The Rent Is Too Damn High: Record High 30% Of U.S. Adults Now Live With A Roommate

A staggering new analysis from Zillow highlights perfectly the unintended consequences of central banking policies that drive massive asset bubbles but minimal job/wage growth.  According to the study, surging home prices and rising rents have now resulted in a record 30% of American adults, up from 21% in 2005, being forced take on roommates just to afford monthly rent payments.

As rent consumes a growing share of household income in many cities, some people must relocate or find ways to offset rising prices. An increasingly popular way to cut costs is by adding a roommate. Nationally, 30 percent of working-age adults—aged 23 to 65—live in doubled-up households, up from a low of 21 percent in 2005 and 23 percent in 1990.

 

We define a doubled-up household as one in which at least two working-age, unmarried or un-partnered adults live together. For example, a 25-year-old son living with his middle-aged parents would constitute a doubled-up household, as would two 23-year-old roommates who are not partnered to each other. A doubled-up household contains people who might choose to live apart under different circumstances, financial or otherwise.

Not surprisingly, large metropolitan areas like New York, LA, Miami and San Francisco saw the highest percentage of their adult populations doubling up on housing.

Of course, as the following chart illustrates, there is a strong correlation between doubling-up and rent affordability with the most expensive cities seeing more than 40% of their adult residents living with roommates.

"As rents have outpaced incomes, living alone is no longer an option for many working-aged adults," said Zillow senior economist Aaron Terrazas. "By sharing a home with roommates -- or in some cases, with adult parents -- working adults are able to afford to live in more desirable neighborhoods without shouldering the full cost alone. But this phenomenon is not limited to expensive cities. The share of adults living with roommates has been on the rise in historically more affordable rental markets as well. Unless current dynamics shift and income growth exceeds rent growth for a sustained period of time, this trend is unlikely to change."

As we"ve noted frequently, the biggest increases in doubled-up houses has come from the millennial generation as thousands of college seniors, armed with their $250,000 anthropology degrees, are apparently finding it difficult to land their dream jobs after graduation.  That said, while millennials have seen the biggest increases, people across the age spectrum have also become increasingly reliant on roommates to meet their monthly rent obligations...

...so at least we all have that to look forward to in retirement.

With that, here are the full results from Zillow:

Home Prices In 80% Of US Cities Grow Twice Faster Than Wages... And Then There"s Seattle

According to the latest BLS data, average hourly wages for all US workers in November rose at a stubbornly low 2.5% relative to the previous year, well below the Fed"s "target" of 3.5-4.5%, as countless economists are unable to explain how 4.1% unemployment, and "no slack" in the economy fails to boost wage growth. Another problem with tepid wage growth, in addition to crush the Fed"s credibility, is that it keeps a lid on how much general price levels can rise by. With record debt, it has been the Fed"s imperative to boost inflation at any cost (or rather at a cost of $4.5 trillion) to inflate away the debt overhang, however weak wages have made this impossible.

Well, not really. Because a quick look at US housing shows that while wages may be growing at roughly 2.5%, according to the latest Case Shiller data, every single metro area in the US saw home prices grow at a higher rate, while 16 of 20 major U.S. cities experienced home price growth of 5% or higher: double the average wage growth, and something which even the NAR has been complaining about with its chief economist Larry Yun warning that as the disconnect between prices and wages become wider, homes become increasingly unaffordable.

And while this should not come as a surprise - considering we have pointed it out on numerous occasions in the past - one look at the chart below suggests that something strange is taking place in Seattle, which has either become "Vancouver South" when it comes to Chinese hot money laundering, or there is an unprecedented mini housing bubble in the hipster capital of the world. Also worth keeping an eye on: price appreciation in Sin City has quietly surged in recent months, and in September home prices surged 10.2% Y/Y, the only other double digit price increase in the US after Seattle. Considering that Las Vegas was the epicenter of the last housing bubble when prices exploded higher only to crash, it may be a good idea to keep a close eye on price tendencies in this metro area. 

Confirming the recent jump in home prices, at the national level in Octoner home prices for the Top 20 metro areas rose 6.4% YoY according to Case Shiller, the fastest rate since June 2014. As Bloomberg adds, "a lingering shortage of previously owned homes is keeping housing prices elevated. That’s allowed homeowners to recover the equity lost during the housing collapse and recession a decade ago."

“Home prices continue their climb supported by low inventories and increasing sales,” David Blitzer, chairman of the S&P index committee, said in a statement. But that climb may be interrupted by the Federal Reserve hiking interest rates next year, he said. “Since home prices are rising faster than wages, salaries, and inflation, some areas could see potential homebuyers compelled to look at renting."

