The Ownership Society

[don]

Re: The Young & Not So Restless

During the Mother-of-all-Housing-Bubbles there was a national petition by appraisers to Washington to reign in the banker demands for ever-higher appraisals. I recall the signatures were in the 10,000 range and represented those appraisers who were proving " difficult" in pushing the "Ownership Society" towards its Elysium. If you didn't play, you were no longer called. (needless to say, the industry's stooges did nothing)

[Polish_Silver]

Re: The Young & Not So Restless

time for an update . . .

Let the serfs pay their rent: Rental income held steady from 2000 to 2007 but has now risen a whopping 240 percent since the Great Recession hit.

The fact that we’ve added so many more renting households is a trend that is not going away. Younger households are largely cash strapped and this has put a dent into the first time home buyer market. The good news though is that more rental income is going to larger landlords. The wonderful benefits of the bailouts, QE policy, circumventing regular accounting standards, and artificially controlling the market.

Over all, a good article, but I question their Hudson-esque assumption that rental property is owned by "very few people".
The graph shows that over 13% of families own real estate beyond their own residential property. What would constitute a large number of rental owners? Mathematically, it would be hard to get to 50%, because there would be no one to rent to.

I'd say rental houses are one of the most widely distributed low rung investments. You cannot buy a small house for $10k, but you can hold a small equity position for $10k. Real estate is less fungible than stocks.

[lektrode]

Re: The Young & Not So Restless

well... at least we can 'rest easy' knowing that our political class has things under control

and that the FIre economy is alive and well - esp in LA, where 'multi-family construction' is... uhhhh...
'heating up' ;)

A massive fire engulfs an apartment-building construction site near downtown Los Angeles. Crews battled two large fires early Monday, including a massive one downtown that closed parts of two freeways and blanketed the area in ash and heavy smoke.

Nancy Yuille/Associated Press

altho eye did note that a tornado had ripped thru the southland during last weeks storm, didnt see anything about 'lightning' ...

[vt]

Re: The Young & Not So Restless

Government is where you go to get rich or dispense the spoils, while the working class gets the crumbs:

http://www.wsj.com/articles/mary-ana...ich-1418600799

[don]

Aftermath

Mortgage applicationsThe Mortgage Bankers Association (MBA) saw that mortgage applications jumped by 49.1 percent in the last week. Seems fantastic right? Well you have to look at the broader picture as well and factor in seasonal variability. We are bouncing off multi-decade lows in terms of mortgage originations.Take a look at the bigger picture here:

Source: MBA

You see that little blue line deviating from the 4-week moving average? That is your massive jump in mortgage originations. The current volume of mortgage originations is on par to what we were seeing back in 1994 – 20 years ago. Only difference is that we had 263 million people in the US versus 320 million today.It might also be useful to look at mortgage origination data from actual banks releasing information to the public. Wells Fargo tends to be the big player here and mortgage originations don’t look so great:



That is a massive drop in December originations year-over-year from one of the largest originators in the country. Mortgage origination data is not looking healthy relative to how low mortgage rates are. Take a look at current mortgage rates:



The current daily survey for the 30-year fixed rate mortgage is coming in at 3.62 percent. That is incredibly low. Within the 3 percent range, you are basically getting an interest free loan after factoring for inflation. So why don’t people dive in and buy every house on the market? There are two main reasons:

1. Inventory remains very low-

2. Household incomes are very weak

[don]

Re: Aftermath

It's the Down and the Monthly . . . .

There was another article showing that the LA/OC metro area is the most unaffordable housing market based on incomes of those living in the area. People point to rising prices or rents as somehow a condition of economic resurgence but all it means is that more money is funneled into real estate. And speculation again is rampant. Just look at the number of rental households we have added. If voting with money is a true indication of “want” people are going towards rental housing. Even for a $700,000 crap shack the numbers start to pencil out with a 20 percent down payment ($140,000). But even a couple making six-figures will have a long journey to save this much even with low interest rates. And this is what has changed over time. The down payment strike point was easier to save in the past versus today where people are diving into more expensive mortgages with down payments in the 10, 5, and even 3.5 percent range. Of course lower mortgage rates allow for an underlying inflated value to emerge. From 2006 to 2013 LA saw an increase in the rental population by 11 percent. Today we look at a Glassell Park HGTV home to see how marketing is done to the hipster crowd.

