November 25th, 2018

Millennials are not going to save the California housing market:  Nearly half of California’s Millennials live at home with parents.

The housing correction has arrived.  This should not come as a surprise given that the level of affordability is near historical lows.  The real estate cheerleaders continued to mention that money from China and other factors would keep prices moving up at an unsustainable pace.  However, you need more traditional factors to keep the housing market moving up.  Historically in the U.S. the number one factor in housing demand was household formation.  The other was economic growth.  Household formation has favored rentals and also moving in with parents in the past decade.  The economy on paper looks good but for every one good paying job created you had two new “gig” like jobs popping up with lower wages and fewer benefits like healthcare.  Millennials are now in their prime home buying years yet the trend is not supporting the housing market.  And in California, nearly half of Millennials live at home with their parents.  How will that save the housing market when they can’t even afford a rental let alone buying a house?

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November 5th, 2018

Is the Los Angeles housing market in another bubble?  Prices at new peak and up 181% since 2000.  The market is shifting but does this mean a bust?

We are creatures of habit and suffer from historical financial amnesia.  As you would expect, the market is now turning and the question now shifts to how big of a correction we are expecting.  Los Angeles has been in a decade long renting trend where the vast majority of new household formation has come in the form of renters.  I understand that many people on this blog either own or want to own but the reality is, many people are voting with their wallets and rent because prices are simply too high.  So it comes as no surprise now that sales are slumping and inventory is slowly picking up.  The housing market in Los Angeles is up 181 percent since 2000 while the CPI is up 50 percent in this similar period.  When you look at history, there is really no pattern as to how the market will respond and the reality is people do lose money in real estate which for many decades was something you were unable to utter.

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October 2nd, 2018

Here comes the inventory:  Southern California unsold housing inventory now at 6-year high.  Housing starting to plateau.

It was only a matter of time before inventory started hitting the market and unsold homes started to pile up.  Not that home sales ever saw big volume increases but given the low inventory, any normal amount of homes sales pushed home values into the stratosphere.  So here we are with unsold housing inventory now hitting 6-year highs.  The problem of course is affordability causing a decade long shift for households into renting.  The Southern California News Group came out with 36,923 listings in the four-county region which amounted to a 22 percent year-over-year increase.  Housing markets are slow to shift and this bull market is getting close to celebrating a decade of moving up.  The troubling sign is that real estate is now in a boom and bust cycle and with rates still near historical lows, there is little ammunition from the Fed should things go south.

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August 19th, 2018

The incredibly high cost of construction and more open attacks against Prop 13.  California housing takes a turn.  

There is now a concerted attack on Prop 13 as people with two ounces of common sense realize that no, grandma isn’t being kicked out onto the streets because property taxes are going through the roof.  In fact, there is now evidence highlighting what we all knew and that is Prop 13 is a gift to the “I got mine so screw you” generation.  For example, the majority of people that inherit Prop 13 homes essentially use them as rental homes or second residences.  The issue with this system is that say you buy a crap shack in San Francisco today, it is very likely that you will pay 5, 7, or even 10+ times the amount in property taxes as your neighbors.  No one likes taxes.  And what is odd is that states like Texas, a state that no one can argue is “liberal” has some of the highest property taxes in the country.  People selectively choose which taxes they like and don’t like.  Prop 13 sucks when you don’t own but then if you do buy, your incentive is to keep the rate as low as possible.  And then you have the incredibly high cost of construction in California.  So of course builders are only focused on high-end homes or rentals where they can make their money back.

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