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
Originally posted by @Account Closed:
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.
So little digging, this doesn't seem realistic to me.... we shouldn't use 4 year data to compare it against 2 year old data.
While affordability is making small but apparently encouraging gains, the figures themselves are still a little daunting. The median house in LA County was nearly $482,000 in the last quarter of 2015. The monthly payments would run about $2,410, and the minimum income required to qualify to buy the house is $96,420, CAR figures. If that doesn't sound so bad, consider that the median income in LA County is $55,909, according to US Census figures from 2009 through 2013.
https://la.curbed.com/2016/2/16/11028498/los-angeles-housing-affordability-2015
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Jay Hinrichs:
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)..
Good info... but there is a reason why economist look at aggregate data when planning. Sometimes you have to look at things at a per capita level also. New construction by the way is one of many economic indicators that can hint were things are heading.
5 months of CONSECUTIVE pending sales decline in California sure is a sign of a cooling of some sort... right when it nears the 08 pop level is enough to spook the alert.
Regarding down payments, I think the government put in place the 3.5% FHA down payment because there was/is a general trend of buyers not having sufficient down. Dont forget this is all tracked data... for instance at anytime what the savings rate is, is known and what the average american has in the bank account, say in CA for instance, would be absolutely insuffient to meet a 3.5% down payment, less 30% on a $700,000 property in LA.
If almost 70% of transactions is financed, and financing relies on a qualifying income, which is currently half below where it should be (what is required), the question is not if there will be a problem.
There isn't an issue with seeing things differently... someone always is a victim of a pop.
- Contractor · Springfield, VA · Member since 2017 · 1 post · 0 votes9y
Yep.There's a bubble. Anyone who thinks otherwise has his head in the sand.
- 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.:
@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.
So little digging, this doesn't seem realistic to me.... we shouldn't use 4 year data to compare it against 2 year old data.
While affordability is making small but apparently encouraging gains, the figures themselves are still a little daunting. The median house in LA County was nearly $482,000 in the last quarter of 2015. The monthly payments would run about $2,410, and the minimum income required to qualify to buy the house is $96,420, CAR figures. If that doesn't sound so bad, consider that the median income in LA County is $55,909, according to US Census figures from 2009 through 2013.
I wish I could sugar coat this and say its all good for LA. That just isnt the fact. As of 2015, family income in LA is $54,000 and in most families there is often multiple earners (per capita income in LA is almost half that). It is not unusual for people to be out of touch with the facts. I think in some ways the sheer shock of the reality fuels the resistance.
If income grew at 3% inflation, its about $57,288 currently. That number already accounts for what is going on in tech. What you can afford is in the $200's. The median home value in LA (city), is $685-$700K. Required income would be in the $120's range (based on what you put down).
As an investor, when there is such a disconnect between housing prices and wage levels, it is an issue of serious concern.
Originally posted by @Account Closed:
Originally posted by @Matt K.:
Originally posted by @Account Closed:
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.
So little digging, this doesn't seem realistic to me.... we shouldn't use 4 year data to compare it against 2 year old data.
While affordability is making small but apparently encouraging gains, the figures themselves are still a little daunting. The median house in LA County was nearly $482,000 in the last quarter of 2015. The monthly payments would run about $2,410, and the minimum income required to qualify to buy the house is $96,420, CAR figures. If that doesn't sound so bad, consider that the median income in LA County is $55,909, according to US Census figures from 2009 through 2013.
I wish I could sugar coat this and say its all good for LA. That just isnt the fact. As of 2015, family income in LA is $54,000 and in most families there is often multiple earners. If income grew at 3% inflation, its about $57,288. That number already accounts for what is going on in tech. What you can afford is in the $200's. The median home value in LA (city), is $685-$700K. Required income would be in the $120's range (based on what you put down). As an investor, when there is such a disconnect between housing prices and wage levels, it is an issue of serious concern.
Source for the low income number? Because this is 2011 numbers here...
https://www.bizjournals.com/losangeles/interactive...
For the record, I'm not saying you're wrong about the bubble, not saying you are wrong about the disconnect. I am saying you're wrong about the median income being so low and it's impact on the median housing price.- Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes9yIf that is a bubble, look at China. The median income is around $10000 per year in shanghai, housing price is around half million to 1 million US dollars for a small apartment. That is a real bubble!
- 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.:
Originally posted by @Account Closed:
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.
So little digging, this doesn't seem realistic to me.... we shouldn't use 4 year data to compare it against 2 year old data.
While affordability is making small but apparently encouraging gains, the figures themselves are still a little daunting. The median house in LA County was nearly $482,000 in the last quarter of 2015. The monthly payments would run about $2,410, and the minimum income required to qualify to buy the house is $96,420, CAR figures. If that doesn't sound so bad, consider that the median income in LA County is $55,909, according to US Census figures from 2009 through 2013.
I wish I could sugar coat this and say its all good for LA. That just isnt the fact. As of 2015, family income in LA is $54,000 and in most families there is often multiple earners. If income grew at 3% inflation, its about $57,288. That number already accounts for what is going on in tech. What you can afford is in the $200's. The median home value in LA (city), is $685-$700K. Required income would be in the $120's range (based on what you put down). As an investor, when there is such a disconnect between housing prices and wage levels, it is an issue of serious concern.
