Yves here. The saying is that as California goes, so eventually goes the US. If so, its trends in home prices are sobering, with a rapid liftoff leading to a sudden air pocket. But even worse for the housing industry is the antipathy that young people now have for homeownership. On the one hand, the lack of interest may be a rationalization: why want what you probably can’t have? Young adults can look at income growth prospects. Unless they are in one of the looting professions like finance, they will probably conclude quite rationally that their personal upside is limited. If they are to buy a house at all, it probably makes sense to have a hefty down payment. The younger cohort appears to have wised up to the fact that 30 year mortgages and short job tenures with potentially long periods of unemployment in between are not a happy mix.
One the other hand, the attitude of young adults may also reflect another way in which workers face too much uncertainty to commit to buying homes: that of the need for job mobility. When I grew up, my family moved a ton. went to 10 different schools before college. That would have been impossible if my father had bought houses and been at risk for selling them. Even if they had held value or appreciated a bit, the transaction costs (closing, brokerage, minimal sprucing up) is typically 5-7% of the home’s price. If you have put down 20% equity, you are looking at losing 25% to 35% of your investment every time you move. That’s a fast path to penury.
Back in the more paternalistic days of Corporate America, my father’s first two employers provided housing (one was so mad when my father quit to go to business school at the advanced age of 35 that they tore down the house we had lived in and turned it into a parking lot). His next employer had a “make whole” arrangement every time it transferred my father (I was not the details, but this general sort of arrangement was common back in the days when IBM stood for “I’ve Been Moved”).
But those sort perks don’t apply when people switch employers, which has become common in the below 40 cohort, both out of necessity and for opportunistic reasons. So again, perversely, the neoliberal project to reengineer the economy to favor capital over labor has undermined demand for the biggest driver of business cycle growth, housing. Nicely played.
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.
This must be part of the explanation why home sales in the expensive parts of California, which is where most people live, are collapsing: according to a Harris Poll on behalf of electronic broker Redfin, 92% of millennials who don’t already own a home do not plan on buying one in the future. Ever.
These people, now between 25 and 34, are in their peak home-buying age. They’re the much sought-after first-time buyers. They’re the foundation of the market. But not this generation. Homeownership rate among them, according to the Commerce Department, already plunged from 41% in 2008 to 36% currently; as opposed to 65% for all Americans [Here’s the Chart that Shows Why the Housing Market Is Sick].
These folks are not “pent-up demand” accumulating on the sidelines, as the wishful thinkers have proclaimed.
“Millennials who flock straight from college to San Francisco and other expensive cities are making a choice to spend their income on quadruple-digit rents and eight-dollar gourmet hot dogs from trendy food trucks,” explained Redfin San Francisco agent Mark Colwell. “This means they’re not saving for a down payment, further removing them from the housing market.”
So Redfin checked Census data to find the 20 Zip codes in the country with the highest population of educated millennials. Median household income in these neighborhoods is 50% higher than in all ZIP codes. Median home prices are on average $255,000 higher as well. And the average down payment for homes in these neighborhoods is $80,000.
A down payment that is out of reach for most millennials. A new report about consumer finances by the Federal Reserve shows that the median family headed by a millennial earned $35,509 in 2013 dollars, 6% less than their counterparts in the Fed’s first survey of this type in 1989. Actually, median households headed by someone under 55 also made less than their predecessors in 1989 (this is what inflation does to real wages; FOMC members who’re clamoring for more, or any, inflation should read these reports from other corners of the Fed).
Many millennials, burdened like no other generation before them with student loans and making less money than their predecessors, are coming to grips with something important: they’re locked out of the American dream of homeownership for years to come. These are the hoped-for first-time buyers, and they’re not buying.
For a while, they were replaced by buy-to-rent investors. Armed with billions from Wall Street, they plowed into the housing market starting in 2011. Their relentless buying has ratcheted up home prices in double-digit increments to the point where these high prices make that business model too difficult. And these investors have been pulling back as well.
