thehousingbubble@gmail.com
Blog

If Surplus Replaces Scarcity

A weekend topic starting with Housing Wire. “Noel Christopher, senior vice president at Renters Warehouse, warned people not to buy into the hype over the imminent real estate crash. And while ‘don’t buy into the hype’ is good advice in general, it brings with it a bad side effect. It gives hype a bad name. Hype is not bad. Buying into it without a valid reason is bad.”

“In truth, hype is the only reason anyone ever found out about the ideas that ultimately become wildly successful. It’s not intended to be a hot stock tip. It’s an invitation to peer into the idea and determine for ourselves whether it’s worth our time and investment. We don’t want to just blindly buy into it, but we may want to look into it. Ask anyone who didn’t look into Amazon in 1997. The hype was out there, they just didn’t buy into it.”

From USA Today. “In June, Natalee King and her husband, Jonathan, realized a decade-long dream of buying a home in Orange County, California, one of the more expensive housing markets in the country. The couple drained their savings for a down payment to win the fixer upper.”

“But concerned about the cost of future repairs and compelled to rebuild their savings, they decided to rent out the master bedroom with its own bathroom for $1,250. From September through January, two college students on internships leased the space. That rent money gave the Kings a bit of relief, and they’re looking for more.”

“They just signed another renter who is expected to move in at the end of the month. They plan to rent for at least a year to steady their finances as Jonathan goes back to school for a career change. ‘Unless you were gifted money, the only way to own a home if you’re middle income is you have to rent,’ Natalee, 35, said. ‘We see it all the time. Some people may think it’s weird, but I feel like, in Orange County, it’s the norm now to have that American Dream.'”

“Is this normal? The Kings are part of a small, but now seemingly permanent, trend of married couples taking in roommates to defray high housing costs, according to Trulia. ‘The thing is home prices keep going up and up, while wages remained flat. So, it makes sense that people are having a tough time with housing costs, even as the economy has gotten better,’ said Cheryl Young, a senior economist at Trulia.”

“When Michelle Hardies switched careers, she and her husband, Don, wanted extra income while she built up her new business as a real estate agent. Don, who had lived with the same boarder for 12 years with his ex-wife, suggested a roommate. Their home – a four-bedroom house in Lake Stevens, Washington – was big enough and 30 minutes from northern Seattle, where rents are becoming unaffordable.”

“‘It’s not possible for people to rent on one income in Seattle,’ Don, 58, said. ‘People are being forced to move further and further out of the city to afford to rent or buy.'”

“In the past 10 months, they’ve had success renting two rooms on a month-to-month basis, largely to shorter-term boarders. There have been some issues. Two roommates were asked to move out, and another unexpectedly passed away while on vacation. Otherwise, the Hardies – who married two years ago – have been pleased with the arrangement.”

“‘You have to give up some privacy,’ Michelle, 50, said. ‘As a couple you might not do some of the things you would normally do as a couple – as newlyweds.’ ‘Wink, wink, nod, nod,’ Don added. ‘In this case, we don’t want anything too long term,’ Don continued. ‘We want to go back to no roommates, that’s preferred for us. But for now, it makes economic sense.'”

The San Francisco Chronicle. “At a standing-room-only town hall meeting in January at Sierra Nevada College in Incline Village, Nev., residents voiced passionate opinions on a question that has chafed the Lake Tahoe area for decades: What’s the best way to house the hordes of vacationers who descend on the lake year-round?”

“‘They come and party and leave trash in the streets, and take housing away from the locals,’ a longtime resident said. ‘But I and many others couldn’t afford to live here unless I rented out my spare bedroom.'”

“‘Opinions of STRs vary dramatically,’ says Jeff Loux, town manager of Truckee. ‘We hear the spectrum from ‘STRs are the problem’ to ‘You can’t possibly ban these, they are the lifeblood of the economy.'”

The Denver Post. “Despite warning signs that some tight twists and turns are on the road ahead, metro Denver’s apartment developers aren’t applying the brakes. If anything, they remain firmly on the accelerator. As more forecasts call for an economic slowdown, if not a full-blown recession, later this year or next, apartment construction continues to drive forward at full throttle, leaving onlookers like Cary Bruteig, owner of Apartment Insights in Denver, concerned.”

“‘We will continue to start projects with 10,000 to 12,000 units a year until it is crystal clear things are headed down,’ said Bruteig. ‘When we have a recession, it will definitely hurt.'”

