Some people are looking at cashing in their housing lottery ticket. While many are hunkering down preparing for the rental apocalypse, some are gearing up to capitalize on the crap shack hungry lemmings ready to bite. I remember during the days of the last housing mania getting e-mails about Culver City being the next Beverly Hills. Culver City is not Manhattan Beach or Beverly Hills. I think people need to actually look at the property before making that kind of assessment. I saw a property hit the market recently with a list price of nearly $1,000 per square feet. The house is nothing special and of course with some nice Photoshop filters and some HGTV inspired ideas, someone is trying to cash in big. 920 square feet for $900,000 – or you can drive down about one mile in the same zip code and pickup a fixer upper for $325,000. Rehab work takes time but are people seriously that lazy to leave this much money on the table?
California like the rest of nation has gained a large number of rental households. Many of these households were formed from the ashes of the 1 million completed foreclosures. Over the last ten years the nation has lost 1 million net homeowner households and has gained a whopping 10 million rental households. L.A. County with roughly 10 million residents is predominately a renter county. Over the last ten years the large gain in California households has come in the form of rentals. Maybe you find living with roommates deep into your 30s and 40s as awesome or maybe you enjoy living a Spartan lifestyle just so you can pay your monthly rent while hearing helicopters overhead in your hipster neighborhood. Every piece of research simply shows that people are being pushed into spending more money on housing. Some say move out. Well guess what? Many middle class Californians are doing just that. The rental and housing market has gone into full on financial Armageddon mode yet in typical California fashion, the sun keeps glowing brightly. Ironically over time people think it is normal to dump every nickel you have into housing. Let us look at three trends impacting the rental market in California.
Some people think that all parts of Los Angeles are created equal. Areas with poor performing schools and hundreds of crap shacks suddenly become the next gentrification hub. Most professionals and especially those with young children are not in the mood to send their kids to poor performing schools. But somehow, every area of Los Angeles is now a safe haven with no crime, top notch schools, and fantastic housing opportunities. Whenever you hear this you rarely get a glimpse of what is happening on the ground. When we pulled data for an entire block in Torrance, people suddenly realized that most of the stucco boxes were bought for low prices pre-mania days. When a house does hit the market, we get this new narrative although we are in the midst of a big jump in the stock market, very favorable interest rates, and an economy that is plugging forward. Things ebb and flow and California is boom and bust central. 2.3 million adult “kids” live at home with their parents. People are doubling or tripling up into units to cover rent. So maybe you want to buy your first single family home? Let us look at some deals in Pacoima.
Investors continue to be a big percentage of home sales although overall home sales are rather low. Big investors started pulling back from the housing market late in 2013 and steadily into 2014. But even as that trend continues, we find some states heavily dominated by investors. In more “normal” markets all-cash buyers represent 10 to 15 percent of total sales. These sales in the past largely went in expensive markets rather than investors buying up single family homes to turn into rentals. Big investors have had a good share of activity over the last four years. In this period, institutional investors have bought up half a million homes in targeted markets. While this may be a small portion of overall sales, when this money is targeted in one specific area, rapid price increases can unfold. While California has a large share of all-cash buyers, we find Florida and Nevada leading the way.
Sales volume continues to be exceptionally weak in Southern California. The Taco Tuesday debt lovers are finding that HGTV upgrades on crap shacks are luring in fewer lemmings. People are probably coming to the stark realization that 30 years on a mortgage is a very long-time especially for buying a stucco box with outdated features. There is this blind forgetfulness that has fundamentally erased what happened in 2008. Well we just got a nice reminder with the sales volume figures from last month. The latest data shows that January of 2015 was the slowest January since 2008 which is the record keeping low since 1988. In 2008 the market was in full implosion mode and the end result is that 1,000,000+ Californians lost their homes to foreclosure. And the bulk of these people were in traditional mortgages and not your toxic waste junk that made headlines everywhere. Sales are down 6 percent year-over-year in SoCal from an already slow January 2014 with Orange County and San Bernardino County both seeing 10 percent annual drops. It is also worth noting that the median price in Orange County fell $28,500 in one month. The current median price of $562,500 is already below the $600,000 median price we saw in June of 2014. If it weren’t for the 25 percent of investors in the market, the figures would look even dimmer.