The latest Census figures show a very dismal situation for the housing market. The US homeownership rate has plunged to a 48 year low and the pipeline for future buyers is simply not materializing. We’ve noted that in places like California the big push in prices has come in the form of big investors, foreign money, and the ever present flipper brigade. Yet this trend is not only a coastal phenomenon. Contrary to stucco box sarcophagus loving boomers, the US does not revolve around Southern California. Big shock, I know. Large metro areas around the nation are following a similar path. The next generation of home buyers are priced out and many are viewing homeownership as a lofty if not impossible goal. Rents continue to rise and thanks to the big buy by large investors over the past few years, inventory has been siphoned off the market and regular families have been left in the lurch. We are quickly becoming a nation of renters.
Venice is an interesting place. I’ve always enjoyed the unique atmosphere and it can be argued that Venice was one of the leading hipster enclaves in Southern California. It was cool before it was cool to be cool. Similar to San Francisco, old homes are being sold for ridiculous amounts of money. We recently featured a home in Venice that had 0 beds going for over $1 million. That is how crazy things are getting in SoCal. But there is definitely more of a feeling of “get out at the top” versus “I’m buying to ride some more appreciation” sentiment. Venice has gotten wildly expensive. Even just a few years ago visiting friends in Venice you were entering questionable neighborhoods where it didn’t seem safe. But hey, who needs safety when you can live the life of luxury in a crap shack? Is it any wonder why there is a steady migration out of California by the middle class? Let us take a look at a home in Venice and get your thoughts on it.
I’ve talked about the reality that many native Californians have been leaving the state in droves over the past decade. Many are moving to lower cost areas much to the dismay of locals in places like Texas. The California effect has impacted many areas in the Southwest driving real estate prices higher. An interesting article popped up in my feed this week about the top 20 areas where Americans are ditching. No surprise, the Los Angeles metro area is right on the list. Reasons for people leaving the area? Ridiculous housing prices and people not wanting to live like sardines and pretend they are living the highlife. The poser crap shack buyers are somehow deluding themselves thinking that all of this is sustainable and good for the economy but all it does is recreates a favela like atmosphere. The LA/OC area is already the most expensive in the nation relative to incomes and home prices. You would think San Francisco and New York would lead the list but people in those areas actually make higher incomes overall. Let us take a look at this trend more deeply.
It is very true that most people are only focused on the monthly payment. Most in California inflate their lifestyle up to their paychecks. That is why you have many older people now looking into the long path of retirement with little in savings. They expected to live like millionaires but realize that their housing equity doesn’t send them a check each month. It is also hard to live like royalty when the adult kids are back home in their rooms. I’ve heard it said incorrectly a few times so I thought I would go into the total cost of owning a home more clearly. Someone said “if I pay $700,000 for a home that is all I will ever pay whereas in rent it is never ending.” First, there are never ending costs associated with a home including taxes, insurance, and maintenance. Second, there is a little thing called “interest” and this is so vital, that it makes banks the rulers of the world. Let us first dive into the cost of owning a home first.
Whenever you read dry economic articles on housing that attempt to justify high home prices there is always the fascinating lack of pictures. As they say, a picture is worth a 1,000 words and in the case of a crap shack, a picture is worth a thousand tacos. Some people are getting out of Dodge (or Compton) and trying to sell into the larger gentrification meme. I went to a few lower priced neighborhoods this past month to see if any deals were present. The one thing that struck me is the increasing growth of cars per house. It was already high before but the number this time blew me away. It would appear that 4, 5, or even 6 cars per household were common in these areas. The congestion on the street reminded me of New York parking absent the skyscrapers. You also have the standard car stationed on the lawn on a few homes on the block. Keep in mind these were in so-called hipster hoods where one Whole Foods was enough to justify a $700,000 crap shack. Ultimately inventory is rising and people are slowly coming to their senses. I’m always stunned that some feel they missed out on buying a crap shack. So buy today. If your plan is to stay put for 30 years, why are you trying to time the market? This is speculation and you might as well speculate with the stock market. Just to give you a taste of the craziness, let us go in search of some of the smallest homes available for sale today in Los Angeles.