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A Building Boom Is Pushing Down Prices

A report from the Associated Press on California. “Salinas is one of America’s least affordable places to live, exemplifying a housing crisis that plagues California’s rural and urban areas alike. Salinas families earn a median income of $69,000, while the region’s 90,000 farmworkers bring in far less. They face a median home price of nearly $550,000 and two-bedroom apartments costing roughly $1,800 a month, according to Zillow.”

“‘We have an insatiable need for housing,’ City Councilman Scott Davis said. ‘No matter how much housing we build, we’ll never have enough.'”

From NBC Bay Area. “It’s the Bay Area’s universal problem — the price of housing. But now, a Zillow study says that for the first time in seven years, rents have actually dropped. So what’s behind the drop? It appears a building boom may finally be paying some dividends.”

“Maybe most surprisingly, housing experts like Ralph McLaughlin of Veritas Urbis Economics said it’s not mass migration of people fleeing the Bay Area pushing down prices. But rather new construction coming to market. McLaughlin said it is multi-family housing, which tend to be rentals popping up the most. San Francisco has built more of that in the last two or three years than at any point on record.”

From CBS Sacramento. “It’s a rent trend that may finally offer some relief in Sacramento. Rapidly rising rents appear to be subsiding, even in San Francisco. Bill Shower manages 1,000 rental properties in the Sacramento region. He says one reason for the slowing trend, is more people leaving Northern California.”

“‘Everything is slowing down,’ Shower said.”

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  2. ‘San Francisco has built more of that in the last two or three years than at any point on record’

    The most in 72 years actually. Boston has built more than in 60 years. New York City added more than it ever has. But people still say “we aren’t building anything!”

    ‘We have an insatiable need for housing…No matter how much housing we build, we’ll never have enough’

  3. “Salinas families earn a median income of $69,000, while the region’s 90,000 farmworkers bring in far less. They face a median home price of nearly $550,000 and two-bedroom apartments costing roughly $1,800 a month, according to Zillow.”

    Isn’t Salinas near where a household of strawberry pickers bought an $800k home with a subprime loan that subsequently went into foreclosure during the last mania episode?

    1. I think so. Regardless, I’m sure you can find 1 bedroom apartments with entire extended families living in them. Probably making some bathtub cheese, too….

    2. It looks like they had a 0% down loan. A $330,000 mortgage with nothing down and an interest rate of 6% has a monthly payment of $1980. The article indicated that she had a $2300 per month mortgage – seems high.

      If she had an FHA loan and had to pay PMI that would explain part of it, but the interest rate would be lower than 6% (possibly 4.25% with not so great credit).

      Maybe the $2300 per month also includes property taxes, but they are only about $2300 a year on the home.
      Still seems like a fairly high payment. Maybe they tapped “their equity” along the way.

    3. Salinas is no bueno. It’s the place you see on the news for shootings, stabbings, people heating there homes with outdoor barbecues and suffering respiratory problems or killing there children. Lots of Mexican south of the border cartel / gang members living there. Granted these are specific to only some parts of Salinas but it outweighs the better areas 10 fold

  6. Bill Shower manages 1,000 rental properties in the Sacramento region. He says one reason for the slowing trend, is more people leaving Northern California.”

    As is typical with “progressive”-maladministered states, the productive and decent portion of the population is fleeing, while an influx of illegals and a swelling underclass of dependency voters pushes the state closer to the fiscal and socioeconomic tipping point.

    You’d be crazy to sign up for a 30-year mortgage given California’s downward spiral.

  7. “‘We have an insatiable need for housing,’ City Councilman Scott Davis said. ‘No matter how much housing we build, we’ll never have enough.’”

    KEEP BUILDING BOYZ

  8. “I work, work, work, work, work. I take every extra pay job I can do, and I never quite get ahead,” said Powers, who shares the home with her boyfriend and their two young children.

    I hear about this a lot recently in Denver. Talking to our paralegals and assistants, it seems that between housing costs, student loans, and kids, most single people making less than 100k (which is most people) are living on the edge with little or no savings, even for retirement, and many are taking a second job just to survive. Many talk about leaving for a cheaper area. For those with their own home, we have only been flat to slightly declining with rapidly rising interest rates for 2 or 3 months, and already many people are talking about considering bankruptcy because their standard yearly debt consolidation and housing refi is no longer an option to save them from financial ruin. Add to that the recent stock market correction, and the mood is very grim. Denver hit another inventory high this week. We still need to double our inventory to get to normal, but we are quickly moving in that direction. I don’t know what others are seeing, but in my own personal experience people seem more stretched in this bubble than the last one, although all the “experts” seem to deny it and say there is much more affordability this time around and the banks were very careful about lending so we are just taking a short breather. I see no affordability, only a lot of scared people living on the edge to survive.