The results are not pretty.
In the nine-county Bay Area, homes sales in August fell 12% from a year ago. In San Francisco, they plunged 20%. CoreLogic DataQuick cited “affordability issues.”
And yet, the median price in the Bay Area rose 12% from a year ago. In Alameda County, the median price jumped 19%. In San Francisco, the price rose 14% from a year ago to $940,000.
But wait…. That $940,000 in San Francisco, that’s down from $991,000 in July, and down 6% from the cool all-time high of $1,000,000 in June, and down even from February’s $945,000. Something is going the wrong way.
In Southern California, in the six-county Southland, sales dropped 7.7% in August from July, though they normally rise on average 3.7%. Year over year, sales plunged 19%, the worst August in four years. In Los Angeles, sales plummeted 19%, in San Bernardino 21%, in Riverside 23%.
“Affordability challenges” and investor purchases that had been reduced to “the lowest level in several years” is how CoreLogic DataQuick explained the phenomenon.
But the median price in the Southland rose 9% year over year, jumping 13% in Riverside and 14% in San Bernardino – the two counties where sales had gotten pummeled the most. Go figure.
“Prices are high enough to be a hurdle for a lot of potential buyers, even though mortgage rates have fallen in recent months,” said DataQuick analyst Andrew LePage.
There was a twist: sales of homes over $500,000 inched down only 0.6% from a year ago. But sales of homes below that dropped 16%; and sales of homes below 200,000 plummeted 36%. Turns out, prices at this level have been pushed out of reach for buyers in this category.
Purchases by absentee buyers – mostly investors and some second-home purchasers – dropped to a 23% share, down from the January 2013 peak of 32%, and the lowest since December 2010. Cash purchases plunged to a 24% share, down from the peak of 37% in February 2013, and the lowest since January 2009. Are the Chinese suddenly staying away?
This disconnect between plunging sales and soaring prices is precisely what happened when the prior housing bubble peaked. Sellers are the last to accept the trends as they cling by their fingernails to some notional value of their home and to the tens or hundreds of thousands of dollars in wealth that they thought they already had in their pocket, only to see them evaporate.
They’re finally getting the message, explained Paul Reid, a Redfin agent in Temecula. “A lot of what we’ve seen over the last six or eight weeks is people lowering their prices to get buyers in the doors.”
Orange County, the most expensive market in Southland, is leading the way: about a third of the asking prices have been cut. The dream is over: the price bubble that lasted for two years and that peaked in June with a year-over-year gain of 28% – even as volume was already plunging – has popped.
While a lot of sellers are cutting their asking prices, others do what sellers did when the last bubble began to implode: they pulled their homes off the market for a few months, hoping for better times.
“They feel the price can’t go anywhere but up,” explained Steve Shrager, an agent with Coldwell Banker. Which is like so 2006. “I don’t want to use the word correction,” he said, “but we’re in a bit of an adjustment period right now.”
Everything will eventually sell. It will just take some time, maybe a lot of time. And it will require some price cuts, maybe big price cuts. And maybe, just maybe, if prices fall enough, more millennials have a chance to chase after the American dream.
But for the few people who can play in that rarefied air, there’s a sweet spot: homes above $15 million. Read…. ‘Wealth Effect’ Kicks in: Luxury Homes Are Hot, Rest of Housing Market Gets Hosed
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This review of James K. Galbraith’s latest, “The End of Normal,” may offer some insight into the larger forces at play here: http://marxandphilosophy.org.uk/reviewofbooks/reviews/2014/1102
The link you provide to, “the End of Normal,” review is a perfect accompaniment to the above post. Anyone waiting for the Millenials to turn into the next wave of stable, pleasant-valley Sunday homeowners is ignoring current realities. It is pretty predictable that this boom and bust cycle in real estate is here to stay. Caveat emptor.
Some day J.K. Galbraith will be recognized as one of the greatest.
