October 2nd, 2018

Here comes the inventory:  Southern California unsold housing inventory now at 6-year high.  Housing starting to plateau.

It was only a matter of time before inventory started hitting the market and unsold homes started to pile up.  Not that home sales ever saw big volume increases but given the low inventory, any normal amount of homes sales pushed home values into the stratosphere.  So here we are with unsold housing inventory now hitting 6-year highs.  The problem of course is affordability causing a decade long shift for households into renting.  The Southern California News Group came out with 36,923 listings in the four-county region which amounted to a 22 percent year-over-year increase.  Housing markets are slow to shift and this bull market is getting close to celebrating a decade of moving up.  The troubling sign is that real estate is now in a boom and bust cycle and with rates still near historical lows, there is little ammunition from the Fed should things go south.

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August 19th, 2018

The incredibly high cost of construction and more open attacks against Prop 13.  California housing takes a turn.  

There is now a concerted attack on Prop 13 as people with two ounces of common sense realize that no, grandma isn’t being kicked out onto the streets because property taxes are going through the roof.  In fact, there is now evidence highlighting what we all knew and that is Prop 13 is a gift to the “I got mine so screw you” generation.  For example, the majority of people that inherit Prop 13 homes essentially use them as rental homes or second residences.  The issue with this system is that say you buy a crap shack in San Francisco today, it is very likely that you will pay 5, 7, or even 10+ times the amount in property taxes as your neighbors.  No one likes taxes.  And what is odd is that states like Texas, a state that no one can argue is “liberal” has some of the highest property taxes in the country.  People selectively choose which taxes they like and don’t like.  Prop 13 sucks when you don’t own but then if you do buy, your incentive is to keep the rate as low as possible.  And then you have the incredibly high cost of construction in California.  So of course builders are only focused on high-end homes or rentals where they can make their money back.

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July 29th, 2018

The housing market is now entering a visible slowdown – affordability challenges, low inventory, and higher interest rates are now coming home to roost.

Real estate cycles turn as slowly as a massive cruise ship.  Unlike the stock market where a stock like Facebook can fall 20 percent overnight, real estate tends to boom and bust at a much slower rate.  There is an odd logic to the current market.  “We bought a few years ago and look how late to the game you are!”  Then when asked if some would buy today, “no, but it can only go up!”  Coming from an investor mindset, if housing values are priced in a good range you should buy, just like you would buy an undervalued stock.  When you are spending $1 million on a crap shack, you need to do some serious due diligence.  It is odd that house humpers always use the “but you can’t treat your home like an investment” line and then talk about how reasonable it is to pay for an absurd amount for a property in a subpar neighborhood with underperforming schools. Then they compare real estate to stocks!  Of course it was a matter of time where the market would hit a bump and here we are.  Even Robert Shiller hints at this being a turning point.

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June 27th, 2018

With fewer people being able to afford homes, Freddie Mac seeks widespread expansion of 3% down mortgages.

Low down payment mortgages are creeping their way back into the market like a cat sneaking up on an unsuspecting mouse.  The only difference here is that the mouse is a million dollar crap shack with a 30-year mortgage attached to it.  People forget that Freddie Mac and Fannie Mae, the massive Government Sponsored Entities were nationalized U.S.S.R. style during the Great Recession.  Now that times are good all caution is being thrown into the wind and we are setting up the stage for Irrational Exuberance Part II.  The U.S. economy is built for boom and bust cycles.  Massive credit expansion is occurring and while people are working, their dollars are not stretching as far as they would expect.  In San Francisco, you are now considered “low income” if you make less than $117,000 a year.  That makes sense when a standard home sells for $1.5 million.  So now we have Freddie Mac attempting to push 3% down mortgages on a much larger scale since many people are priced out.  What can possibly go wrong?

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