
http://www.marketwatch.com/story/imf-seeks-urgent-response-to-stagnating-global-economy-2016-07-21
From the article:
“The IMF said central banks need to maintain their easy-money policies…”
Lot of international pressure to keep rates low. No other developed country in the world is raising rates (in fact most are at ZIRP or NIRP). I will be shocked if rates go up at all this year.
I knew the Impossible Mission Force was behind all of this!
The IMF and central banks are the epitome of insanity. Continue the same policies that enriches the top .0001% while impoverishing the remaining 99.999% to subpar economic growth at best. A supply side response to a demand-side problem.
Easy money policies work for as long as there is room for more debt growth. With global debt at record levels and skyrocketing defaults and bankrupties, what lenders are going to give themselves more rope?
All you foold need to listen up. This country is in trouble, we are letting illegals in at a crazy rate. Let’s build a wall and protect our borders. Real estate will be more affordable then.
Nice try Mr. T., sounds Nationalist, Protectionist, and Isolationist enough for me, except you’re so unpredictable if you’re let near the white house, citizenship will be $1000 cash on the barrelhead, check made out to you personally, 2 for 1 for those from terrorist countries.
Green cards are already ‘for sale’! Why do you think so many Subway and ‘convenience store’ franchisees are named Mohammed? Some village in Yemen or Pakistan pools their money and sends “Mo’ to America ( or Canada or the UK) to open the business. They then use the business to launder money, import relatives and engage in criminal enterprises like coupon and Food Stamp fraud.
Unit472 – and now you know why I don’t eat at Subway etc any more.
Trump just wants a piece of that action, hence $1000 citizenship, just write your check directly to Donald J. Trump.
Basically reading the same article on this site for the last year every week. As a sideline buyer with a relatively low and stable rent for the westside I consider myself fortunate. I spent all last year trying to figure out how I could afford a $700k house in the valley or Torrance or other LA bedroom communities and gave up. I save money renting in a great westside neighborhood and while I would love to buy I will not overpay. The problem is nothing is going to really shake up the housing market significantly beyond war, natural disaster, a major financial institution going belly up, or the election of the Mayor of Moronville, none of which I would hope will happen…a lot of people will suffer. President Hillary probably just means more Quant Easing and further bubble housing market…oh well.
Hi Millennial,
My wife and I are in pretty much the exact same predicament. We’ve got roughly $85K saved and growing. We target the Conejo Valley down the road, but even that seems steep.
Personally, I don’t want to buying anything for more than $300K, maybe $400K tops. I certainly don’t want any pmi.
We have a rental in the Phoenix area as a last resort. And looking forward in general, we’re targeting a move to an area with affordable housing such as Scottsdale, Albuquerque, Dallas, Boise, etc. We want good schools, low crime, etc.
My personal feeling is that a significant price adjustment is still possible. I think the incomes don’t support these prices and here are the factors that I think could trigger something:
1) Tech is contracting to an extent in terms of jobs. This may not only be due to price/earnings ratio, but also the fact that jobs are going oversees now for programmers. It’s not just call centers. I anticipate a lot of 6 figure jobs leaving California in the relatively near future. This would mean a lot of rent and mortgage money vanishing.
2) Foreign investment could slow down.
3) I believe the reits will stop buying soon and even start to unload some of their inventory.
Am I an expert on any of this? Hardly. But for me, our current price trent just doesn’t seem sustainable. And unlike you, I won’t give a flying you-know-what if people get hurt for buying beyond their means. I actually feel the opposite. ZIRP and the delusion of “it always goes up” is making people foolish. Yes, it’s different this time without subprime. But, I still think that many mortgage holders are month to month without much in reserve.
And like you, I positively refuse to pay $700K for garbage. There’s just no way.
I appreciated your comment. Thanks.
As a High Tech worker, I can tell you first hand that 6 figure jobs are being outsourced to cheaper locations in far east at a pace never seen before.
John,
Where I work, the tech staff has been reduced by upwards of 30%-40%. This spring, our chief tech officer went to the Philippines to find workers there.
The remaining staff are left wondering, “who’s going to be fired next?” The fat has been completely trimmed away. And in actuality, we had way too many people making six figures who weren’t very good at all.
