May 18th, 2015

The economics of new home sales: New home prices near record highs but builders are reluctant to build on low sales volume.

Housing inventory continues to remain tight across the United States.  It would seem logical that home builders would be taking the plunge to build homes for future buyers.  But that is a bet that is looking into the future.  Builders continue to bet with their budgets that the United States is deep in a rental trend.  Keep in mind that new home prices are going up steadily.  Yet the push up is coming on lower volume and higher priced homes going to a smaller portion of the population.  Investors are largely not interested in new homes with higher premium prices. They are largely focused on discounted prices from existing home sales.  The big investors are largely out of the real estate play.  Going back to every recovery from the 1960s, new home sales typically take off once the recession is officially over.  This recession officially ended in the summer of 2009, nearly six years ago and still there is no sign that new home sales are leading this recovery.

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May 15th, 2015

You can’t afford to live in California: It would take the typical family 35 years just to save for a 20 percent down payment in San Francisco.

One of the biggest reasons why people “need” to buy a home is to expand their family.  And when I say expand, I mean having a baby.  It is always interesting to see the carefully planned budgets but in many cases, daycare costs are not factored in or how much additional costs a new mouth to feed will be.  And one baby is just the start.  Why is this important?  Because people choose to enter into major life changing events simultaneously.  That is, taking on the purchase of a home and starting a family.  I bring this up because I get many e-mails from people saying “my spouse wants a baby and our apartment/rental is too small so we need to buy.”  Yet for the most part, we get calculations based on two incomes and these don’t factor in the big cost of daycare for many.  For example, in a place like Pasadena daycare can cost you $1,400 a month.  That is a nice chunk of change.  The LA/OC market is already incredibly unaffordable.  In San Francisco it would take the typical family 35 years just to save for a 20 percent down payment.  That is why the typical family is getting pushed out of these markets.

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May 12th, 2015

Mapping out the Los Angeles Gentrification: 10 years of home price changes in Los Angeles County.

There was a story that I read recently about a man living in Venice that rented out his apartment and then lived at his office for 500 days.  Why?  Because the rent is too damn high!  The LA/OC mega-metro area is now ranked as having the highest rents relative to what the locals make.  So it was no surprise to find out that someone took the next logical step of renting out their Venice apartment and simply camping out at work to save up some cash.  This is of course is an extreme measure but there are countless others having to double and triple up with roommates just to get by.  The idea that somehow sky high housing costs are good for the economy is a misnomer.  All that happens is more money is sucked into the real estate sector.  Housing is shelter at a basic level whether you own or rent.  Even for those that own, you have to sell to unleash that hidden equity.  And as many Taco Tuesday baby boomers are finding out, many won’t sell because their adult kids are moving back in with big student debt and are having a tough time affording local market rents, let alone venturing out to buy a $700,000 crap shack.  There has been a massive disparity in home price increases over the last 10 years in Los Angeles and mapping this out is really fascinating.

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May 8th, 2015

Rental Armageddon continues: Federal Reserve shows housing to be a big push in household net worth yet we are hitting a generational low of actual homeownership.

The Federal Reserve recently released household net worth figures and what was found in the report continues to follow the theme regarding a shrinking middle class.  Wealth jumped nicely at the upper-end of the income spectrum but overall, the cubicle hamster isn’t doing all that well.  The recent improvement in home values has helped but this largely has helped investors since in the last decade we have gained 10,000,000 renting households while losing 1,000,000 homeowners.  The figures are interesting and are already creeping up in the pontificating that comes with any political season.  At the core, a healthy housing market is one where owner-occupied buyers dominate the bulk of home sales.  That is simply not the case.  This is how you have well paid tech workers in San Francisco cramming into a 2-bedroom apartment like a clown car simply to get by.  One thing that is certain from the overall trend is that larger investors are pulling back from the market dramatically.

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May 4th, 2015

Targeting the deal seeking flipper in Los Angeles: 3 homes all in the $100k price range. Low range fixer uppers still on the market.

I usually get e-mails from people mentioning that no deals are to be found in this market.  Unfortunately some of these people are targeting very specific markets.  As of today, the LA/OC market is the most overpriced in the nation based on what those in the area make.  Yet there are deals to be found that meet many of the criteria of buyers: proximity to city hub, weather, and being in L.A. County.  Today we’ll show you three homes that are currently on the market and are apparently targeting potential investors.  All these homes are in Los Angeles and meet the proximity, sunshine, and traffic prerequisites.  As we know all areas will gentrify eventually so why not be part of the expedition troop to hipster out these properties?  Let us take a look at three properties in Los Angeles that carry a $100k price tag.

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