“Developers had 26,916 apartments under construction across metro Denver at the end of last year, according to his counts. Beyond those, another 25,686 are in the planning stages. The region added 12,324 new apartments last year and 13,348 the year before, according to the Denver Metro Apartment Association. To put that in perspective, over the past three decades, the number of new units added in metro Denver has averaged 4,534 a year.”

“If there is a downturn, developers might come out the other side hands sweating, hearts pounding and mostly unharmed. But the sheer volume of new apartments underway, and the difficulty in changing course, suggests many projects may go over the edge of the cliff.”

“And it isn’t just developers who are exposed. Investors bought up a lot of metro Denver’s older apartment buildings. They could find themselves struggling to make loan payments if rents drop too much or units stay empty.”

“Even buildings that filled up in the last few years could also get into trouble. Construction loans normally have short-time frames, within 10 years, before they must be rolled over into a mortgage. If metro Denver’s apartment market gets too soft, landlords could find themselves in a bind when it comes time to refinance.”

“Why not let builders build away? An apartment glut will push down rents and boost concessions, like those flat screen television some landlords are offering to get leases signed. If surplus replaces scarcity, life gets easier for tenants and the market might finally restore some of the affordability it lost this decade.”

“Teo Nicolais, an instructor at Harvard Extension School, said he understands that optimism is in the DNA of developers and those who back them. He also acknowledges that being aggressive in metro Denver has paid off for the last several years. But he also argues crashes should be avoided if at all possible. When the home construction boom turned to bust last decade, it wiped out a majority of builders, derailed the careers of construction workers and sent several community banks into receivership.”

“In 2010, at the bottom of the housing bust, only 498 new apartments were delivered. Now that many are hitting the market every 15 days in metro Denver, he said.”

Related Posts
This Post Has 72 Comments

  1. ‘In truth, hype is the only reason anyone ever found out about the ideas that ultimately become wildly successful. It’s not intended to be a hot stock tip. It’s an invitation to peer into the idea and determine for ourselves whether it’s worth our time and investment. We don’t want to just blindly buy into it, but we may want to look into it. Ask anyone who didn’t look into Amazon in 1997. The hype was out there, they just didn’t buy into it’

    Yeah, shacks are like Amazon stock. Money bleeding into the ground. How are those pics looking Jeff, you freaking 13 year old.

    1. “It’s an invitation to peer into the idea and determine for ourselves whether it’s worth our time and investment.”

      I’ve been peering at this central bank engineered real estate bubble for over a decade, and have come to a solid conclusion:

      If you use leverage to buy real estate at peak mania prices, you are destined to lose a lot of money.

      1. “The Republican Party has a secret weapon for 2020. It’s especially effective because it’s stealthy: The Democrats seem oblivious to its power. And the GOP needn’t lift a finger for it to work. All Republicans have to do is sit back and watch 29-year-old Rep. Alexandria Ocasio-Cortez . . . exist.”

        “Buried in the details, the Green New Deal also promises government control of the most fundamental aspects of private life. The fact sheet explains why the resolution doesn’t call for “banning fossil fuels” or for “zero” emissions across the entire economy—at least at first. It’s because “we aren’t sure that we’ll be able to fully get rid of farting cows and airplanes that fast”

        “Finally, the resolution is Democratic math at its best. It leaves out a price tag, and is equally vague on what kind of taxes would be needed to cover the cost. But it would run to tens of trillions of dollars. The fact sheet asserts the cost shouldn’t worry anyone, since the Federal Reserve can just “extend credit” to these projects! And “new public banks can be created to extend credit,” too! And Americans will get lots of “shared prosperity” from their “investments.” À la Solyndra.”

        https://www.wsj.com/articles/the-socialist-that-could-11549583738

        1. I’m kinda glad the socialists have tapped into the idea of central bank free money. See, it’s our free money after all. It shouldn’t be reserved to so-called economists who want to drive up shack prices and keep us from eating gruel. No, it’s to be used to bring an end to farting cows and other prosperity’s! That’s surely as worthy as shacks so expensive we have to rent our master bedrooms to strangers!

          Oh, joy…

          1. So let’s see …
            America’$ gone from having x1 WWII Vet Dad coming back to terra.firma $uburbia, bee a x1 job breadwinner with a $tays.@.home.meal.cooking.kid$.tending.partner

            To:

            X2 high.income$ $alary earner$ + x1 additional non.family member wage.earner, in order to afford to buy the 1960’$ $helter.$hack of the now deceased WWII $uburbian Vet.