Meamwhile, for those looking to buy for the first time, conditions are less favorable. Growth in property values is outpacing wage gains and limiting affordability, representing a headwind for the market.

Finally, putting the above data in context, here are two charts courtesy of real-estate expert Mark Hanson, the first of which shows how much household income increase is needed to buy the median priced home in key US cities...

... while the next chart shows the divergence between actual household income, and the income needed to buy the median priced house.

 

This Map Shows Where Millennials Are Buying Houses (And For How Much)

Millennial homeownership rates are essential to understanding the housing market because they facilitate additional home sales for other people.

How does this work? As HowMuch.net explains, suppose you make an offer on a house. The current owner is also probably on the market, and he or she likely has a contingent offer on another house. This sets off a chain reaction throughout the economy. Millennial homeownership rates are therefore an easy way to judge the economic vitality of any given area.

That’s why HowMuch.net created this new map...

Source: HowMuch.net

Our viz takes millennial homeownership data from Abodo and maps it by metro area across the country. Abodo adopted the data from the U.S. Census Bureau, which regularly collects a variety of information about the population, including the age of homeowners, the estimated value of their homes, and how long it would take to accumulate a 20% down payment. Our numbers are from 2015. We then overlaid this information across metro areas with bubbles representing the portion of millennial homeowners in each market: the bigger the bubble, the more millennial homeowners there are. We also color-coded each bubble to represent the median value of their homes—dark red circles mean the homes are worth over $500k, and dark blue means under $200k. This gives you a quick snapshot of the overall economy and the housing market.

The first trend you can see on the map is a clustering of red circles on both the West Coast and along the Northeast.

The most expensive city in the country for millennials is San Jose, CA, where the average millennial buys a home worth $737,077. Seattle, WA in the Northwest is also relatively expensive at $342,769. These are population-dense areas with booming tech sectors. At the other end of the spectrum, you can see clusters of blue bubbles across the Midwest in old manufacturing cities like Detroit, MI ($148,404) and Cleveland, OH ($160,251). Memphis, TN is the cheapest place for millennials at $142,795. Southern states like Texas and Florida are also relatively affordable thanks in large part to their suburban sprawl, which Zillow predicts will expand next year.

It’s no surprise that homes are more expensive in California (think Silicon Valley) than the industrial heartland, but consider how homeownership rates change based on affordability. The red bubbles all tend to be smaller than the blue bubbles. This means that as homes get more expensive, millennials become increasingly unable to afford them. It’s not like there’s a surplus of ultra-rich millennials buying up all the houses in California and New York. Millennials are just as sensitive to high prices as everyone else.

Let’s break the map down into a top ten list of the urban areas with the highest rates of millennial homeownership, combined with the average price of their home. A full 42% of the millennials living in Minneapolis-St. Paul, MN own their own home, the highest rate in the country.

1. Minneapolis-St. Paul-Bloomington, MN-WI: 42.4% and $222,528

2. St. Louis, MO-IL: 40.2% and $167,791

3. Detroit-Warren-Dearborn, MI: 40.2% and $148,404

4. Louisville/Jefferson County, KY-IN: 38.5% and $158,974

5. Pittsburgh, PA: 37.5% and $152,731

6. Indianapolis-Carmel-Anderson, IN: 37.4% and $161,856

7. Kansas City, MO-KS: 37.1% and $170,254

8. Nashville-Davidson--Murfreesboro-Franklin, TN: 37.0% and $213,090

9. Oklahoma City, OK: 36.7% and $172,485

10. Baltimore-Columbia-Towson, MD: 36.3% and $272,805

Buying a home is often the biggest financial decision anybody makes, and that’s especially true for young people. And there’s a lot to consider when buying your first home, but one thing other than affordability to keep in mind is how many other millennials are in the same situation. If you’re a millennial looking to buy a home, and you want to live next to other young people, you just might have to move to the Midwest.

New York City Developers Are Relying On A Shrinking Pool Of Buyers

Most of New York City’s largest developers are probably optimistic about the near future now that one of their own is occupying the most powerful office in the world. Bu, this very specific group of taxpayers stands to benefit immensely from several of the provisions that have appeared in the Senate or House plans: Repealing the AMT and estate taxes would allow them (and their heirs) to shave a pile of percentage points off their tax bills. And those are just two examples.

To be sure, the tax plan’s passage isn’t assured – now that Alabama Democrat Doug Jones has defeated Republican Roy Moore. With Jones expected to be seated some time after New Year’s, the time pressure facing Republicans has intensified. Because at the start of the next Congress, their already precarious two-vote majority will shrink to one. Beyond this, Republicans haven’t agreed on a final version of the bill yet, and existing differences between moderates, deficit hawks and conservatives within the party could prove insurmountable.

