It Is Quite Possible To Overbuild
A report from Boise Weekly in Idaho. “Currently in Boise it is good to be a landlord, and great to be a developer: There are more than a dozen new or in-development housing units in the downtown core alone. More than 1,300 units have been recently completed or are under construction. JPM owner/manager Don Johnson said he’s reserving judgment on how the influx of new rental units will affect the market, but 1,300 new units is a drop in the bucket compared to how many rentals are currently under construction all across Ada County, many of them outside the Boise city limits. ‘I keep track of a list from the Ada County Assessor’s office. Take a look at this,’ Johnson said as he pulled out a stack of papers. ‘Here we have a list of all the units that are in some form of the process of being built. It’s 5,500.’ He looked up, took a deep breath and repeated, ‘It’s 5,500.’”
From the National Real Estate Investor. “Vacancy rates for rental apartments remain low in the top six U.S. markets, despite an influx of new development, though certain neighborhoods arguably have too many new super-luxury apartments all leasing at the same time. Developers have opened about twice as many new apartments as usual in the top six coastal markets over the past four to five years, according to RealPage. In San Francisco and Seattle, developers have opened a little more than twice the historical average number of apartments.”
“Despite low vacancy rates, property managers have cut down rents in San Francisco and New York in 2016. Many apartment managers now regularly offer concessions of one or more months of free rent to attract renters to new luxury towers in New York—a once unheard-of practice in the city. ‘It’s probably impossible to overbuild New York or San Francisco at large,’ says John Affleck, a research strategist with the CoStar Group. ‘But it is quite possible to overbuild the high-end of the market, and weak rents and rising concessions suggest that developers may have succeeded.’”
The Real Deal on New York. “The Brooklyn rental market continues to weaken, with the borough’s prices falling for the second month in a row. ‘Brooklyn continues to be the weaker of the three boroughs, in the general sense,’ said Jonathan Miller, the CEO of appraisal firm Miller Samuel, and author of the report. ‘Rental inventory keeps coming into the market. It’s the 22nd month in a row of rising inventory.’”
From Dow Jones Newswire. “A handful of startups are betting they can help apartment-building owners convert empty units into hotel rooms, a controversial practice that could help landlords generate more revenue. The services are sprouting up just as the red-hot U.S. apartment market is beginning to cool. In all, there are roughly 29 million apartment units in the U.S., according to the National Multifamily Housing Council. Nearly 800,000 new units have been built since the beginning of 2014, according to CoStar Group Inc.”
“But the vacancy rate for apartments in downtown markets rose to 8.1% in the first quarter from 6.8% a year ago, according to CoStar. Some 45% of buildings completed in the first quarter of 2016 were more than 10% vacant after a year, compared with 38% for those built in the first quarter of 2015, suggesting properties are taking longer to lease. Brian Ferdinand, YouRent’s chief operating officer, said the company is hoping to take advantage of the glut of luxury apartment inventory at the moment and demand for hotel rooms in hip urban cores. The company is expanding in Miami, Austin and Nashville and plans to fan out to San Diego, Denver and Boston.”
The News Press in Florida. “Florida Gulf Coast University is anticipating that the revenue it generates from students living in its housing facilities will drop by more than $1 million in two years. The school estimates the revenues will decline each of the next three school years. There are two reasons, according to the university, for the projected decrease: Competitors building apartments, marketing them to students and luring the students away from FGCU. A decline in first-time college students being admitted.”
“Brian Fisher, director of housing at FGCU, said he wonders if too many apartments are being built. ‘It happens a lot in college markets where things get overbuilt and things struggle thereafter,’ he said. ‘We will have to wait and see if that happens.’”
Here’s another luxury student housing bust on the way:
‘John Stigmon, CEO for the Economic Collaborative of Northern Arizona, is conducting a study on workforce housing for the city and Coconino County to be completed by the end of the summer. During a May 2016 city council meeting, he said the housing market is being squeezed from the “top,” by second home buyers, and from the “bottom,” by the student housing demand. He said a recent study indicated second homes account for 24 percent of the houses in Flagstaff and a growing student population is creating more demand for affordable rentals.’
‘Councilmember Celia Barotz said plans for high-occupancy housing need to target the workforce, not just students. Even with all of the new development of single- and multi-family housing, Barotz said, much of it is out of reach for the average Flagstaff worker.’
’second homes account for 24 percent of the houses in Flagstaff’
’second homes account for 24 percent of the houses in Flagstaff’
For snowbirds? Flagstaff has a real winter too, right?
Nah not snowbirds, just the opposite. Flag is a great escape from the 110-120 degree temperatures in Phoenix during the summer months.
Makes perfect sense. Thanks!
‘In its first midyear report on U.S. multifamily rental trends, ABODO said the national median rent fluctuated over the first half of 2017. The greatest average decreases were significantly lower: Utah (down 4.4 percent), Oklahoma (3.3 percent), Pennsylvania (2.7 percent), and Connecticut (2.3 percent).’
‘The biggest drops in rent were in cities in the West and South, with a few exceptions. Midwestern Fort Wayne, Ind., saw the largest rent drop, with an average decline of 4.9 percent and an average rent of $562. Lincoln, Neb., where the average rent is $700, experienced an average decline of 4 percent per month. And booming Nashville, where the average one-bedroom rents for $1,373, saw an average drop of 3.1 percent.’
Note these rents don’t include concessions and vacancy.
saw an average drop of 3.1 percent.’ Note these rents don’t include concessions and vacancy ??
Exactly Ben…Although 3% is not much, the combination of that and concessions could be a trend…Will see if it continues particularly as more units come online…The owners that bought class B & C buildings at 3% CAP’s will get their a$$ handed to them at least as far as valuations are considered…Add to that increasing interest rates on any new player entries and it could get nasty for those owners who paid these incredible prices…I don’t think the lenders are that much at risk unless we were to hit a serious recession because the way they underwrite today their loan to values are fairly conservative..
And people forget…a 1% move in cap rates is not only much more likely if you are starting at a 3% cap, but also much more impactful than if you are starting at a 6% cap.
“I don’t think the lenders are that much at risk unless we were to hit a serious recession because the way they underwrite today their loan to values are fairly conservative.”
In speaking with mortgage brokers, one thing that lenders have been VERY focused on this time around (and disciplined…so far) is on underwriting to debt yields, not value. So, even if the market has been valuing the property at a lower cap rate/higher value, the lenders have been staying primarily focused on whether the debt yield is strong enough.
The increasing gap has been filled with equity.
‘the way they underwrite today’
It’s what they were doing around 2014 that’s going to matter.
Their underwriting in 2014 was similar to today. Debt yield has been a focus post-crash.
No it wasn’t. I posted here earlier this year CRE guys in New York saying credit had shrunk unlike any period since the mid-2000’s. Remember the loan guy saying, “like everybody on the planet, I’m financing and refinancing any multi-family deal I can get my hands on”? I posted that quote about a year and a half ago. They’ve gone from financing 80% to 60% in the past 12 to 18 months.
“They’ve gone from financing 80% to 60% in the past 12 to 18 months.”
This is partially true because a couple of years ago the writing was on the wall that NYC was getting overbuilt (one of the consistent themes at a RE conference I went to in January 2016 was the NYC was “over”).
However, your comment about LTV’s/LTC’s going down is true in more places than just NYC (although perhaps not as extreme as for projects in NYC).
When your focus as a lender is on things like debt coverage ratios and debt yield (as opposed to LTV/LTC), lowering the amount of debt provided for any given project is precisely what happens in a rising interest rate environment.
What I’m saying is that “consistent underwriting” does NOT mean “consistent LTV” or “consistent LTC”.