            (Professor can you explain$ those long.term economic$ in a way that a young couple under 20 can envi$ion for a hopefull$ $helted future?)

          2. “(Professor can you explain$ those long.term economic$ in a way that a young couple under 20 can envi$ion for a hopefull$ $helted future?)”

            Here are my suggestions for 20 somethings:

            1) Pick a field which interests you and pays well, and work hard to achieve success.

            2) Remain optimistic, continuously pursuing opportunities until you find the right career and life situation.

            3) Live below your means in order to save for the future at every stage of life.

            4) Don’t let love crowd out prudence when choosing a life partner.

            5) Never buy a house unless the economy reaches a point of recession so bad that everyone else is advising against buying. Otherwise, rent and enjoy your financial and personal freedom to move without needing to offload a lumpy, leveraged, illiquid asset which may be financially underwater at the point when you are unable to continue paying off your mortgage.

            6) Never stop exercising.

            7) Eat delicious food that doesn’t lead to chronic health problems.

            8) Avoid lethally addictive behaviors.

            9) Choose your God wisely and follow His precepts in your daily life.

            10) Call your parents often and express your love and gratitude for all they have done for you over the years.

            Follow this modest and simple advice,
            To make yourself healthy, wealthy, and wise.

          3. Excellent list Professor!

            Eye was hoping you might $hed some understanding$ on how over 60 years, $helter.$hack purcha$es went from x1 wage.income … To … X3 wage.income$ for the same type of dwelling commoditie$

            Will this type of e$calating income qualification continue$ on over the next 60 years? … or might $omething change to re$trict such $helter.$hack price progre$$ions?

          6. “Will this type of e$calating income qualification continue$ on over the next 60 years?”

            Anything that cannot continue forever will end.

            — Herbert Stein

            This is particularly true for manias.

        2. “All Republicans have to do is sit back and watch 29-year-old Rep. Alexandria Ocasio-Cortez . . . exist.”

          I confidently predict the Democrats will run another unelectable presidential candidate in 2020.

        3. Democrat duck typing:

          1) Do you think it’s cool to text your weenie?

          2) Do you believe socialism has worked out well for Venezuela?

          3) Do you believe there is a fine line between participating in a lynching and masquerading in blackface?

          4) Do you believe that a Green New Deal will save the planet?

          If you answered yes to any of the above questions, you should probably join the Democratic Party.

      2. https://finance.yahoo.com/news/amazon-apos-hq2-makes-allies-115502830.html

        ‘It took Amazon.com Inc.’s announced New York expansion to make buddies out of Governor Andrew Cuomo and Mayor Bill de Blasio. Powerful Democrats in Albany and New York City object to $3 billion in tax breaks and grants going to a company valued at close to $1 trillion with an owner, Jeff Bezos, who’s the world’s richest man. If the deal dies, Cuomo said, so will the political careers of those opposing it.’

        ‘Amazon expected it would face the biggest public backlash to a new headquarters in New York City, Bloomberg has reported. The company chose the location anyway, wanting the benefits of the city’s large skilled-labor pool and opportunities for spouses and partners of recruited hires to find employment in their own careers, officials have said.’

        https://genius.com/Tennessee-ernie-ford-sixteen-tons-lyrics

        “You load sixteen tons, what do you get?
        Another day older and deeper in debt
        Saint Peter don’t you call me ’cause I can’t go
        I owe my soul to the company store
        I was born one mornin’ when the sun didn’t shine
        I picked up my shovel and I walked to the mine
        I loaded sixteen tons of number nine coal
        And the straw boss said “Well, a-bless my soul”
        You load sixteen tons, what do you get?
        Another day older and deeper in debt
        Saint Peter don’t you call me ’cause I can’t go
        I owe my soul to the company store”

        1. These subsidies – “take breaks and grants” – are the special treatment (corporate welfare) that bloated corporations enjoy, while small private companies pay every dime and struggle monthly. It’s despicable.

        2. “Another day older and deeper in debt”

          That line will be increasingly applicable to recent homebuyers as the nascent housing bust picks up steam.

        1. Jeff Bezos: “Alexa, send nudes to my secret admirer.”

          Alexa: “Got it. Sending nudes to the National Enquirer.”

      4. Gotta love The Onion! 😀

        PS I can hardly think of anything I want to see less than a below-the-belt selfie of Jeff Bezos.