But regardless of what happens with the tax plan, there’s a much more pressing problem facing developers in the Big Apple: A glut of “luxury” apartments priced in the low-seven or high-six figure range is coinciding with a precipitous drop in sales volume, according to Reuters.

While prices have been steady in recent years, sales volume for condos in Manhattan are still 30% below their pre-crisis peak.

In other words, the market’s dependence on a small, well-heeled pool of buyers – a pool that is shrinking as prices rise to unsustainable levels and wealth in the US becomes increasingly concentrated in the hands of the wealthiest – could be a major vulnerability in the coming years.

In the past five years, however, Manhattan has seen a different kind of development boom. Prices for these units are higher than they ever were before but the number of units built and sold is way off levels achieved a decade ago, Warshawer said.

 

“As prices have risen, less of the market share is comprised of cheaper units,” she said.

 

In 2013, 7,787 units were sold for under $1 million for a total $4.7 billion in sales. This year is projected to end with 5,040 units sold at under $1 million for $3.4 billion in sales.

Indeed, apartments priced in the seven-figures are increasingly going unsold – while affordable housing becomes increasingly harder to

The median sales price of high-end apartments edged higher in 2017, but the closely watched average square-foot price slid a bit for condos as prices leveled off after years of heady growth, the report said.

 

While the average and median sales price for all residential units has jumped since 2007 by 61 percent to $2.2 million and 44 percent to $1.2 million, respectively, transaction volume is off 30 percent from peak activity a decade ago, CityRealty said.

 

CityRealty examined sales registrations from the city’s Department of Finance. Much of Harlem and nearby areas were excluded because its market size.

Units sold at 432 Park Avenue, a 96-story tower marketed by developers as the tallest residential building in the Americas, garnered the most number of sales in a listing of the 25 highest-priced condos, CityRealty said. But elsewhere, the ultra-high-end market is suffering as nearly a third of the apartments in Manhattan’s recently developed “Billionaire’s Row” have gone unsold.

As we highlighted back in August during Starwood Property Trust’s Q2 earnings call, CEO Barry Sternlicht warned of a doomsday waiting at the end of New York"s "Billionaire"s Row", predicting an imminent "debacle." He mentioned the out-of-balance mezzanine loan at JDS Development and Property Markets Group’s 111 West 57th Street project and predicted more distress in the luxury residential market, including at 53 W 53, a supertall condo being developed next to the Museum of Modern Art by Hines, Pontiac Land Group and Goldman Sachs.

“We are beginning to see the cracks of the high-end residential market in Manhattan,” Sternlich warned.

Indeed, and while developers stand to benefit personally from the Republican plan, proposals to eliminate or reduce the mortgage deduction or deductions on state and local taxes could further damage their sales figures by favoring renters over buyers.

Silicon Valley"s "Working Homeless" Shows How Hard Life Is In "Democrat"s Paradise"

Authored by Mac Slavo via SHTFplan.com,

Silicon Valley is the home to tech giants like Facebook, Apple, and Google. It’s also home to a surging working homeless population who live in dilapidated RV’s, tents, and their own cars, all thanks to the policies Democrats love to implement.

The surging number of those working in Silicone Valley and still unable to afford adequate housing should be a warning about big government, but it sure doesn’t seem like anyone is taking notice as their taxes continue to rise.

As governments creep toward socialism though, poverty becomes the norm, not the exception.

Silicon Valley has the highest median income in the nation. But a soaring tax burden and expensive regulations have caused housing prices to increase which has also caused homelessness to surge.

More than 10,000 people were living without shelter across San Jose and Santa Clara Counties on any given night in 2016, though that figure is probably low. Thanks to big government, the cost of living is not low.

An influx of tech workers along with decades of under-building (thanks again to the regulations of big government) has created a historic homelessness in the Bay Area.

The governments in California continue to attempt to control deadly Hepatitis A outbreaks caused by a booming homeless population and usually do so by taking even more from those who actually work. The cycle will continue: socialists governments will put a cheap band-aid on the gaping wound they created themselves.

Rather than freeing poor people from dependence on benefactors and bosses, they merely transfer the dependence to the state, leaving the least politically connected people at the mercy of the political process. – FEE

The one thing government has are programs to help those in poverty. But those have proven ineffective. And the one thing that will work is the very thing government refuses to do: Climb off the backs of those they pretend they want to help.

