People lose perspective all the time when it comes to housing. In California we have this deeply rooted #YoLo movement where people are willing to spend every nickel in their wallet for rent or leveraging into a crap shack. The buy now or be priced out forever rhetoric was strong in 2013 and 2014. Today it has waned as people regain their senses one by one. As investors pullback current prices are meeting a pesky wall of resistance called “income” even though all you need is basically five percent down and two working stiffs to buy. So it should be no surprise that when banks run the numbers not many families qualify because of debt-to-income ratios. Culver City is a perfect example of a mania in action. People want to buy crap shack number one to leverage into a bigger home. Of course this assumption is all based on a greater fool theory and California is boom and bust central. Numbers don’t adequately show the full story. Let us take a look at what we can buy for $700,000 in Culver City today.
Millennials have a very different perspective on the housing market compared to their parents. I’m sure many a Millennial has talked with their parents and realizes that being chained to a massive mortgage is not exactly part of the American Dream. Beyond this difference in thought, many younger Americans are simply not in a position to buy especially in high cost states. In California we have 2.3 million adults living at home with parents. And they are living at home because of financial issues. Many in fact cannot afford the high rents in expensive metro areas. So it is no surprise that a recent survey found that 6 out of 10 Millennials would rather rent than buy. Now why is this important? It is important because people don’t just make the biggest purchase of their life on a whim. Even for the pathetic 5 percent down payment, you actually need to put money away given you’ll need those funds at closing. It takes a bit of planning but it appears that most are just not looking to buy. And the market stats reflect this. First-time home buyers now make up a record low percentage of all home sales. Millennials are saying no to buying homes.
Whenever the mainstream press talks about the housing market they rarely provide pictures of the crap that is selling. They speak in overall glossy trends with flowery language but fail to put a picture to what is actually selling in the market. The rent is already too damn high for most in SoCal but many continue to live paycheck to paycheck enjoying the glorious weather and sipping on frappuccinos even if it means sleeping with roommates in bunk beds to cover the rent deep into your 30s and 40s. Apparently the sun wasn’t shining in 2007 when the market went bust. The momentum from 2013 and 2014 has definitely hit a wall as hipsters move into gentrifying neighborhoods crossing their fingers a Whole Foods market will somehow turn their bet into a quick profit. Again, I probably don’t need to remind you but you actually need to sell your place before cashing in on that equity. Today we’ll take a look at three homes currently selling in the Los Angeles market. These are active listings and you can go on out and buy them right now. Do you want to be priced out forever? Make sure you lock in the sun, beaches, freeways, and avoid being priced out of your next hood.
Last year there was a report highlighting that LA and Orange County ranked number one in being the bubbliest housing markets in the US. The report essentially found that people in the area lagged in income relative to housing values compared to folks in New York or San Francisco and most in SoCal basically funneled a large portion of their net income into housing. LA and OC are also expensive to rent in. An article caught my eye stating that that the regular Angelino needed to make $33 an hour just to rent a basic apartment without eating Purina dog chow every night. This post came across my social media feed and I dug through the comments. I was impressed by how many people posted something along the lines of “me and my roommates split the rent in X area for an apartment” and how many other comments from those out of the area were stunned by the basic cost of an apartment. Hey, SoCal is expensive. I think most reading here have the means to buy but rent or own their home outright. Short of you buying a home with a suitcase full of cold hard green cash, you either pay rent to a landlord or a mortgage payment to a bank. The 2.3 million adults living at home with parents are probably not fretting about housing prices or rents. The issue with SoCal is that people are treading on razor thin budgets just to get by even in rentals.
How often can you go back to the low rate well? That seems to be the question at least when it comes to low interest rates. I heard an analyst say that the bulk of low hanging fruit already refinanced so small basis point moves are simply not going to make an impact on refinancing activity short of home values going higher. I would also add that sales volume is not going to jump significantly because of a few basis points given current levels. The higher price amount is constrained by a variety of factors including stagnant wage growth. Younger Americans that make up the bulk of first time buyers are largely absent from this market and many are living at home with parents. Headlines were raging that mortgage applications soared in the last reading. But when we look at the data, it looks like a blip on the radar screen. Who needs a mortgage? Anyone that isn’t the Wall Street investor buying crowd or foreigners that purchase properties with all cash offers. Given how low mortgage rates are, you would expect more people to be buying into this momentum but they are not. Why? Rates have been low for some time now and it is rather apparent that investor buying was a large push for higher prices, not regular families buying up homes.