Housing Bubble: Why it may be worse than previously thought
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
Housing Bubble: Why it may be worse than previously thought
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesNot everyone gets to own a home.. so the median rents.. those that rise above the median buy homes. and a lot of folks are in the move up mode.. LOTS of cash to put down driving down the need for massive incomes.
I know when I look at my sales of new construction here on the west coast last 5 years and its a small sampling I think we have built and sold about 100 homes.. I would say 10 to 15% were sold for cash.. Oh and price ranges 300 to a million is were we deal.. and I will lump Charleston SC in there since we have been quite active and that is a expensive market relative to local median income.. Any way back to sales data... gone is the day were Everyone put nothing to minimum down.. So don't see the median income affecting the new home prices as much as one might think..
If I think back to my pre 08 days were we were flipping 75 plus homes a year as a retail flipper.. 97% sold for minimum down and I can't really recall a cash sale I am sure we had one but it would be an outlier.. But now its totally flip flopped at least from my little slice of the world. Lots of cash sales.. MOST sales are 10 to 30% down and small sampling is FHA or VA.
WE will bend over backwards for VA ( lot of folks won't deal with it because of time lines and such but we feel its our duty to help our Vets get into our homes)..
199 Replies
- Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes9yMike Fletcher It's not a bubble. The problem is that Los Angeles has a shortage in new housing starts. It's become the least affordable metro area due to the lack of new affordable housing. Bubbles assume speculation. LA has a supply problem.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Christopher Phillips:
Mike Fletcher
It's not a bubble.
The problem is that Los Angeles has a shortage in new housing starts. It's become the least affordable metro area due to the lack of new affordable housing.
Bubbles assume speculation. LA has a supply problem.
Sure they have a supply problem... but speculation is not the only factor.. review the definition by the way... first is demand. When demand drastically exceeds supply, prices detaches and escalates.
Just about most LA investors I talk to, cite that their primary objective for investing in LA to be speculation on appreciation... its already a negative cash flow market for the CF investor. So supply is not the only problem... speculation and irrational exuberance are also primary factors.
Funny you used the word least affordable metro... some I have talked to right here on BP feel its actually a myth...
- Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes9y
@Account Closed I do not invest in markets where things to do not cash flow. It does not matter that I am going to pay cash. When I want that much risk I go to the casino.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Some investors are allergic to negative cash flow markets.... no one gets faulted for that (except of course your path intersects with the passionate appreciation speculator). Using cash only when investing usually does have its opportunity cost but there is often when cash only can make sense. Casino's can often be like a drug... but of course, some take risk just for the thrill of it...
- Phoenix, AZ · Member since 2015 · 82 posts · 49 votes9yThere is no bubble, it's different this time.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @James Conaway:
There is no bubble, it's different this time.
Different in Los Angeles?
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
that sweet sweet sweet tech money....
oh no you didn't... doesn't your profile say you are in Walnut Creek? Where someone just lost some money due to the market there?
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
This does seem like quite a coincidence though... just when prices graze the 2007 bubble pop level... you read about 5 consecutive months of pending sales decline? Sounds like a coincidence?
- Rental Property Investor · Orange County, CA · Member since 2014 · 49 posts · 80 votes9y
@Account Closed No need to worry about LA and OC bubbles Mike. It won't affect your investing in Baltimore.
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
Originally posted by @Account Closed:
Originally posted by @Matt K.:
that sweet sweet sweet tech money....
oh no you didn't... doesn't your profile say you are in Walnut Creek? Where someone just lost some money due to the market there?
the guy that lost money wasn't an investor, wasn't tech, and probably doesn't even care..... and I'm 10 hrs from LA.
Mohseni checked sales in the past year of homes listed in the city of Walnut Creek for $2 million or more, the definition of high end. He found that out of the 494 homes sold, only eight were in that category. Of those eight, four sold under the asking price, three sold at asking and one sold for $30,000 above the listed price. And, says Mohseni, “none of those were over $3 million, until now. So Steph had the most expensive house sold in the city.” http://www.mercurynews.com/2017/07/18/steph-curry-...
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
But back to my point....
This is just one company of many... and they just so happened to make a big push of setting up shop in LA
https://www.glassdoor.com/Salary/Google-Los-Angele... that salary looks like it'd lend itself well your numbers of what kind of salary someone would need in LA... https://la.curbed.com/2016/6/6/11872300/playa-vist...
You're seeing the impact of this https://techcrunch.com/2014/10/08/theres-something-going-on-in-l-a/ and everyone thinking it's a repeat of silcon valley...
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
Originally posted by @Account Closed:
Originally posted by @Matt K.:
that sweet sweet sweet tech money....
oh no you didn't... doesn't your profile say you are in Walnut Creek? Where someone just lost some money due to the market there?
the guy that lost money wasn't an investor, wasn't tech, and probably doesn't even care..... and I'm 10 hrs from LA.
