October 18th, 2014

Rental fury: The trend for renting continues to grow stronger. Housing starts jump largely on the back of multi-family housing starts.

There was an odd sort of rejoicing last week in the midst of market volatility.  Housing starts jumped but the people pointing at this failed to grasp that a large reason for this was because of multi-family housing starts.  In other words, the demand is reflecting a nation that is becoming a renter class.  This trend reflects a new workforce that has more part-time employment and less job security than the previous generation.  Why would you buy a home if your employment is more volatile?  The numbers are clear and we have added over 7 million renter households in the last 10 years.  Right now we are at the peak of renting households.  However, we peaked for homeownership back in 2006.  Since 2006, we’ve actually lost about 2 million net homeowner households.  No need to worry since Wall Street has taken up the slack to purchase those single family homes and convert them back into rentals for the new modern day serfs.  The renting trend continues and the jump in housing starts reflects a change in home buying perception.

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October 16th, 2014

Home ATM is open for business again: Home equity lines of credit up 21 percent from last year. Up 55 percent in the Los Angeles and Orange County metro areas.

I love the antiquated notion that most people buy their homes to live in forever. To setup roots. But the underlying reality is very different. Most people stay in their home for 7 to 10 years. In places like California, a first home purchase is considered a “starter” home until you property ladder your way up to your dream home. We recently noted that Los Angeles and Orange County are the most overpriced rental markets based on local wages and employment prospects. People live beyond their means to different degrees. So it is no surprise that recent home equity line of credit (HELOC) data shows that HELOCs surged 21 percent year-over-year. Not at all surprising, HELOCs for the Los Angeles and Orange County metro areas jumped 55 percent. We barely have one manic year of prices and all of sudden homeowners are ready to tap out their equity. Setting roots? More like leveraging your way into a life built on debt that crumbles once the next recession hits.

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October 12th, 2014

When the euphoria in flipping slows down: Culver City small home with large price tag. Sales volume continues to slow.

People have a hard time understanding that low interest rates in today’s market are largely a reflection of a negative outlook on the economy.  Central banks around the world are more concerned about financial assets and the secondary impact on real estate is just that, secondary.  The market took a beating last week and you get people saying “hey, at least rates will be low for that $700,000 crap shack!”  This is the kind of isolated California logic that puts people into a bubble regarding macro trends.  It is also the same kind of reasoning that caught so many people off guard during the last crisis.  We recently noted that the L.A./O.C. rental market is the most overvalued in the nation.  Why?  Because local incomes don’t justify current prices hence the 2013 mania brought on by outside money forces (i.e., domestic investors, foreign money, etc).  That money pulled back this year.  Now you have locals blowing through wads of cash and all it means is people consume a large portion of their pay to live the SoCal lifestyle.  A fake it until you make it approach supported by debt.  We see this trend permeate into small homes in select zip codes as people go haywire just to get in even if the home is not exactly a “player” home.  Today we take a trip to Culver City.

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October 8th, 2014

L.A. and O.C. least affordable rental markets: Rental market is at odds with weak employment growth and weak income figures.

It should come as no surprise that the L.A. and O.C. housing markets are the least affordable in the entire nation. That is right, even more unaffordable than San Francisco or New York. Why? Because even though New York and San Francisco have higher rental costs, people make more money. Should be common sense but it should be apparent that people in SoCal like stretching their budgets. It might be the Hollywood allure of “acting” rich instead of actually being wealthy. Fake it till you make it. Hence the broke older homeowners with their boomerang adult-children coming to live back home. Rents are paid by net income. There is no extra mortgage leverage that you can squeeze out of a rental payment. You either make the monthly payment or you don’t. And seeing this data simply confirms that many in SoCal would rather act the role of being rich instead of taking steps to being wealthy.

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October 6th, 2014

Young and not buying into the American dream: Homeownership among young households is simply not picking up and shifting demographic trends.

If the American dream means owning a home, many younger Americans are opting out of that dream.  Part of the reason may be a generational shift in having smaller families and a growing number of dual income no kid (DINK) households.  That is part of it but a bigger reason is many younger Americans are financially in poor shape and unable to buy.  Many are now part of a growing renter class.  The recent Census data shows no reversal in this trend.  Why would it?  Many young Americans are also carrying high levels of student debt and in high cost areas like California, 2.3 million young adults are living at home with their parents because of financial challenges.  This change has also impacted home builders since there is less of a need for large new homes when the demand is more for affordable rentals.  Builders are keen to see this and that is why multi-family building permits are way up.  What impact will this trend have on the housing landscape of America?

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