As I wrote previously, if this is happening all over the place, what will these people do for work? Where will the rent and mortgage come from? A few years back, it seemed like anyone who knew Ruby at all could get six figures somewhere, anywhere. It’s no longer the case.
Westside Renter, are you saying that Silicon Beach is contracting?
You wouldn’t know it from the local “news” articles, which all sound like PR press releases. The Santa Monica Daily Press and The Argonaut still run stories about how “Silicon Beach” is expanding with lots of new companies opening offices, etc.
Of course, they’re free newspapers, supported by advertising. Both papers include LOTS of real estate ads, so it’s no surprise that many of their “news” stories sound like RE boosterism.
Westside you’ve got your eyes open.
Tech jobs are being outsourced, tech workers are being illegally smuggled in and paid $2-something an hour, and also the actual purpose of most startups is to get vast amount of venture capitalist money and try to get some of it to stick to the linings of your pockets.
The top 10% and especially the top 1% have huge, unimaginable amounts of money looking for a place to go to become more money. So if gets thrown into “anything with dot com in the name” woops that was the last bubble, but you get the idea. So these companies will hire 235 useless Indians because they’re cheap, don’t do shit, but it doesn’t matter, what matters is a huge well-lit room full of butts on seats in front of screens, with a juice bar on the side, when venture suckers, er, capitalists, are given the walk-through.
The actual need for competent programmers is vanishingly small because it’s all been done. Good people are needed to fine-tune stuff and make things more secure due to the threat of Islam, but other than that, the average person has no need for apps, Candy Crush, etc.
Hi Son of a Landlord,
I can’t say with any certainty that Silicon Beach is contracting specifically. But I’m fairly confident that tech overall is. It’s been well publicized that the VC’s have stopped putting as much money in this year. And few have gone public. I believe it’s contracting, but good luck finding any media on it.
Also an engineer here in tech in the heart of silicon beach, lots of friends in the same industry. 2-3 years ago – 200k was the norm for a senior software engineer. The word is many companies are not turning a profit, over anticipated customers and over staffed. Obviously the first to go is over paid engineers, i’m seeing 25% staff cuts all over. Friends that were making 200k are rehired for less than $125k in a not so happy (pampered) work environment. Often told by recruiters to take off there PhD from their resume. Quality work is out the door, many companies are struggling, cutting corners fighting for investors. I do wonder how many are late on their mortgage?
As for tech employment, yeah, it’s starting to go down. A lot of these little startups are going under. They usually employed 5-20 people. Now imagine hundreds of these spending other people’s money. The larger ones are laying off hundreds and the large tech companies are laying off thousands. It’s a cycle. I see it up here in the Bay Area, not only a decrease in growth, but a decrease in total employment. These cities that have $15 minimum wage for their service workers are going to get destroyed. These startups are spending OPM like no tomorrow, now that they’re going under, service industry won’t be able to support $15/hour and lots of businesses will close. Maybe this is how degentrification begins.
Similar stories, we have a decent down payment, it doesn’t keep growing because we stopped looking seriously and have taken 4 vacations this year alone! In other words, we are just enjoying our incomes instead. I must say we want to be homeowners and make offers here and there but we walk away soon after our fair offer is “rejected”. Our realtor probably doesn’t like us much anymore.
We also moved to the Foothills part of LA and our rent is so much cheaper than it used to be. We plan on having more kids (trying) and its really the only reason why we still want to move out, the place isn’t big enough for 4 plus. Plus, my wife is a lawyer and she was tired of the 50 hour weeks, she now works about 20 and enjoys motherhood more. At first it was an adjustment because those long hours came with a really strong income but we are getting used to it. I don’t match her salary potential so losing half her income is tough but I make more than enough for us to have a good life as long as we don’t get suckered into a 700k mortgage. Our retirement accounts won’t be fully funded for now but in a couple years she will go back to FT as needed.
Life isn’t perfect but it’s not bad, again if we stay away from that type of mortgage for as long as we can, I think we will be alright.
Some people on here were probably like me, looking everyday for homes, talking to realtors everyday, but man I wasted so much time. Now I feel a lot less rushed. Don’t fall in love for any home with a 700k mortgage (unless it’s prime real estate) or fall in love with money because they will make you work till you drop, it will never be enough.