There are two J. K. Galbraiths. The father, the late John K. Galbraith, and his son, James K. Galbraith.
Thanks Carla. Vewy intewesting. I thought Galbraith’s analysis of why war doesn’t work anymore to control societies – that it can’t work because the old rules for maintaining a functioning economy do not work and hence a war can solve nothing – was the best piece of information I have seen published in 10 years. It should be clear to “the World’s Superpower” that this is the case. The other brave tidbit Galbraith just comes out and says, point blank, is that the GFC was a “vast scheme for financial fraud.” Indeed it was and is. His recommendations for turning this mess around by managing responsible “planned economies” and effectively get the money back where it belongs – to the people – is also brave. The tone made me think Galbraith has lost patience with all the idiots running our country and the dreadful mess called “globalization.” Scary to think that not only has capitalism worn itself out in our country, but almost the entire planet. And so Galbraith’s prescriptions need to be implemented everywhere. I only wish he had tossed a bone to a New Environmentalism. But that might naturally happen if capitalism gets real and stops eating the planet for lunch.
Also, this new book by Galbraith seems to answer my big question about MMT which has always been that I shudder to think what the MIC could do with MMT – even worse than it does now with bribes and threats. But if it becomes clear that war accomplishes nothing and only makes situations worse, then planned economies will have little use for vast military expenditures. Someday.
Scary to think that not only has capitalism worn itself out in our country, but almost the entire planet.
or
Scary to think that capitalism has worn out almost the entire planet.
Youngsters get a triple whammy…. 1) school debt 2) car debt 3) credit card debt. (others exist too like cable, phone, etc) There is no money for home buying.
Government policy is behind the debtors prison and it is setup in such a way so folks are up to their necks in debt early in their adult life making home buying a pipe dream.
Millennials can’t buy homes in places like California for one obvious reason: they cost too much! At best, they are only affordable to a two income (don’t even think about being a stay at home parent) family with BOTH earners in the top 30% of income – how else pay mortgage on a 500-700k or more on a house? Debt doesn’t help, but with those prices houses aren’t affordable for most people, EVEN WITH NO DEBT with debt maybe it pushes them to being only affordable to the top 20% dual income earners whereas if there was no debt at all it would be the top 30%. Sure one has a great advantage if mommy and daddy will help with the down payment, or if you can live at home until your 30 to save up a downpayment, but really those aren’t very practical choices for many people.
But this was deliberate government policy, the ultimate beneficiary was the banks, but it was popular with the masses because baby boomer housing prices had to be propped up (housing prices going down would be just horrible so all the politicians told us). It came at the expense of later generations (well maybe not if mommy and daddy babyboomer help with the downpayment but for most people who didn’t choose their parents that wisely …).
Meanwhile stuff like this is just offensive:
““Millennials who flock straight from college to San Francisco and other expensive cities are making a choice to spend their income on quadruple-digit rents and eight-dollar gourmet hot dogs from trendy food trucks,” explained Redfin San Francisco agent Mark Colwell. “This means they’re not saving for a down payment, further removing them from the housing market.”
They pay high rents because there are NO cheap rents in places like San Francisco. The only choice was living in SF and even then maybe it’s where the jobs were? And I wouldn’t have a problem if someone said save $8 on hotdogs a week and put a few hundred extra in an IRA because at least the math might add up to some degree. But an 80k downpayment is 10 thousand hotdogs!!! The two are not even of comparable scale. Who eats 10 thousand hotdogs even in a lifetime? Completely ridiculous.
Yes if you can’t afford housing anyway then of course housing is inconvenient in some professions due to job changes, and hey CA is overcrowded and over dry anyway … there’s not even water for the population. But many will still choose not to buy housing because it costs too much. I just wish ponzi finance would leave renters the heck alone!!! Yea screw up the housing market so it’s an unaffordable bubble like you did last time in the years leading up to 2008, whatever, have fun. But when these “investors” start buying up RENTALS that’s a very bad sign. Is there no part of a basic market for a basic need (shelter) they can leave alone so people can just live in it without having their lives ruined by finance? Next I suppose they’ll speculate on cardboard boxes!