March 8, 2017
“Downtown Miami’s real estate market is slowing fast, just as developers are preparing to deliver the most new condos in a single year since the last bubble. Nearly 3,500 downtown condos will be delivered this year — a surge since the Great Recession. On the rental side, about 4,900 rental apartments are under construction downtown — which, combined with the 1,000 rental apartments that were delivered last year, should slow rent increases, according to the Downtown Development Authority report. The asking prices for rentals have declined, the report found.”
“While the sliding demand will limit financing for some new projects, it’s also a sign of a market stabilizing after five years of continuous growth that some analysts had worried might lead to another condo glut. ‘I said last year the developers were making decisions based on the timing of the market,’ said Anthony Graziano of Integra Realty Resources and one of the lead authors of the report. ‘This year, their bankers are.’”
http://thehousingbubbleblog.com/?p=10014
March 1, 2017
“‘Those who succeed over the years can steer their way through choppy waters, and that includes things you can’t control.’ Carl Dranoff, the man who said that, should know. The CEO of Dranoff Properties rode historic preservation to national prominence before a change in the law brought his business to its knees. The lessons he learned from that career setback have informed the rise of his business and his development strategy since then.”
“With two exceptions — One Theater Place in Newark, N.J. and One Ardmore Place, work on which will get underway this spring — all of Dranoff’s current and planned projects are condos, a shift he made when he saw a coming oversupply of rental apartments. ‘The statistics were available as early as 2012,’ he said. ‘The money spigot is open all the way, and anyone can get financing for a new project.’”
http://thehousingbubbleblog.com/?p=10012
‘The statistics were available as early as 2012,’ he said. ‘The money spigot is open all the way, and anyone can get financing for a new project.’
Get out the grill Rental Watch, it’s crow time!
April 13, 2017
From Multi-Housing News. “To help banks struggling to deal with regulations on commercial mortgage lending that were enacted in 2015, a group of real estate trade organizations is working to introduce legislation that would clarify the rules. The confusion involves so called high-volatility commercial real estate (HVCRE) loans originated by commercial banks, which encompass loans on acquisition, development and construction loans.”
“‘Over the next three years, over $1 trillion—or approximately $1 billion a day—in commercial real estate debt is maturing. So, maintaining adequate credit capacity is vital for commercial real estate,’ said Chip Rodgers Jr., senior vice president of the Real Estate Roundtable (RER). ‘The HVCRE rule is disproportionally affecting bank commercial real estate lending and contracting much needed credit to the sector.’”
The Journal Sentinel in Wisconsin. “The developer of a higher-end West Allis apartment community is seeking a federally guaranteed loan to end delays on obtaining project financing. The situation involving Element 84 amounts to another example of a slowdown in Milwaukee-area apartment construction activity. Both John Stibal, city director of development, and Jon Ross, an Ogden principal, said they believe that Element 84 can still move forward.”
“Commercial lenders have been tightening their requirements for loans on apartment developments, Ross said. Most banks are willing to provide loans for up to 60% to 65% of a project’s costs, he said, compared to what had been 75% to 80% of those costs. That change is partly tied to concerns about whether too many new apartments are being built within a relatively short time, Ross said.’
http://thehousingbubbleblog.com/?p=10050
May 31, 2017
“As developers flood Baltimore with apartments in response to what they see as an insatiable appetite for new residences, the numbers raise a question: Are there too many? Just over 5,600 residential units, mostly apartments, were under construction in Baltimore and 1,800 more were approved as of April, according to the city’s planning department. Another 1,400 units opened just last year.”
“William H. Cole IV of the Baltimore Development Corp., said he thinks the market will determine its own saturation point. ‘As soon as lenders stop financing these projects, we’ll know we’ve reached our capacity,’ he said. ‘But we haven’t reached that yet.’”
“But it could be coming. The Wall Street Journal reported in February that major banks were becoming increasingly cautious in lending for multifamily projects nationwide.”
http://thehousingbubbleblog.com/?p=10101
May 14, 2017
“When Brian Davison announced plans to build up to 78 new condos in downtown St. Petersburg, he revealed another surprise: His company, EquiAlt, plans to ’self-finance’ the project. That could be a smart move. Both nationally and in the Tampa Bay area, businesses are finding it harder to get money from banks these days. Just in the past two weeks, ‘I’ve seen more banks pull back and tread more lightly,’ said Robert Stern, a Tampa real estate attorney whose clients include lenders as well as business borrowers. ‘I have seen local deals not close, or get declined or blow up because of the difficulty of financing.’”
“In Tampa Bay, apartment developers are among those likely to feel the loan squeeze. Thousands of new upscale apartment units have been built since the recession, especially in Tampa and downtown St. Petersburg. And while the bay area has enjoyed strong job growth, incomes have not kept pace so the demand for rentals as high as $3,900 a month could start to wane. Davison said his Tampa company always intended to use private financing rather than commercial lenders to build its downtown St. Petersburg condos. ‘All my co-business people that I’ve seen at cocktail parties in the last year are having difficulties,’ he said. ‘The banks are flat out not lending on something where the cash is not flowing right now.’”
http://thehousingbubbleblog.com/?p=10084
When your focus as a lender is on things like debt coverage ratios ?
Yep. And, when rates rise even 1% off these low rates it will have serious implications for new acquisitions. More equity will need to be brought to the table or the price must drop.
https://www.bisnow.com/national/news/multifamily/multifamily-financing-tough-in-the-west-but-not-impossible-say-experts-76256
The credit spigot is still open. It’s simply that deals are harder to pencil due to two factors:
1. Interest rates are higher (thus making it harder to meet DCR standards); AND
2. Construction costs have gone up much faster than NOI (thus making it harder to meet Debt Yield standards at the same LTC–which requires more equity, that needs a greater return than the debt).
The only way the numbers work for lenders with rising rates and rising costs is with lower LTCs.
Focusing on 5+ unit projects:
YTD multi family starts total 135k units in 2017 (through May)
YTD (through May) MF starts in 2016 was 143k (whole year was 381k).
YTD (through May) MF starts in 2015 was 142k (whole year was 386k).
YTD (through May) MF starts in 2014 was 134k (whole year was 341k).
In other words, if the credit spigot was shut off, it hasn’t had negligible impact on multifamily starts so far.
My sense is that given construction costs rising and and softening rents, it wouldn’t surprise me if due to lenders holding their underwriting the same (relative to cash generating ability of the finished product), that the high 300k starts falls to the high 200’s within a year or two.
Credit is still available…it’s simply harder to make the numbers work.
“And, when rates rise even 1% off these low rates it will have serious implications for new acquisitions. More equity will need to be brought to the table or the price must drop.”
Yup, yup, yup.
This will especially be true in secondary locations, and/or with older properties.
ISTR a panelist at a conference that noted their study of multifamily cap rates going back a couple of decades in LA County…he cited the highest average for any year was something like 5%.
I was shocked at how low that was–I would have expected 7% or higher. Someone called out the panelist on the data, at which time the panelist specified that the 5% cap was for NEW multifamily properties they were sold…at which time the person calling him out said “of course”.
The reality is that there are some players that see new product in supply constrained markets as very solid over long periods of time, so they see such equity investments as alternatives to fixed income–with the added benefit of inflation protection. So they are fine with putting in more equity (and accepting of the lower return).
If you are in a less supply constrained market or with older product it won’t be pretty if you are assuming 5% exit cap rates to be sustained through the unwind of QE.
‘Credit is still available…it’s simply harder to make the numbers work’
One of the articles I saw from earlier in the year was out of Wisconsin. This guy acknowledged the market was oversupplied but insisted he had a product that was superior. It takes years to get these finished and everybody thinks they can get in under the wire. That’s why condo busts are so spectacular. Right now there are something like 5 or 6 condo towers stalled in the air in Miami Beach and they still are digging holes.