Progressives routinely deplore the “affordable housing crisis” in American cities. But it is the very laws that Progressives favor—land-use policies, zoning codes, and building codes—that ratchet up housing costs, stand in the way of alternative housing options, and confine poor people to ghetto neighborhoods. Historically, when they have been free to do so, poor people have happily disregarded the ideals of political humanitarians and found their own ways to cut housing costs, even in bustling cities with tight housing markets.  – FEE

Imagine just how much more money the working poor would have if the big government in California wasn’t stealing over half their income to implement the very rules and laws that continue to make “scraping by” even more expensive.

Lisbon"s Red Hot Property Market - Poor Madonna Can"t Even Find A House

We’ve written a lot about property bubbles in recent weeks – how the bubbles in London and Sydney are bursting, Hong Kong’s has just seen the record price paid per square foot (Twice in the same day) and Monaco is building into the Mediterranean Sea to satisfy the huge demand from frustrated millionaires. A bit like Monaco, one of the problems for Lisbon’s house buyers is that central Lisbon is relatively small. According to Bloomberg.

In central Lisbon’s property market, sellers are kings. The Portuguese capital’s real estate boom is entering a new phase as a shortage of prime property in the city center is prompting some buyers to bid above the asking price for the last available units.

“There’s a big gap between supply and demand,” said Luis Tilli, a real estate agent at Lisbon-based HomeLovers, which is selling a three-bedroom, 236 square meter (2,540 square feet) refurbished duplex in the historic quarter of Chiado for 2 million euros ($2.38 million). “It’s reached a point where some investors offer to pay above the asking price just so they can close a deal.”

“There are a very limited number of buildings located in the center of Lisbon to purchase,” said Jose Cardoso Botelho, head of Vanguard Properties, a real estate firm controlled by French-Swiss investor Claude Berda that’s bought 10 buildings in Lisbon since it began investing in the city last year. “We’ve started looking for building plots on the outskirts of the city now, but it hasn’t been easy.”

For most people are concerned, Lisbon has probably slipped under the housing bubble radar. As Bloomberg explains, however, the foundations for the current bubble date back to 2012.

Lisbon’s property market revival began after the previous government eased long-held rent controls and started offering residence permits in 2012 to non-European property buyers, mostly from China. Portugal’s tax-friendly regime for foreign residents and a tourism boom that led to the conversion of hundreds of buildings into short-term rental apartments and hotels have also helped fuel demand.

The last time we wrote about Lisbon property was in November 2014 in “Dear Portugal, Meet Your New Landlord – China". As we noted back then.

…at a property auction in Lisbon, Portugal last month, about 90% of the bidders for the government-owned apartments and stores on offer were Chinese. They ended up acquiring more than two-thirds of the 45 properties, with one money-launderer investor noting "Lisbon is cheap if you compare it with other cities”.

 

1-in-4 homes bought by foreigners in America in 2014 were by Chinese and Portugal is already at 1-in-5.

While prices have risen by more than a third during the last five years, there is a classic squeeze taking place in Lisbon’s historic centre.

Home prices in the city rose 35 percent from 2012 to 2016, when they reached the highest since at least 2007, according to Confidencial Imobiliario, which collects data on the real estate sector. In Lisbon’s historic center, property prices increased 26 percent in the first half of 2017 while the number of deals fell 34 percent from the same period a year earlier, a sign of a shortage of housing stock.

“It’s the first time that Lisbon has a shortage of homes to satisfy investor demand,” said Lima. “Home buyers need to realize it’s impossible for everyone to live in Avenida da Liberdade,” he said, referring to a boulevard in Lisbon lined with gardens, ornately tiled sidewalks and luxury shops that’s considered the local Champs-Elysees.

Average home prices in the central historic neighborhoods of Baixa, Chiado and Avenida da Liberdade were at 6,367 euros per square meter in the first quarter, according to a study by property appraiser and consulting company Prime Yield.

The country is expected to attract a record 3 billion euros in property investment this year, mostly from foreigners. That’s up from 1.3 billion euros in 2016, according to broker CBRE Group Inc.

The shortage of prime Lisbon property is so acute that Madonna struggled to find a property when she decided to move to the Portuguese capital to support her son’s adopted son’s career ambitions. David Banda has been picked to play in the junior squad of Portugal’s most famous club, Benfica. Bloomberg continues.

Fueling the demand are the likes of rock star Madonna, the latest of a handful of celebrities to show an interest in a city that’s often compared to San Francisco because of its steep hills, trams and red suspension bridge. But central Lisbon’s housing stock is much smaller than in other European cities such as Madrid, London and Paris, and it’s quickly running out, according to Luis Lima, head of Portugal’s Real Estate Professionals and Brokers Association.