I think after years of Jim Taylor spouting “HOUSING TO TANK HARD SOON” from the rooftops he needs to now provide and exact time window. It is only fair. If he just keeps shouting this weekly forever he will be right at some point. Now circling the peak of the market he has even a more golden opportunity to put his time window in writing. Can he do that or will he remain in the shadows with vagaries?
He already gave his timeline. It was the Ides of March, 2013! But he’s been calling the bottom since 2012. The people who ignored Jim’s advice made a damn fortune flipping homes these past 4 years. Those who believed him are still on the sidelines, waiting for the elusive tank, and have lost out big time. The moral of the story: no one knows what the hell they’re talking about, especially Jim Taylor. This game is rigged and that’s all anybody needs to know about real estate in Socal.
Compared to people that have bought RE in 2014 when Jim called for a crash, the only thing that has tanked hard is Jim’s net worth compared to anyone who bought then. Congrats Jim!
Jim did provide an exact time for the Hard Tank. “The Ides of March” 2014.
That’s right. Jim set March 15, 2014 as the date for the Hard Tank, or at least its beginnings.
Then he kept moving the HT forward, but he guaranteed that the HT would occur in 2014. “You can take it to the bank,” he’d said.
At the end of 2014 he admitted he was wrong, that he’d underestimated the Feds, etc. attempts to prop up the market.
But Jim was back in 2015, promising in HT “soon.”
It’s now 2016. Half the year is past. Still no Hard Tank.
It’s going to happen. Just no one knows when. In the mean time live, save and sit on your butt. As much as I want to buy, it is totally stupid thing to do.
Rent prices, home prices, are just the tip of the iceberg! The more you spend on housing, the less you are going to have to stash away for the ‘oh crap’ car repair, the unexpected health issue (because you chose the high deductible plan because that is all you can afford), or your eventual retirement! And, if you purchase a home especially in an already overburdened big city, you do realize that eventually, the money for your fire, police, your water and sewer lines, and your roads, are going to require never-ending tax and fee increases, and still there won’t be enough as the infrastructure you take for granted, decays around you! And as those jobs continue to be replaced by overseas workers automation, and as companies downsize, etc., the nice neighborhood you thought you bought in, will begin to wear those scars as well!
JNS – I know a guy who bought a house in Westchester (don’t ever admit it’s actually Inglewood) California. He sold a piece of hunting land he’d had for years to come up with the down, and instead of filling the house with new furniture and putting a new car out front, he told me he slept in a sleeping bag on the floor for a while, and only furnished it etc as he had the money to.
This is not what the average person does. Buying a house is a traumatic experience. When it’s done and the dust is settled and the person finds themselves still alive, they tend to splurge on a new set of furniture, decorations, a new car, etc. I’ve heard this from bank people, from car salesmen, etc. A booming house market is great for car sales because after going through more paperwork than you will for any other event in your life, and committing to enslave yourself to the bankers for a million+ house, a mere $50k for a car seems like a cracker jack toy; a small reward for having gotten through an ordeal.
I hope there are some of us with more sense Alex. The Millenials have it tough today, but when we bought our first house in 1983, in the Palms area, we had to borrow some money, take on a Second TD and bring in a couple room mates to make it work. I worked for AT&T making maybe $30K, and my to-be wife also had a job making maybe $12K. The house was $185K and we were excited to get a First TD from Encino S&L at only 12% It wa a tough time in a lot of ways. No new cars and no new electroni-junk. We had to have the room mates to make it work and they each paid $300 a month. It wasn’t a paradise. There were plenty of sacrifices. I’m not sure how we compare today’s difficulties with the past but we’ve all had to really want it, sacrifice and work hard. New day, new problems.
Fensterlips as hard as it was, you’re talking about a whole different era; it’s 10X as hard now.
Here’s another story from an old (68) timer. My first apartment, in 1968 in CT, cost $70 a month. It was decent, the second floor of a 2-family with hardwood floors. We had half the basement for storage and a garden in back. It was in a suburban neighborhood. I had a fairly low-paying job back then, $3.50 an hour, with OT. My wife made $55 a week as a secretary. Our gross monthly income was about $1000 a month. Our rent was 7% of our gross monthly pay. Later, we splurged and rented a house a little further out. It was $130 a month, but I had to mow the lawn. That was only 13% of our gross monthly income. We had no car payments, student loans, credit cards, cable TV bill, mobile phone bill, or internet fees. Looking back, I can see that we had it good. Life must suck for young people now.