Chasing the Glass-ell dreamPeople mistake correlation with causation. For example, we look at wealthier US households and yes, most own real estate. But did the wealth come from owning housing? For the truly wealthy, their primary residence is a small part of their portfolio. We are not talking about your Purina Dog Chow eating boomer shopping at the 99 Cents Store while holding onto their million dollar home without cashing in on the equity. Do you think it is a prerequisite to buy a sub-1,000 square foot crap shack to be on your way to millions? What about the 7,000,000+ foreclosures that occurred since the crisis hit? Of course as Nassim Taleb would argue, this subset of people are erased from the history books only to look at the winners (we don’t see Enron or WorldCom trading on the stock market). You might have a home that went through one, two, or even more foreclosures yet overall the price rose over this volatile period.You then get this simplified argument that high income households represents a good portion of the targeted buying population. What people forget to mention is that a large number already own. So who is left to buy? You think high income households are going to buy in a toxic neighborhood and be the guinea pig for gentrification? Take one for the team? Apparently not. That is why big investors and foreign money has been a big play in the California housing market and why people continue to run the numbers. It isn’t a simple buy or rent argument.Let us take a look at this home in Glassell Park:

2456 Sundown Dr, Los Angeles, CA 900652 beds, 1 bath, 869 square feet

This picture makes the home look epic. 2 beds and 1 bath is a tiny place. Let us look at the ad which clearly caters to the hipster crowd:

“Picture a view worth a 1000 words, wrap around deck & patio for morning coffee, intimate dinners & grand affairs. Kitchen to impress guests, chefs & gourmets alike. Master bedroom opens to morning sunrises & evening stargazing. Nurture your inner artist, musician, yogi or even CEO in your studio with doors opening out to a vacation like feel of bliss. Architectual style and remodel so hip and clean, par excellence.”

Damn straight those will be intimate dinners in 869 square feet. You can take your Whole Foods kale salad and entertain the two people that will fit in your kitchen. Nurture your inner artist? Musician? Yogi? Or even CEO? Why not just say “come one, come all hipsters!” The place is listed at $715,000:



This place sold last June for $500,000. So it looks like someone feels that they added $215,000 (50% in value) over the last few months. Here is the Google Streetview:




Better enjoy hilly living. Also, take the 2008 price of $397,000. For this zip code, the AGI tax data for 2008 was $46,741 for a household. Today, it is roughly $50,000 but somehow this place is now worth$715,000? Basically the price from 2008 is up 80 percent while incomes are stagnant. A 20 percent down payment in 2008 was $79,400. Today it is $143,000. A household that can save that chunk of change is unlikely to live here. What you will have is people leveraging their brains out to live here.So how much will it cost you per month if you buy this place with 3.5 percent down ($25,025 down)?



$4,605 per month if you go with FHA. For this Glassell Park place. The reason first time buyers are smacked out of the market and largely becoming renters is because the down payment is too much for their budgets AND the monthly payment. No investor is going to buy this as a rental. So the ad is targeting the hipster crowd.

[don]

Re: Aftermath

It's the Down and the Monthly . . . .

There was another article showing that the LA/OC metro area is the most unaffordable housing market based on incomes of those living in the area. People point to rising prices or rents as somehow a condition of economic resurgence but all it means is that more money is funneled into real estate. And speculation again is rampant. Just look at the number of rental households we have added. If voting with money is a true indication of “want” people are going towards rental housing. Even for a $700,000 crap shack the numbers start to pencil out with a 20 percent down payment ($140,000). But even a couple making six-figures will have a long journey to save this much even with low interest rates. And this is what has changed over time. The down payment strike point was easier to save in the past versus today where people are diving into more expensive mortgages with down payments in the 10, 5, and even 3.5 percent range. Of course lower mortgage rates allow for an underlying inflated value to emerge. From 2006 to 2013 LA saw an increase in the rental population by 11 percent. Today we look at a Glassell Park HGTV home to see how marketing is done to the hipster crowd.

