One of the typical lines lobbied by cane wielding house humpers is that renters are low income households that simply have no choice but to rent. The implication is subtle on some fronts but others choose to use a 4×4 of clarity by saying renters are simply poor people. Clearly these Taco Tuesday Jimmy Buffet loving fans have failed to take a look at rental rates in San Francisco. They also use an outdated model of the world where Don Draper was the model of success puffing away long and hard on that cigarette. Even in “prime” neighborhoods I am surprised at the lack of tech knowledge by some of these people living in million dollar homes. Some folks just have a hard time seeing that they bought a lucky scratcher at the right time. In fact, new data shows a rise in wealthy renter households. And in places like San Francisco, there are actually more households making over $150,000 per year that choose to rent than own. Clearly a household that is pulling in $150,000 or more a year is not “dumb” or low income.
One thing you can bet on is the unexpected. The big bet was that nearly a decade after the housing bubble peaked and then imploded, that young buyers would suddenly enter the real estate market in force. Instead, many are living with parents or are part of the renting revolution. Of course the housing cheerleaders continue to champion a bubble in real estate yet somehow scratch their heads at the political ramifications that are hitting our country. Just like in politics, we are living in a massively divided real estate market. The difference in real estate however is the group of people that can afford current home prices grows smaller and smaller. Millennials, the next wave of supposed buyers never materialized. What you had is low inventory, investors, artificially low interest rates, and foreign buying taking up the slack. Even in California, we have 2.3 million young adults living at home with their parents. The latest data shows that instead of taking on mortgage debt, Millennials are racking up large amounts of student debt.
With a new administration coming into office in 2017, it might be useful to examine what potential policies will be enacted that may have an impact on housing. The market responded to the election results as if it were a Black Swan event. Most of the comments preceding the election almost assumed it was a foregone conclusion that Hillary Clinton was going to be the next President. Clearly that was not the case. The bond markets had an immediate sizable reaction. We still don’t have the full details on how things will change but there are some changes planned that may have an impact on housing. It is hard to see how rental Armageddon changes because of this. The overall challenges for housing will continue to persist and the Taco Tuesday crowd will continue to imagine that any move is good for housing. So what does a Trump administration mean for housing?
Leave it to the Bay Area and Silicon Valley to outshine us in Southern California when it comes to commutes. San Francisco has already shown us how certifiably insane real estate prices can go. Now we find out that Silicon Valley and the Bay Area have a higher percentage of commuters stuck in what we call mega commutes compared to the Satan inspired roadways of SoCal. A mega commute is cutely described as one that takes you 90 minutes or more each way to complete. First of all, we already have an army of people that take mega commutes from the Inland Empire into LA and OC all for the sake of owning a piece of real estate in what essentially is a hot desert. Even if this means sitting for unhealthy lengths of time clutching a steering wheel or starring at the tail pipe of cars for hours on end. Humans are not meant for this. We didn’t evolve to sit in nice leather seats in a BMW moving along at an average rate of 5 MPH. Hence the number of road rage incidents are now up along with YouTube views. Frankly, driving up in the Bay Area and Silicon Valley I see little difference in traffic congestion. This is one award that you probably don’t aspire to have.
When it comes to all cash buying people usually think of select housing markets in expensive cities. While this is true in places like San Francisco or San Marino, there are currently some lower priced markets where all cash buying is massive. Many cities in Florida have close to half of all home purchases being made by all cash buyers. Cleveland is also seeing a similar trend as well. Investors are aggressively targeting lower priced housing markets to load up on properties. Investors in large numbers pulled away from expensive cities in California over a year ago. Value is being seen in other areas where all cash buying is dominating.