“Next I suppose they’ll speculate on cardboard boxes!” There really is no bottom to the voracious rent-extraction machine that inflates the wealth of the super-rich at everyone else’s expense. Wealthy, politically connected people are already making money off the destitute by criminalizing activities the poor can’t avoid engaging in. When they can’t afford to pay the fines they become even more profitable for those invested in the for-profit prison industry– with the tab being picked up by those “little people,” too poor to afford to use the same schemes the wealthy use to avoid taxes.
The comment about cardboard boxes was undoubtedly meant to be sarcastic, but it is disturbingly close to the truth. Recall the cages that house poor people in Hong Kong:
http://www.nydailynews.com/news/world/wealthy-hong-kong-poorest-live-metal-cages-article-1.1258661
Wikipedia even has a short article about flophouses, or doss-houses, as they say in Britain:
http://en.wikipedia.org/wiki/Flophouse
At least one of Jack the Ripper’s victims slept in doss houses.
you really hit the nail on the head on all points.
You are so correct that nothing is sacred, and that the rentiers (as opposed to renters) will sink their claws into anything they can, and would surely screw up the cardboard box business as well. They truly do not know how to make an honest buck. Scum institutionalized and seemingly untouchable.
Cars and houses are no longer status indicators for Millennials. They use devices the way their parents used SUV’s and houses to indicate wealth and status. Gas prices and housing costs have removed the cachet from old school indicators so the younger generation is turning to devices to broadcast their hipness and disposable cash level.
I notice the younger people I work with don’t compare cars anymore, they compare phones. Who’s got the newest, how is that screen size working out for you, are you pairing that with any wearable devices…. This game is changing and those left still playing at the table are bluffing.
I agree. I’ve noticed that as well. Actually, they are being practical in this regard. The Millenials, esp, need those devices for a whole range of reasons, many having to do with working and making money. For the same reason, they may need to spend quite a bit on home Internet services, etc. Who has money left after that to buy fancy cars, spend money on gas and save for a down payment.
It’s very expensive to own and manage all of these devices. I’m in a position not to need so many of them, myself. I threw out my tv years ago and have never subscribed to cable or had a home Internet account bc I live close to where I work & use my work PC for personal use (with my supervisor’s approval, of course). I am lucky that I have this option, as it saves me lots of money.
Most people have to pay for all of these costly fees, subscription services, etc. Cost of living these days includes a LOT of expenses that didn’t exist even 15 or 20 years ago. For ex, my Smartphone monthly rate is $70 (which is on the “low” side). I used to only pay about $25/month for my “dumb” phone service, plus extra fees for long distance (which I used sparingly). Admittedly, I get Internet with my Smartphone, but it’s nearly 3 times as much as I used to spend on phone service.
Wolf doesn’t mention the new trend in multi-family housing. It’s booming in both high and low end markets. Condo complexes are going up in all the high-ticket markets – big cities – everywhere. And lower end markets are getting a cheaper variety aimed at renters. The problem is that logic tells us these multi-family developments should be near industries which are usually near big cities and that is going to be the new high-end market. So catch-22 again. Yay for capitalism and the free market always discovering the correct price point! Also recently on CNBC Toll Bros. stated they were leaving low-end markets and were going to concentrate only on the high end. That should be an interesting glut.
Something that has been done in pricey California for decades–renting out rooms in suburban single family homes–is now becoming more common even in NE Ohio where housing is quite cheap (the catch being no jobs).
I useta stay in one. $750/ month I think. Around 2002 or so. Landlord (a friend) complained once he could get more for it. Whew! Glad I don’t do that now.
