The Latest and Confusing Housing Reports

Trying to track the ups and downs of the housing market is like handicapping the various races for president. Whose up, whose down, and why—place your bets, chumps. It’s all a jumble of meddling politicians, social correctiveness (the new politically correct), flat interest rates, job migration, oil prices, NIMBYism, millennials, boomers, college debt, and Fannie-Mae and Freddie-Mac (who do control the loan market – look HERE).

The following articles are some of the more interesting articles of the last few weeks that deal with this whole “roof over my head” issue. Remember that the days of “market rate” housing are gone; in some areas more than a third of a home’s cost (and more) can be attributed directly and indirectly to local entitlement and underlying land costs. To believe that the housing market responds to the supply and  demand theories of the last century are well, so last century.

Apartments:

Who’s really renting? Good discussion HERE on the renters that are populating the new apartment complexes.

Labor:

The Wall Street Journal noted that one of the biggest problems in the housing construction is labor – seems that when those Mexicans went home they took their abilities with them – they have not come back (HERE for a different look). 

Also HERE,  for a take on the impact of this shortage of construction workers.

Housing Starts UP and DOWN – Whatever

It seems that every week we get hit with the latest in housing stats from somewhere – and even during the same week they have different conclusions. Take your pick:

Here’s the New York Times’ take: U.S. Housing Starts Increasein September:  

And the Wall Street Journal: Home Construction Rebounds AmidSurge in Multifamily Units:

Next month they will both print some form of a retraction.

And HERE'S what the impact is on housing stocks.

And Home Prices Keep Rising – One Reason:

If you have to provide one subsidized unit (affordable) for every ten approved units, isn’t it fair to believe that every one of those free-market units is now more expensive? I assure you the builder is not going to eat the difference no matter how big his heart. Affordable housing hurts everyone, but it wrong to believe that – GO HERE on Portland, Maine’s latest move (Portland, Oregon did something like this years ago). 

And in San Francisco they are still leading from the rear, HERE:

And it’s not YOUR fault:

When it comes to buying the consumer has no clue, they can’t make correct and appropriate decisions, obviously we need the government to step in, or so says Noble Prize winning economist, Robert Shiller HERE . 

But then again there are few other economists that would argue his point – i.e. Ludwig von Mises for one.

And it’s not your fault either – Part 2, 

Apartment builders should have thought about the THIS change:

And now we have to think about the new paradigm: On-Line Shopping. Where do apartments store and then deliver packages to their tenants? Should new homes have more secure exterior package drop-offs - HERE?

Stay Tuned . . . . . .

I'll Have the Tutti-Frutti, Please!

My (our) first home Park Forest, Illinois

Sixty years ago my father and mother bought their first home—a brand spanking new one. It had two bedrooms, one bathroom, a living room, a large kitchen and dining alcove, and a utility room. It was, at most, 1,350 square feet on a 70’x120’ lot. The house was located in the most written about post-war community in America on Chicago’s south side, Park Forest, Illinois. Its most important and valuable amenity was a furnace. In fact that, and the water heater, may have been all the tech amenities it had. It did not have a garage, just a carport. And, they were thrilled. (See current photo)

The housing industry is in hog heaven right now. Too many buyers and not enough product—and this includes the rental markets as well. Sure, there may be a few sane parts of America, maybe Iowa and Kansas, where there is some balance, but not around most urban areas and suburbs. Here, “it’s squeeze ‘em for everything they got.” In the SF Bay Area, townhomes that would sell in Orlando for $250,000 sell for $700,000 or more and are bid up and up (info, go here). 

Builders update their price sheets weekly to adjust for the demand. Starter homes are now over 1,800 square feet and are more often at 2,400 square feet. In fact the average new home last year was 2,679 square feet (avg.) and the median was 2,491 square feet. Three bedrooms are a minimum, four are now typical. If one thing has changed in the Bay Area is that the single family lot has dramatically dropped in size; in fact most detached lots are now in the 2,800 to 3,200 square feet size, you can literally stand between them and touch both homes (traditional lots in the last housing bubble were minimally 60’x100’ – 6,000 square feet).