    3. AMI chose the wrong person, “know your enemy.” AMI wont live through this, even if they are a great resource for “news.”

  2. ‘In 2010, at the bottom of the housing bust, only 498 new apartments were delivered. Now that many are hitting the market every 15 days in metro Denver, he said’

    You guys are so fooked it’s unbelievable. And your shack prices are cratering too. If I had to guess, Denver will be the worst city for foreclosures in the US.

    1. Seattle might be in the race on that one… Bay Area too. I have been hearing of hiring freezes for some of the top players which is a bit of a tell tale

      1. I have been hearing of hiring freezes for some of the top players which is a bit of a tell tale

        I haven’t seen this in Seattle so far. Still get pinged like crazy by recruiters at the big players, and my company is very actively hiring/growing

        1. I can’t speak for WA but here in the Bay Area companies that forecasted onboarding in large numbers to there force, have been scaling back or pausing. Other financial drivers such as expansion plans in technology have not yet been impacted. Not calling another dotcom bubble but noticing some similarities, especially the large scale amount of corporate expansion in the brick and mortar aspect.

          1. plans in technology

            There may come again a day when social networking and shopping are not called “technology”.

      2. Lots of houses still quickly going pending at absurd prices in the greater Seattle area. Knifecatchers galore, which is what you need to further drive prices down.

        1. Lots of houses still quickly going pending at absurd prices in the greater Seattle area

          Yeah, the inventory doesn’t seem to be improving in the category I’m looking for…rentals or for sale

    2. I really don’t buy those absorption numbers. Drive by any of those new “luxury” apts at 8pm on a Tuesday, and maybe 3 out of 50 will have the lights on and furniture on the patio. Been seeing way more promotions, 3+ months free, guys spinning signs on the street, gift cards, etc to sign leases in those places too.

      For years there has been a huge churn in resident, huge inflows and outflows, with a steady net increase. If the inflow slows a little and the outflow doesn’t, growth could turn negative real fast.

      1. 3+ months free? Can you provide links? That is absurdly generous. We had 6 weeks free at the complex I manage, but now it’s down to $500 since we only have 3 units left out of 175.

    3. But Denver has a U.S. Mint where they can print up all that free central bank money and Krugman trillion dollar coins and such-like.

        1. We have a lot of homeless and walking dead with zero skills and addiction problems. What do we do with them? Can’t just tell them “to get a job” I’m not hiring them ( huge liability), you first.

    4. Are there really 498 people or families moving into Denver, new divorcees, or kids just moving out of dad’s house every 15 days?

    1. LOLZ. We’ve already HAD the meltup. But yes, I have no doubt they could pump this pig to 50k if they want. Meanwhile, the masses just keep getting poorer and poorer.

  5. My coworker and his wife could almost be the Kings: After selling their condo his plan was to rent for a while, but that plan fell by the wayside quickly and he was soon pacing the cubicles on the phone chasing homes.

    They finally settled on a major fixer on a decent sized lot with several mature fruit trees. They overextended (his words) to buy it and are planning on slowly fixing it up. He makes small jokes about not being able to afford it.

    He claims to have had the standard inspection, which didn’t turn up anything concerning. I don’t believe him, I think he bought as-is: about a week after tenting for termites, the house began to smell of death. It seems that in addition to the termites the place was also infested with rats.

    They’ve replaced all the appliances that were filled with rat feces, and closed up all the entrances to the walls. But there’s no money to tear out the drywall and pull out the rat carcasses, so those have been left there to dry out among the piles of feces that couldn’t be reached with the broom (he doesn’t want to stir up the poo dust). He claims this is a workable solution, and that the smell has gone away.

    I’m told that they’re settling in and thinking of starting a family soon. I hope her pregnancy brain obsesses over what’s in the walls and pushes them out of that place before someone gets sick or the place burns down on top of them. With all the rain we’re having, I suppose mold could also be a big concern pretty soon.

    This is a two-degree professional here, and his story represents peak lunacy to me. Sorry it’s so long, but it really bothers me that they want to raise a family in that house and this was a good place to vent.

      1. “And a BrainDead DebtDonkey despite the education.”

        Or perhaps because of it. Education can become a wonderful thing up to the point where one believes he is far more educated about the workings of the world than he actually is.

        A little bit of knowledge can be dangerous.