Even the “queen of pop” has showed some frustration in her quest to find a home in the southern European city. In June, the 59-year-old Madonna visited a hilltop palace in Lisbon as part of her search for a home in the city, according to Sotheby’s International Realty. Four months later she shared a picture of herself riding a horse on a beach with a caption on her Instagram account that read: “Can’t find a house in Lisbon but damn… sure can find a horse!”

It’s the same story we hear in London, Sydney, Auckland, Vancouver and many more. Local people are priced out of the market and efforts by politicians to reverse the trend have generally been futile, as the Bloomberg piece makes clear.

As housing stocks dwindle and prices rise, Lisbon residents are finding themselves being priced out of the real estate market in the city center…The Lisbon City Council plans to offer affordable housing to low- and middle-income residents in the city center, where a growing number of units have been snapped up by foreign investors. Under the plan, as many as 7,000 new homes with monthly rents between 250 euros and 450 euros will be made available. “We must stop the exodus from the city center of residents who can’t afford the rising real estate and rental prices,” said Romao Lavadinho, president of the Association for Lisbon Tenants. “There are parents moving in with their children and children moving back into their parents’ home.”

Even stringent Chinese capital controls haven’t slowed down Lisbon property prices…perhaps only the bursting of the central bankers bubble can achieve that?

London House Prices Reach Record Unaffordability

Earlier this month, we noted further evidence that London’s housing bubble is bursting. In its October 2017 survey, the Royal Institute of Chartered Surveyors (RICS) reported the largest proportion of respondents seeing a drop in London house prices versus the previous month since 2009. The net balance was nearly two thirds (-63%) in favour of declines, which contrasted sharply with a national average which was marginally in positive territory (+1%).

The RICS data corroborated the Bank of England’s regional agents’ report a day earlier which highlighted “signs of excess supply in London and the South, but some excess demand in most other parts of the United Kingdom”.

The bad news for wannabe London residents is that in spite of the (slightly) lower prices, the affordability of residential property in the capital – at nearly 15 times income - is the worst it’s ever been. According to Bloomberg,

London homes are less affordable than ever before, despite slowing price growth and government attempts to cut the cost of housing for first-time buyers.

 

It now costs the average Londoner 14.5 times their annual salary to purchase a home, the highest level on record, according to a report Tuesday by researcher Hometrack. Cambridge, Oxford and the English seaside town of Bournemouth also have price-to-earnings ratios in the double digits, the report shows.

“Unaffordability in London has reached a record high, despite a material slowdown in the rate of house-price growth over the last year,” Richard Donnell, research director at Hometrack, said in an interview. “The gap between average earnings and house prices in the capital has never been wider.”

Even with the recent slowdown, the average cost of a first home in the U.K. capital is still up 66 percent since 2012 as supply fails to meet the demand from domestic buyers and overseas investors. Spiraling values have caused the number of younger buyers in the capital to fall, something that Chancellor of the Exchequer Philip Hammond sought to address last week when he abolished stamp duty for first-time buyers of homes worth up to 300,000 pounds ($400,290).

London house prices rose an average 3 percent in the year ending October to 496,000 pounds, less than half the 7.7 percent growth rate of a year earlier, Hometrack said. The researcher defined London as the 46 boroughs in and around the U.K. capital.

Last week, making housing more affordable was one of the centerpieces of Chancellor of the Exchequer, Philip Hammond’s, budget speech. However, some commentators doubted that the new measures would help, as the Financial Times noted.

Mr Hammond’s signature policy plan was a £44bn package of investment, loans and guarantees to increase the annual amount of new homes built to 300,000 in the middle of the next decade, up from 217,000 last year, aided by planning reforms designed to encourage homebuilders not to sit on permissions already granted.

The measures on housing supply were augmented by a headline-grabbing cut in stamp duty for first-time buyers on properties below £500,000. No stamp duty will apply for purchases below £300,000.

However, in a blow to the chancellor, the independent Office for Budget Responsibility said the main effect of these cuts would be to raise house prices and only lead to the purchase of an additional 3,500 homes a year. The fiscal watchdog also indicated it did not think the house building measures would make much difference. Lower household incomes led it to reduce its forecast for the growth in spending on home building.

Speaking to Bloomberg, Hometrack’s Donnell was not convinced either since housing, in London particularly, is already so unaffordable.

Still, Donnell is skeptical that the tax measures in Hammond’s budget speech last Wednesday will have much effect on affordability, given the large sums needed to get on the housing ladder. “The changes to stamp duty are unlikely to significantly impact this trend as the greatest challenge for first-time buyers is the income required to pass mortgage-affordability stress tests,” Donnell said.

However, London’s lack of affordability and limited available stock is having a positive impact on the rest of the UK, as Bloomberg explains.