Chasing the Glass-ell dream

People mistake correlation with causation. For example, we look at wealthier US households and yes, most own real estate. But did the wealth come from owning housing? For the truly wealthy, their primary residence is a small part of their portfolio. We are not talking about your Purina Dog Chow eating boomer shopping at the 99 Cents Store while holding onto their million dollar home without cashing in on the equity. Do you think it is a prerequisite to buy a sub-1,000 square foot crap shack to be on your way to millions? What about the 7,000,000+ foreclosures that occurred since the crisis hit? Of course as Nassim Taleb would argue, this subset of people are erased from the history books only to look at the winners (we don’t see Enron or WorldCom trading on the stock market). You might have a home that went through one, two, or even more foreclosures yet overall the price rose over this volatile period.You then get this simplified argument that high income households represents a good portion of the targeted buying population. What people forget to mention is that a large number already own. So who is left to buy? You think high income households are going to buy in a toxic neighborhood and be the guinea pig for gentrification? Take one for the team? Apparently not. That is why big investors and foreign money has been a big play in the California housing market and why people continue to run the numbers. It isn’t a simple buy or rent argument.Let us take a look at this home in Glassell Park:

2456 Sundown Dr, Los Angeles, CA 900652 beds, 1 bath, 869 square feet

This picture makes the home look epic. 2 beds and 1 bath is a tiny place. Let us look at the ad which clearly caters to the hipster crowd:

“Picture a view worth a 1000 words, wrap around deck & patio for morning coffee, intimate dinners & grand affairs. Kitchen to impress guests, chefs & gourmets alike. Master bedroom opens to morning sunrises & evening stargazing. Nurture your inner artist, musician, yogi or even CEO in your studio with doors opening out to a vacation like feel of bliss. Architectual style and remodel so hip and clean, par excellence.”

Damn straight those will be intimate dinners in 869 square feet. You can take your Whole Foods kale salad and entertain the two people that will fit in your kitchen. Nurture your inner artist? Musician? Yogi? Or even CEO? Why not just say “come one, come all hipsters!” The place is listed at $715,000:



This place sold last June for $500,000. So it looks like someone feels that they added $215,000 (50% in value) over the last few months. Here is the Google Streetview:




Better enjoy hilly living. Also, take the 2008 price of $397,000. For this zip code, the AGI tax data for 2008 was $46,741 for a household. Today, it is roughly $50,000 but somehow this place is now worth$715,000? Basically the price from 2008 is up 80 percent while incomes are stagnant. A 20 percent down payment in 2008 was $79,400. Today it is $143,000. A household that can save that chunk of change is unlikely to live here. What you will have is people leveraging their brains out to live here.So how much will it cost you per month if you buy this place with 3.5 percent down ($25,025 down)?



$4,605 per month if you go with FHA. For this Glassell Park place. The reason first time buyers are smacked out of the market and largely becoming renters is because the down payment is too much for their budgets AND the monthly payment. No investor is going to buy this as a rental. So the ad is targeting the hipster crowd.

[santafe2]

Re: Aftermath

There was another article showing that the LA/OC metro area is the most unaffordable housing market based on incomes of those living in the area.

Yeah, Glassell Park when you can no longer afford Silverlake...what's next, hipsters in Highland Park? Thankfully almost none of that going on here in sleepy town. I really don't miss LA.

[don]

Re: Aftermath

Given every headline we have seen over the last few years you would think that home builders would be out in droves adding new supply to the market. What building is occurring is focused on multi-family units to cater to the trend of rental Armageddon. The new home market does well when the economy is recovering evenly and wages are moving up across the board. New home sales come with a heftier sticker price and most investors are interested in deals, not marked up new homes. But prices are pushing up in most metro areas and rents are steadily moving up. Yet this push is more of a constraint of investor demand for existing homes and not regular families competing with one another as was the case for a few generations. That is why the homeownership rate of today is what it was back in 1984, over 30 years ago. It is also the reason why new home sales are pathetically low. The new home sale market is really the place to look at for a true housing recovery for the masses and nothing is really happening there.