The numbers didn’t work in 2014. And no one cared. Lenders were making short term loans, buyers with no recourse loans were counting on appreciation. Throw in a trillion in government backing and it’s not hard to see why it went too far. Yes I know the money is still there, Daniele Booth has put out some excellent papers showing the tidal wave of cash that is still being throw into yield chasing. But they are overbuilt now and way too late are remembering risk! Dallas had negative absorption in the first quarter with 50k units on the way.
Cap rates exclude financing costs. Vast swaths of apartment deals are cash flow negative right now and they are staring at even more losses. Nobody in 2014 was anticipating 10% vacancies in these “red hot core markets”, except me. All I did was take measure of their numbers and speculative motivations.
This will especially be true in secondary locations, and/or with older properties ??
Yep. I think there are a lot of people in my Valley that may ultimately ask themselves; ” Why did I buy this ” .. So, there options are; #1. Sell at a loss Or #2. Keep feeding the alligator.
The reality is that there are some players that see new product in supply constrained markets as very solid over long periods of time, So they are fine with putting in more equity (and accepting of the lower return) ??
Their operating costs are much lower the main component being reserves for replacements. Everything is new. Much less management intensive.
His company, EquiAlt, plans to ’self-finance’ the project. That could be a smart move.
Yeah, when the banks get scared just go around them. They are either too conservative or trying to cut you out of the action.
Davison said his Tampa company always intended to use private financing rather than commercial lenders to build its downtown St. Petersburg condos. ‘All my co-business people that I’ve seen at cocktail parties in the last year are having difficulties,’ he said. ‘The banks are flat out not lending on something where the cash is not flowing right now.’”
Well…that’s what they’re SAYING anyway. But I bet they just want all those sweet profits for themselves. You don’t need cash flow to get rich quick.
Dallas had negative absorption in the first quarter with 50k units on the way ??
This first quarter Ben ?? If so, those are alarm bells right there.
“Cap rates exclude financing costs. Vast swaths of apartment deals are cash flow negative right now and they are staring at even more losses.”
This statement doesn’t make any sense based on what I’m seeing (especially since lenders are so focused on DCR and debt yield).
A 5% cap apartment transaction means that there is $5 of income (after all operating expenses–including vacancy, but BEFORE debt service) for every $100 of purchase price.
If you leverage that $100 purchase with 70% debt, it means you have $5 of cash flow to service $70 of debt.
With long-term, fixed rates at 5% (or less), you are not cash flow negative. It just means that your equity doesn’t make very much yield.
As long as your debt constant is 7% per annum or less, you are cash flow positive.
The sub-5% acquisitions are typically the “value-add” deals that you cite so frequently (in which case the negative cash flow is short lived…assuming the business plan is met), or are “trophy” assets purchased with a lot more equity (lower leverage).
Their operating costs are much lower the main component being reserves for replacements. Everything is new. Much less management intensive.
Yup, and also the last to have rents fall (and the first to recover) in any downturn because you have the best/newest property.
‘the vacancy rate for apartments in downtown markets rose to 8.1% in the first quarter from 6.8% a year ago, according to CoStar. Some 45% of buildings completed in the first quarter of 2016 were more than 10% vacant after a year, compared with 38% for those built in the first quarter of 2015′
There goes the 5% cap rate.
‘more than 10% vacant after a year’
With rent cuts, with concessions. Add it up. And how many are 20% vacant, or 40%?
All I know is I’ve been renting an extra one bedroom place on Airbnb this month for while the family is here from Shanghai and Wyoming. One of the newish trendy places with the saltwater pool and all wood/chrome/granite interior.
I’ve noticed that the underground parking (reserved spots for each condo) is only about half full anytime I’m in it, day or night.
Every complex around here seems to be advertising like crazy but no significant price drops yet. It has stopped going up though.
So, first of all, I don’t buy into the premise that all apartments are sold at a 5% cap. Some are sold at less than that (value add, or trophy), and some are sold for much higher (I’m pitched on deals that are 6%+ with regularity).
Secondly, do the math. What additional vacancy does it take to go from cash flow positive to neutral/negative if your starting point is 93% occupancy, 5% cap, 70% leverage, with a 5%, 30-year amortizing loan?
First of all, the debt constant is approximately 6.4%, so on $70 of debt, you need $4.50 of NOI to make the payment. BTW, the starting point of this loan would be a debt coverage ratio of approximately 1.1…which is pretty low…I doubt a borrower could even borrow 70% with the metrics I chose.
Nevertheless, I’ll continue.
Approximately 35% of revenue is used as operating expenses. Other than property management, a dollar of lost revenue drops to the bottom line, so that’s bad for my analysis.
So, at a 5% cap and 93% occupancy, it means that on a $100 purchase, you have $5 of income and $7.70 of revenue (of which 35%, or $2.70 is op ex). In order to get to break even, you need to lose $0.50 of revenue ($5 NOI less $4.50 debt coverage)…or 6.5% of your top-line. Starting at 93% occupancy means that you need to fall to 87%, losing a whole 6 points of occupancy. And now you are break-even.
Of course, this can happen. And it can happen especially in markets where there is plenty of building. HOWEVER, for this to happen broadly across the country, you would to alter the rental housing market (new units added, or vacated) by 6% of the total rental stock, which is approximately 50MM rental units. This is a 3MM swing in new construction, or people vacating units.
For perspective, we started about 400k multifamily units in 2016–and it’s a headline when any market has negative absorption, so not all of these 400k are empty at the end of the year.
And of course this drop in rents can occur due to concessions, etc. as well. However, I would submit that concessions are most often used in the lease-up of properties and much less used once the property is leased.
Take a look at the “Established Community” comparisons for Apartment REITs.
I picked AVB, since it is exposed to markets where there is plenty of development.
For year 2016 compared to 2015, rental revenue increased 4.3%. Q1 2017 revenue increased by 3.2% over Q1 2016. Whatever concessions exist in their markets, they are having a negligible effect on their top line.
All I’m trying to say is that of course you can cherry pick certain markets or properties that are doing poorly, have high concessions, etc.
However, once you step back, you need to see pretty broad, and pretty extreme troubles in the apartment world before you see significant numbers of properties that are cash flow negative…even with a starting point of a 5% cap, relatively low DCR of 1.1, and 70% leverage.
I look at a lot of apartments for sale on a CRE website. About half say “cap rate - N/A.” Many don’t even have an asking price. Now days I see more “projects” for sale, with a drawing and a lot.
Do they say cap rate “N/A” because there is no asking price? Or because there is no income?
Most of the N/A properties are newer and in the more expensive markets. I looked at California a few times. Lot’s of 3% and 2% too.
It’s because they do not know how to develop a accurate CAP rate or they have no clue what the asking price should be.
How large were the properties? In many places, it is not uncommon to see 4-plexes trade for very low cap rates (which I don’t understand).
This website doesn’t have many 4 plexes. It usually starts around 8 and all the way up into the hundreds.
‘Activity declined by a third between April and June compared with same period last year, according to a new second-quarter report from commercial brokerage Avison Young provided first to Commercial Observer. In the second quarter, the pace of office leasing, determined by the number of leases signed, dropped 32 percent, and leasing volume for the first half of the year dipped 14 percent, the report indicates.’
‘Office leasing in Manhattan’s major office corridors slowed quite a bit, with Midtown taking the biggest hit in terms of square footage leased.’
“Our brokers are saying that demand is pretty spotty and tepid,” said Keith DeCoster, the director of real estate analytics at Savills Studley. “So we don’t see a big jump in activity in Midtown in the near future. Based on what’s happened so far, 2017 is set to be the third straight year with less than 30 million square feet of commercial leasing, unless there’s a “big resurgence in leasing or a lot of renewals.” Office leasing hit a peak in 2014, when it surpassed 30 million square feet.’
‘The Avison Young report painted a similar picture of leasing activity in Lower Manhattan. As in Midtown, Downtown office leasing volume sunk 35 percent year-over-year for the second quarter.’