Roddy – Take that $1000 a month. Turn it into silver dimes. Cash in those silver dimes now – you end up with $15000 a month, which is about what that $1000 a month is, inflation-adjusted.
So hell yeah you lived well on $1000 a month.
When these blog entries and other articles on income to housing cost ratios say things like “50% of income” are they referring to gross income or net income? I wish the authors would just say so, every time I read that data I’m always wondering. Maybe it’s understood so please educate me.
They are looking at gross income. Apparently having children, 2 ex-wives with alimony payments and child support, car loans, credit card debts, and student loans does not enter into their calculations.
passing through, I think it’s gross income. I was an apt. manager for a while and we wanted to see an applicant have three times the rent as gross income. I’m currently a senior paying 60% (not a misprint, sixty per cent) of my gross income for an apt. in the Valley. It’s rent controlled but not sure I can handle an increase if they do another one in a few months. Does anyone know where I can get cat food cheap? I think Taco Tuesday may be beyond my budget.
I think most slumlords would like to see 3X rent as gross income, get those renters out dealing crack, anything, to get that sweet $3000 a month rent from $1000 a month earners.
But realistically, you want them paying 1/3. And you want a manager who knows how to work a simple 4-function calculator.
The Latinos of Boyle Heights are fighting gentrification — including the artists and gays who are seen as tools used by developers to displace poor people, via methods known as art-washing and pink washing.
This apparently refers to creating artist and gay-friendly spaces, which both attract white hipsters, and also wins praise from a liberal media that would otherwise criticize developers for displacing poor browns and blacks.
https://www.kcet.org/shows/artbound/boyle-heights-gentrification-art-galleries-pssst
Many things discussed, including these tidbits:
many Chicano artists and organizers have expressed concern over the direct and indirect role community-based arts institutions such as Self-Help Graphics have played in the gentrification of Boyle Heights…. the threat of displacement is not diminished, as development projects move forward and the arts district receives attention and accolades from the New York Times and art world insiders. “We are still waiting to see an example of where an arts district didn’t displace a community. The designation of an arts district is a tool of development. We don’t have time for artists to figure out how they feel,†says Rhine.
For many of them, the claim to queer-friendliness in the name of redevelopment or revitalization is simply a tactic of gentrification known as pink-washing, similar to art-washing, both of which have been used to ignore or mask serious socio-economic issues that affect the livelihood of longstanding locals.
The Latinos of Boyle Hights have got it right. No one working-class can stand to be around hipsters, whether gay, arty, or *shudder* both. They are indeed the shock troops of gentrification.
I guess it’s because these hipsters have trust funds so they don’t have to depend on the local job market, and they can swoop in and buy a house, or a building, etc cheap, set up a chi-chi coffee shop etc., and price the long-term locals out, etc.
We have the same shit in San Jose. Our east side can be a bit scary, to those used to hand-pressed lattes etc. But they’re moving in their shitty art studios and stuff. There’s a huge art gallery downtown called “Kaleid” (isn’t that the name is a skin problem, or am I thinking of “keloid”?) and visually, it’s like listening to every top-40 radio station at once; awful.
This canary in the mine is back on the market.
http://www.zillow.com/homedetails/386-Entrada-Dr-Santa-Monica-CA-90402/20539673_zpid/
I wouldn’t be surprised if it’s been vacant for 10 years now. This got my attention in 2006-7 because they even put marble in the PUBLIC SIDEWALK before trying to flip it. Of course it had to be covered with safety tape, duh. So now it’s on the market for $2000/square foot because …why not?
The rental & sales signs on the Westside of LA are accelerating and existing listings stagnating. The last time I saw this much for rent in posh Santa Monica areas was 2008. Just saying.
Whatever happened to the Russians by the way? Circa 2013 they were buying and then crickets. Why does everyone think Chinese investors will last forever?
I spent a lot of time looking at San Diego home prices and based on affordability, we’re still WELL below the prior peak, in fact, about 34% below the prior peak. That means the townhouse I bought for $325K in 2014 would need to be priced at $550K assuming no change in current interest rates (3.60%) to equal the affordability crisis of the last peak.
