Last year there was research showing that L.A. County was the least affordable place to rent and this imbalance was leading to rental Armageddon. The research of course highlighted what most of us with reasonable minds already knew and that was based on local household incomes, prices were out of control. Prices were being driven up by outside factors like investors, flippers, foreign money, and those willing to leverage every penny into a 30 year mortgage. A more recent UCLA study continues with this trend showing that L.A. County is now the least affordable place to buy a home as well. Wait, isn’t San Francisco or New York more expensive? Absolutely but households earn more so their ratios aren’t as in insane as in our all hat and no cattle beach paradise. Someone I know that lives a few miles from the beach spent one hour driving to the beach this past weekend and another 30 minutes fighting to find parking. We do have great options here but 10,000,000+ people fighting for the same spots can add some constraints. So now that we know L.A. County is the most unaffordable, what else did the study find?
I wanted to continue in the vein of high housing costs in Northern California because the mania is so out of control. People are funny creatures. Everyone wants a piece of their own cave and some are willing to pay every penny of disposable income to live in a certain zip code. That is until, the mania fades out. I saw a lot of this during the first tech boom in the late 1990s. We are in deep and frothy territory here and valuations are out of control for many tech firms. Bay Area housing is largely driven by the stock market and VC money flowing into start-ups for those hard to find unicorns. Like the old school gold rush, those running side hustles seem to be doing well catering to this new tech mania. Many readers sent over an article about an enterprising person that has a warehouse full of shipping containers. What is he shipping? Your hopes and dreams for affordable housing in San Francisco.
San Francisco real estate is operating in a bubble only understood by venture capitalist running start-ups with no net operating income yet generating millions in funding phases. Sell the sizzle and not the steak. The gold tech rush is in full swing. San Francisco real estate makes Southern California housing look like a timid and shy teenager in comparison. San Francisco County has about 850,000 residents (compared to Los Angeles and our 10,000,000 residents spread out across a massive amount of land). We do share one thing in common and that is both counties are heavily dominated by renting households. But in San Francisco renting is by far and away the most common form of living (63% of households rent). One thing that is standing out is how out of control real estate prices are in San Francisco. The latest report shows that the median home price is now selling for more than 34% from the previous bubble peak! You have to see the actual nominal numbers to see what is unfolding.
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.