The northern English cities of Manchester and Birmingham registered the fastest house-price growth, at more than 7 percent. London will continue to underperform some regional cities over the next two to three years as costs adjust to levels buyers are willing to pay, while the price-to-earnings ratio in the capital is “expected to drift lower,” Hometrack said.

It will take more than underperformance to make London housing affordable, more a like a crash.
 

Hong Kong Property: Record Price Per Square Foot Smashed...Twice...By The Same Buyer

Two weeks ago, we discussed Algebris Investments’ analysis of the world’s biggest asset bubbles. Portfolio manager, Alberto Gallo, noted that “It’s not just about valuation, it’s about irrational behaviour” and used variety of measures to identify the latter including ”Sky is the limit”, “Bidding wars” and “The trend is your friend”. Gallo listed what in his opinion were the fourteen biggest bubbles across the globe which included Hong Kong property, obviously.

In the global league table, Hong Kong held on to the dubious accolade of being the world’s most expensive place to live for the seventh year in succession in 2017, as Forbes noted, quoting work by Oxford Economics.

Holding on to its rank as the most expensive housing market in the world for the seventh year in a row is Hong Kong.

 

The median home price was 18.1 times the median annual pretax household income last year, according to a recent annual report from Demographia. Though a small improvement from the year before when home prices were 19 median household income, Hong Kong still ranks as "severely unaffordable" the report said.

 

The city"s housing prices have skyrocketed in recent years, driven by low interest rates and mainland Chinese buyers. Lack of affordable housing has become a top social issue as the city"s poor crowd into "cage homes" and dangerous, subdivided apartments.

To cement its leadership position in the realm of obscene property valuation, the South China Morning Post (SCMP) notes that the record price per square foot for a residence in Hong Kong has just been smashed…twice…by the same buyer…for two apartments in exclusive “The Peak” district. 

Mount Nicholson, the luxury housing development atop Hong Kong’s highest elevation, has clinched the crown as the priciest address in the most expensive residential market on earth, selling two apartment units for HK$1.16 billion (US$149 million) to a single buyer.

A buyer paid HK$600 million, or HK$131,000 per square foot, for a property measuring 4,579 square feet at Mount Nicholson, according to Wheelock Properties, which oversees sales of the joint project between Wheelock & Co. and Nan Fung Development, without divulging the buyer’s identity.

The same buyer splurged another HK$560 million on the same day on a second flat measuring 4,242 sq ft, or about HK$132,000 per sq ft. In square footage terms, the second property is the most expensive residence in Asia.

“From the perspective of an ordinary Hong Kong resident, we’ll never understand why” the city’s wealthiest people pay such sums for homes, said Knight Frank’s head of valuation and consultancy Thomas Lam.

As the SCMP laments, Hong Kong’s new Chief Executive is facing a losing battle in providing affordable housing and containing the bubble.

The prices of Hong Kong’s private housing advanced in September for the 18th consecutive month to a record, underscoring the challenges facing Chief Executive Carrie Lam Cheng Yuet-ngor, as she puts housing front and centre as the most important policy priority in her four-month-old administration. In her maiden policy address to the city, she pledged to create a “Starter Home” scheme to increase home ownership in the city for first-time buyers.

The transactions at Mount Nicholson, comprising 19 detached houses and 48 flats over three phases, broke the city’s previous price record, when a buyer paid HK$105,000 per sq ft for a HK$522 million duplex penthouse at Henderson Land Development’s 39 Conduit Road project at the Mid-Levels.

Hong Kong’s private home prices have increased by 430 per cent since 2003, making it the world’s most expensive urban centre among 406 cities to buy a home in, according to the Demographia International Housing Affordability Survey.

For the time being, Carrie Lam’s plan has about as much chance as that of King Canute.
 

"Granite Islands And Backsplashes": Even Doublewide Trailers Are No Longer "Affordable"

Since the early 1900s, millions of Americans have relied on trailers as a source of no-frills, affordable housing.  In fact, roughly 22 million Americans live in trailer parks today, but the industry is hardly the stable source of affordable housing that it used to be...a lesson that 73-year-old Judy Goff of Naples, Florida recently discovered the hard way after Hurricane Irma ripped through her park and destroyed her home, along with roughly 1.8 million others.

As Bloomberg points out, when Goff went to a local LeeCorp dealer lot to replace her $46,000, 1,200 square foot trailer with something of similar size and value, what she found instead was "manufactured homes" stuffed with high-end upgrades like granite counter-tops and vaulted ceilings that rendered them too expensive for her $23,000 per year of income.