Affordability is P&I, prop taxes, and a hypothetical mortgage interest deduction (which favored bubble years versus now) against median household income. I didn’t consider HOA as homes would typically not go from non-HOA to having HOA.
Just to add, that puts us at about early 2003 levels, which is very consistent with the charts above. We aren’t even close to peak lunacy yet and I think we’d need major fed intervention with selling MBS to force supply into the market or major policy decision changes (taxes on foreign investors, loss of mortgage interest deduction). Now mind you, even though the Fed raised rates from July 2004 (1.25%) to August 2006 (5.25%), mortgage rates barely changed over that period, and even declined from 2002-2005.
Things can get A LOT worse before they get better. I’d look for signs of people losing their brand new cars before we see signs in the Residential RE market.
Subprime auto loans are falling into delinquency at an increasing pace:
http://money.cnn.com/2016/03/15/investing/subprime-unpaid-auto-loans-oil-crash/
Bubbles share similar characteristics, but are not mirrors. Pointing to selected current statistics and comparing with the previous bubble don’t give a complete picture IMO. I can point to the lack of material growth in high quality jobs over the past 8 years – a nation of baristas and walmart greeters doesn’t justify the price increases we’re seeing. With newly built inventory hitting all the hot markets and pricing power in the high end already waning, I think the top is already in. Moreover, while we had a market wash out around 2011-12, we still had millions of homes kept off the market by the banks – manipulation by the feds/banks/politicians. Many were left to rot, and theyre coming back to market right now – including one next door to me – that require major repairs just to be habitable. I think the last bubble was the primary bubble and the current one (echo bubble) will not reach the peak of that one adjusted for inflation. In that way its similar to the stock market echo bubble we’re seeing now.
From the last crash I seem to remember jokes about being able to eat for free from all the plates of sandwiches at Open Houses, then there were the jokes about stale sandwiches from the week before.
Also, the luxury car up on blocks because the owner’s had to pawn the rims.
Also, columns on shit, lots of cawlums.
For some reason you left out insurance, maintenance and repairs. Also down payment and MI requirements. In the previous bubble the shelves were lined with zero down option ARM NINJA products. Those things made “affordability” better than it is today even at same and higher prices.
Where is all the inventory?
http://www.calculatedriskblog.com/2016/07/a-few-comments-on-june-existing-home.html
For existing homes, inventory is still key. I expected some increase in inventory last year, but that didn’t happened. Inventory is still very low and falling year-over-year (down 5.8% year-over-year in June). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.
Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.
Of course low inventory keeps potential move-up buyers from selling too. If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.
Jim Taylor might be right about HousingCrash… in 2018
Hi QE Abyss,
I’ve read other places that the banks are still sitting on a lot of distressed inventory. Specifically, there were indications that they even let some borrowers live free to avoid the taxation on foreclosure. But I don’t have any data on this. I’m curious about it myself. Is inventory actually low? Where? Phoenix has plenty. Vegas has plenty. Florida has plenty. California’s a little more condensed, but it’s out there and I saw tons of Open House signs today everywhere.
I think there’s supply out there, but it’s ridiculously priced.
I’ve been watching more and more buildings empty out in downtown San Jose … big, small, doesn’t matter. The AVAILABLE signs are all over the place. Banks, a tech company called Data Pipe, tons of businesses going belly up and leaving empty buildings.
With credit to Logan Mohtashami, who comments here on occasion.
“I discuss and document with data, that existing home sales inventory ( annual months) was slightly higher in 2012-2016, the period of supposed low inventory, than in the period of 1999-2005, when housing sales were exploding. In other words, if it is low inventory that is preventing growth in sales, why are sales lower in a time when inventory is higher than it was when sale were higher?”
“Low Housing Inventory Lie Still Lives On”
https://loganmohtashami.com/2016/07/25/why-building-more-homes-wont-help-housing-affordability/
Live in a bubble? Forced to live in a societally destructive housing bubble, full of speculators and complacent older owner sat on mad-gainz, ultra high on global QE zirp yield chasing and bailout after bailout from Bubble 1.0.
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Governments have created a huge amount of psychological poor health by transferring the costs of poor economic decisions from those who made the decisions onto others.