‘Since 2000, Alexandria has lost 90 percent of its affordable housing. There are now fewer than 2,000 affordable apartments.’
‘According to new research by Harvard University, almost 40 million Americans cannot afford to pay for housing. Since most of the new units being built are at the high end, “the number of modestly priced units available for under $800 declined by 261,000 between 2005 and 2015, while the number renting for $2,000 or more jumped by 1.5 million.’
‘NBC News sums up the findings this way: “Over 38 million American households can’t afford their housing, an increase of 146 percent in the past 16 years.”
Totally amazing numbers. Yet all of us hoping for an end to the madness (ie a recession) are the monsters.
Total job losses due to 2001 + 2008 recessions: 2.2 million + 8.8 million = 11 million
Total impoverished thanks to the boom (that 146% increase in people who can’t afford housing since 2000): 22 million
+1
Kinda puts Mikes recession stuff in a different light.
The only problem is that the numbers and logic are flawed.
Ouch, man. That hurts. The sharpness of your incisive and figure-heavy counterargument wounds me to my very soul. Oh, the pain.
One statistic is the number of jobs lost. The other is the number of people affected by rising housing costs. Those who became unemployed have dependents, so the number of individual affected by the job losses is greater than the number of jobs lost.
Pretty sure the number of people affected by rising housing costs have dependents too. I don’t think they polled school children to come up with this figure.
This is hardly worth the effort it takes to type. That’s 38 million *households* that cannot afford their own housing, not individuals. As of 2016 there were 125 million households with an average of 2.53 people per household. Just like job loss, families not being able to afford the roof over their heads affects dependents, extended family and the community at large.
Second, that number merely indicates the number of households that are most critically “‘cost burdened’ and will have difficulty affording basic necessities like food, clothing, transportation and medical care” (NBC) because of this burden. “The number of people affected by rising housing costs,” as you put it, is a lot higher than the 38 million most at risk. We are ALL affected by rising housing costs, either directly or through the displacement it causes in other areas of our economic life.
Finally, employment rates improve as the recession works itself out. Yet the number of struggling, severely cost-burdened households has only gotten worse and worse.
30% of households having to choose between shelter and food - a 146% increase from 2000 - in the midst of one of the longest expansions in economic history. There is something deeply wrong with a boom that is actively and continually impoverishing more and more of our most vulnerable citizens, especially when their plight is so breezily dismissed as the acceptable collateral damage of our glorious prosperity.
Pretty sure the number of people affected by rising housing costs have dependents too. I don’t think they polled school children to come up with this figure.
The statistics don’t appear as is they were gathered through polling.
The report also has a graph with this title:
Historically Low Construction Over the Past Decade Has Contributed to Market Tightening
Mike hates it when you point out what an oppressive bunch of a-holes he supports and belongs to.
Historically Low Construction Over the Past Decade Has Contributed to Market Tightening
And who do we have to thank for this? To name a few reasons…
Government pushing up “impact fees” so they can pay for generous government pensions (making many projects infeasible).
Restrictive laws that allow people to easily file merit-less lawsuits to slow development in the name of preserving “quality of life” for themselves–while screwing everyone else (as noted by poster who was a former official in the City of SF).
Overreaching bank regulation that has dramatically impacted lending to private homebuilders (yes, the lending environment isn’t even close to what it was pre-crash for private homebuilders)–which has made it VERY difficult for private builders to get back on their feet.
I’m sure you’ll deny that these problems are from “liberal” policies, as I suggest…but to what do YOU attribute the low number of housing starts?
I posted something earlier from that Harvard JCHS report that didn’t stick. Apparently, the situation improved every year 2010 and 2015. That would have been after the end of the recession.
Also, I can’t see what group of “oppressive bunch of a-holes” I belong to and what’s been pointed out about that group.
I’m sure you’ll deny that these problems are from “liberal” policies, as I suggest…but to what do YOU attribute the low number of housing starts?
I’ll have to read up on the topic, but some of what you wrote there doesn’t make sense.
For example:
pushing up “impact fees” so they can pay for generous government pensions
Do you actually know that that’s a big factor, that impact fees have risen much more than inflation nationally? And why would you claim that the reason is to pay for pensions? I doubt that there’s any evidence for that. It sounds like another dig at pensions, unions and retired people.
Do you actually know that that’s a big factor, that impact fees have risen much more than inflation nationally? And why would you claim that the reason is to pay for pensions? I doubt that there’s any evidence for that. It sounds like another dig at pensions, unions and retired people.
I don’t know that…the studies done on impact fees are typically done by government. It will be a cold day in hell when they point to pensions as the problem.
However, it’s not complicated. Cities have pension/benefit costs as a big (and growing) line item, and have a hard time raising money through taxes…and so they look for other sources of revenue (and justification for those additional sources of revenue).
As much as people would like to disconnect the two, you can’t. The City of Stockton used impact fees as a major source of revenue for their emergence from BK…if this money was all going to infrastructure, why should it count toward the City’s operations?
In 2012-2013, the City of LA’s pension costs were estimated at 18% of their budget. In 2002-2003, their pension costs were 3% of their budget. That line item grew by approximately 10x inflation.
Do you understand why I (and many others) see this as a problem?
The more money is used for benefits, the less there is available for growth. And so they find new sources of revenue–because people won’t accept new taxes.
Impact fees in many jurisdictions didn’t exist previously, and were implemented as a new way to pay for public improvements, so yes, they grew faster than inflation.
https://www.huduser.gov/portal/publications/impactfees.pdf
Page 12…impact fees grew by 5.66% per year at a time when inflation was 2.7%, AND construction costs increased by 2.9% per annum.
So, over this timeframe (from 1998-2004), impact fees grew by approximately 2x inflation.
And don’t paint my comments on pensions as a dig at grandma. I’ve got nothing against grandma, or retired people, or even pensions. This is just math and common sense.
I do have massive problems with public pensions that frequently get richer for the employees, are nearly impossible to ratchet back, use math that is unreasonable and doesn’t work, and use tax dollars as their backstop.
When I have these discussions with my MIL, she will cry “but we pay into the pension system!”. Of course, but the pay OUTs of the system are only marginally related to how much people paid in.
1. Pension spiking;
2. Pensions based on the “high three”, rather than the whole of their service.
Pensions for any individual should be proportional to the amount that such individual paid into the system over time…these two practices completely screw up the math at the expense of taxpayers and money that cities could use for other things (new schools, roads, infrastructure).
And cities make up for these additional costs by looking for alternative sources for costs that traditionally were borne by the cities…enter the impact fee.
P.S. It is worth noting that Impact Fees are generally REGRESSIVE. It doesn’t matter whether the SFH being built is a $250k home, or $750k…the fees are typically the same.
Apparently, the situation improved every year 2010 and 2015. That would have been after the end of the recession.
It improved for homeowners (30% to 24%), not really renters (50% to 48%).
And of course that makes sense…what was happening from 2010 to 2015? The most cost burdened owners were losing their homes to foreclosure and being eliminated from the sample.
House prices also fell during part of that period. Unemployment fell during most of it.
House prices also fell during part of that period.
Home prices only marginally fell from 2010-2012…pales in comparison to the rocketship up from 2012 onward.
Did unemployment really fall, Mike? Food stamps and disability payments grew astronomically at that time.
Yes, it fell a lot.
https://fred.stlouisfed.org/series/UNRATE
Also, many of people on food stamps are employed.
Why don’t you pull up research on how much food stamps went up during that period ? Check disability while you’re at it.
That would discredit the “improvement” in unemployment.
Where are the Levittown developments when we need them?
Over 38 million American households can’t afford their housing ??
Here is another thought. How many people could not afford to buy, at today’s prices, the home that they already own ?? My suspicion is that it’s many millions.