    1. “There are mixed reactions in Salinas to Proposition 10, the ballot measure that would scrap a law restricting rent control on single-family homes and properties built after 1995 and open the door for new local rules about how much landlords can increase rents.

      Democrat Anna Caballero, who represents Salinas in the state Assembly, opposes the measure but said she understands why the city’s angry residents support it.”

      It’s things like this – when the ‘representatives’ in gov’t appear to be listening to the monied interests much more than the larger populace – that leads to “totally unpredicted” results at election time.

      1. It’s things like this – when the ‘representatives’ in gov’t appear to be listening to the monied interests much more than the larger populace – that leads to “totally unpredicted” results at election time.

        Not sure I agree this is a bad thing. Isn’t this why we have representative government vs ‘pure’ democracy? Often times the populace doesn’t understand what’s in its best interest.

        2. It’s not always bad. Often times the ‘majority’ isn’t particularly smart or willing to do what’s ultimately better for society as a whole.

          I’m thinking more the way the representatives in office can lose touch with their constituents at large because the larger populace isn’t the one writing checks to their re-election campaigns. lose touch for a while and get surprised at the built up sentiment being expressed at the voting booth.

    2. Not only are markets distorted by interventions, manipulations, machinations, repressions, but so is the basic form of exchange: money.
      The decline of the Middle Class is telling. Moving toward banana republic, if the situation doesn’t change. U.S. = early-stage socialism. Venezuela = late-stage socialism.

      https://en.wikipedia.org/wiki/Banana_republic

      “Typically, a banana republic has a society of extremely stratified social classes, usually a large impoverished working class and a ruling-class plutocracy, composed of the business, political and military elites of that society. Such a ruling-class oligarchy control the primary sector of the economy by way of the exploitation of labour;”

      http://edelweissjournal.com/pdfs/EdelweissJournal-019.pdf

      “It is remarkable that years into a financial world that has abolished the notion of failure, ushered a seemingly everlasting prosperity, and has brought monetary meddling to a level unimaginable by our ancestors,…”

      “…we don’t have genuine markets in the sense that they are free from coercion or intervention.”

      “Our forefathers understood that without a free market in the price of money, all calculation becomes false. Money is the defining element in any economic calculation and once it is destroyed via inflationary policies, the distortions create an unreal framework characterized by the booms that cause the ensuing busts.”

      “Indeed, we look to prices on an exchange to reckon value, having failed to see that wealth creation via the stock market does not create resources in the economy. We don’t see that booming markets without savings is not an accumulation of resources but an accumulation of claims on existing resources.”

      “If modernity is characterized by a loss of the sense of the real, this fact is connected to what has happened to money in the twentieth century. Everything threatens to become unreal once money ceases to be real … inflation is that moment when, as a result of government action the distinction between real money and fake money begins to dissolve … Money is one of the primary measures of value in any society, perhaps the primary one, the principal repository of value. As such, money is a central source of stability, continuity, and cohesion in any community. Hence to tamper with the basic money supply is to tamper with a community’s sense of value.”

    3. How much less than 100k? If you’re single and making 75k plus and are struggling to survive, that’s a money management problem. You need to cut expenses pronto. Even 50k is plenty for a single person with no kids. Once you throw in kids, the equation changes, but a dual income family with 100k makes plenty of money if they prioritize right – used, older cars, no cable tv, not buying anything on credit.

      The problem is not the professionals living in tech cities – they just have a spending problem, it’s the blue collar workers everywhere that can’t make ends meet.

    4. “I see no affordability, only a lot of scared people living on the edge to survive.”

      Your entire comment is an honest observation of what a large portion of the population across the U.S. is experiencing. The last sentence sums it up better than most all columnists trying to meet a word count. When essentials like food, shelter, clothing become trading commodities you get life on a tightrope. Back to the days when the nobility controlled the land and most everyone else was a serf.

      1. Food and clothing are relatively cheap these days. What is expensive is housing, transportation, and medical expenditures, even with insurance.

  10. Front page of today’s dead tree edition of the Wall Street Journal features this article:

    “Slump in Home Sales Deepens”

    You can stick a fork into Housing Bubble 2.0.

    1. The article mentions that the tax law is reducing the demand for home ownership. Good start. Now if the GSEs and other federal mortgage financing operations could be wound down, the pernicious effects of government meddling in housing on affordability might be eliminated.

  11. “‘Everything is slowing down,’ Shower said.”

    Except the bursting housing bubble. That’s accelerating rather nicely.

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