Well, if you wouldn’t eat 80 thousand hot dogs, everything would be alright…
Usetabe at Top Dogs in Berkeley you could get a really good bratwurst on a sourdough roll for about a buck fifty or something. Free legal advice too! Dem wuz da daze.
Yeah, people aren’t buying in California because prices are too high here. I’ve been shocked to see prices in my neighborhood move back into bubble insanity and in the city my husband’s mom lives in it’s even surpassed it! On a cash flow basis it’s not *too* bad because interest rates are so low – but interest rates can only stay this low as long as we’re in a quasi-depression, meaning few have money and security to buy houses. So yeah, it was a bubble, and the bubble went on further than I thought possible but now it’s popping – same old story.
As a parenthetical, a number of houses in my neighborhood are owned as “investments”. From the outside they look fine because of our HOA. But on the inside, sometimes – OMG it’s like a reality show – stains on the carpet, food on the floor, nasty smells *partly* masked by way too much air freshener – and that’s just a few months after the tenants moved in! Somebody’s sure not making money on *that* rental.
(Sometimes they’re fine too – but it doesn’t take too many rental disasters to make the whole thing not profitable.)
Perhaps it’s time again to whip out that ‘buy a house and get a green card’ incentive, before our hedge fund/private equity boys, already stressed over the oncoming bloodbath from the Scotland independence vote, get hurt..
For added advantage in these perilous times, maybe the incentive should be “buy a house, join the armed forces, and get a green card”.
Yep, I’d love to see some indepth research into the downside of the so-called wealth effect where over-inflated asset prices lead to increasingly more money being siphoned from somewhere (potential new businesses, quality of life, health) to pay the house deposit or the equivalent in rent, not too mention a generation who are going to be screwed at retirement because a higher cost of living has eaten up that 10% saving per year that should be tucked away for the later years..
“I’d love to see some indepth research….”
Maybe we could start with an “eight-dollar gourmet hot dogs from trendy food trucks” Index as mentioned in the article. I am amazed at how folks casually and impulsively pick up $10 magazines and $4 cans of caffeine at the stupormarket checkout. Decades of drilling “spend, spend, spend” into unconscious minds has to take its toll at some point. All the little stuff sucks out the $$$ before any can make it into a savings account.
Maybe a poll of millenials asking “What are savings?” might tell the whole tale.
Haven’t savers been killed in this economy? It’s a racetrack economy, all the races are fixed, and you can’t beat a supercomputer to the trading floor. Let the kids have a hot dog. Besides, isn’t the gourmet hot dog vendor they type of hardworking entrepreneur that Ronald Reagan waxed on about?
Why would we want to buy a house? We saw what happened in 2008 first hand and we’re broke as shit and hate the suburbs anyways.
Good point.
“But the median price in the Southland rose 9% year over year, jumping 13% in Riverside and 14% in San Bernardino – the two counties where sales had gotten pummeled the most. Go figure.”
Riverside and San Bernardino are not desirable places to live. People live there because it’s cheap and they usually have to commute a great distance to work. They had a huge subprime bubble going on until 2008 with a lot of crappy, overpriced homes built and bought by first time buyers who couldn’t have bought if not for subprime scam. After the bubble popped, I think many who were underwater simply abandoned them; new construction also just stopped and was abandoned. Thus, I think those prices did fall drastically and some started to buy again because it was cheap, cheap. And perhaps, besides a cheap place to live, they were again thinking there’s only one way for prices to go – up, up! Over the last few years, I have heard stories that many houses were being bought for cash by investors and hedgies, outbidding the serious buyers and driving up the prices in the exurbs and in LA. This doesn’t seem strange to me, I watched this stuff go down in LA and surroundings all through the 2000s. It seems more of the same to me.
About a year ago, I had a friend who was looking to buy. He was getting outbid and I warned him to be careful, it was a pumped market. I could tell he couldn’t really hear me, he had a gleam in his eye about it, the thrill of the chase. He got laid off and so did his plans to buy. I haven’t seen him in a while and he probably will find another job but probably he and his wife won’t be house-hunting for a while.
