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:

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.

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.
 

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.

How Many Hours Americans Need To Work To Pay Their Mortgage

When it comes to the cost of living in cities, a general rule of thumb is that housing prices are much higher in the country’s economic and population hubs, especially in the cities along the coasts.

As Visual Capitalist"s Jeff Desjardins notes, particularly in recent years, prices have been pushed sky-high in places like New York City or San Francisco through a combination of limited supply of new homes, increasing demand, shifting demographics, and government regulations.

PUTTING IT INTO PERSPECTIVE

Today’s visualization from HowMuch.net applies a common denominator to compare 97 of the biggest cities in the United States. Using a measure of median household income against the average mortgage payment in each city, we get a gauge of how many hours must be worked each month just to pay down the house.

The visualization uses data from the U.S. Census for household income and Zillow for median home listing price, while calculating mortgage payments based on a standard 30-year term.

Courtesy of: Visual Capitalist

THE RESULTS

Using the above method to compare the amount of hours it takes to pay down a monthly mortgage, we see some interesting contrasts in the country.

Here are the five most expensive cities in the United States for housing:

With about 170 hours in a normal work month, the average people in these cities are spending 50% or more of their income just to pay down their mortgages. It’s worst in New York City and Los Angeles, where at least 65% of income is going towards housing.

These cities stand in stark contrast to the five cheapest cities based on hours of work needed:

In a city like Memphis, TN it takes only 18.4 hours of work a month to pay down the average mortgage. That’s equal to only about 10% of monthly household income.

COASTAL DISPARITY

Interestingly, even though coastal hubs have high prices relative to the cities in the middle of the country, they differ quite widely against each other. This discrepancy does not necessarily show in terms of ranking, but more in terms of the actual hours of work needed.

Washington, D.C., for example, requires less than half the hours of work to pay down a mortgage than Los Angeles or New York City. Meanwhile, a popular west coast hub like Seattle only needs 72.8 hours in comparison to New York’s 113.5 hours.

Here Are The Cities Of The World Where "The Rent Is Too Damn High"

In ancient times, like as far back as the 1990s, housing prices grew roughly inline with inflation rates because they were generally set by supply and demand forces determined by a market where buyers mostly just bought houses so they could live in them. Back in those ancient days, a more practical group of world citizens saw their homes as a place to raise a family rather that just another asset class that should be day traded to satisfy their gambling habits. 

But, thanks to the efforts of global central banks, the days where home prices roughly reflected the ability of the marginal local buyer to afford those homes, is long gone.  As a general rule of thumb, a house was historically considered "affordable" if it was less than 2.5 times a family"s annual gross income...by those metrics, at least according to the UBS Global Real Estate Bubble Index released earlier today, the median buyer can"t afford housing in pretty any of the major cities of the world.

Buying a 60m2 (650 sqft) apartment exceeds the budget of people who earn the average annual income in the highly skilled service sector in most world cities. In Hong Kong, even those who earn twice the city’s average income would struggle to afford an apartment of that size. House prices have also decoupled from local incomes in London, Paris, Singapore, New York and Tokyo, where price-to-income multiples exceed 10. Unaffordable housing is often a sign of strong investment demand from abroad, tight zoning and rental market regulations. If investment demand weakens, the risk of a price correction will increase and the long-term appreciation prospects will shrink.

Meanwhile, the price-to-rent ratios below further reflect the insanity of global real estate bubbles where yields have gradually trended toward 0% as speculators are once again utilizing cheap mortgages to bet on price appreciation with complete disregard for underlying fundamentals. 

Zurich and Munich have the peak price-to-rent ratios, followed by Stockholm and Vancouver. Extremely high multiplies indicate an undue dependence of housing prices on low interest rates. Overall, half of the covered cities have price-to-rent multiples above 30. House prices in all these cities are vulnerable to a sharp correction should interest rates rise.

 

Price-to-rent values below 20 are found only in the US cities of Los Angeles, Boston and Chicago. Their low multiplies reflect, among other things, higher interest rates and a relatively mildly regulated rental market. Conversely, rental laws in France, Germany, Switzerland and Sweden are strongly protenant, preventing rentals from reflecting true market levels.

 

But stratospheric price-to-rent multiples reflect not only interest rates and rental market regulation but expectations of rising prices, for example in Hong Kong and Vancouver. Investors anticipate being compensated with capital gains for overly low rental yields. If such hopes do not materialize and expectations deteriorate, homeowners in markets with high price-to-rent multiples are likely to suffer significant capital losses.

But there"s probably nothing to worry about...everything worked out just fine in 2009.

Mark Hanson Warns, Housing Affordability Never Worse... By A Long-Shot

Authored by Mark Hanson via MHanson.com,

Bottom Lines: 

• The income required to buy a median priced builder house has been more diverged from fundamental, end-user, mortgage-needing, shelter-buyer cohort income (purchasing power), which is why builder demand and end-user resales remain anemic.  


• Meaningful sales growth with this affordability backdrop is impossible.


• A mean reversion – via surging wages, new era exotic loans, plunging rates, and/or falling house prices, as speculation ebbs – is inevitable. 