Yup, especially if you take into consideration retirees…
My parents are perfect examples…they have income from one corporate pension (ie. not ridiculous government pension math/multipliers), social security, and retirement account income, and live in a house that is probably valued at $500k.
But they own the home free and clear–only subject to Prop 13 protected taxes.
By the way, here is the link to the report:
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/harvard_jchs_state_of_the_nations_housing_2017_chap1.pdf
Especially interesting graphs (I think) are:
Figure 1a: Shows NOMINAL vs. Inflation-Adjusted Home prices from 2000 to today. I wish that they would go back farther in time, so we could see the prior market peaks/troughs on an inflation-adjusted basis.
Figure 2: Shows New Units relative to vacancy rates. To smooth out the annual unit completions, they are showing a rolling 10-year total. Otherwise the hump in 2007 would be relatively higher, and the drop after would be much lower–nevertheless, it shows how little has been built over the last decade as compared to other eras with similar vacancy rates.
Figure 5: Shows how “severely cost burdened” Owner households has been on the decline since 2010, and how severely cost burdened renter households is historically high.
How many people could not afford to buy, at today’s prices, the home that they already own ??
Isn’t that the whole reason to buy a house in the first place? The house is *supposed* to appreciate to where you couldn’t afford to buy it. It’s better to be on own side of that equation, instead of the buy (or rent) side of that equation, of course.
The difference is the time frame. The house is supposed to become unaffordable only after 7-10 years at the earliest, not a bubbly 2 years. And as the house becomes unaffordable, the monthly payment is supposed to stay constant and affordable. i.e. a fixed rate full PITI payment, not an ARM option I/O neg-am.
“The house is *supposed* to appreciate to where you couldn’t afford to buy it.”
Uh, NO. That’s only in Ponzi finance wonderland. If your house is prospering more than you are, there’s a serious disconnect between asset prices and the general economy.
‘The house is *supposed* to appreciate to where you couldn’t afford to buy it.’
It didn’t work that way for hundreds of years. Now that I think about it:
Click!
It does make sense in the case of Rental Watch’s parents, who probably experienced a noteworthy decline in income when they retired, as most Americans do.
What owned housing is “supposed to be” is a place to live, and the way it’s “supposed to work” is that you buy a home (whether all at once, or over time), so that in retirement, have a place to live at a low cost.
What your primary residence is NOT supposed to be is an investment, an ATM, or a “get rich quick” scheme.
That’s a matter of opinion. You have yours and oxide has hers.
Such a good point. I grew up hearing my parents and their friends say every year they couldn’t buy their houses today if they had to, and this was in the 90s.
They saw all this new money coming in from young professionals driving up prices. What they didn’t understand (and most still don’t) was that it wasn’t that the new people were so much wealthier, it was that they were willing to shoulder considerably more debt than my parents’ generation could even imagine.
Thus began the era of huge houses with empty living rooms because the new people couldn’t afford furniture. True story.
“…it was that they were willing to shoulder considerably more debt than my parents’ generation could even imagine.”
It wasn’t merely a matter of grass-roots willingness of individuals to shoulder greater debt burdens. Rather it was a raft of government-sponsored and -insured affordable lending programs which enabled and encouraged ever more high-risk gambling by households to take out bigger loans to buy larger 🏠 s.
Anyone not willing to play along was naturally priced out forever.
Dubya was pimping mortgages to the reckless.
http://www.nytimes.com/2008/12/21/business/21admin.html
‘Institutional investors are back in the market to buy apartments in Atlanta, even in the suburbs. Pollack Shores Real Estate Group Managing Director Brian Metzler noticed institutional investors largely disappeared from the apartment buyers market in Atlanta in the last half of 2016, replaced by private equity buyers. Then in the past 60 days, things changed, and core institutional buyers — REITs, pension funds and the like — are active again. It is not just in the urban core.’
‘In fact, suburban apartments are a big buying target among institutional investors this year as they chase better yields and rent growth than what they see in Atlanta’s urban core, where thousands of new apartment units are underway.’
“Properties in the Downtown and Midtown areas will remain popular, but limited listings will push many buyers outside the urban core,” Marcus & Millichap officials stated in the report. “Attractive [net operating incomes] are motivating investors in Atlanta. Buyers are primarily targeting Class-B and C units where improvements can boost effective rents.”
‘That has put the heat under pricing. Average apartment prices rose 16% last year to $100,300/unit. In markets like Buckhead or Brookhaven, those prices can reach upward of $170K/unit, according to the report.’
‘Institutional demand is something Walker & Dunlop Chief Operating Officer Kris Mikkelsen is capitalizing on. Just a week ago, he helped broker the sale of Alexan Lenox, a 305-unit Buckhead apartment complex, to an unnamed life insurance company for $59.25M, or more than $194K/unit.’
‘The RADCO Cos CEO Norman Radow was an early champion of the suburbs. When most developers and investors were focused on properties along Interstate 285, Radow was buying apartments in suburbia, fixing them up and pushing up rents. Now, in some cases, demand for suburban properties is so strong, the cap rates — a percentage derived from the net operating income divided by the amount paid for a building — for value-add Class-B is lower than some Class-A simply because there is little being built out in the suburbs to compete with what is already there, Radow said.’
“I’ve been saying this for years, but the market is figuring it out,” he said.’
‘Institutional investors are back in the market to buy apartments in Atlanta, even in the suburbs.
WTF?
It is cheap foe a big city
=dead honkey
is the reason why
Dats rayciss!
But then so is cleaning sidewalks apparently
http://dailycaller.com/2017/07/12/seattle-councilman-cleaning-poop-off-sidewalks-is-racist/
‘It’s probably impossible to overbuild New York or San Francisco at large,’ says John Affleck, a research strategist with the CoStar Group. ‘But it is quite possible to overbuild the high-end of the market, and weak rents and rising concessions suggest that developers may have succeeded.’
And you, John, are a prime example of how this industry is so screwed up. Tokyo got overbuilt. London is full of empty towers. There isn’t any city that can’t be overbuilt. Yet here’s an overpaid “research strategist” telling us it’s impossible. Now, you geniuses figure out what you are going to do with all these empty air-boxes while your clients go broke.
In DC, affordable housing means anything for people earning less than 250K per household. This applies to SFHs. In a safe neighborhood. The liberal elites of Northern VA — i.e. Gov. McAulliff (Clinton cohort and under Fed investigation) are determined to keep Virginia a blue state. By expanding the Federal government to employ thousands of immigrants (legal and illegal) by allowing huge mosques to be built despite protests by locals, the demographics are permanently changing in favor of Dems. New SFHs 30 miles outside of DC are starting at 600K+. There are more affordable homes but the neighborhoods have become shady and crime ridden due to Dem policies of importing 3rd worlders into the area. Herndon, a former middle class suburb in Northern VA, is now crime ridden with 3rd worlders.
So anyone that can are moving to safer areas which drives up home prices. It is sad what is happening here - used to be such a nice place to live. But as always, the Liberals RUIN EVERYTHING.
Yep, and you got a passel more of them coming your way from the Northeast. They’re vulturing VA and NC, big time.
Yes the DC/NoVA voting map and traditional poorer Hampton Roads cities/counties vote 90+% democrat. These areas are the only reason Obama won VA in 2012 and that Hillary won in 2017.
McCauilffe is a literal outsider from NY, inserted by the Democrats, to run VA. We went from a budget surplus to a shortfall in no time. The dude is a clown. He fought really hard to allow prisoners to vote.
These areas are the only reason Obama won VA in 2012 and that Hillary won in 2017.
So, I suppose that Republican areas of the state could be said to be the only reason that Bush won the state in 2000 and 2004.
No, what they are saying is that VA has imported so many carpetbaggers from up North that they have overwhelmed the local population which has been there for generations.