However, these are just numbers that react to markets, demand, interest rates, demographics, and governmental controls. While the rental market is hot again (due, in part, to the lack of ready cash by Millennial buyers), even it can’t cover the demand. And now many apartments are being designed to intentionally keep out children and extended family. While they can’t legally be excluded, just tweaking the design and layout does exclude families. And the rents are so high it takes multiple wage earners (married, partners, friends, desperates) to afford them.

Now back to the tutti-frutti. The buyer wants and expects (while bitching about the price) that their new home has everything. Here are the most of the top amenities that buyers want:

Walk-in closets (in fact, his and her walk-ins)

Luxurious laundry rooms (TVs, skylights, high-end appliances)

Extreme energy efficiency (beyond double glass, insulation, and Energy Star)

Great rooms (an open mix of kitchen, dining, family, and entertainment space)

Taller/higher first floor ceilings (9 foot plus)

Smart-er Homes (highest tech, fiber-optics, Wi-Fi, LED lighting, security cams and such)

Home Office (in the case of some, two home offices)

Hardwood Floors (They are back, no wall to wall carpets, sustainable bamboo is so nice!)

High-end finishes (Granite or other quality in kitchen and baths – especially marble baths)

Storage, closets, and even more storage

Minimum two-car garage, bike parking, (urban sites need to have more on-site parking)

Fireplaces (even though in California wood burners will probably be outlawed – gas is the alternative)

When luxury becomes necessity:

We went from fireplaces to central heating (look at the stacks on pre-1900 homes), to all-inclusive systems (HVAC) and now mandatory air conditioning. We are now installing solar systems for electrical support, and extreme high-end data and entertainment systems as standards. Kitchens look like they could be sets for the Food Channel, bathrooms fitted like a Four Seasons hotel spa, and garages are now operating rooms with tile floors. And all this at a cost.

While the yard is much smaller (smaller lot – less veggies, less maintenance = more free time; yeah, sure), the buyer wants a community that has nearby recreation, services, and restaurants. If possible, especially for the Boomer market, they want to live in a resort (they feel they earned and deserve it).

To be honest, these desires and residential needs are the same in Florida and California; it’s the vagaries of markets and governmental controls that separate the two price-wise. But the other significant impact to price is all the tutti-frutti (that I would not give up myself) that goes into these new homes. Now I ask you, don’t you want warming draws, wine fridge, outdoor kitchen, man-cave, home-theater, Amazon rainforest shower, gym, coffered ceiling in the bedroom, shoe racks for 200+ pairs, pet enclosure, a smart house that knows who you are, super-duper air and water purification, and of course a live-in maid. Just saying.

Stay tuned . . . . . . . .

200 Blog Posts and Still Writing

This week’s blog is the 200^th post I’ve cobbled together since starting this whole blogging thing on June 23, 2010. It is hard to believe that almost five years have elapsed. My father, a journalist in one of his many past lives, said (paraphrasing), “See, the work of a weekly columnist is hard—it’s almost impossible finding something pithy to say every week.” I can’t disagree, some weeks I get nothing. But, here we are another week and another post. A toast—to my post.

My little burg, Walnut Creek, California is exploding. On a per acre basis there is more development and construction happening in this town than most Bay Area communities can even dream of.

The "New" Broadway Plaza

Currently there are more than a 1000 apartments under construction within and around the city center. There are also numerous projects in the final stages of planning and approval within this same envelope. Soon a massive retail and housing complex at the regional BART transit station, after years of planning, “may” get underway. In the secondary ring, one to two miles out, even more is under construction – case in point a new Safeway retail complex. So much is under construction the city is considering taking a breath and slowing down the approval process.

