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
- Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes9y
The demand in LA is significantly built up by foreign money, as opposed to the people living their. Chinese in particular having been locking up their capital in LA real estate by the billions, which is one of the reasons for the disparity in income and housing prices. Heck, with the eb-5 visa, there are entire luxury condo complexes going up in downtown with hardly anyone living in them. Once this foreign money dries up And interest rates creep up, you should hopefully see prices drop, but i dont think it will be a burst.
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
I think the people that are telling you it's incorrect don't know how to better articulate what they see. Like I said (and have shown various sources) wages CAN support these "crazy" house prices. No, not forever, yes it's a bubble, CA is a boom and bust market. What I'm trying to tell you is that we don't have the supply in any major metro to support the median wage earner with affordable housing.
What we do have is concentrated sectors of wealth and people who are more than willing to pay a huge premium to live as close to work as they can afford. Look at the silicon valley, it's BORING. It's not fun, the houses aren't great, if it was anywhere else in the world it'd be unlikely to gain a second look. But the traffic sucks so bad that people are willing to plunk down SERIOUS cash via rent or buying a house to cut down that commute. LA had bad traffic before tech overflowed, they don't have public transit like most other major metros.
SF I think has reached damn near the top of it's bubble and has taken people (even the wealthy) to their limits for reaching the max COL/housing. I think that people are going to see LA as a "cheaper" alternative to SF/SV. - Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
Originally posted by @Michael Lucero:
The demand in LA is significantly built up by foreign money, as opposed to the people living their. Chinese in particular having been locking up their capital in LA real estate by the billions, which is one of the reasons for the disparity in income and housing prices. Heck, with the eb-5 visa, there are entire luxury condo complexes going up in downtown with hardly anyone living in them. Once this foreign money dries up And interest rates creep up, you should hopefully see prices drop, but i dont think it will be a burst.
What do you think about this article?
http://www.scpr.org/programs/take-two/2017/07/12/5... - Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Michael Lucero:
The demand in LA is significantly built up by foreign money, as opposed to the people living their. Chinese in particular having been locking up their capital in LA real estate by the billions, which is one of the reasons for the disparity in income and housing prices. Heck, with the eb-5 visa, there are entire luxury condo complexes going up in downtown with hardly anyone living in them. Once this foreign money dries up And interest rates creep up, you should hopefully see prices drop, but i dont think it will be a burst.
It is true that foreign direct investment in US Real Estate surged about 49% for instance from last year and is contributing to price escalations. This however is a risk... because you have an external variable driving local prices way beyond wage levels. Either local or foreign government policies (or both) can dramatically affect foreign investor investment decisions or investment volumes of this sort and isnt something you make dramatic speculations with regarding continued price growth.
- Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes9y
Originally posted by @Matt K.:
Originally posted by @Michael Lucero:
The demand in LA is significantly built up by foreign money, as opposed to the people living their. Chinese in particular having been locking up their capital in LA real estate by the billions, which is one of the reasons for the disparity in income and housing prices. Heck, with the eb-5 visa, there are entire luxury condo complexes going up in downtown with hardly anyone living in them. Once this foreign money dries up And interest rates creep up, you should hopefully see prices drop, but i dont think it will be a burst.
What do you think about this article?
http://www.scpr.org/programs/take-two/2017/07/12/5...I agree, i was going to mention rich parents as well. Its sort of the only way for a situation like this to exist, rich people buying, since the regular population cant afford to buy, on the average. As well as people stretching themselves too thin, but i would argue this isnt at levels to justify calling it a bubble.
Sure foreign money was really coming in 4/5 years ago but in no way has it gone a it still exists in a large way. I have several chinese acquaintances in the LA area and helping the chinese buy is still going strong.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
I think the people that are telling you it's incorrect don't know how to better articulate what they see. Like I said (and have shown various sources) wages CAN support these "crazy" house prices. No, not forever, yes it's a bubble, CA is a boom and bust market. What I'm trying to tell you is that we don't have the supply in any major metro to support the median wage earner with affordable housing.
What we do have is concentrated sectors of wealth and people who are more than willing to pay a huge premium to live as close to work as they can afford. Look at the silicon valley, it's BORING. It's not fun, the houses aren't great, if it was anywhere else in the world it'd be unlikely to gain a second look. But the traffic sucks so bad that people are willing to plunk down SERIOUS cash via rent or buying a house to cut down that commute. LA had bad traffic before tech overflowed, they don't have public transit like most other major metros.
SF I think has reached damn near the top of it's bubble and has taken people (even the wealthy) to their limits for reaching the max COL/housing. I think that people are going to see LA as a "cheaper" alternative to SF/SV.You havent shown anything that says current wage levels supports current RE prices. You referenced what you think is going on in tech or what you think will happen in tech and I tell you tech doesnt reflect what is happening through out LA. You can view the link I sent previously if you want to know what percent of the labor force works in tech. It is already accounted for in the current median income for LA. If you were to subtract tech from the data, median LA income would be in the $40,000's not $50,000's.
