The lap dogs of the housing industry are getting louder and louder as each day goes by. There is now a wide consensus that housing values only go up and the mania is losing all perspective. Crap shacks are still selling as beer belly cubicle slaves buy into the cult-like mentality and go against their common financial sense. “Well this area might gentrify soon and it might be the next Santa Monica!” The notion that by you buying a crap shack you are living the dream is somewhat hilarious. No, you are not living in Bel Air just because you “own” real estate. There is so much “all hat and no cattle” in Southern California that it is hard to believe. Yet this housing mania is nationwide. So it is hard to fathom that you have over 5,497,000+ that are underwater right now with a good number seriously underwater. And this is in a hyper-crazy market. You also have a large number of equity rich owners but they need to sell to uncork that wealth.
Seriously underwater property owners
The housing market has recovered nearly in tandem with the stock market. The stock market has been on a virtual nonstop bull run since early 2009. So people have forgotten about our recent financial history. While stock market investors and traders seem to be a bit more sophisticated, house humpers tend to live by the HGTV school of economics.
Back in 2012 you had 12.5 million underwater properties. That number has fallen to 5.49 million today. But that is the thing, you still have a large number of people that overpaid and yet somehow, Kool-Aid drinkers are trying to convince people to buy at the peak when there is clear evidence of those that over paid still out there today!
Take a look at this chart:
Source: Attom Data
This is really interesting. While the number of underwater homes has decreased dramatically as property values have increased, you wouldn’t know that we still have 5.49 million underwater homeowners today based on the rhetoric we are now seeing. There is now this near uniform chanting that “housing is great” yet this is coming from those that perceive luck as investing acumen.
By far a big reason for this has to do with the lack of inventory:
Nationwide prices are at peak levels yet look at that massive drop in inventory. There is still very little inventory on the market. So if you want to buy a home, you may only be left with crap shacks as options. People get extremely house horny especially when they are in the family planning stage. But we’ve talked about how Millennials are bucking the trend in home buying compared to Baby Boomers.
So what to make of this? We have yet to see any stock market correction. Given the current uncertainty in D.C. you see what happens when people now assume tax cuts are off the table because you will need bilateral support to make that happen. This is being driven by hot money at the top (i.e., investors, Wall Street, etc). And ultimately, people need to be confident long-term before they dive into a 30-year mortgage commitment.
You would think that home builders would be building in mass but they are focused on building out multi-unit buildings to cater to a less affluent younger generation. Also, we are living in a major trend to renting in California and nationwide. What happens when the majority of your area rents when it comes to voting?
So the underwater inventory may add some additional information to why we have low inventory even in this market. A lot of people are still underwater. And those that have equity will need to pay inflated prices to go from crap shack #1 to crap shack #2 with hardwood floors.