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1 year ago

Agree with every single part of that. The data is showing what I’ve been talking about for months. The only solution is continued albeit slower inflation and passage of time

1 year ago

Wait until the May and June data comes out. Inventory y-o-y is about to go deeply negative

1 year ago

“ This is despite the fact that inflation-adjusted monthly payments are actually higher than they were at the bubble peak! ”

Combine the fact that real incomes increased by about 30%, and the strong secular trend of WFH increasing residential demand, and the secular trend of increased real construction costs…

I think our fundamentals are a lot stronger than 2006.

I was helping someone look for a 2 bedroom to rent in suburban east county recently.

Lots of Zillow listings of places around $2000 now that were 1200-1400 in 2019-2020. The average listing age was also short, there were tons of contacts on them, and landlords almost all said up front how picky they are. Good credit, no pets, verified income.

Just one example:
8551 Graham Ter APT 6, Santee, CA 92071

Listed at 1400 in 2019, 2000 in a new listing today, 9 contacts and 1 application already.

I hear people in their 20s and 30s who rent talk about the specifics of the 10% annual rent increase law a lot too. There’s an expectation of regular large increases. They want to buy to avoid them.

SD Dan
SD Dan
1 year ago

Hey Rich,

Thank you for the insight! My housing thesis aligns to what your long-term thesis is – affordability will be a limiter over the long run.

What befuddles me is that I am looking at two condos right now to rent and the economics from an owners perspective makes no sense. One condo in Carlsbad was purchased May 2023 for $825K and seeking $3,500/month in rent. Assuming 20% down payment, a very generous interest rate buydown at 5%, include HOA, prop tax, and insurance the monthly payment comes out to over $5,000/month. That does not include maintenance, Capex, or any other miscellaneous expenses you would typically UW in a rental property.

Same thing with another condo in Carmel Valley that was listed on the market for over 6 months and finally sold. The numbers still don’t make sense unless these are all cash purchases, but even then the unlevered yield is less than 3%, which is not good. Money markets are paying 5% and all you have to do is click a button and have instant liquidity.

What am I missing?

I think there are still buyers out there making suboptimal “investment” decisions which is helping stabilize home prices in the short run, but this is not a sustainable creation of value.

Curious to hear your thoughts and if you are seeing similar activity and if this stuff was happening during the last housing bubble?



1 year ago
Reply to  SD Dan

There can be many explanations. Here are two. They did a 1031 exchange and brought lots of cash to purchase. They are buying as retirement home for future and looking to hedge against further increases in prices. There are more but the point is you are looking at it through your lens and they may have a very different one

1 year ago
Reply to  sdrealtor

Looking at the big picture, here is something to consider about real estate (as an investment class)

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basically the “boomer generation” are entering their retirement era (so they are pulling out their money from the stock market, and putting their money into real estate in warm sun belt climates like the San Diego area)