That’s the thing about Southern California, the immediate coastal areas will hold their prices to a certain degree simply based on desirability. The closer to the job centers and top school districts, the more the housing will retain value. Gas prices have made long commutes a non-starter for a lot of people, which means they’re going to rent closer to where they work (which drives up rental prices as well).
Coastal starter neighborhoods like mine will retain value simply because the few first time buyers who ARE entering the market are going to focus their searches here – especially if they don’t have kids and have plans for any time soon so school districts don’t matter.
Pricing damage will really show up in the coastal neighborhoods that rely on move-up buyers and don’t have high performing school districts.
With climate change and rising water levels, I don’t think prices in Malibu will hold up too much longer.
Climate change? Do you realize that today, the antarctic, which has twice the ice extent of the arctic, reached an all time high for ice extent in the satellite era?
When are people going to catch on? We haven’t had any global warming for 18 years.
Those houses in Malibu are safe.
If they don’t burn down in chronic droughts and heatwaves.
When you can understand the dynamics and states that differentiate sea ice from glacial ice you might understand how incoherent your statement is davidgmills.
skippy… till that time… eh,
I doubt seriously you have a clue as to what you are talking about. Like so many others that buy the global warming agenda. I did for ten years but eight years ago I quit.
How many years are you going to wait to wake up? It’s been eighteen years since there has been any warming. How many years of no warming is enough? Twenty five? The IPPC originally said fifteen years of no warming would mean the CO2 theory was dis-proven and when fifteen years came and went, they forgot about what they had said.
So put a time limit on global warming. And then move on if it doesn’t happen.
I know very well what I am talking about. I have checked sea ice daily (northern and southern hemisphere) for about eight years. Do you? I know that Antarctica has seven times the land surface of Greenland. Do you? I know that the southern hemisphere ice sheet maxes out about 32 million kilometers in its winter (land and sea) and the northern hemisphere maxes out at about 16 (land and sea). Do you? And all we ever hear about is the northern hemisphere. I am tired of the charades.
square kilometers
I can tell your bent purely by the slavish devotion to temp and Co2. Pro tip… the study of climatic change is a multi scientific disciplinary one i.e. climatologists are just one group by which to observe the effects.
For the millionth time… its about the amount of energy present in our planetary thermo sinks and not a stupid thermometer… constantly going up as you look at it…. obsessively.
skippy… I look at the raw data, white papers, converse with people doing the work and not libertarian web sites.
I’m pretty sure the increase in ice is shallow, meaning that it may cover a large area but it is much thinner–not like a glacier where most of the ice is underwater. And some California scientists’ group came out with a statement early this year that the West Coast sea level rose by over a foot. But then again, I bet actual facts don’t mean shit to you.
The big problem is the high rents. People almost need to own in order to escape this bunch of latter day slum lords. In NY the cooperative market at least allows some breathing room where younger people can buy in and stabilize their outlay. But if this keeps up, civil unrest is not far behind. Average people are being robbed blind and it can’t go on forever.
Huh? Co-ops in New York are purchases, not rentals. The difference between a co-op and a condo is that you get shares in the building, which then gives you a proprietary lease for your space.
Co-ops put buyers through an extensive screening process (they must show their financials, provide references, and go through a board interview) and often practice overt discrimination. Many tony buildings would not accept single men (assuming they were gay and hence could become HIV positive, making them a financial risk). Single women, even extremely wealthy divorces are similarly not welcome in the best buildings. Many buildings also won’t accept blacks and have limited slots for Jews (an apartment will be sold to a Jew only if another Jew is leaving the building). Buyers don’t even know that this is happening. The brokers who have access to these building simply won’t show the “wrong” buyers the property.
Co-ops are often more expensive on a true economic basis even when the purchase price is nominally lower than a comparable condo. Co-ops restrict the size of the mortgage you can use to buy into the co-op. The most most co-ops will tolerate is a 75% mortgage, and many buildings are “50% cash” (50% mortgage the maximum allowed) or “all cash” (no mortgage permitted.