Source for the low income number? Because this is 2011 numbers here...
https://www.bizjournals.com/losangeles/interactive...
For the record, I'm not saying you're wrong about the bubble, not saying you are wrong about the disconnect. I am saying you're wrong about the median income being so low and it's impact on the median housing price.Well, the data is right here: https://factfinder.census.gov/faces/tableservices/...
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @David Song:
If that is a bubble, look at China. The median income is around $10000 per year in shanghai, housing price is around half million to 1 million US dollars for a small apartment.
That is a real bubble!
It is a catalyst that can along with other factors (which all seem to be present), escalate the formation or its pop.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Larry Zygon:
Yep.There's a bubble. Anyone who thinks otherwise has his head in the sand.
lol
- Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes9y
I heard a report yesterday that buyers from outside the U.S. (China, Russia, Japan, India, and Mexico top 5) are driving up prices. They are primarily buying in California. This is a great time to sell if you already own there and wait for the money to dry up. The supply problem is partly due to municipalities who discourage new building developments. Getting permits, zoning, environmental studies, etc are costly and discourage building new homes. It's cheaper to renovate an existing home or building. I have relatives in CA and it amazes me what people are paying there.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
place holder...
lol, is there a reason I shouldnt use the census bureau data? Its more precise, the level of granular detail you can get.. bls however shows what I see as 2016s wage level for the LA metro area which isn't materially different at: $51,283.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Anthony Dooley:
I heard a report yesterday that buyers from outside the U.S. (China, Russia, Japan, India, and Mexico top 5) are driving up prices. They are primarily buying in California. This is a great time to sell if you already own there and wait for the money to dry up. The supply problem is partly due to municipalities who discourage new building developments. Getting permits, zoning, environmental studies, etc are costly and discourage building new homes. It's cheaper to renovate an existing home or building. I have relatives in CA and it amazes me what people are paying there.
There is some truth to that... there usually is foreign money flowing in and they often view the populations in NY and CA for instance, as a risk hedge of sorts, compared to say other less populated areas like Montana (sorry, not picking on them). Canada eperienced this problem also recently. It does seem like there is a deliberate tightening of supply in terms of regulating new builds.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
BLS data gives you a better idea of the money vs median income....
https://www.bls.gov/oes/current/oes_31084.htm#00-0000
But it doesn't affect the median though and this is for LA metro which inclues Long Beach, Glendale etc.... the Census Bureau is focused specifically on City of LA.
According to this article (fact check if you want) home ownership is up even though median income is basically stagnant
https://la.curbed.com/2017/5/15/15643406/la-buy-re...
Which speaks to my point that the money is still there to buy homes even if the price of a median home isn't affordable for the median wage earner.- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Anthony Dooley:
I heard a report yesterday that buyers from outside the U.S. (China, Russia, Japan, India, and Mexico top 5) are driving up prices. They are primarily buying in California. This is a great time to sell if you already own there and wait for the money to dry up. The supply problem is partly due to municipalities who discourage new building developments. Getting permits, zoning, environmental studies, etc are costly and discourage building new homes. It's cheaper to renovate an existing home or building. I have relatives in CA and it amazes me what people are paying there.
Georgia is probably a good example of this... the median value of a home in LA is about 3.7 times the median price in Atlanta but an Accountant in LA doesn't make 3 times an Accountant in Atlanta... so there is an arbitrage of sorts.
@Account Closed this was interesting read.... and PERFECT example of why median income is a bad metric for LA.
TL;DR Rich parents buying kids houses, all cash. That's not going to be reflected in the median income.http://www.scpr.org/programs/take-two/2017/07/12/57900/socal-so-curious-who-are-the-cash-buyers-in-socal/
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
According to this article (fact check if you want) home ownership is up even though median income is basically stagnant
https://la.curbed.com/2017/5/15/15643406/la-buy-re...
Which speaks to my point that the money is still there to buy homes even if the price of a median home isn't affordable for the median wage earner.So recently, the government bumped up DTI from 45 to 50% , what effect do you think that is likely to have on ownership rates? There are similar policies in play. Rates are at historic lows of course ownership is going to be up. But as rates start to creep up...problem! You though you had a problem cash flowing at 4%.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
5% DTI bump and no interest rate in the world going to help someone who makes a family income of 55k afford nearly a 700k house...
There are always those who get denied because they barely fell short... The 5% triggers a bump. And that isnt just California, remember its aggregate demand for mortgage loans.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
and I stress to you again... IF tech was to abruptly lay off people or move the bubble will burst. The bubble won't burst because the median income wage earner has been priced out the market.
Its not just wage levels, in california, its the demand, supply constraints, its speculation. Its people just thinking its heading no where else but up. People feeling its all good... wages are at $100K level accross the board. You even have people looking at actual government data and claiming they feel its incorrect. What do you think is going on in the minds of those who are going by what they hear of just feel?
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
55k isn't just falling short, it's not even half the required income.
You can say that again... that is the fact and that is the problem. You have home prices in LA escalating at a pace that is way beyond the qualifying wage level. The gravity of the issue is immense.