The Housing Bubble

A report from the Tahoe Daily Tribune. “The Incline Village real estate market is off to a very healthy start in 2018. As properties in good locations hit the market we are witnessing a tremendous amount of showing activity and more multiple offer situations. Since the economy in California continues to produce tremendous wealth, we anticipate a steady stream of buyers to all areas of Lake Tahoe. While the past several years have resulted in many California tax refugees moving to Nevada, that is only part of the equation. Housing prices in the Bay Area have appreciated to the point where properties in Incline Village actually appear relatively inexpensive. So, there is no sticker shock and if anything buyers are surprisingly pleased at how much bang they can get for their buck compared to many Bay Area communities.”

“Longtime observers of the real estate market will naturally start to question whether we are in or near a housing bubble like we saw in the first decade of this century. While there are some statistical indicators that might lead us in that direction, there are notable differences between the current state of the market versus the debacle a decade ago.”

“The vast majority of purchases at Lake Tahoe are discretionary. So, buyers carefully evaluate their financial situation before taking the plunge. We are not seeing the rampant speculation of 2004 to 2007 where buyers were making a purchase and planning to flip the property at a profit in 12 to 24 months. So, the big question is how much more room do we have to run?”

The Orange County Register. “By one widely-watched home-price benchmark, the strongest appreciation nationwide this century was in Los Angeles and Orange counties. When I tossed S&P/Case-Shiller data into my trusty spreadsheet I learned prices in L.A.-O.C. have surged to a nation’s best 171 percent since January 2000. (Ahem, that includes the housing bubble bursting!) And these 21st-century gains easily topped a 105 percent gain for S&P/Case-Shiller’s composite index that tracks all 20 cities.”

“S&P/Case-Shiller shows folks are paying up for housing — even after the painful losses of the last decade — all over the nation. It’s just a bigger bite in L.A.-O.C.”

From the Observer. “Garry Tan, a famed venture capitalist in Silicon Valley, noticed a disheartening pattern in his community lately: people in their mid-30s with children, both working in tech and non-tech industries, are leaving the San Francisco Bay Area due to the area’s uncontrollable housing frenzy. On real estate listing site Redfin, a 848-square-foot, two-bedroom house in Sunnyvale, Calif. was sold for $2 million in February. The price for this house had doubled since 2014. ‘This is what an absurd California housing crisis looks like,’ Tan commented on the listing.”

“Looking at the larger picture, house prices in San Francisco have risen by 76 percent over the past five years, according to Trulia. Since 2007, San Francisco has built over 100 percent more luxury homes, while less than 20 percent of housing for middle-class and low-income residents, according to San Francisco Planning Department data.

From the Daily Californian. “Berkeley’s rent prices continue to climb while apartment rates decrease nationally, according to a report from ABODO. Berkeley saw the fifth-highest increase in the nation in median rents for two-bedroom apartments in March, while Oakland experienced the tenth-highest decrease. Apartment development across the nation is growing, said ABODO spokesperson Sam Radbil, with construction at its highest levels since the 1980s. This is increasing the supply of apartments and driving down prices.”

“Among Berkeley’s new apartments, more expensive units outnumber less-expensive, below-market-rate units by a ratio of nearly 10-to-1, said Berkeley Zoning Adjustments Board chair Igor Tregub. This is far below the regional goal for below-market-rate units, according to Tregub. ‘This is a pattern we’re seeing all over the Bay Area,’ Tregub said.”

From Multi-Housing News. “Jeffery Hayward, head of Fannie Mae’s multifamily mortgage business, sat down with MHN to provide an industry-wide outlook and discuss the GSE’s new initiatives for 2018. What’s your 2018 outlook?”

“Hayward: We expect to do about as much business as in 2017 (more than $67 billion) because we think the size of the market is approximately the same as it was last year. The amount of equity that’s available to invest in the market has increased, and that’s not by accident. The demographics are such that the number of people who want to rent apartments is so large, while the availability of apartments is very low. Equity capital chases opportunity, and since there aren’t enough apartments, rents are increasing, along with investment. I don’t think that dynamic is going to change.”

“Which markets are feeling the greatest impacts of multifamily supply growth? Hayward: The most supply-impacted areas all have strong job markets, so the units will get absorbed. On the other hand, there are other markets that are starved for affordable housing, such as Berkeley, Calif., Oakland, Calif., or San Francisco, where the oversupply is among high-end apartment units. Generally speaking, the oversupply issue pertains to high-end new construction.”

From City Watch LA. “Maybe the business journals are right, and maybe they’re wrong, but if California does have the worst quality of life in the 50 US states, then we can either stop digging the hole we’ve dug ourselves into, or double down and dig ever faster. Metrics are everything, and the metrics saying we’re going down (who cares if we’re 50, or 48, or whatever–we’re not the Land of Opportunity as we once were) includes air quality, pollution, community engagement, and voter participation.”

“Locally, in Los Angeles, we’re emblematic of the same denial and hypocrisy that has long ago converted the Golden State to a State of Fool’s Gold–with self-respecting Angelenos and other Californians bailing to Utah, Texas, Idaho, Arizona, Nevada, etc. ”

“Here are five ways that our ‘leadership’ is diverting and/or ignoring the problems in plain sight (and the voters are letting them, by the way, and/or have concluded that their vote makes no difference): 1) Presume the high cost of housing is the result a natural supply/demand economics.”

“The actual housing vacancy is not known, and nor will our government/utility workers provide that information, but it may be much, MUCH higher than we know. And so long as we avoid the approach to create moderate densification that PRESERVES neighborhoods, and not TRANSFORM them, we will have the YIMBY/NIMBY fight. Who wants to move into a neighborhood that is becoming DIFFERENT than the one we wanted to move into.”

“Much has recently been made of the WIMBY (Wall Street In My Back Yard) of corporate interests mucking up proper development or redevelopment, and precious little has been discussed of foreign, particularly Chinese, investors gobbling up our real estate and leaving a boatload of vacant or inaccessible homes and condos and apartments that could otherwise be used for affordable housing.”

“The shift has hit the fad, and the shifting and fads suggest that Downtown and local/state government has our money … and will do whatever it wants to feed the winners at the expense of the losing majority. And for those of you ‘winners’… congrats on your entitled success. And for those of you ‘losers’… if the game isn’t working your way, play a different game and do what it takes (including moving) to feed your families, your dreams, and the future of your children.”