But if it’s any comfort to you, the Dems are soon to get a huge bump to the voter rolls. There are thousands of citizen kids of illegal immigrants who are fast approaching voting age. Since they and their parents didn’t go through the work of immigrating legally, they probably haven’t adopted the American value of meritocracy. They will simply simply vote for whoever panders to their brethren.
It’s not clear that dandroidz meant that. He did mention “traditional poorer Hampton Roads cities/counties”.
Also, if people are moving into the DC area for jobs in government, lobbying, journalism, the military industrial complex, etc., they’re probably coming from all over the country, not just places north of northern Virginia.
But as always, the Liberals RUIN EVERYTHING ??
All the Capitalization is impressive. Really drives your wide paint brush point home. Question for you Jessica; Are you and 2-fruit bedfellows ?
How to spot a Lib - when they have no counter argument, they go for the personal insult.. like a toddler.
How to spot a Lib ??
There’s that broad brush again. If you ain’t me your a Lib. See it my way or your a Lib. You have some serious issues.
My apologies - How to spot a moron (same thing).
This is a productive argument
Yeah, this part was interesting.
by allowing huge mosques to be built despite protests by locals
Those darn liberals like Jefferson and Madison ruined everything with their commie Bill of Rights.
‘Progressive Democrats: Resist and Submit, Retreat and Surrender’
Jefferson and Madison also had much to say about the desirability and necessity of the right of the populace to bear arms.
Tell that to your collectivist fellow travelers in such gun-control meccas as Chicago or Baltimore, Mikey.
A totalitarian idealogue that requires complete submission or death is not covered in the Bill of Rights. Go back to school.
No legal scholars agree with that. It’s just nonsense. Similar statements were probably made about the Catholic Church back in the Know Nothing days.
Herndon, a former middle class suburb in Northern VA, is now crime ridden with 3rd worlders.
This appears to show that crime in Herndon, VA actually declined significantly during the period 2002-2014.
http://www.city-data.com/city/Herndon-Virginia.html
Significantly - ? No. It is adjusted for “serious crimes” whatever that is. Also, there are no stats for 2015 - to present.
There was just a murder recently by an illegal immigrant in Herndon that made national news.
Interesting that the majority population is now Hispanic - wonder who made that happen??? And Democrats have now become the majority - amazing!
Thanks for proving my points.
“Daddy, what’s a housing shortage?”
“Well, son, that depends on what you mean by shortage. If you mean the number of houses in existence then that’s one type of shortage. If you mean the number of houses for sale then that’s another type of shortage.
The number of houses in existence takes a while to change but the number of houses put up for sale can drastically change in no time at all.”
“Thank you Daddy. You’re so smart.”
“I know.”
Again - a bit off topic like the post from Hancock’s presser the other day -
Take a look at the Guv of CO in this picture and tell me what has happened to this guy? He was back in the day a classic businessman from the Denver area and now this?!!
https://coloradopeakpolitics.com/2017/07/12/picking-winners-and-losers-hickenlooper-chooses-junk-science-over-western-slope-jobs-affordable-energy/
I think they get compromised somehow. Drugged and then photographed or videotaped or some such thing. Sometimes they are just driven crazy by certain people around them. Sometimes family members or loved ones are placed under threat. Someone says “Nice family you’ve got there. Be a shame if something happened to them”.
A handful of startups are betting they can help apartment-building owners convert empty units into hotel rooms
Interesting strategy. But I thought Airbnb was already cutting into hotel profitability? My prediction is that whoever is investing in these startups gets sheared quickly and clumsily.
‘Which US hotel markets are on the bubble?’
‘As the hotel industry continues on the path toward a downturn, it’s time to begin looking at warning signs for which markets are poised to experience a large drop.’
By Jack B. Corgel, Managing Director, CBRE Hotels’ Americas Research
‘At a recent gathering, I was involved in a group conversation with hotel property investors who agreed that they have been “choking on the numbers” in certain U.S. hotel markets. Stated differently, their spreadsheet models explode once either acquisition prices or development costs are entered to evaluate hotel opportunities, especially in red-hot markets.’
‘They asked, “Should we pay such high prices now, given that the boom may turn into a bust?”
But I thought Airbnb was already cutting into hotel profitability?
Hotels have actually been doing very well despite fears that AirBNB would cut into profitability.
Speaking of travel, here are some true but ridiculous tourist complaints:
http://www.dailymail.co.uk/travel/travel_news/article-4685498/MyOffers-infographic-reveals-ridiculous-tourist-complaints.html
People really said this stuff. And apparently meant it.
There’s this AirBnB ad I’ve seen where they show a vacationing family cooking dinner in the rental’s designer kitchen.
I don’t know about you guys, but my idea of a vacation doesn’t include shopping for groceries, cooking dinner and cleaning up afterwards. I do that at home all the time when I’m NOT on vacation.
I don’t know about you guys, but my idea of a vacation doesn’t include shopping for groceries, cooking dinner and cleaning up afterwards. I do that at home all the time when I’m NOT on vacation.
It all depends on your family situation. We just got back from vacation with our three kids under the age of 9. Faced with the following two options:
1. Take everyone to a restaurant and deal with wrangling young kids.
2. Hang out in a condo, let the kids play while you cook/drink wine with your spouse.
We chose #2 several times.
Hmm … when our 3 kids were that young, it never seemed to be such a chore to take them out to a fast food or casual dining place. Plus back then, most restaurants had very reasonably priced children’s menus ($2-3). At the end of the day, after being out and about all day, the last thing I wanted to do was cook and clean up.
But I suppose if the kids are a bunch of screamers who can’t sit still (and I’ve seen kids like that), then I suppose that one might prefer to go back to the rental and cook.
I never found taking my three youngsters out for dinner with mom enjoyable. Pizza parlor after a league game maybe but
not in a sit down restaurant. With that said, we are RV’ers so we cooked all the time together.
It always boils down to a question of time and money plus what you enjoy doing.
There is only so much fast food/fast casual I want to eat. And my kids aren’t screamers, but eating in restaurants with them doesn’t allow conversation over a bottle of wine/beers with my wife like what is possible if I’m in the kitchen of a condo with my kids playing.
Not to mention the fact that sometimes, the places we rent have nice outdoor BBQ areas…this last place we were at had a nice BBQ next to a lake and lawn, so the kids could play on the lawn, and we had a fantastic view while working a mixed grill.
Yep.
While I don’t much care for a designer kitchen, I do appreciate the kitchenettes in suite hotels. No I wouldn’t cook from scratch, but it’s nice to have a full size fridge for some cold cuts and a six pack of soda, or similar.
Hotels are doing well because the phony eCONomy has created the illusion of prosperity, just like it did 10 years ago, and 10 years before that.
Best re purposing idea I’ve read is turning old shopping malls into housing for elderly. You can have medical facilities as well so theres easy access for the old folks as well as the general population as there is plenty of parking. I would say maybe even have a halfway house as well, mall security could remain in place doing their current jobs. Voila!
and they can mall-walk!
the refi do is almost gone
Windows?
You guys wouldnt believe the discussion I had with a coworker the other day…OK you will, because well,we are here in the HBB.
We were discussing mortgages, the market etc, and he began by criticizing another friend of his whom bragged about paying off his mortgage very early, by the age of 35. “Ok dude, but now you have $200,000+ in equity, what are you going to do with it?” Basically he was trying to say his friend was losing out on the tax deduction for interest, and that he could take out that equity and place it in a higher earning investment. I just couldnt believe it. I tried to simply say, “well theres a lot to be said about being completely debt free, and no tax deductions or credits can outweigh being debt free” And his counter was that you could use cheap easy borrowed money to make it work better for you….sigh….I said yeah that works so long as this fraudulent market and low rate environment keeps up. And that paying off your $225,000 house today is better than paying a total price of $350,000 in 30 yrs. But no, I’m the idiot…
That reminds me of a realtor. Ten years ago he pointed that having an interest only loan means that the entire mortgage payments is a tax deduction.
