California’s Real Estate Goes Full Retard – Again

Posted by on February 7, 2017 1:03 pm
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Great write up from our friends at Dr.HousingBubble. Speaks for itself.

California big purchase sentiment at bubble levels: The psychology behind house lust.

You would have a hard time believing it but California’s homeownership rate is near a generational low but the good news is that hipster pants couldn’t get any tighter without turning into spandex.  A large part of the state is now fully praying at the altar of real estate mania lighting incense for the HGTV gods to bring granite countertops alongside host with upgraded body parts.  It is an odd sort of Hollywood herd mentality but this is how we do things here in California.  While the majority of L.A. County lives in rental Armageddon you have geriatric house humpers salivating at the Botox stretched mouth when a crap shack hits the market.  “This makes total sense with a 20 percent down payment!  They don’t make land anymore!”  They also don’t make more time and life is too short chasing crap shacks.  But for some, the crap shack is the ultimate dream like sipping hard liquor in the Caribbean.  The culmination of all financial success is being in debt for a beat up house and this is the race many are trying to run.

Housing mania running wild

It is understandable the wish to own a home but $700,000 for a shoddy drywall reinforced shack?  And many people will lock into this and take out a 30 year mortgage and then endure the health destroying commutes of Southern California just to keep the “nest” paid while the weight packs on and heart arteries clog up.  But damn it feels good to own a home!  People deep down know something is off.  This is why the public still inquires and debates.  If the decision to buy were so clear cut, housing cheerleaders would be out in the market buying every property they could get their hands on assuming they actually fully believed in their thesis.  But they don’t fully believe in it.  They don’t want to admit in that fleeting thing called luck.  And that is the rub of delusion and mania.

Housing mania is running at full force.  But what is different this time in California is that instead of the homeownership going up with the mania, the homeownership rate went down yet mania went up.  Is this because marijuana is now legal that things are surreal?  No, it just means fewer hands are owning property and big investors have turned many homes into single family rentals.

calif homeownership rate

As it turns out, even the whiff of housing lust is enough to get people to go nuts like cats near catnip.

The market is seeing some manic pricing.  And consumer sentiment in California is near the levels last seen during the last bubble.  People are itching to spend and crap shacks (or cars, refrigerators, TVs, iPhones, etc) are at the top of their list:

california-consumer-sentiment-q4-2016

People assume that things only go up.  They forget about a thing called the business cycle.  The last recession officially ended in the summer of 2009.  So here we are going into year eight of the recovery.  Keep in mind this is an epic recovery based on historical data:

slide_9

Even in the post-World War II era the average length of an expansion is 57 months.  We’ve blown right past that.  This June we will hit 84 months of expansion.  What is interesting is that our last Great Recession only lasted 16 months which wasn’t all that much more compared to the historical average of 10 months.  Of course the magnitude was much more profound.  Have people forgotten that recessions are a typical part of the business cycle?  It is also important to note that the Great Recession was the worst recession since the Great Depression in terms of economic impact, and it only lasted officially 16 months.  Welcome to La La Land.

Taking a pulse on sentiment and you would think all is well and we’re in for epic good times.  Black Swans by definition are unpredictable but what we can comfortably predict is that the business cycle will show up again and probably sooner rather than later.  This is something that is well studied in economics:

stages-of-business-cycle

You can only call a peak once a bust has started.  So by definition, these are hard to predict.  But just look at all the absurd crap shacks out in the market like million dollar shacks in the Bay Area.  And valuations are all out of whack in real estate and tech companies.  Just look at the potential Snapchat IPO:

snap ipo

Funny that the ticker symbol will be SNAP (which coincidentally is also the nation’s food stamp program).  Mania’s have a weird way of playing with people.  It takes living through a couple of housing bubbles and business cycles to understand that while history doesn’t repeat, it does auto-tune and rhyme.

Never go full retard.