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
Here let me save you the click:
"Some parents are very very very well off and are capable of making a gift of a house to a kid," says Richard Green, director of the USC Lusk Center for Real Estate.Green adds that his research shows another group that makes up cash buyers: people in the tech industry.
"People who work at Google, people who work at Facebook, people who work at LinkedIn," he says.
Some of these people aren't just paid well, but they're also paid with stock options.
When their hot tech company goes public, that means they can cash out. Big time.
"In California, people sell stock to buy houses in a big way," says Green, noting that it's a phenomenon unique to just our state and New York.
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 @Michael Lucero:
Originally posted by @Matt K.:
Originally posted by @Michael Lucero:
The demand in LA is significantly built up by foreign money, as opposed to the people living their. Chinese in particular having been locking up their capital in LA real estate by the billions, which is one of the reasons for the disparity in income and housing prices. Heck, with the eb-5 visa, there are entire luxury condo complexes going up in downtown with hardly anyone living in them. Once this foreign money dries up And interest rates creep up, you should hopefully see prices drop, but i dont think it will be a burst.
What do you think about this article?
http://www.scpr.org/programs/take-two/2017/07/12/5...I agree, i was going to mention rich parents as well. Its sort of the only way for a situation like this to exist, rich people buying, since the regular population cant afford to buy, on the average. As well as people stretching themselves too thin, but i would argue this isnt at levels to justify calling it a bubble.
Sure foreign money was really coming in 4/5 years ago but in no way has it gone a it still exists in a large way. I have several chinese acquaintances in the LA area and helping the chinese buy is still going strong.
How would you explain 5 months of consecutive pending sales decline in California that just so happens to coincide with median prices in CA grazing 2008 pop level? Even with cost of credit being significantly lower than back then?
- Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes9y
Originally posted by @Account Closed:
Originally posted by @Michael Lucero:
The demand in LA is significantly built up by foreign money, as opposed to the people living their. Chinese in particular having been locking up their capital in LA real estate by the billions, which is one of the reasons for the disparity in income and housing prices. Heck, with the eb-5 visa, there are entire luxury condo complexes going up in downtown with hardly anyone living in them. Once this foreign money dries up And interest rates creep up, you should hopefully see prices drop, but i dont think it will be a burst.
It is true that foreign direct investment in US Real Estate surged about 49% for instance from last year and is contributing to price escalations. This however is a risk... because you have an external variable driving local prices way beyond wage levels. Either local or foreign government policies (or both) can dramatically affect foreign investor investment decisions or investment volumes of this sort and isnt something you make dramatic speculations with regarding continued price growth.
Totally agree, given the numbers, the foreign purchases have gotten to a level where you could consider them a hindrance to the local population's home ownership ability and it is a definite possibility that government intervenes. However, until something actually happens, this is speculation and without gvt intervention, demand is demand and prices should stay strong. So it seems this entire thing hinges on whether the gvt does something or not, which is something that investors have to speculate on when making purchase decisions.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
Here let me save you the click:
"Some parents are very very very well off and are capable of making a gift of a house to a kid," says Richard Green, director of the USC Lusk Center for Real Estate.Green adds that his research shows another group that makes up cash buyers: people in the tech industry.
"People who work at Google, people who work at Facebook, people who work at LinkedIn," he says.
Some of these people aren't just paid well, but they're also paid with stock options.
When their hot tech company goes public, that means they can cash out. Big time.
"In California, people sell stock to buy houses in a big way," says Green, noting that it's a phenomenon unique to just our state and New York.
http://www.scpr.org/programs/take-two/2017/07/12/57900/socal-so-curious-who-are-the-cash-buyers-in-socal/
Last time I checked only about 28% of RE transactions in CA were cash only transactions not involving financing.
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
Becasue we aren't talking about the state, we're talking LA or LA metro
The Southern California Region reversed a three-month decline and posted a 1.3 percent improvement in pending sales from the previous year, aided largely by healthy gains in Orange and Riverside counties, which marked increases of 12.5 percent and 8.4 percent, respectively. Pending sales in San Diego, San Bernardino, and Los Angeles counties declined from last May, but those counties had drops of less than 5 percent.
http://www.prnewswire.com/news-releases/california-pending-home-sales-stumble-for-fifth-straight-month-in-may-car-reports-300480998.html
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Michael Lucero:
Originally posted by @Account Closed:
Originally posted by @Michael Lucero:
The demand in LA is significantly built up by foreign money, as opposed to the people living their. Chinese in particular having been locking up their capital in LA real estate by the billions, which is one of the reasons for the disparity in income and housing prices. Heck, with the eb-5 visa, there are entire luxury condo complexes going up in downtown with hardly anyone living in them. Once this foreign money dries up And interest rates creep up, you should hopefully see prices drop, but i dont think it will be a burst.
