January 2nd, 2019

Real Estate inventory is piling up: Housing market unaffordable to most Californians so what happens next?

Price cuts.  Cookies at open houses.  Listings lasting longer than a few weeks on the MLS.  The housing slow down is now officially here.  Delusions usually end up on a direct path with reality.  Housing is always a lagging indicator of underlying economic activity.  People will fight to the bitter end to save their homes.  Unlike the stock market, prices do not adjust overnight.  However, in places like California the weak performance in the stock market last year is going to hit the bottom line for state tax revenues.  It is also giving pause to VC money that was chasing absurd companies with nonsensical P/E ratios in search for the next billion-dollar unicorn.  But little by little inventory is starting to pile up.  People are opting to rent versus buy or in California, or as over 2 million adult “children” have opted to do, move in with their baby boomer parents.  So what does the rise in inventory signal for 2019?

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December 3rd, 2018

We’ve added 10 million new renter households over the last decade.  What does it mean when renting is now part of the new American Dream?

Since the Great Recession hit, we have added 10 million renter households.  The trend to renting was largely spurred by the crash in the housing market but also over qualifying Americans to purchase a piece of the American Dream.  The trend has slowed down but not in states like California where a renting majority is now solidly in place.  Even Orange County, a place that was once thought an untouchable red region turned all blue.  Then you have places like the Inland Empire that went solidly red.  The bottom line is that many new households are opting to rent versus purchasing a home.  This decade long trend is showing some signs of slowing however as rent price growth is slowing.

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November 25th, 2018

Millennials are not going to save the California housing market:  Nearly half of California’s Millennials live at home with parents.

The housing correction has arrived.  This should not come as a surprise given that the level of affordability is near historical lows.  The real estate cheerleaders continued to mention that money from China and other factors would keep prices moving up at an unsustainable pace.  However, you need more traditional factors to keep the housing market moving up.  Historically in the U.S. the number one factor in housing demand was household formation.  The other was economic growth.  Household formation has favored rentals and also moving in with parents in the past decade.  The economy on paper looks good but for every one good paying job created you had two new “gig” like jobs popping up with lower wages and fewer benefits like healthcare.  Millennials are now in their prime home buying years yet the trend is not supporting the housing market.  And in California, nearly half of Millennials live at home with their parents.  How will that save the housing market when they can’t even afford a rental let alone buying a house?

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November 5th, 2018

Is the Los Angeles housing market in another bubble?  Prices at new peak and up 181% since 2000.  The market is shifting but does this mean a bust?

We are creatures of habit and suffer from historical financial amnesia.  As you would expect, the market is now turning and the question now shifts to how big of a correction we are expecting.  Los Angeles has been in a decade long renting trend where the vast majority of new household formation has come in the form of renters.  I understand that many people on this blog either own or want to own but the reality is, many people are voting with their wallets and rent because prices are simply too high.  So it comes as no surprise now that sales are slumping and inventory is slowly picking up.  The housing market in Los Angeles is up 181 percent since 2000 while the CPI is up 50 percent in this similar period.  When you look at history, there is really no pattern as to how the market will respond and the reality is people do lose money in real estate which for many decades was something you were unable to utter.

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