Mohseni checked sales in the past year of homes listed in the city of Walnut Creek for $2 million or more, the definition of high end. He found that out of the 494 homes sold, only eight were in that category. Of those eight, four sold under the asking price, three sold at asking and one sold for $30,000 above the listed price. And, says Mohseni, “none of those were over $3 million, until now. So Steph had the most expensive house sold in the city.” http://www.mercurynews.com/2017/07/18/steph-curry-...
and what does all this tell you?
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
But back to my point....
This is just one company of many... and they just so happened to make a big push of setting up shop in LA
https://www.glassdoor.com/Salary/Google-Los-Angele... that salary looks like it'd lend itself well your numbers of what kind of salary someone would need in LA... https://la.curbed.com/2016/6/6/11872300/playa-vist...
You're seeing the impact of this https://techcrunch.com/2014/10/08/theres-something-going-on-in-l-a/ and everyone thinking it's a repeat of silcon valley...
I would rather this discussion stay on target.... so what you just posted here is proof of?
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
You are aware that a company does reflect entire region's economy correct?
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
- Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes9y
@Account Closed
Speculation means a lot of building to meet the pentup demand, that would be brand new affordable housing.
No, it's not a myth based on the data you cited. Median income is way off of what's required to own a home.
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
Originally posted by @Account Closed:
You are aware that a company does reflect entire region's economy correct?
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
You are aware I said tech boom, not a google boom right? Go look at SF, median household income is like 77k and the median home list price is almost 1.2 MIL. This is because of all the tech money floating around, not everyone want to live in the burbs and will go into the city.
You gotta realize too at this point a lot of people in these companies aren't new to the game and aren't interns anymore... Check out the pay here and this is an old article. Nearly every single one of those jobs median mid career income meets your the numbers you posted for LA... tech is moving to LA, they're expanding outside the bay area. You can see this in plenty of other states as well...http://www.huffingtonpost.com/entry/silicon-valley-salaries_us_56d61ee6e4b0bf0dab33ce96
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
Originally posted by @Account Closed:
You are aware that a company does reflect entire region's economy correct?
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
You are aware I said tech boom, not a google boom right? Go look at SF, median household income is like 77k and the median home list price is almost 1.2 MIL. This is because of all the tech money floating around, not everyone want to live in the burbs and will go into the city.
You gotta realize too at this point a lot of people in these companies aren't new to the game and aren't interns anymore... Check out the pay here and this is an old article. Nearly every single one of those jobs median mid career income meets your the numbers you posted for LA... tech is moving to LA, they're expanding outside the bay area. You can see this in plenty of other states as well...http://www.huffingtonpost.com/entry/silicon-valley-salaries_us_56d61ee6e4b0bf0dab33ce96
As an investor, it would be great if everyone in LA made at least $100,000 but that just isnt the case. That is why there is the affordability crises. What you are trying to talk about here is already accounted for in the employment numbers for the region. Neither Google or Facebook was born last night.
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
@Account Closed imagine that:
CHART 1: Highest salary premiums for tech workers among largest U.S. tech hubs:
1. Seattle, $108,350, or 78% higher than all Seattle workers
2. Dallas-Fort Worth, $86,810, +77%
3. Houston, $90,390, +74%
4. Austin, $84,660, +71%
5. Oakland, $105,160, +70%
6. Los Angeles-Orange County, $91,150, +69%
7. Philadelphia, $86,620, +65%
8. San Jose, $128,850, +64%
9. San Francisco, $108,960, +63%
10. Boston, $97,480 +58%
CHART 2: U.S. MSAs with the most workers in computing and math occupations (May 2015):
1. 280,900 New York-Jersey City-Newark
2. 251,000 Silicon Valley (San Francisco-San Jose-Oakland)
3. 185,200 Washington, D.C.
4. 147,400 Los Angeles-Orange County (Anaheim-Irvine)
5. 141,700 Chicago
6. 140,100 Dallas-Fort Worth
7. 126,600 Boston (including Nashua, N.H.)
8. 117,000 Seattle
9. 91,200 Philadelphia
10. 84,000 Houston
NOTE: BLS figures are by occupation, not industry, and include those who work for both tech and non-tech companies. Figures do not represent mean salaries in the tech industry, which also employs thousands of lower-paid, non-tech service workers.
https://www.usatoday.com/story/tech/columnist/shinal/2016/04/05/tech-workers-living-large-seattle-texas/82631090/
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
Originally posted by @Account Closed:
Originally posted by @Matt K.:
Originally posted by @Account Closed:
You are aware that a company does reflect entire region's economy correct?
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
You are aware I said tech boom, not a google boom right? Go look at SF, median household income is like 77k and the median home list price is almost 1.2 MIL. This is because of all the tech money floating around, not everyone want to live in the burbs and will go into the city.