They’ve encouraged the people who made the poor decisions to think they’re invincible and life is super easy because they’re so clever and talented, and they’ve made the ones bearing the costs (mainly younger renting workers) think that life is impossibly hard and there’s no way to make progress no matter what they do.
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Quite amusing how people continually rationalizing their net worth based on economic fundamentals. Nothing has really changed as unsustainable cheap and loose lending distorted the supply and demand equation; investors with suitcases full of borrowed money will beat out mortgage-dependent buyers.
Correct me if I’m wrong…
I’ve just been playing with a mortgage calculator.
The initial repayment on a standard mortgage for $100,000 at 15% (.. a ‘high’ rate the mortgaged heroes of early 80s brag about suffering)…
..is exactly the same as initial repayment on a standard mortgage for $320,000 at 2.5%.
Both = $1264
Becomes more interesting when capital repayments are considered. $15k wipes out 15% of $100k mortgage, and only a little over 2% of $320,000 mortgage.
Your math checks out with me, Galaxy.
Personally, I wish we had lower prices and higher interest rates. I think most non-uber wealthy people do.
In my opinion, it is always better to buy when interest rates are high. People buy as much as they can to achieve a monthly payment they can afford. When interest rates are high, it drives house prices lower. People like me whined when we bought a house in the 80’s at a 12-15% rate but are very fortunate that interest rates dropped so much. It was more luck than having a crystal ball. If someone had not paid off any of the principal since the 80’s and needed to refinance the same $100K today at 2.5%, the monthly payment would only be $396 in today’s dollars. Hotel CA pointed out that older houses need more maintenance but the $900/month difference due just to refinancing rate differences pays for a lot of maintenance.
The problem is that lots of people that are in that situation are NOT maintaining their houses at all! Instead they’re taking those “savings” and going on trips abroad, buying/leasing expensive German made cars, etc. Maintain that 40+ year old house? Forget about it!
And at $100k, you’re paying property taxes based on that initial price. And the mortgage deduction would be more with higher interest rate than the lower rate.
Despite high rents, it’s better than buying for me. And the landlords can spare me their ‘rental parody’ vs buying logic. [LOL]
As you point out, low-volume. Values are set at the margin. Things could cascade quickly.
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I presently regard part of my rent expense as the price that I pay for having somebody else take the balance sheet risk with an illiquid frothy asset that I would rather pay them to take than take myself.
It’s properly called “rental parity” but your version is better.
It’s not my version, alex. All flowed on from Christine in 2014, and made me chuckle, despite the relentless societally destructive housing financialization bubble.
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> Real estate is not dropping as of yet just plodding along. If you are trying to “buy right†anytime you buy within rent parody is the right time here in So Cal.<
http://www.doctorhousingbubble.com/student-debt-homeownership-rate-young-buyers-homeownership-young-college-debt/#comment-518911
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~RENTAL PARROTY! BAWK, BAWK RENTAL PARROTY!
~Rent “parody.†What a fitting malapropism! Christie, your arguments sound like those “Suzanne researched this!†NAR commercials.
~Well, I guess the rental parody parrot does break up the comment section making it easier to read…
~I would like to give a shout out to rental parody!!!
~Oh, how I miss rental parody…
~I would agree with you if we were anywhere near rental parity/parody baaawk!!!
~I think the one caveat that many miss on the “rental parity†(aka rental parody) is the time commitment to the monthly payment.
When did it become ok to just not pay your rent because you don’t like the amount? If someone told me I could strike instead of paying rent, I would have done it years ago. Did I mess something? Did Bernie Sanders win? Are we socialist now? Did Alex in San Jose’s dream come true?
http://la.curbed.com/2016/7/22/12258346/highland-park-rent-strike
I don’t see anything in that article about the landlord and his family being doused with gasoline and burned in their beds so no, my dream is not being realized here.
The capitalists need to be AFRAID of the People, and the way this happens is through violence, not just stopping writing a check.
Alex in San Jose, you need to spend less time on this blog and more time working and embracing sweet capitalism. You always sound like an bratty college kid who adopted ideologies of radical professors instead of focusing that energy on improving your lot in life, which by your own personal accounts seems rather pathetic.