While NYC’s housing co-ops, don’t sound designed to provide affordable housing for low-income people, the model can be used in that way.
http://www.bayareaca.org/housing
http://www.ic.org/directory/
This video series is a little silly, but it gets at some common co-op issues:
https://www.youtube.com/watch?v=y3NP20XgIvg
Sorry, I should have explained. I’m not in NYC. About 20 miles north in Westchester. The market for coop hasn’t exploded like it has in Manhattan or Brooklyn. NYC coops are a zoo. I agree. I have a friend who was looking in Manhattan and was knocked over by the prices and the crazy boards. Renting makes far more sense.
I was a full-time agent (still licensed) but now am a real estate photographer. Anyway, the coop market in Westchester is a lot cheaper and a lot more reasonable. You do have to have someone who knows the boards and the financials working with you. But in Westchester purchasing a coop does provide stabilization at a more reasonable outlay if done correctly. Now, to do it relatively inexpensively you don’t get all the perks. You may have street parking for a a year or two…you won’t have laundry in your unit etc., etc. In terms of outlay it is cheaper to own at that level in our area. Since hedge funds are buying up everything in sight in order to rent at extortionary rates and the stock for reasonable rentals is fixed (only luxury being built) buying a coop in a stable complex with a reasonable board is probably a wise move depending on your time frame.
As for being unemployed…there is nothing worse than being in rental and having to renew a lease without having a job. Meanwhile the landlord is jacking up the rates $200/month every year. I don’t have great answers. It all looks horrible, but this seems to be safer than the rental market which is like a casino right now….and the house always wins!
A large amount of money from China has helped prop up SoCal prices for the past few years. Certain areas such as the San Gabriel Valley (SGV) and Irvine have attracted a lot of investment to give wealthy Chinese to a place to land should all hell break loose in China, launder their loot, etc.
I’ve been considering purchasing in the SGV. A couple years ago everything seemed to sell within days of hitting the market, often sight unseen. I’d talk to realtors who’d brag about taking trips to Hong Kong and Shanghai to recruit individual buyers and investment clubs to purchase homes they were selling. Other realtors talked about how straw buyers took care of details for the investors including completing the purchase, finding tenants, and maintenance. And I’ve seen these straw buyers checking out homes, taking measurements and photos of every room for clients, as well as mini buses of Chinese showing up to open houses and once during a private tour. It really was something to see.
I stopped actively looking when it was clear prices were detached from reality (it seemed like 2005 again) but keep an eye in the local market and still attend some open houses. It seems some of the Chinese money is still sloshing around according to a realtor I spoke with yesterday, but that it’s a lot less. No more buses of investors. Straw men are still around but not as aggressive. And homes are hanging on the market a little longer. I’ve also seen a few homes where it seems an investor is trying to unload the property, albeit at a premium. See, http://www.redfin.com/CA/Alhambra/324-Los-Higos-St-91801/home/7022725
Yes, I’m aware of the Chinese mostly paying cash for properties in SoCal, esp, as you indicate, in Irvine and SGV, but also in other locations. I mentioned this to someone, who got rather hot & bothered about that (why? I don’t know). And claimed I was “crazy” to think that “Communist” Chinese were buying houses in SoCal. Their purchases helped to drive up prices for a while, but that trend is cooling off now.
I hear that the Chinese also helped to super-heat some of the Australian RE market, esp in desirable Sydney but also elsewhere.
Anecdotal SF bubble-watch alert:
My local Bev-Mo on Van Ness sent out an advert for a 50-year old Glenfiddich reserve they’ll be selling.
Price for a bottle?
$25,000.
There are haters out there who regard anyone who rents with (often unfair) suspicion; these people are out of touch with reality. The fact of the matter is that unless the mismatch between housing prices and wages changes, renting will become the new normal.