You gotta realize too at this point a lot of people in these companies aren't new to the game and aren't interns anymore... Check out the pay here and this is an old article. Nearly every single one of those jobs median mid career income meets your the numbers you posted for LA... tech is moving to LA, they're expanding outside the bay area. You can see this in plenty of other states as well...http://www.huffingtonpost.com/entry/silicon-valley-salaries_us_56d61ee6e4b0bf0dab33ce96
As an investor, it would be great if everyone in LA made at least $100,000 but that just isnt the case. That is why there is the affordability crises. What you are trying to talk about here is already accounted for in the employment numbers for the region. Neither Google or Facebook was born last night.
never said they were born last night, I said tech overall has just recently made a big push to expand to LA and the home prices are going to go up with people who have the funds to buy it and people who are going to buy it for appreciation. All the new employees that are getting jobs there going to have to live somewhere right?
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Christopher Phillips:
@Account Closed
Speculation means a lot of building to meet the pentup demand, that would be brand new affordable housing.
No, it's not a myth based on the data you cited. Median income is way off of what's required to own a home.
lol...I already know this, but as you can see here, there is someone who already feels the census bureau is wrong. I deal with countless such arguments. Its usually just emotional or defensive. Regarding speculation, not sure it requires further simplification... part of what is happening in LA is driven by speculative investor activity, just as its demand and inventory shortage issues.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
@Account Closed imagine that:
CHART 1: Highest salary premiums for tech workers among largest U.S. tech hubs:
1. Seattle, $108,350, or 78% higher than all Seattle workers
2. Dallas-Fort Worth, $86,810, +77%
3. Houston, $90,390, +74%
4. Austin, $84,660, +71%
5. Oakland, $105,160, +70%
6. Los Angeles-Orange County, $91,150, +69%
7. Philadelphia, $86,620, +65%
8. San Jose, $128,850, +64%
9. San Francisco, $108,960, +63%
10. Boston, $97,480 +58%
CHART 2: U.S. MSAs with the most workers in computing and math occupations (May 2015):
1. 280,900 New York-Jersey City-Newark
2. 251,000 Silicon Valley (San Francisco-San Jose-Oakland)
3. 185,200 Washington, D.C.
4. 147,400 Los Angeles-Orange County (Anaheim-Irvine)
5. 141,700 Chicago
6. 140,100 Dallas-Fort Worth
7. 126,600 Boston (including Nashua, N.H.)
8. 117,000 Seattle
9. 91,200 Philadelphia
10. 84,000 Houston
NOTE: BLS figures are by occupation, not industry, and include those who work for both tech and non-tech companies. Figures do not represent mean salaries in the tech industry, which also employs thousands of lower-paid, non-tech service workers.
This is actually an improvement... :-) a Californian (or CA resident) with something that remotely looks like a fact :-)
But tell me this... what is the size (number) of LA's labor force? And what percentage of that labor force represents tech?
That may help shed some light on the fact that that sector doesnt reflect exactly what is happening economy wide.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
@Account Closed imagine that:
So you are clear on the fact that median LA household wages is in the $50,000 range correct? Trying to focus on whats going on in Dallas for instance, doesn't exactly help whats going on in LA. They aren't just miles apart, prices are quite different.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Not everyone gets to own a home.. so the median rents.. those that rise above the median buy homes. and a lot of folks are in the move up mode.. LOTS of cash to put down driving down the need for massive incomes.
I know when I look at my sales of new construction here on the west coast last 5 years and its a small sampling I think we have built and sold about 100 homes.. I would say 10 to 15% were sold for cash.. Oh and price ranges 300 to a million is were we deal.. and I will lump Charleston SC in there since we have been quite active and that is a expensive market relative to local median income.. Any way back to sales data... gone is the day were Everyone put nothing to minimum down.. So don't see the median income affecting the new home prices as much as one might think..
If I think back to my pre 08 days were we were flipping 75 plus homes a year as a retail flipper.. 97% sold for minimum down and I can't really recall a cash sale I am sure we had one but it would be an outlier.. But now its totally flip flopped at least from my little slice of the world. Lots of cash sales.. MOST sales are 10 to 30% down and small sampling is FHA or VA.
WE will bend over backwards for VA ( lot of folks won't deal with it because of time lines and such but we feel its our duty to help our Vets get into our homes)..
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
Sure, I didn't fact check the median income and I wasn't saying that the median income was even wrong. What I'm saying is wrong is the use of median income as a metric to see who can afford a house. I'm assuming you talking about a bubble bursting means that eventually people can't afford homes (and I agree with you on that), but what I'm telling you is that these homes are still "affordable" for certain people. Those certain people are tech workers (which LA is seeing a HUGE influx of) and investors (who would look at other areas that have seen an influx of tech). Requiring a 120k household income isn't that hard when you make nearly that by yourself, and it's more common than not for tech workers to have more than one earner in the home.
You gotta remember a lot of people here are used to paying a bunch of money for housing so they are less sensitive to high mortgage or rent. Look at the adjusted salary when compared to SF on the link below... I think there's a decent amount of room left in that bubble IF tech stays strong.https://hired.com/state-of-salaries-2017