Last month, Judy Goff, a 73-year-old hardware store clerk whose double-wide in Naples, Fla., was blown to bits, pulled into a LeeCorp Homes Inc. sales lot and wandered through models with kitchen islands and vaulted ceilings. In the salesman’s office, she got the total price, including a carport, taxes, and removal of her destroyed trailer: $140,000. “I don’t have that kind of money,” said Goff as she stood amid the wreckage of her old home, whose walls and ceiling were stripped away, leaving her leather furniture and a lifetime of possessions to bake in the sun. “That was all I had.”

 

Goff—who just wants to replace the wrecked 1,200-square-foot trailer that she bought 17 years ago for $46,000, including the cost of land—says she feels boxed in. Her mobile-home community won’t allow single-wide homes or older used models as replacements. And every home must have a carport. She’s willing to give up such upgrades as the higher-end countertops, but that probably won’t be enough. Between her Social Security check and income from her job at Ace Hardware Corp., she earns only about $23,000 a year. “I just want a home that’s equal to what I had,” she says. “My home was a beauty.”

 

“I get that higher-end countertops and kitchen islands are where the better margins are, but that’s also going to put homes out of reach for a lot of buyers,” says Doug Ryan, director of affordable homeownership at the Washington nonprofit Prosperity Now. “The storm is revealing a whole lot of problems in the low-cost housing market.”

Meanwhile, as we note frequently, while the cost of manufactured homes has surged, the pay for the bottom fifth of American wage earners has been somewhat stagnant for nearly two decades now. Even after a modest uptick recently, the bottom 20% of households have seen their income fall 9% since 2000, in real terms.

But, as low-income households have found it increasingly difficult to rebuild after devastating hurricanes, the surge in manufacturing home pricing has been a boon for billionaire Warren Buffett who made a big financial bet on the largest manufactured housing builder, Clayton Homes, back in 2003.

The industry, led by Warren Buffett’s Clayton Homes Inc., is peddling such pricey interior-designer touches as breakfast bars and his-and-her bathroom sinks. These extras, plus manufacturers’ increased costs for labor and materials, have pushed average prices for new double-wides up more than 20 percent in five years, putting them out of reach for many of the newly homeless.

 

Phil Lee, the 74-year-old founder of LeeCorp, has been riding a wave of retiring baby boomers who want affordable luxury. Driving a reporter in his black BMW SUV through Bayside Estates in Fort Myers Beach, where many of the fanciest homes he sells are installed, Lee points out units with pitched roofs that look almost indistinguishable from conventional homes, facing canals with boats tied outside. Their owners, former dentists, doctors, executives, and others, spent upwards of $150,000 to buy aging units just to clear the way for something more luxurious. On a palm-lined street flanked by ranks of 1970s-era trailers, Lee sees profit. “There’s no end to replacing these homes,” he says. “You get a hurricane in there and it really accelerates things.”

 

Terms such as “mobile home” or “trailer” are now verboten in an industry striving to break free of its downscale origins. Buffett’s Clayton Homes, which produces almost half of all new manufactured housing in the U.S. and competes with such companies as Cavco Industries Inc. and Champion Home Builders Inc., still builds lower-priced units, but there’s barely a sign of them on its website, which is mostly devoted to high-price models. The 2,000-square-foot Bordeaux features a separate tub and shower, a computer station, and a mud room, with prices starting at $121,000 and ranging as high as $238,000, not including delivery and installation costs. Clayton declined to comment.

Of course, while mobile homes are becoming increasingly cost-prohibitive for low-income families in Florida and Texas, Silicon Valley"s future tech billionaires can"t seem to get enough of them.

Unreal. Housing so expensive in techland, RVs line the streets as people choose to live in them instead. pic.twitter.com/ACW5dZMz6N

— M. Caruso-Cabrera (@MCaruso_Cabrera) November 21, 2017

Why Cities All Across America Are Suddenly Buying Up Trailer Parks

Much like the historic run that nearly resulted in the collapse of the global financial system in 2009, home prices in the U.S. are once again looking more like an Amazon or Facebook stock price chart than a stable store of value that should probably grow roughly inline with overall inflation. 

And while these price gains are great news for the private equity firms that scooped up foreclosed homes after the last housing crisis, they"re once again making it nearly impossible for the average American family to find affordable housing. 

As such, as the Pew Charitable Trusts points out, municipalities all across the country are suddenly scooping up trailer parks in an effort to prevent them from being converted to the next McMansion track-housing project and maintain some affordable housing options.

Here in the heart of one of Colorado’s most expensive cities, Isabel Sanchez bought a mobile home seven years ago for just $6,000. Her four-bedroom bungalow now sits on a lot she rents for $355 a month.

