California Rental Armageddon – Housing Market Imploding
by Dr. Housing Bubble, via The Burning Platform
California like the rest of nation has gained a large number of rental households. Many of these households were formed from the ashes of the 1 million completed foreclosures. Over the last ten years the nation has lost 1 million net homeowner households and has gained a whopping 10 million rental households. L.A. County with roughly 10 million residents is predominately a renter county. Over the last ten years the large gain in California households has come in the form of rentals. Maybe you find living with roommates deep into your 30s and 40s as awesome or maybe you enjoy living a Spartan lifestyle just so you can pay your monthly rent while hearing helicopters overhead in your hipster neighborhood. Every piece of research simply shows that people are being pushed into spending more money on housing. Some say move out. Well guess what? Many middle class Californians are doing just that. The rental and housing market has gone into full on financial Armageddon mode yet in typical California fashion, the sun keeps glowing brightly. Ironically over time people think it is normal to dump every nickel you have into housing. Let us look at three trends impacting the rental market in California.
The urge to buy real estate is a deeply rooted American concept, although Millennials might be changing their tune. For the majority of the country, buying a home is a simple endeavor. With your typical house costing $200,000 and with low interest rates, simply having the median household income is good enough to not have your home consume every penny of your income. But in California, we have $700,000 crap shacks that look as if a two-year old developed it in their first art experiments. In the last couple of years, there is a vocal group saying “hey, if you can’t make it in California get out!” Apparently some people are listening to this:
Based on Census data on state-to-state migration, nearly a quarter million more workers left California between 2007 and 2013 than arrived. Nearly all of those leaving made less than $50,000 a year. Then you have your low six-figure income crowd buying crappy properties and pretending that somehow they are part of the Malibu or Newport crowd. The gap is widening and even with rentals, more money is being consumed in housing. But maybe leaving is not an option. How about finding a roomie or moving in with mama and papa?
Doubling up and living with parents
In Los Angeles nearly half of adults are living with roommates and this isn’t your spouse or partner:
This is defined by Zillow as at least two working-age, unmarried or un-partnered adults living together. So how can someone afford a $4,000 apartment in Santa Monica? Easy, just have two other people living with you and the rent then becomes “affordable” or at least that is the pitch. For many, even finding a roommate is too expensive. Many adults are moving back home:
Over 3.4 million adult “children” live at home in California. The vast majority are living at home because of economic reasons. They are not making big bucks saving their income to buy that $700,000 crap shack. Many in this group can’t even afford a home with a roommate. So how are others making it? Another option is simply living in flat out poverty.
Living in poverty
Based on Census figures nearly a quarter of Angelenos lived in poverty during the last few years. The poverty rate varies across states but the Census gives us an example of a five-member household with three adults and for this household to be categorized as being in poverty, household income would need to be $28,087 per year or lower. Good freaking luck getting by in L.A. on that income. You can drive around any lower income neighborhood and you will see multiple cars parked in front reflecting this dynamic of multiple income streams under one roof. In fact, in the last article we highlighted one of the benefits of buying the home included additional “parking” spaces almost understanding this deeper trend. Yet somehow these are the areas that will gentrify into the next Pasadena. Not going to happen and certainly is not going to happen while you are still young and thinking that Taco Tuesday is a hip thing to do.
While the economy pushes along, many are feeling an apocalypse on their pocketbooks largely driven by real estate. You have the option of buying from the limited inventory out in the market and locking into a 30 year crap shack matrimony or continue getting it from every way with rentals. This is California baby! This is boom and bust central. What did you expect from the land of make believe and fairy tales?