October 27th, 2014

Rental rates are outpacing wage growth: What are the implications of rising rents when wages are simply not keeping up?

There are bigger implications to the economy when rental rates are increasing at a rate faster than wage growth.  This is important because we have added 7 million renting households in the last few years.  For the moment, it simply looks like more money is going to be funneled into the housing market versus other segments of the economy.  If your rent went up by $100, that is $100 that is not being spent on other sectors of the economy.  Amazon already showed some hints that consumers are looking tapped out.  Of course the holiday spending orgy is around the corner so we shall see.  Falling gas prices help a bit but for consumers, housing is the biggest monthly line item expense.  Landlords like home sellers are going to charge as much as they can.  And with many homes now being owned by large investors, we are seeing steady rent increases in many markets.  How far up can rents go?  For rental rates, you are capped by what local area households can pay from actual income.  It might be useful to examine the rate of increase between wages and rents.

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October 24th, 2014

The myth of buying a home and staying put: Tiny home in Pasadena reaching peak prices as square footage decreases.

Whenever we see an analysis of the benefits of buying a home there is always this underlying assumption that you will stay put in the same residence for a long duration. Of course, most people in places like California hop on and off the property ladder game multiple times. Repeat sales continually cut into equity gains and also cause buyers to experience new costs as they move into a new place. The assumption also is that you will always be selling into a rising market. That is not the case. Timing matters in a boom and bust market like California. We are seeing more homes being de-listed as sellers wait until next year as if a hidden trove of buyers will emerge ready to buy their crap shack at a hefty price. The market has suddenly softened. We also see many listing having price reductions which was nearly unheard of in 2013. Today we’ll examine Pasadena but also the underlying mentality that people somehow stay put for long durations in properties.

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October 21st, 2014

Time to make it easier for people to get loans with lower credit and lower down payments: FHFA looking seriously at making it easier for cash strapped Americans to take on mortgages.

If you had to write two chapters on the housing market between say 2000 and 2007 and one between 2007 and 2014 both would look incredibly different. One was guided by massive exuberance and a populist movement of giving money to anyone with a pulse. The latest chapter is one guided by big investors and low inventory. This long horizon now brings us to the present. Housing values are up solidly over the last year but not because the general public is diving in head first. This latest push came from a multi-year trend of “cash buying” and investor dominance. That trend has slowed. In order to get more interest again, the Federal Housing Finance Agency (FHFA) is looking at making it easier for the public to get loans. Ignore the fact that this agency has been rebranded since it failed fantastically in the last bubble and is now once again in charge of overseeing Fannie Mae, Freddie Mac, and 12 Federal Home Loan Banks.  Since many in the public can’t muster 5 percent for a down payment or have blemishes on their credit, the FHFA is looking at making things a tad bit easier for people to qualify. Instead of asking why so many have a hard time saving for a down payment or why people have lower credit scores, the banking/government hybrid is looking at making it easier for people to take on big debt with high leverage.

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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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