Who would have thought that a first in a generation pandemic would actually be a good thing for housing values? While the economy is facing new challenges including major supply chain issues (just look at the shipping costs for containers from Asia to the US) you start to realize that there has been a massive amount of money injected into the economy. While many people are getting stimulus checks, trillions of dollars have gone into the hands of the corporate welfare machine (usually benefitting those that are hardcore free market types). Also, in many high-cost metro areas you still have money flowing in from investors and in parts of California you still have foreign money coming in, largely from Asia buying homes with no contingency requirements and fast close promises. So no surprise that even for a professional working couple buying a home right now with limited inventory is problematic. However, much of this is because of a stunted market with inventory. As a new report highlights, inventory is set to increase by 15% over the next few months because of people exiting forbearance periods.

The attention span of people is slightly above that of a cat thanks to social media platforms that rewire the brain for instant gratification, including on the financial front (think of all of the meme stocks and Robinhood). All the cheerleading that is happening for real estate is largely socialism for real estate. That is, a Fed that is pumping easy money artificially into the market to inflate prices for those that already own. So not a shocker that 2.3 million California “young adults” are living at home and many are waiting until their Taco Tuesday baby boomer parents take a dirt nap from one to many street tacos until they can inherit the home. Don’t believe this? Go read some forums and you will be surprised what this distorted market is doing to people. But don’t worry! Help is on the way. As housing prices reach a peak, our good old friend, the no down payment loan is showing up to the party with a bit more alcohol and financial meth to keep things going.  

This past weekend I was looking at communities across the United States that are now being built to house renters. So why is that even worth mentioning? Rentals are always part of the housing mix typically in the form of apartments. Yet this is something different in that it is a suburban built cookie-cutter individual home market that can easily be selling these homes, but instead they are designed for rentals. Welcome to the United States of Renters (USR). As I’ve discussed before many Millennials are built for rental properties. You usually hear from Taco Tuesday baby boomers that housing is the only option on the table. But the reality is, housing is a drag on the economy in terms of innovation. What is more innovative, designing an iPhone, Tesla, supply chain machine like Amazon, or building a home? Newsflash, people have been living in homes since humankind has been around (from caves to huts). So to have an insane amount of money going to a housing payment keeps discretionary money from funneling back into the entrepreneurial side of our economy which is really what separates our country in terms of innovation. That is, until we get too obsessed with real estate as we did leading up to the last housing bubble. The good news however is that the market is adapting to providing more rentals to Americans and the demand is not slowing down.

Depending on what you read, you are living in parallel universes regarding what is happening in California. On one hand, you have the world is ending narrative and that people are moving to greener pastures to places like Texas. That narrative took a hit when the Texas grid went off the rails because no man is an island. On the other hand, you look at California real estate prices and they are going up as if no pandemic ever happened. This applies to most metro areas. Real estate supply is low and house humping people are willing to FoMo since they fear they will live in an apartment for the rest of their lives if they do not act now. Also, California’s budget is now flush with cash which reinforces the idea that things are going well. But when you look at the data, something is very clear. California is drawing in people with college degrees and those that do not have a college degree are largely leaving. Let us look at the data.