 

The mobile home park Sanchez and her family live in offers a glimpse of Boulder’s hippie past. Small houses and trailers, many dating to the 1960s and ’70s, sit close together on tree-lined streets. “I love the space, I love the location, I love the community here,” Sanchez, 55, said recently, relaxing in a blue armchair in her spotless living room.

 

Affordable neighborhoods like these have become hard to find in Boulder and cities across the country where home prices are soaring. In some metro areas, rising prices are prompting park owners to sell their land to developers, affordable housing advocates say. “When the mortgage crisis came about it sort of slowed down, and now it’s heating up again,” said Carolyn Carter, deputy director of the National Consumer Law Center.

 

So Boulder and a handful of other localities, desperate to hang on to homes middle- and working-class people can afford, have stepped in to buy parks, fix them up, and transfer ownership to residents or to a nonprofit on condition that rents be kept low.

 

Portland, Oregon’s housing authority financed a deal last year that saved a mobile home park from being sold to a developer. Pitkin County, Colorado, is buying a park it intends to set aside for people who work in the area. And Boulder bought a park this summer, with the twin goals of improving its infrastructure and maintaining affordable housing.

 

Affordable housing advocates say that the best way to preserve mobile home parks is to turn them into co-operatives owned by residents. But in Boulder, land is so valuable — and parks need so many infrastructure upgrades — that it wouldn’t be possible for low-income residents to finance the purchase alone.  

As Pew notes, roughly 8 million Americans live in trailer parks around the country and when their land is sold off for the next housing development they have no choice but to scramble to find new housing.

About 20 million Americans live in manufactured homes — so called because they’re built in a factory, rather than on site — and about two-fifths of those can be found in mobile home parks, mostly in suburbs and exurbs.

 

Mobile homes are an important source of low-income housing. But homeownership can be precarious for people who live in mobile home parks. Because they don’t own the land beneath their houses or trailers, they have to move if the park closes down.

 

And many mobile homes aren’t all that mobile. Sanchez, who works at a nonprofit in Denver, says she could probably move her house if she had to because it was built recently. Her daughter’s house across the street may be a different story. It has sat there for over 40 years, like most of the homes in the park.

 

The closure of a mobile home park can create a crisis for residents and for the city or town they live in as dozens of displaced people scramble to find new housing, says Esther Sullivan, a sociologist at the University of Colorado Denver who has studied mobile home parks in Texas and Florida. In her research, she found that city council members who agree to rezone a park often argue that park residents can move into low-income housing elsewhere. But that’s not always the case, she said.

Meanwhile, national nonprofits have sprung up to help residents form co-ops and finance purchases.

One way to preserve mobile home parks is to give the people who live in them a chance to buy the park themselves at a fair market rate, says Carter of the National Consumer Law Center. A national nonprofit called ROC USA will, with the permission of the park owner, help residents form a co-operative and finance a purchase. ROC USA has sponsored some 200 resident-owned communities in the United States.

 

At least 19 states have laws on the books that help residents buy a park, Carter says. Some states require park owners to give residents months of advance notice before a park is sold, to notify residents if they request a zoning change for the property, or to allow residents to organize into homeowners associations. Other states will free up money when a park closes to help residents pay their relocation costs or require park owners to chip in.

Of course, we could also just reduce artificial demand for McMansions by reversing a decade of misinformed Fed policies...but that might result in the bursting of yet another nasty little bubble...

US Homes Have Never Been More Unaffordable

Just under a year ago, US home prices finally surpassed their prior all time highs, one decade after the 2006 bubble...

... and haven"t looked back since. Which, all else equal, would be great news for America, where the bulk of middle-class wealth is not in the stock market contrary to conventional wisdom, but in its biggest, and most illiquid asset-cum-investment: one"s home.

There is just one problem: while house prices are once again hitting new all time highs every month, household incomes have failed to keep up; in fact, as the Political Calculations blog shows, in the past two years there has been a distinct trend in home affordability, or lack thereof.

As the first chart below shows, starting in September 2015, the TTM average median new home sale price in the U.S. has been rising at an average rate of $906 per month.

That"s the good news; the bad news is that in terms of affordability, the ratio of the trailing twelve month averages of median new home sale prices to median household income in the U.S. has risen to an all time high of 5.454, which following revisions in the data for new home sale prices, was recorded in July 2017. The initial value for September 2017 is 5.437.

In other words, the median new home in the US has never been more unaffordable in terms of current income.

One final way to visualizie it comes from Ironman"s next chart, which shows the long-term relationship between median new home sale prices and median household income, with the annual data now spanning 2000 through 2016 and the monthly data covering the period from December 2000 through September 2017. It confirms the above: for the average American, buying a new home has never been more unaffordable.