        1. “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” —Mark Twain

    2. “…he was soon pacing the cubicles on the phone chasing homes…”

      If I were the owner of the company, or the boss, I would walk right up to him and ask him why he thought I should be paying him to search for homes on company time, and that would be the last warning. The next time, he’d be looking for another job.

    3. “But there’s no money to tear out the drywall and pull out the rat carcasses, so those have been left there to dry out among the piles of feces that couldn’t be reached with the broom (he doesn’t want to stir up the poo dust).”

      Sounds like he made dumbass decision of a lifetime!

    4. I hope her pregnancy brain obsesses over what’s in the walls and pushes them out of that place

      I wouldn’t even think of getting pregnant in that house.

  6. “After selling their condo his plan was to rent for a while, but that plan fell by the wayside quickly and he was soon pacing the cubicles on the phone chasing homes.”

    A common story many of us have heard or witnessed. I have a friend who is soon to have another kid and his wife has been obsessing about “owning” a home for the majority of her pregnancy while he is hesitant to catch a falling knife. Just got wind they are under contract on a fixer shack that is well beyond there income. The Susan syndrome can be a killer!

    1. “…he is hesitant to catch a falling knife.”

      He signed-away his future when he was balls-deep and deployed those little swimmers. All he needs now is a Lowe’s credit card to firm-up his debt pile.

    2. Just say no to your pregnant honey-poo who thinks you have to own a home in order to raise a family. She’s not in a position to walk on you in her delicate condition. And she’ll thank you later when she finds out how broke her friends have become, thanks to buying a home at near peak bubble prices.

      1. Better to be the wealthiest renter in the poor neighborhood than the poorest mortgage-holder in the “rich” neighborhood.

  8. It seems to me the Democrats may benefit politically by having AOC shore up the Sanders /Stein left support and contrast to their inevitable insider nominee. The nominee can then be seen as sober minded handler to these “unconventional newcomers.”

    1. I don’t think so. Pelosi and Schumer must be fuming that AOC has ripped the mask of the Democrats and exposed the collectivist, open-borders agenda that the Old Guard Dems had successfully concealed and obfuscated from their dwindling base of white working-class voters. In addition, AOC and her acolytes, with their anti-capitalist rhetoric, are threatening to upset the lucrative crony-capitalist arrangements in place between the Establishment Democrats and their corporate masters. Now anyone who marks a “D” on their ballet cannot plead ignorance when it comes to what they’re voting for: coercive redistribution of the wealth from the productive to the parasites.

      1. Why eye’m in $hock & awe$; eye thought para$ites off.$pring are u$eful for “Nation.Building” … War$!

      2. “Pelosi and Schumer must be fuming that AOC has ripped the mask of the Democrats and exposed the collectivist, open-borders agenda that the Old Guard Dems had successfully concealed and obfuscated from their dwindling base of white working-class voters.”

        What? I don’t know what you have (or haven’t) been paying attention to, but Pelosi and Schumer’s “open-borders agenda” hasn’t even remotely been “concealed.”

      3. “Now anyone who marks a “D” on their ballet cannot plead ignorance when it comes to what they’re voting for: coercive redistribution of the wealth from the productive to the parasites.”

        As opposed to the current situation of marking an “R” or “D” on the ballot and voting for “coercive redistribution of wealth” from the masses to the wealthy? If things continue the way they are, I see a whole lot more AOCs cropping up due to income inequality, and the numbers of “have nots” vs “haves” does not favor the “haves.”

        That being said, the President’s trade policies and border agenda could serve to narrow that gap, but his comments about wanting “the largest numbers ever” of legal immigrants does not bode well for that.

        1. neo-cons have (D) like Pelosi or an (R) like McConnel same corp puppet shert. All they do is fundraise.

      4. collectivist, open-borders agenda that the Old Guard Dems

        I believe it is the globalist agenda and not limited to the Dems, nor to North America.

        1. + a million. It’s the system, and it’s not serving the people at all anymore, if it ever did. It’s most certainly getting worse, though.

  9. Gun-seizure laws grow in popularity since Parkland shooting

    BY RYAN J. FOLEY ASSOCIATED PRESS
    FEBRUARY 09, 2019 01:28 PM,

    More than 1,700 orders allowing guns to be seized for weeks, months or up to a year were issued in 2018 by the courts after they determined the individuals were a threat to themselves or others, according to data from several states obtained by The Associated Press. The actual number is probably much higher since the data was incomplete and didn’t include California.

    https://www.newsobserver.com/news/article226031680.html

Comments are closed.