A record 34.5 percent of Millennials live at home with their parents in California. This rate is higher than the national rate of 30.3 percent which is already incredibly high. There is ample evidence suggesting that Millennials simply do not want the same things as their Taco Tuesday baby boomer parents. And many simply don’t want the McMansion aspiration since many are going to have small families. This is an interesting shift. Boomers are trying to off load larger crap shacks to an audience that is more interested in smaller more centrally accessible properties. In California, those young adults that aren’t living at home are likely living in a rental and paying close to half their income on housing. Good luck saving that 20 percent down payment on a $700,000 crap shack (or $1 million crap shack in the Bay Area). So why do so many young adults live at home if the recession ended in 2009, more than half-a-decade ago?
California has a severe housing affordability problem and much of it is brought on by its own laws and regulation. The state suffers from a deep and profound form of NIMBYism. While it is clear that there is a rental crisis and buying a home is out of reach for many younger families, the status quo continues to march on because of entrenched NIMBYism. It is hard for some to imagine California home prices tracking nationwide trends but they did for an entire generation between 1940 and 1980. Then, thanks to wild speculation, regulations, and the introduction of mania inducing mortgages, California started marching to a different beat. The tech market and Hollywood like marketing of the perpetual sun made this a destination of choice. Now typically when demand arises supply is there to meet the need but not so much in California. But those who got in early were too busy protecting their plot of land with local building regulations, zoning restrictions, and things like Prop 13 that basically rewarded those who “got here first” yet provide little economic benefit moving forward. It also creates a dangerous boom and bust system where things are fine as long as the stock market is rolling along. Let us look at some figures here.
You know it was only a matter of time that the Bay Area real estate madness was going to be captured in a new documentary. The documentary seeks to highlight the plight the middle class in California is having in affording housing. Forget about buying a home, many are struggling to pay the sky-high rents that plaster the Bay Area market. The tech sector is making the epic gentrification accelerate and with 24/7 media coverage, we are seeing it happen in real-time. The Bay Area is home to the $1.2 million crap shack that is basically the standard piece of junk property. It is interesting to see this story being told through documentary format and it is a counter to all the house-humping TV shows that are out there plastering cable. What is interesting is the documentary looks at how the middle class is getting squeezed right out of the market.
It is pretty safe to say that housing has become like a stock in many markets across the United States. People need to carefully evaluate many factors before buying and things are moving at a much faster pace in our globally connected economy. The market is complex and in some areas big investors and foreign money create even more complicated scenarios. The idea of simply buying a home and enjoying the spoils isn’t so clear cut anymore. If it were a simple decision we wouldn’t be debating the merits and you certainly wouldn’t have the Fed chasing interest rates lower trying to keep the debt game going. But in this current environment, we are betting. Some are betting that home prices will continue to rise despite stagnant income growth and the precarious leverage some households are taking just to own. For many in SoCal their retirement strategy suddenly becomes a “one asset” portfolio when they put their large down payment on their crap shack. Let us run some numbers on buying and renting in Culver City.
I love the hipster perspective when it comes to selling homes in certain SoCal enclaves. Some areas use subtle language like “creative” or “artsy” location meaning they want you to be the new wave of pioneers that gear up and gentrify a neighborhood. Los Angeles is a massive area where per capita GDP isn’t as high as people like to believe. This reality based on household income has led us into a precarious situation where renter households and owner households are living on the edge when it comes to meeting monthly bills. Renters spend nearly 50 percent of their income on paying for a lease while homeowners are blowing through 40 percent of their income. Most mainstream reports never bother on showing you what you get with the actual money you put down. Today we highlight a wonderful little house in East Hollywood.