New home sales

Looking at new home sales we realize that the hunger for new homes is near all-time lows. Why? For one, new homes carry a higher price tag and also, investors and flippers have little demand for these. New homes usually push the higher range of a market and are designed for the regular home buyer. Of course this category of buyer is fully tapped out of the market.If we look at the new home sales data we really don’t see any housing recovery in this segment:



Even in the 1970s and 1980s we routinely had 800,000 home sales per year. During the housing mania we were routinely over 1,000,000 per year. Today we are hovering near 400,000. That is incredibly low especially when you look at home prices. But the push is coming largely from big money. If we look at new home sales over the last 10 years, it becomes clearer:



You’ll notice that there is a minor move up in new home sales but this is only starting to occur after a few years of significant pressure on prices and rents. It also relies on artificially low rates to draw in buyers. Inventory is still very low.

Inventory
There is still a lack of inventory out in the market:



The Taco Tuesday baby boomers are unlikely to move for a few reasons. One, many have their kids moving back home because they can’t afford to buy or rent. Next, many have deeper aspirations for buying more expensive homes in the property ladder game. The only problem is prices went up across the board. It is all relative. Inventory also remains low because of the lack of new home building that simply did not come back after the crash in 2007-08.

Median price
The median price of homes across the country has recovered but seems to be hitting a ceiling:



The median home price of existing homes is oscillating between $200,000 and $220,000 across the country. This sounds about right given household incomes and interest rates in the 3 to 4 percent range. It is all fully dependent on low interest rates. Yet new home sales carry a higher price tag and even slight price variations are pricing out those new home buyers.

Homeownership
When we look at it in full context, we then see how the homeownership rate is now down to levels last seen in 1984 with prices still moving up:



A net loss of 1 million homeowner households but adding 10 million renter households over the last decade will do that. It should be obvious that investors have crowded out many buyers in the single family home market in an already inventory poor environment. New builders have to make a profit but if you only have cash strapped regular buyers, why will you build? The demand has been on existing homes were investors could dive in and turn them into rentals or flips. There is little desire on new homes which serve as a clear reflection on the income health of the masses.A robust recovery in new home sales will be a better signal that things are turning around for most families. Simply looking at new home sales, builders that look forward are basically betting on rental Armageddon to continue. The days of the ubiquitous McMansion seem to be at a standstill.

[vt]

Re: Aftermath

The Homebuilder stock chart is showing more positive potential. The price has broke out to $28.20 from the consolidation area around $25. We will see if this enthusiasm is rewarded with real numbers in the nexy couple of years.

[gwynedd1]

Re: The Young & Not So Restless

I am a thirty something (barely on the low end) and have never had a desire to own a home in the suburbs.

I might however own a condo within the city limits where I don't have to drive much, depending on what city I live in at the time of a theoretical purchase.

Many people do not desire to live in the Suburbs. Its just where they end up. What they desire is a bit of affordable room when they start families. Single women instinctively head for Urban society. Men who are not in the navy, oil workers or work in a cannery follow them there. So all you had to do was say I am in my early 30s, and I had the rest figured out.

However its not such a cool, 800 Square foot condo with cartoon network running all day long and a changing table in the hall. I don't know what it is but pot smoke and daiper smell just don't mix. Those great locations for night life, not really great next to the nursery. Also, Mom, instinctively sees a lot of attraction in the burbs with few single women. Not a big deal if her husband is in the navy, an oil worker or works in a cannery, but it is if he is the typical investment banker....type.

[don]

Re: Aftermath

Is this ETF single home based or rentals?

[vt]

Re: Aftermath

Don,

It's new homes built by home builders. Likely no renters.

http://investorplace.com/2012/06/3-e.../#.VSiGkvmjOM4

I have no idea about investment value in these. You have to do your own research.

[don]

Aftermath: Renter Armageddon @ 10:1

The Federal Reserve recently released household net worth figures and what was found in the report continues to follow the theme regarding a shrinking middle class. Wealth jumped nicely at the upper-end of the income spectrum but overall, the cubicle hamster isn’t doing all that well. The recent improvement in home values has helped but this largely has helped investors since in the last decade we have gained 10,000,000 renting households while losing 1,000,000 homeowners. The figures are interesting and are already creeping up in the pontificating that comes with any political season. At the core, a healthy housing market is one where owner-occupied buyers dominate the bulk of home sales. That is simply not the case. This is how you have well paid tech workers in San Franciscocramming into a 2-bedroom apartment like a clown car simply to get by. One thing that is certain from the overall trend is that larger investors are pulling back from the market dramatically.

