I was reading an article where it discussed how a small number of Millennials are now inching back into the housing market.  But what was telling was that many of them were unhappy with their purchases.  Why?  As you might expect, buying a home always isn’t the right choice and there are expenses.  You have taxes, insurance, maintenance, a 30-year mortgage, and other things that many people just don’t factor in.  I’ve made this point before where many people buy a home and then start popping out kids.  Usually the rush to buy is the external considerations of life versus the actual economics.  So you get hit with big expenses all at once.  For many professionals, childcare equates to what you would pay for college tuition per year!  And of course, many Millennials are buying houses at near peak levels using mega mortgages just to squeeze in.  In places like California we are already seeing inventory rising.  Of course inventory is rising as fewer and fewer people can afford homes at current prices.

The housing market is in a state of adjustment.  Inventory is up dramatically in many places.  In the last housing correction, Las Vegas was a leading indicator for California and we are now seeing some dramatic increases in inventory in the area.  Las Vegas inventory is now up 106 percent year-over-year.  In Seattle, inventory is up 168 percent year-over-year.  For anyone looking to buy, the market has dramatically shifted.  There is no urgency anymore and the tides have turned as affordability has collapsed.  In California, many counties are now renting majority areas and the government is looking to cater to the majority of voters.  Last time inventory rose this sharply price adjustments followed.  What is in store for the housing market in 2019? 

Price cuts.  Cookies at open houses.  Listings lasting longer than a few weeks on the MLS.  The housing slow down is now officially here.  Delusions usually end up on a direct path with reality.  Housing is always a lagging indicator of underlying economic activity.  People will fight to the bitter end to save their homes.  Unlike the stock market, prices do not adjust overnight.  However, in places like California the weak performance in the stock market last year is going to hit the bottom line for state tax revenues.  It is also giving pause to VC money that was chasing absurd companies with nonsensical P/E ratios in search for the next billion-dollar unicorn.  But little by little inventory is starting to pile up.  People are opting to rent versus buy or in California, or as over 2 million adult “children” have opted to do, move in with their baby boomer parents.  So what does the rise in inventory signal for 2019?

Since the Great Recession hit, we have added 10 million renter households.  The trend to renting was largely spurred by the crash in the housing market but also over qualifying Americans to purchase a piece of the American Dream.  The trend has slowed down but not in states like California where a renting majority is now solidly in place.  Even Orange County, a place that was once thought an untouchable red region turned all blue.  Then you have places like the Inland Empire that went solidly red.  The bottom line is that many new households are opting to rent versus purchasing a home.  This decade long trend is showing some signs of slowing however as rent price growth is slowing.

Read the rest of this entry »