I always figured he was just a troll
Nobody actually continues to live in the Bay Area year after year and thinks nobody makes any money
Silicon Valley works out kind of like Brazil, which the tree huggers like to hold up as a model of eco-sustainablity, “Look, they run their cars on locally produced ethanol”. Well, Brazil achieves this by having 90% of the population working like slaves in the sugar-cane fields, so the top 10% can drive their sweet alcohol-fueled cars.
Same thing here. We have a tiny upper crust making good money, like you’d find anywhere. Most are making about what I do, living 14 to a house, and just getting by. Tech is a tiny part of our economy, with our largest employers being things like Safeway, Kaiser Permanente, etc.
I make it OK here because I live very cheaply, not having a car, a TV, etc. And I live in a place that only costs me the electric bill each month.
I like working less than full time and having some free time to work on things of my own.
I will not do this forever, as there’s only so long I can pretend to be interested in electronic test equipment. And it won’t be starting my own surplus business again because the money’s gone out of it these days.
When I get something going, people will call it capitalism but a small business is not capitalism. Capitalism is when you have things like stock offerings, and capital dis-associated from both the workers and the product. So the Ma & Pa shoe repair down the street isn’t capitalism, while Apple, Nike, or name any large company that has laws changed in their favor, pays no taxes, has their tentacles reaching into thins like child porn and snuff films (looking at you, big banks) are very good examples of capitalism.
The guy I work for, works for a tech company and hence he has a great deal of trouble getting them to pay him – I think because they’re having trouble bring in enough money to keep everyone paid. If it were run as a co-op, I don’t think he’d have this problem. He’s been job searching and there’s nothing here and he almost got a job on the east coast but that fell through.
Go work for the post office, kids!
I remember back in the 80’s that some banks offered 50 year mortgages to keep the monthly payments lower while the interest rates were 12-15%. What happened to 50 year loans? They would help keep the bubble inflating.
Interesting point. Would be good fodder indeed.
We can go on with this forever but the end result doesn’t change: the Feds are manipulating the interest rates and leaving all the mechanisms that cause the bubble in place. The rest of the world is copying us hoping we’ve found the magic bullet to keep a recession/depression away. All these people in the FED with all these degrees in business and economics, etc, who supposedly have ALL the answers really don’t know more than the average Joe. The math doesn’t make sense with both rents and prices sky-high far beyond income. I fear for this country and the modern world. At some point, no gimmick or amount of printed money will work.
The Fed’s actions can be explained as either “stupidity” or some form of “evil”. You’re guessing the former, I’m guessing the latter.
The 0.1% have gotten much wealthier in the last decade. Doesn’t that tell you who the Fed answers to? Frankly I think it’s naive to believe that the folks at the Fed “don’t know what they’re doing”. They’re doing just what the folks pulling their strings want them to do. The rest of us are just the lumpenproletariat to them.
I won’t buy at these prices. See it more as the Fed allowing greed to double down on itself, and then at some coming point, they will let things go, and the core-voters complacents will find themselves in a market. Then will shall see…
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A hunter with a visible snare catches few rabbits.
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It’s like there are two kinds of money. The kind you earn, and the kind you buy houses with. And one has no connection to the other.
As someone who has been around the monopoly board a few times in CA you are exactly right.
I have my $250K that I view as house money.
I have more than that just in cash laying around… And then much more than that in 401K.
It’s people like me and also international people with cash that fuel prime California.
The good news is that there are plenty of areas in CA where you don’t need to have circled the monopoly board a few times.
NoTankinSight,
Agree 100%. Only the uber strong hands will be able to buy in prime coastal CA from now on out. Some areas simply become unaffordable to the masses over time…prime coastal CA is one of them. I’m in the same boat as you. I will buy another property, but not at these prices. Housing in CA is boom or bust. We are in a boom cycle, the bust cycle will follow (who knows when). Just like you I will have a monster down payment and many other assets that will hopefully help me beat out the competition. And there is always competition for the prime areas and properties.
By definition, a bust is a lack of competition to buy.
Those strong hands already on the owner side, may be weaker than you realise.
Real estate runs on money.
Values are set at the margin.
In a market turn, things turning from weak hands to strong hands (those in cash / creditworthy) to buy from those who try and sell out on their ‘permanent’ mad-gainz.
