California’s housing affordability is once again in an unreachable level for most working professionals. You get Taco Tuesday baby boomers jawboning their children to purchase a modest home but that turns out to be a rundown crap shack costing $700,000. So many California adults live at home with mom and dad since rents are also high. Redfin put together some data showing that only 17 percent of homes in California are affordable to an average teacher with an annual salary of $73,536. When looking at the data you will see that the coast is becoming an even more expensive enclave and many homes are being bought by investors, foreigner buyers, and dual income households. The last group is the one that is in the position for a large shock since they are buying in many cases to pop out a brood and largely don’t factor in the cost of childcare once the little ones come into the world. But like most things in California, people live on the absolute financial edge and that edge just got much closer.
The last decade has added 10 million renter households. This has happened at the same time that the homeownership rate has fallen to a generational low. Since builders realize that broke Millennials are not going to save the housing market certain markets went into housing mania 2.0. Many people are unable to buy given prices and in many markets home prices are above their pre-market bubble peaks. So with investors and foreigners crowding out the market, we are now left with the current predicament. High home prices and high rents. Rents in many markets seem to be softening. This might be a summer lull or a slight turning point. It is amazing to hear people talk about “stability” but look at this election year! Would you call this predictable? So let us take a look at some rental data.
Buying a home without seeing a property in person is like marrying a person by only viewing their Tinder profile. But house horny people are ready to hump away their savings and lock into a 30-year mortgage matrimony. It is a bit surprising but not all that shocking that nearly one in five home buyers are making offers on homes without even viewing a property, according to new research. When bidding wars ensue and rental Armageddon is all the rage, buying a crap shack may seem like the most reasonable decision. And the psychology behind this is interesting. People will spend hours debating what restaurant to go to on Yelp but are itching to buy a home without even seeing it? This is the manic market we are living in. And in the Bay Area, things continue to get nuttier. The Full House home recently sold for a nice amount of money. Given the occupations of the fictional inhabitants, they would likely live in tents behind a tech incubator instead of that place.
If you want to see what baby boomers are buying, just watch the commercials on 60 Minutes. Between Viagra and Prostate commercials, you will also get ads on remote destination cruises. This is a much older audience that isn’t buying new homes. Many already own homes. Yet they bought during a time when the housing market was much more stable and less prone to the machinations of Wall Street. Now we are in the midst of a renter revolution and are witnessing the lowest homeownership rate in a generation. The baby boomer cohort is 77 million strong but the Millennial generation is 92 million strong. You would think that there would be plenty of fresh bodies to replace the Taco Tuesday baby boomers but it simply hasn’t materialized. Can Millennials save the housing market?
Last week I was driving throughout the Inland Empire and one thing becomes rather apparent. There is a ton of building out in the Inland Empire – this applies to work on freeways, new housing communities, and new commercial development. Also, traffic is a nightmare. Westside traffic is also horrendous. There are many people that make the commuting odyssey each day from the Inland Empire into L.A. or O.C. and that commute is only going to get worse from what I was seeing. I was also in the Bay Area recently and prices there defy gravity. In the Inland Empire you can get a McMansion while in the Bay Area you will get a crap shack for one million dollars if you are lucky. It really boils down to a lack of housing inventory and uncertainty that has made builders anxious since the housing bubble is fresh in their collective memories. But alas, the public is drawn to housing like moths to the light. Being stuck in mind crushing traffic for a brief period only highlights that people are willing to sacrifice quality of life for a piece of the American Dream.