The Federal Reserve conducted a study on Millennials and tried to ascertain why so many of them are living at home. Is it too much student debt? Lower incomes? Or is it that home prices are simply unaffordable? The study finds that all of these factors have a big impact on why many Millennials are living at home and why the first time home buyer market is performing so badly. It also gives us insight into the shifting building demand of new construction. Many builders are focusing their energies on multi-unit structures to cater to an audience that will look for rentals or lower priced condos. There is a heavy renting trend undertaking this country. We are seeing a record numbers of young people living at home with mom and dad heading directly back into their childhood rooms to rock out the NES and attempting to pass Super Mario Brothers once again. There are major implications for housing because of this new structural change. First time home buying is down dramatically. Construction is catering to a lower income cohort. Let us look at what the Fed found in their report.
Flipping is only lucrative on a large scale when you have a strong uptrend in real estate. It is hard to make a sizable profit when markets are more fluid especially when appreciation rates are tied to more historical standards. But California is destined for at least our lifetimes to be a boom and bust state. Given the harder to find deals and the blocks of $700,000 crap shacks in pseudo wealth areas, many would be flippers are inching deeper into the inner city. Time to make those profits in Compton. I’ve noticed that flippers have pulled back for the most part but we still have those chasing profits in many areas across the Southland. I’m sure you have many Friskies eating boomers living in these old areas saying “you are willing to pay what for this place?!†Some are likely to take the golden ticket. Most will live out their days eating gruel and looking at their 30-something or 40-something kids counting the days until they kick the bucket and finally can afford a piece of California housing via inheritance. Yet housing is a live action market. You are either paying rent or buying a place. That is it. So let us look at Inglewood today and a flip that is happening right now.
Being a landlord is no easy task. In the long run owning a rental property can be a nice addition to your investment portfolio but there is nothing sexy about it. Many small time landlords only start to see the benefits many years into holding the property. For the most part, this is why Wall Street and large hedge funds have avoided owning single family homes in their portfolios. That of course changed in 2007 when the market went into full on implosion mode and the mantra of the day was “chase yield anywhere you can find it.†There is this odd notion that somehow all the great deals went to other families that timed the market perfectly. The excellent deals of 2008 to 2011 were happening at a time when the economy was in crisis mode. Some of the best deals to be had were done via auctions and you needed to have a cashier’s check to play so many regular people had no access to this. 7 million foreclosures and many of these are now in the hands of investors. The homeownership rate is a clear indication of this. It should also be no surprise that we’ve added 7 million renting households. How big of a change have we seen? Rental income which held steady between 2000 and 2007 at roughly $200 billion per year is now up 240 percent coming in at $640 billion. Since few people actually own rentals, this is money flowing into a concentrated group.
Higher home values for the sake of higher prices is not necessarily a good thing if future generations of Americans are being priced out of the market. There seems to be this movement that simply ignores the glaring plight of many Americans regarding stagnant incomes and the reality that we have gained 7 million renting households while facing a similar number in completed foreclosures since the Great Recession hit. The system in terms of organic supply and demand was artificially stunted as foreclosures lagged and banks auctioned off swaths of properties to large investors. With this trend backing off we are now left with higher prices but most regular families being priced out. In California you have over 2.3 million adults living with other adults because of financial challenges. Housing is an illiquid asset. At any point, you can buy a share of Google or Apple stock and sell it back practically in the same day. Not so for housing. At any given point only a short supply of total housing is on the market. Currently housing is priced for investors and not your typical family. Forget about younger Americans that are saddled with large levels of student debt and have lower incomes. When it comes to housing, the kids aren’t alright.
Subscribe to feed