Next time you should tell him that the only thing better than getting back 35% (or 40%, or 45%) of every $100 dollars you pay to the bank is not needing to pay the $100 to the bank in the first place.
IMHO, there are plenty of ways to take risk in the market and/or interest rates, you don’t need to risk the roof over your head to do so.
This could actually work IF you put the $200K in a high-rate liquid account while paying a lower-rate mortgage. If you didn’t like it you could always take the $200K and pay off the house again. But you’d better have a really sharp pencil to make the numbers work, like accounting for taxes or transaction fees.
But who’s got the patience and will power for that? Of course such risk-takers are more likely to just a leeetle bit of that $200k for a goodie for themselves, you know, boats and boobs.
Having just left the Boston metro area, I felt the need to look up the luxury units all piled up in the newly gentrified Seaport district.
2 of the luxury towers (diff companies) are offering minimum deposits ($500), and one month free. Typical rents look like $2600/mo for a 450 sq ft studio.
Ha, not enough supply the narrative says eh?? I knew building 6-8 new luxury towers in a 3 year span could have repercussions.
28 year old millennial reporting from San Diego, CA. I wasn’t in a position to buy during the the bulk of the prices increases over the last few years. I could have conceivably purchased in 2015 but thought that prices couldn’t go much higher. Clearly I was dead wrong! I’m looking in the Talmadge area, a more prestigious part of San Diego and prices are absolutely skyrocketing. I’m talking $100k+ increases in a single year between very similar properties.
The money is flowing everywhere here and i’m unsure how people are doing it. Looking at the average downpayment for the area over the last few months people are putting down under 7% and prices are $675k+. So somehow they are managing $4000 or more payments for these places. That requires two hefty incomes. I’ve saved enough to put well over 20% down but am getting hammered by people offering above asking almost immediately after places are listed.
Looking further east even to Santee, which is a pretty entry level community for San Diego County places are going for over $500k. These are starter homes that need work. I dont see how any first time buyer can afford these prices without either seriously stretching or help from mom and dad. I feel fortunate to have saved so much but at the same time like a fool for missing out on the massive price increases. Savers are apparently losers!
Depressed in San Diego
Depressed in San Diego ??
Hang in there. This kind of market really sucks for a buyer.
Q; What is the longevity of your job ? Such as; Are you a police or Fireman ? The reason I ask that question goes to your ability to sustain a monthly payment.
Q-2. Do you want to stay long term in this area (10+ years) ? If yes then plow forward.
Final advise would be to “not” tie yourself to one specific realtor. You need the help of a lot of realtors in this environment of low inventory and strong demand. Go to as many open houses as you can and let the realtor know that you are a qualified buyer and will work with any realtor that can find me a acceptable house. I think that will help you get a edge on a house that may not be on the open market yet. Good luck Kristopher.
You nailed it, I am in a very secure government job and absolutely will not be laid off at this point even in the worst of recessions. I plan of staying in San Diego for at least the next 20 years. I feel sorrry for those just getting hired now in my profession as they won’t be able to save nearly as much due to tightening budgets.
At this point I plan on looking further east in places like Allied Gardens or La Mesa with a budget of $700k. I’ve saved and sacrificed for years so at least I can afford a place here, while those just relaxing adulthood are essentially screwed in the current environment.
$700K in La Mesa?
Holy Moley!
Depressed,
Wait. I bought in 2005 and regretted it massively. The increases may continue but the 30-50% equity loss you’d sustain during the downturn isn’t worth it.
Depressed,
Housing and “markets” have been driven to insane heights by the lunatic Keynesian fraudsters running our central banks for the exclusive benefit of their oligarch pals.
This cabal engineers boom-bust cycles every eight years or so as the most expeditious means of looting and asset-stripping the proles. And now the Fed’s bubbles are moving into their denouement.
Grab a lawn chair, son, and some popcorn. Good sipping whisky wouldn’t go amiss either. There’s not too much longer to wait - the stress cracks are starting to show up everywhere. When the bubbles blown up solely by ultra-loose lending and trillions in Fed funny money start detonating, you’re going to feel like a genius for not joining the mania. And post-crash RE is going to be a LOT more bang for the buck.
You’re young…wait for the next recession…because there will be one.
I’m in the real estate industry, and I was a renter until my mid-30’s…I had plenty of people taunting me for renting (”I can’t believe you are in the real estate business, and you don’t own your own home”)…the wiser folks that I knew (lots more grey hair than me) didn’t criticize me at all.
After the crash, I had plenty of dry powder, and was able to buy a much bigger/better place than I ever expected, and now I don’t expect to need to buy another place…well, ever.
You’re young…wait for the next recession…because there will be one.
Of course, you’re assuming that Kristopher won’t lose his job in that recession.
Of course, you’re assuming that Kristopher won’t lose his job in that recession.
But if he does, it’s an advantage to be mobile and not tied to a house/city. So yeah, maybe it would be clearer to say “wait for the end of the next recession when you are sure you’re employable if you lose your current job”.
That may be a better time. House prices in California fell a lot in the mid-1990s, a few years after the end of a recession.
“That may be a better time. House prices in California fell a lot in the mid-1990s, a few years after the end of a recession.”
Was the post-2009 intervention by the Fed to deliberately reflate housing prices the first time ever this approach was taken? I am wondering about why they allowed prices to correct in line with market forces in the post-1992 period, but then decided to play Price God post-2009?
I’ve wondered about that too. It seems like either Wall Street/TPTB captured the regulators during that time frame, OR the system was seen as much more fragile after 9/11. Or both.
The Fed is typically mostly interested in inflation, growth unemployment, etc. The interest rate increases in ‘94 and ‘95 were implemented based on those variables. The policies have been similar since Paul Volcker crushed inflation in the 1980s.
If that’ the case, good thing that he didn’t buy a house and have a peak mortgage around his neck.
Taking a line from “Rich Dad Poor Dad” *, understand the difference between asset and liability. An asset produces net income, a liability produces net expense. Your primary residence is always going to have carrying costs - be a liability.
It’s true that having a paid off house is typically a much smaller liability than renting. But, having run the numbers on typical houses in this area, with my actual rent over the past years, projecting growth in the future, renting is cheaper during the course of the mortgage, but then the paid off house is cheaper after that (this is easy to do with Excel). Renting a reasonably priced place is actually a pretty good way to build net worth. Don’t get house crazy IMO.
——————–
* Kiyosake is actually a big real estate advocate, but of income-producing properties. He’s also quite blunt about primary residence being a liability, not an asset.
I’m with depressed ….fighting with the crazies for first move up homes in the San Gabriel valley.
I bid on this house along with 24 others….
https://www.zillow.com/homedetails/1475-Riviera-Dr-Pasadena-CA-91107/20881017_zpid/
Out of the 25 offers they countered 8 and I was nowhere near the final price…
As soon as the first decline in prices hits, everyone
If you can afford to spend a million bucks on a house, the depression should be a very mild one.
You missed the bullet.
“I bid on this house along with 24 others…”
That’s a beautiful California home.
Living in the SoCal hills means being vigilant about fire. You’d have to have a plan already in place too. We’re talking about minutes, not hours.
Living in the SoCal hills means being vigilant about fire.
I don’t understand why those ultra-costly homes in fire vulnerable areas don’t have their own built-in fire suppression systems. Perhaps the extra water tanks, piping & sensors aren’t flashy enough.
I still have a great sense for smoke and seismic events, and it’s been some twenty years since I lived there!
Jobless Main Streeters won’t be ordering much off Amazon, or renting luxury apartments, or buying overpriced shacks for that matter.
http://www.cnbc.com/2017/07/13/amazonification-of-main-street-killing-wages-merrill-lynch-claims.html
Looks like the long knives are suddenly out for Bezos. There were a couple of other articles today that were rather negative about him.