Investors dominate the market

One interesting highlight that is occurring is that smaller time investors, those that purchase 10 or fewer properties per year are getting into the game while the bigger players back out. The television ads and radio shows are now screaming (for a few years now) how awesome it is to get into the flip/sell/buy real estate game.First, it might be useful to see how the big money is pulling back:





The big money is pulling back significantly. Yet investors are still a big part of the market:

“(Wolf Street) The homeownership rate in 2014, not seasonally adjusted, plunged by 1.2 percentage points to 64%, the largest annual drop in the history of the data series going back to 1965. And in the first quarter of 2015, it dropped to 63.7%, according to the Commerce Department, the lowest since Q2 of 1990, unwinding 25 years of the American Dream.The highest ownership rates were in the Midwest at 68.6%. The lowest were in the West at 58.5%, which includes California where homes have become immensely expensive, and the American Dream a phrase tarnished with cynicism.”

So for now, if you want to play in the California real estate game, you have to pay. But overall, prices on real estate are up pretty much across the country. It is shocking to see how big of an impact investors are having across various states:




Hawaii of course is usually a second home trophy location. You don’t get more landlocked than an island. (good line ) And for cash buyers, the foreign money is a big player:



A big portion as reported by the NAR is investor buying from an international background. Many are using the property as a second home. I’ve received a large number of e-mails talking about people seeing “ghost” properties where someone bought the place, but no one is living in the house. At times, some people will go a year without seeing someone set foot in the property.Of course the Fed report points out that real estate was the largest net worth driver over the last few years (too bad we are reaching generational lows in homeownership):



The homeownership rate is back to where it was 25 years ago. And as we have mentioned, you would think builders would be adding more new homes but for what? They realize that many Millennials are not in the market for more expensive properties and many are living at home with their parents. What builders are building is multi-unit properties to meet the changing demographics out there. Rental Armageddon continues and in places like California, the homeownership rate continues to become a tougher proposition.

[don]

RE: Nice Catch

Home Prices Up 37% Since The Housing Crash—–Something Smells Fishy

by Jim Quinn • May 28, 2015

It’s always interesting to see a long term chart that reflects your real life experiences. I bought my first home in 1990. It was a small townhouse and I paid $100k, put 10% down, and obtained a 9.875% mortgage. I was thrilled to get under 10%. Those were different times, when you bought a home as a place to live. We had our first kid in 1993 and started looking for a single family home. We stopped because our townhouse had declined in value to $85k, so I couldn’t afford to sell. In 1995 I convinced my employer to rent my townhouse, as they were already renting multiple townhouses for all the foreigners doing short term assignments in the U.S. We bought a single family home in 1995 with the sole purpose of having a decent place to raise a family that was within 20 minutes of my job.
Considering home prices on an inflation adjusted basis were lower than they were in 1980, I was certainly not looking at it as some sort of investment vehicle. But, as you can see from the chart, nationally prices soared by about 55% between 1995 and 2005. My home supposedly doubled in value over 10 years. I was ecstatic when I was eventually able to sell my townhouse in 2004 for $134k. I felt so smart, until I saw a notice in the paper one year later showing my old townhouse had been sold again for $176k. Who knew there were so many greater fools.

This was utterly ridiculous, as home prices over the last 100 years have gone up at the rate of inflation. Robert Shiller and a few other rational thinking people called it a bubble. They were scorned and ridiculed by the whores at the NAR and the bimbo cheerleaders on CNBC. Something smelled rotten in the state of housing. We now know who was responsible. Greenspan and Bernanke were at least 75% responsible for the housing bubble and its eventual implosion, which essentially destroyed our economic system. They purposely kept interest rates at obscenely low levels, encouraging every Tom, Dick and Julio to buy a home with a negative amortization, no doc, nothing down, adjustable rate mortgage, so they could live the American dream of being in debt up to their eyeballs.