One of the largest retail projects in the region is the rehabilitation and remodeling of the Macerich Broadway Plaza retail center. This is a $250 million dollar facelift with up to 300,000 square feet of new retail, restaurants, and commercial uses. This will also include new multi-level parking garages and more than 800 new parking stalls. When completed this overall retail mix will be one of the Bay Area’s finest (and toniest) retail destinations.

The city itself recently approved and funded almost a half million dollars worth of downtown improvements. These will include pedestrian upgrades, weekly food and social events, parklets (the new urban fad), and signage and supporting marketing banners.

Every city's, no matter how large or small, greatest concern should be its brand. We all know what happens when this is neglected and falls apart, look at the Detroit brand and the Oakland brand. In fact, look at the whole “rust belt.” It take years, if ever, to recover from a failed urban brand. It is critical that the politicals within a community support in every way they can the developers who are building the housing, the retail, and the commercial uses. Their job is to keep the public side looking good and provide a safe welcoming environment. It takes very few miscues in these days of instant communication to destroy years of hard work.

Here is to looking at 200 more blog posts. There is still much to write about considering the strange world of electric cars, the California train to nowhere, silly urban planning, and the always interesting housing market.

Stay Tuned . . . . . . . .

Why Is It Always Texas – Part 2

Prime Real Estate

An article in The Atlantic got me thinking (again) about why Texas is such a draw.  Both Houston and Dallas added more than 100,000 people during the 2013-2014 timeframe and not far behind in growth was Austin. After this past winter in the eastern Midwest and the Eastern seaboard it is a very good bet that this trend will continue. Throw in the insane politics of many of these areas and the best investment during the next few years may be in moving companies.

There was a time when California held this honor of being the prime destination of Easterners (as a kid in the sixties I remember the Beach Boys, Little Duce Coups, Haight-Ashbury, Jefferson Airplane, California Dreaming, all that stuff). Now they are fleeing. No water, a democratic political machine everything political, no smoking yet marijuana yes campaigns, did I say no water, 100 billion dollar trains to nowhere, taxes through the roof, rents the highest in the world, home prices along the sacred 50 mile Pacific edge totally unaffordable (can’t wait to sell and get that equity – which is a whole other market strategy), and did I mention no water. Yes, California may have absolutely fantastic weather but it hardly makes up for the idiots that now run this state. It was remarkably different when we moved here in the early seventies – very different.

But, back to Texas. Americans, as we get older like warmer weather, just ask my back. I assume that there are many in Boston that are glad the aerobic exercise of snow shoveling has lost its allure and fondly think of warmer climes – at least with a January temperatures over “frost-bite.” Time magazine published an article by Tyler Cowen in late 2013 that sums up many of the reasons why Texas is the thing and America’s future (for good or bad).

While there are a lot of issues such as automation and the impacts on the middle-class that are driving people to Texas, it is jobs and inexpensive housing that are the greatest draws. Housing is less expensive in Texas and not by a small amount of money. On average you can buy a lot more house for a lot less money than in California, New York and almost anywhere in the Northeast. A home in the San Francisco Bay area is impossible for under $600,000 and the same in New York. The same house on a larger lot in a nice community in the Houston area is $200,000. That leaves a lot of money for other things. And it’s not due to lower incomes, in all stats after living expenses, the average middle-class Texan is wealthier than their social equals in New York and Coastal California. Did I mention Texas also has no income tax.

Texas is the complete opposite of California. From economics, politics, governmental expectations, income taxes, and a much smaller government, they are dramatically different.

One reason I suspect that people are heading to Texas is because it is NOT like where they live now. Americans (at one time) wanted independence and freedom more than anything. They were told to head west, they fled the confines of the cities and all the ills found there, they wanted safety and they wanted to be fundamentally left alone. Nanny laws were anathemas, but we sucked it up. We rationalized everything, accepted everything—after all we are flexible and optimistic. But, there are still some who want to be left alone and many of them are heading to Texas.

Stay Tuned . . . . . . .