Black Holes Exist
Amazon is a DEFLATIONARY force that is having brick and mortar, and, now whole sectors being pulled into its collapsing gravitational field. Antitrust legislation is coming.
Walmarts supply low wages; Amazon supplies none.
Is your universe comprised of Google, eBay, Amazon and Paypal ?
Speaking of Amazon, here’s a little gem from the Wall Street Journal:
https://www.wsj.com/articles/why-the-post-office-gives-amazon-special-delivery-1499987531
“A Citigroup analysis finds each box gets a $1.46 subsidy. It’s like a gift card from Uncle Sam.”
Isn’t that special?
Amazon hires “contractors” to do their 1 and 2 hour deliveries (soccer moms), who make a fair amount of their money on tips. Their buildings are specifically set up so that the delivery folks don’t have access to the warehouse of stuff (they get to stay on the “outside” of a cyclone fence while a few Amazon employees given them bags to deliver).
Is your universe comprised of Google, eBay, Amazon and Paypal ?
No…I have accounts on all of them but Google is the only one I use more than rarely. And that’s just for search, email, and maps. So I’m a little confused about how everybody is getting so rich.
I do notice that my landlord/roommate has Amazon prime(?) and receives something almost every day though.
And that’s just for search, email, and maps. So I’m a little confused about how everybody is getting so rich.
Ever seen Superman III with Richard Pryor, when he strips all the half pennies that had been “rounded off” of people’s paychecks and gets rich?
Google strips a tiny amount of revenue from advertisers from a MASSIVE (and growing) number of searches—globally.
It’s very effective for advertisers…they are paying for consumers that are looking for their product specifically.
AND the marginal cost of Google serving up one more ad is effectively zero.
Google is growing their top line by more than 20% per year…AND expanding margins. There is a giant funnel of half cents from around the world being funneled to Google.
I prefer the “Office Space” version, but yeah.
Google, eBay, Amazon and Paypal
An interesting fact is that these companies are monopolies or nearly monopolies. Google has a little competition from Bing, but not much. This is another factor in rising inequality.
“This is another factor in rising inequality.”
Two questions:
What are your other factors of rising inequality?
When you say “rising inequality”, are you looking at it from a national perspective? Or global?
I was asked this question a few weeks ago. I wrote this:
The rise in inequality has been fueled things like the decline in the unions, the failure of Congress over the past few decades to raise the minimum wage to keep pace with inflation and worker productivity, the growth of Wall Street, NAFTA, the outrageous increases in tuition at state universities. Our phenomenonally wasteful health care system plays a small role.
I would also add the big tax cuts for the wealthy passed during the administrations of Reagan and Bush 2 and a few Wall Street bailouts. Robert Reich, in this great essay, also mentions changes to intellectual property law and bankruptcy law.
http://www.newsweek.com/real-reason-growing-gap-between-rich-and-poor-377662
I remember that one, it was pretty good. I wonder when he wrote it if he ever thought that this conclusion…
The most important political competition over the next decades will not be between the right and left, or between Republicans and Democrats. It will be between a majority of Americans who have been losing ground, and an economic elite that refuses to recognize or respond to its growing distress.
…would be something that would defeat Hillary rather than fuel her rise to power?
I would also add the big tax cuts for the wealthy passed during the administrations of Reagan and Bush 2 and a few Wall Street bailouts.
Gotta love the focus on the other “team” as the problem.
Here are a few pesky facts for you…
Wealth inequality (as measured by how much wealth is held by the richest 10% of families) was generally flat going into the Clinton years and really ramped up during WJC’s presidency (going from about 20% to about 40% by 2001…the move started in 1995).
There was a similar move during the Clinton years for the income of the highest earners.
AND CEO pay relative to Worker Pay had it’s biggest move during the Clinton years, peaking in 2000.
So, what about Clinton’s policies drove greater wealth and income inequality higher?
Why do you ignore such massive moves in wealth and income inequality during Clinton’s years? Because it suits you.
But I’m just poking at you.
The ironic part is that it probably wasn’t much in the way of government policy that has driven wealth/income inequality–although everyone likes to lean in that direction to boost their “team”.
“If we only had more taxes on the wealthy, and stronger unions, it would all be better. Helping those with lower incomes will solve everything.”
“If we only had less regulation, and lower taxes, it would all be better. Economic growth will solve everything.”
The fundamental issue with respect to income inequality is that productivity gains used to be strongly linked to hourly compensation. That strong correlation broke in the early 1970’s, and really started to show meaningful differences through the 80’s and 90’s.
So, what happened to cause this break?
Intel introduced their first microprocessor in 1971.
Personal computers started in the mid-1970’s and really ramped up during the 80’s.
Human capital became less important in the drive for higher productivity starting with microprocessors, personal computers, and now the internet–and so it was paid less.
AND the wage/productivity split was a global phenomenon…with few exceptions, which is what you would expect if the split was driven by technology that can easily be spread around the world. Again, with few exceptions, different policies had absolutely no effect on this fundamental change in relationship between wage and productivity gains.
The fact that this split was a global phenomenon is a VERY strong argument that there was very little about US policy that drove income inequality–and logic would point to the rise of computers as a pretty big deal.
There are a number of ways to measure inequality. If you read enough, you’ll see that the rise in inequality began sometime in the 1970s. That decade included presidents of both parties.
http://www.the-crises.com/wp-content/uploads/2010/12/gini-index-usa.jpg
Inequality has not stopped since then. It’s continued its rise during subsequent decades.
Regarding personal computers, they’re just tools. Just like power tools made construction workers more productive, PCs made office workers more productive. There’s nothing special about desktop computers that result in the “wage/productivity split” that you describe.
Also, regarding this:
“If we only had more taxes on the wealthy, and stronger unions, it would all be better. Helping those with lower incomes will solve everything.”
The topic is rising inequality. The decline of the unions and major reductions in taxes on the wealthy have had to play a role. If you don’t think that rising inequality is a problem and should be reversed, then obviously policies that reduce inequality would solve anything or make anything better.
You should have also noticed that I did mention NAFTA, which was signed by Clinton.
There’s nothing special about desktop computers that result in the “wage/productivity split” that you describe.
I question that statement simply because some people can use the tool at a productive user level and some people can’t. It seems logical that it could create or exacerbate at least some sort of split.
I was trolling through some of the listings in the markets I like to watch. You can always tell the homes that had their renovations done through Home Depot. Those backsplashes with the little multicolor rectangular mosaic tiles are a dead giveaway.
Look for the wall paint. It’s Behr Swiss Coffee — a beige that a little too dark. And it’s in EVERY DAMN HOUSE.
Hey Depressed in San Diego,
Don’t feel bad, I am also renting here in San Diego and so glad that I did not buy last year. Lost my job this month and rent sucks but far less than a mortgage and the downpayment would have drained my emergency fund. Plus I am mobile if I need to relocate for work.
Been renting here in SD for over ten years, thereby avoiding the higher ownership costs of principle, interest, taxes, insurance, maintenance, repairs, association dues, etc. while watching home prices fall then rise again to only slightly higher than the previous Bubble peak that was reached around the time we settled here. Our housing costs for a four bedroom home in a good school district have remained under twenty-five percent of household income for the full duration of our period of renting, though we have worked pretty hard to manage that. There are large cracks in the driveway and a few other minor deferred maintenance issues, but those will be out landlords’ problems to deal with or ignore after we move on in another year.
Many signs suggest we are nearing a second bubble peak. The best prospects to buy in San Diego await those with job security and savings who patiently wait out the current wave of mania to buy in the darkest days of the next recession.
Chomsky: “Education” makes you stupid …
https://www.youtube.com/watch?v=bR8hfUkmk6Q
You don’t say…
https://finance.yahoo.com/news/bank-earnings-show-trump-rally-pretty-much-dead-194435470.html