Greenspan and Bernanke were also responsible for regulating the Wall Street banks. They allowed them to leverage themselves 30 to 1. They allowed them to create fraudulent high risk mortgage products. They looked the other way as Wall Street sliced and diced these guaranteed to default mortgages into AAA rated derivatives that were then spread throughout the global financial system like ticking time bombs. As home prices rose three standard deviations above the long term average, these Ivy League educated geniuses cheered it all on. Bernanke saw no bubble, just as it was bursting. He saw no mal-investment or systematic risk from this orgy of greed and fraud. And then it all blew up in our faces, while the perpetrators walked away unscathed to pillage and rape once more.


Chart of the Day

And now we come to present day and something really smells fishy again. Home prices crashed by 40% between 2005 and 2012, putting prices back to 1978 on an inflation adjusted basis. All of the bubble gains were wiped out in the blink of an eye. Bernanke and his Wall Street owners had a real problem with this development. Wall Street banks had/have billions in toxic mortgages on their books and only accounting fraud by not having to mark them to market has kept these banks from having to declare bankruptcy. Bernanke, Geithner, and the Wall Street banks hatched their master plan to save themselves at the expense of young people in 2011/2012.

We know for a fact that real median household income is still 7% below 2007 levels and sits at the same level as 1989. We know for a fact that wages have been stagnant since 2007. We know for a fact GDP has barely broken 2% since 2009. We know for a fact the price of healthcare, food, energy, tuition, rent, and a myriad of other daily living expenses are dramatically higher since 2009. We know mortgage originations are at 1997 levels. We know housing starts are 60% below the 2005 highs and at levels seen during the 1991 and 1981 recessions. Existing home sales are 30% below the 2005 high, only up 10% from 2012 levels, and sitting at levels reached in 1999 before the boom.

A critical thinking person might wonder how median single family home prices could possibly skyrocket by 37% in the last three years when household incomes are falling, living expenses rising, and the number of houses being sold are at recessionary levels. The stinking rotting fish again sits in the hallways of the Eccles Building in Washington D.C. Janet “Yellowfish” Yellen has inherited the bubble blowing machine from Ben “Blowfish” Bernanke and has continued to inflate a new housing bubble, because one housing bubble just isn’t enough.




There is nothing free market about the 37% increase in home prices. It has absolutely nothing to do with supply and demand. It has nothing to do with normal families looking for a home. It has everything to do with the Federal Reserve’s 0% interest rates, the $3.5 trillion of QE injected into the economic gambling system, Wall Street banks withholding foreclosures from the market, hedge funds buying up tens of thousands of foreclosed homes and renting them out to the former middle class, Fannie and Freddie guaranteeing 70% of all sales, the government encouraging 3.5% subprime loans again, Chinese and Russian billionaires parking their ill gotten wealth in US real estate, and flippers reappearing in the same old places (Las Vegas, Phoenix, Florida, California).

The Federal Reserve created the last housing bubble and they’ve created the new housing bubble, along with stock and bond bubbles, with their easy money policies designed to enrich their Wall Street owners and the parasites who feed off the financial industry. Their entire plan smells to high heaven. They have thrown young people and most of the middle class overboard, while the bankers, billionaires, politicians, and connected cronies party like it was 2005 on their $250 million yachts.



Now what? The Fed says they are going to raise rates. The QE spigot has been turned off. The hedge funds are selling their buy and rent hovel investments, cash buyers are dwindling, the flippers who appeared in 2005 are back, Boomers are looking to sell and downsize, young people are already in debt up to their eyeballs thanks to the government doling out student loans like candy, the number of full-time good paying jobs continue to dwindle, and the rigged 37% price increase has priced millions of people out of the market.

The good news is the Wall Street banks have inflated their balance sheets and celebrated by giving themselves $20 billion in bonuses for a job well done. If mortgage rates rise to 4% or God forbid 5%, the entire housing complex would implode faster than a blowfish out of water. If you’ve bought in the last two years you will be underwater sleeping with the fishes like Luca Brasi in the not too distant future.