It is true that foreign direct investment in US Real Estate surged about 49% for instance from last year and is contributing to price escalations. This however is a risk... because you have an external variable driving local prices way beyond wage levels. Either local or foreign government policies (or both) can dramatically affect foreign investor investment decisions or investment volumes of this sort and isnt something you make dramatic speculations with regarding continued price growth.
Totally agree, given the numbers, the foreign purchases have gotten to a level where you could consider them a hindrance to the local population's home ownership ability and it is a definite possibility that government intervenes. However, until something actually happens, this is speculation and without gvt intervention, demand is demand and prices should stay strong. So it seems this entire thing hinges on whether the gvt does something or not, which is something that investors have to speculate on when making purchase decisions.
I am not blaming foreign investors for what LA is experiencing, the inflow of foreign funds however inevitably escalates the issue. Not just in LA but in other states where they are investing. The Canadians felt the effect of this severely in recent Vancouver and Toronto prices. It isn't speculation, it actually already happened in Canada.. so part of the 49% surge in the US is due to diversion of funds from Canada by foreign investors there where they faced an additional 15% foreign investor tax, that was recently assessed specifically to thwart the bubble there.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
Becasue we aren't talking about the state, we're talking LA or LA metro
The Southern California Region reversed a three-month decline and posted a 1.3 percent improvement in pending sales from the previous year, aided largely by healthy gains in Orange and Riverside counties, which marked increases of 12.5 percent and 8.4 percent, respectively. Pending sales in San Diego, San Bernardino, and Los Angeles counties declined from last May, but those counties had drops of less than 5 percent.
http://www.prnewswire.com/news-releases/california-pending-home-sales-stumble-for-fifth-straight-month-in-may-car-reports-300480998.html
lol, you still trying to justify.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
@Account Closed just out of curiosity have you been to CA?
A few times why? Almost got caught in bad traffic :-)
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Account Closed:
Originally posted by @Matt K.:
@Account Closed just out of curiosity have you been to CA?
A few times why? Almost got caught in bad traffic :-)
Reason why I need a jet to get around :-)
- Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes9y
Originally posted by @Account Closed:
Originally posted by @Matt K.:
Becasue we aren't talking about the state, we're talking LA or LA metro
The Southern California Region reversed a three-month decline and posted a 1.3 percent improvement in pending sales from the previous year, aided largely by healthy gains in Orange and Riverside counties, which marked increases of 12.5 percent and 8.4 percent, respectively. Pending sales in San Diego, San Bernardino, and Los Angeles counties declined from last May, but those counties had drops of less than 5 percent.
lol, you still trying to justify.
Justify what?
Los Angeles 99.3 99.7 -0.4% Orange 89.6 79.6 12.5% Riverside 64.6 59.6 8.4% That's vastly different that 5% decline.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
different can mean lots of things...
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
I'd wager you could find the appropriate meaning seeing how badly you want this to stay on topic...
low cap rate? traffic?
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
I'd wager you could find the appropriate meaning seeing how badly you want this to stay on topic...
I have been told there is a general culture of renting out SFR units as an apartment as an alternative to get property to cash flow... this of course ties right in to the affordability issue.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt K.:
wealth, wages, inventory, home prices.
But thats the thing...in every city, you have a certain distribution of income profile. In LA for instance only 7% of the population earn $200,000 or more. And if you look at the industry distribution of the labor force in terms of industry they work in, the County of LA percentages is almost identical to the national numbers. The percentage working in tech is almost exactly the national average, the same for just about every industry. Shocking but people think its so drastically different.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Account Closed:
Originally posted by @Matt K.:
wealth, wages, inventory, home prices.
But thats the thing...in every city, you have a certain distribution of income profile. In LA for instance only 7% of the population earn $200,000 or more. And if you look at the industry distribution of the labor force in terms of industry they work in, the County of LA percentages is almost identical to the national numbers. The percentage working in tech is almost exactly the national average, the same for just about every industry. Shocking but people think its so drastically different.
This is an example of the industry distribution both nationally and for LA; you see any material difference? Actually the national average for both computer and mathematical and engineering professions is higher than the LA average but you had the impression it was higher in LA or Cali than the rest of the country.
USA LA Total, all occupations 100.00% 100.00% Management 5.1 5.4 Business and financial operations 5.2 5.8 Computer and mathematical 3 2.5 Architecture and engineering 1.8 1.5 Life, physical, and social science 0.8 0.8 Community and social service 1.4 1.6 Legal 0.8 0.9 Education, training, and library 6.2 6 Arts, design, entertainment, sports, and media 1.4 3.8 Healthcare practitioners and technical 5.9 5.1 Healthcare support 2.9 2.3 Protective service 2.4 2.7 Food preparation and serving related 9.2 9.4 Building and grounds cleaning and maintenance 3.2 2.4 Personal care and service 3.2 3.2 Sales and related 10.4 10.1 Office and administrative support 15.7 17 Farming, fishing, and forestry 0.3 0.1 Construction and extraction 4 2.5 Installation, maintenance, and repair 3.9 3 Production 6.5 6.3 Transportation and material moving 6.9 7.4