You’ve got to look at the flow of buyers. If at any point there is a cooling there, then some sellers will sell for less. Perhaps a lot less, to exit the market.
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The mechanics of all the leverage and the incentives for the lenders to murder their customers are extraordinary.
The banks are ready to deal with what is coming. A small number of households are not, but the US has never made policy on the basis of what the weakest market participants (even if they own outright they can be weak) can and can’t deal with.
If you think the banks still have skin in the game defending these prices, you’re just plain mistaken. They make more money churning loans. For that you need transactions and for transactions -at some future point – you will need lower prices.
@Brain,
There is a floor for desirable coastal CA RE prices. To think there will be a massive exit is foolish. For every percent down, more potential buyers will show up ready to pounce on a deal. Kind of like last time…
The bigger question is, which of the “strong hands” are volunteering to risk catching a falling knife? The Fed interrupted the last downturn with record low rates, and lenders responded by issuing record amounts of debt to financial institutions. The debt markets are over-saturated. and credit can’t get much cheaper. The “strong hands” may just wind up buying at the beginning rather than at the end of the next bust.
There is a floor everywhere. In the case of whatever hyped up location that is being discussed, notice that the promoter won’t provide specifics for where the floor is.
Instead, they insinuate that it doesn’t have far to fall.
If they knew that for sure, which they don’t, as evidenced by their presence on a housing bubble blog, they’d just put up and buy now because the discount wouldn’t be worth waiting for.
But if it is worth waiting for, then by definition, it’s fallen a good ways down from the top.
@LB
Maybe. But not enough to prevent prices from falling as they are now in desirable locations such as London and New York.
Can anyone explain what happened here? 1 month after escrow closed, the Z-estimate dropped BIG TIME!
http://i.imgur.com/keguCT8.jpg
Did the seller change the info on the listing to do something to the price? This makes ZERO sense. As prices of all the properties in the same zipcode have steadily increase.
So much for skyrocketing rents.
Be sure to tell your mortgage servicer about rental parody and the prime coastal location when you call them to ask for free months of home ownership.
Equity Residential Falls After Third Revenue-Forecast Cut
http://www.bloomberg.com/news/articles/2016-07-27/equity-residential-falls-after-its-third-revenue-forecast-cut
“The sweeteners, in the form of free months of rent, were greatest in New York, Northern California and New England.”
These are the big financial investors that the “skin in the game” mortgage holders should be paying attention to. The lower their revenues, the more likely they’ll liquidate their holdings regardless of the consequences to private prime and subprime borrowers.
Strong hands, meet unraveling basket.
U.S. to Expand Tracking of Home Purchases by Shell Companies
http://www.nytimes.com/2016/07/28/us/us-expands-program-to-track-secret-buyers-of-luxury-real-estate.html?_r=0
“More than a quarter of the all-cash luxury home purchases made using shell companies in Manhattan and Miami were flagged as suspicious in a new effort to unearth money laundering in real estate, the Treasury Department said Wednesday. As a result, officials said they would expand the program to other areas across the country.”
“The expansion of the effort to identify and track the people behind shell companies, begun in March, means that there will now be increased scrutiny of luxury real estate purchases made in cash in all five boroughs of New York City, counties north of Miami, Los Angeles County, San Diego County, the three counties around San Francisco and the county that includes San Antonio.”
“Even though the title companies are ordered to identify the buyers, the burden often falls to the real estate agent, said Aaron Leider, the president of the Beverly Hills/Greater Los Angeles Association of Realtors and owner of the Keller Williams agency in the Brentwood area.”
“They come to us, because who knows the client?†he said. “They don’t know the client.â€
Must be a major election year. Why else would legislators and regulators decide to act after turning a blind eye to the corruption for the past 7+ years? The political donation baskets need to be refilled.
What a million dollars buys in Del Rey: https://www.redfin.com/CA/Los-Angeles/3907-Beethoven-St-90066/home/6740050
The listing says Mar Vista, but it’s south of Venice. That’s Del Rey, no?
Question: from a developer/investor perspective, why is it more attractive to build a 16-unit apartment than a 16-unit condo? Majority of new complexes I see have a For Lease sign. what factors make apartments more attractive to them? Thanks.
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