Good to see the median income being discussed. That’s the context that a lot of upper middle class, educated liberals seem to be slow to appreciate: the degree to which entry level work (ie, work for people who don’t already have a decent job) has become so crappy in our economy over the past couple decades.
If we look at the effects of income over time – via net worth – the results are shocking.
Median household net worth of home owners is $195K. For non-home owners, it’s $5K. And that’s using the Fed’s own data. Who do Baby Boomers think is going to buy their house?
washunate wrote: “Who do Baby Boomers think is going to buy their house?”
The answer lies in the Bigger Fool Theory: i.e. the Baby Boomers think there’s always another fool willing to buy the house for more than they paid for it.
I have been watching this train wreck for most of my adult life now. My wife and I purchased our first home when I was an undergrad in 1987 – paid 31K for a 3br-1bth ranch. Went to Grad School – purchased a home that was being sold through the Resolution Trust process after the S&L debacle. 2bdr – 1bth – full basement – 20k – needed some work. Finished Grad School – moved to Poughkeepsie, NY working for “Major US Computer Company” – Cheapest housing stock then – 1997 – $ 140k – somewhat bigger house, but had a Corporate income. 2001 – laid off from Corporate job – sold house for $190k as the market was building. We knew then that the housing market was being artificially supported just by watching the way our house sold – Real Estate Appraisers – working “independently” would appraise the house at whatever the listing price was – buyers would get a lovely loan for any ridiculous price (we could have easily sold the house for $ 250k if we had waited another year – hindsight) and away we all went. Of course, there is no housing stock available. And now, in my little corner of SE Vermont, people are asking $ 1500/month for rental stock that 5 years ago would have been $ 600/month and 10 years ago would have been $ 450/month. Of course, wages are either stagnant or falling. I now see multiple families living in housing just to have a place to live.
At the same time – rental stock very expensive, real estate stock what I consider very overpriced, we get the additional hit of dramatically increasing local property taxes, as local revenue has fallen, and the money has to be made up somewhere. Frankly, I am done. I’m not willing to spend money for an overpriced, shoddily built house, and the price of even a bare piece of dirt for me to build on has become stupidly high.
The chickens will come home to roost – No wage increases, dramatic housing cost increases, I am fairly certain that my children will never be able to own their own houses, even if they want to. The MOTU certainly will not care until something happens that shakes them up enough to make them care. Good Luck. I think it is going to be a very bumpy ride.
As others have said, Millenials can’t afford a down payment on overpriced houses. They’re already in Student Loan debt and possibly credit card debt. CA real estate is crazy. After the big drop in 2008, the numbers slowly, then rapidly, began to rise astronomically again – all to the usual clapping and cheering.
Now the prices are slowly, now rapidly, dropping bc there’s simply not enough demand. If you were able to buy at the bottom of the market (around 09/10) and get a really low interest mortgage, you’ll probably do ok, esp if you’re in a more desirable area. Otherwise, buying now could be really foolish, and you’re likely to find yourself underwater again.
Sacramento RE shot up IMO way to high about a year or 2 ago. It’s been gradually cooling off this year, although I feel that a lot of the prices are still too high for what the property is worth. If/when there’s another crash, some people are going straight back under water again. There are still a number of short sales and foreclosures happening, although not as much as 3 years ago.
House flipping shows are back in vogue on cable tv, must mean another crash is right around the corner.
Another bailout is probably around the corner too then–we know who will benefit (it won’t be the renters).
Value to money ratio. The amount of value provided by a residential home is miniscule to non-existent compared to the average price of a home and the time it would take me to earn enough to purchase it outright. A mortgage is an even worse prospect. Homes with no value are those with the following characteristics: significant health issues like mold, arsenic, lead, or asbestos contamination; poor design and construction for the climate which drive up the cost to occupy and maintain it; and no potential to garden or raise small livestock. A home is not an investment. It is a place to live.