Summary

My chart highlights how for DECADES the income required to buy a median priced house – using popular programs & rates for each era – remained mostly flat (red line) and WELL BELOW the level of household income (black line).

How could house prices rise so much for decades but income required to buy (red) them remain flattish?  Because of the accompanying falling rates/easing credit guideline cycle.  In fact, during Bubble 1.0 house prices soared but exotic loans legitimately made them more affordable than ever, as shown.

But in ’12, as trillions in unorthodox capital, credit & liquidity began to drive massive speculation (just like Bubble 1.0) income required to buy began to surge, with prices, shooting above median HH income (boxed in yellow). Meaningful sales growth with this affordability backdrop is impossible.

…This is the point in this inflationary cycle at which affordability detached from end-user fundamentals.

Now, in ’17, end-user purchase power & house prices have never been more diverged from the multi-decade trend line and a mean reversion – via surging wages, new era exotic loans, plunging rates, and/or falling house prices, as speculation ebbs – is inevitable.

The Real Estate Market, Explained In One Graph

The U.S. housing market has now surpassed its pre-recession peak by 4.3%. This is great news for the economy, although there’s still an ongoing debate about the possibility of another housing crash.

Whatever you believe about real estate, there’s no doubt that prices depend on where you live. HowMuch.net created a new visualization to demonstrate what this looks like...

According to Zillow,  the median price for a house is $200,400, up 7.4% over last year.

So, naturally, how big of a house can you afford with a mortgage of $200,400? Our visualization answers this question on a sliding color-coded scale. We broke each state into a grid with 25 boxes, representing 2,500 square feet—that’s a large home with at least 3 bedrooms and 3 bathrooms. Green boxes indicate affordability and orange and red boxes mean it’s expensive. We then graphed how much house you can purchase with exactly $200,400.

The results highlight the enormous differences between housing values in the U.S. It is all about location, location, location.

In the Hoosier State, your $200k mortgage can purchase 2,330-sq. ft., but in Washington D.C. only 497 sq. ft. That’s the difference between a large home and a cramped studio apartment.

The fact that Washington D.C. boasts the most expensive housing market in the coutry should come as no surprise to observers of the economy in the aftermath of the recession. While real estate market crashed in other metro areas, it kept rising in Washington D.C. The nation’s capital has actually started to come back down to Earth, but the area is still an outlier. If you can get a high-paying job in the government, chances are that you’ll need to find a roommate to make ends meet.

Except for Ohio, rural states without large cities dominate the list of affordability. The five most affordable states to purchase a home for a mortgage of $200,400:

1. Indiana - 2,330 sq. ft.

2. Arkansas - 2,227 sq. ft.

3. Mississippi  - 2,277 sq. ft.

4. West Virginia - 2,252 sq. ft.

5. Ohio - 2,252 sq. ft. 

The five most unaffordable states highlight pockets of high economic growth in the U.S. (like Colorado) or a restriction in housing availability (like Hawaii, which is in the middle of the Pacific Ocean!).

1. Washington D.C. - 403 sq. ft.

2. Hawaii - 418 sq. ft.

3. California - 713 sq. ft.

4. Massachusetts - 887 sq. ft.

5. Colorado - 982 sq. ft.

Think about the inequality here: The fourth most unaffordable state in the country (Massachusetts) is still more than twice as affordable as Washington D.C. and Hawaii.

Whether you are buying a home or just renting, chances are you know that the price you pay can vary from neighborhood to neighborhood. If you ever think you are paying too much, just know that someone else in Washington D.C. is paying a heck of lot more for a smaller home.

Data: Table 1.1 

Expats Don't Want To Live In The US & UK Anymore

Few anticipated that the UK would vote to leave the UK. Even fewer expected that President Donald Trump would defeat Hillary Clinton in November’s US presidential election.

So unsurprisingly, members of the internationalist class of workers who populate urban centers like New York City and London – and who have the most to lose from nationalist economic and immigration policies - now perceive the US and Britain as less friendly to foreigners, not to mention less politically stable, according to a survey of 13,000 expatriates of 166 nationalities that was cited by Bloomberg.

The respondents said that quality of life in both countries is declining by other measures, including the affordability of child care and health care. However, we don’t think one can easily blame that on the election.

The UK ranks 54, down 21 places from last year’s survey, after its June 2016 vote to leave the European Union. Before the referendum, 77 percent of expats had a favorable opinion of the nation’s political stability. That’s down to 47 percent this year.  The survey was conducted in February and March, before the most recent British election. Just half of expats say the UK has a good attitude toward foreign residents, compared to 67 percent worldwide.

Expats in Britain have also soured on its economy. The weak pound and higher inflation put the UK 59th for personal finance. Almost two-thirds of its expats have an unfavorable opinion of its cost of living, with 69 percent unhappy with the affordability of housing. Three out of five expats also don’t appreciate the weather in the UK.

The US has seen a commensurate decline in public opinion. Just 36 percent of expats have a positive view of America’s political stability, down from 68 percent in last year’s survey. Overall, it ranks 43 of 65, down 17 places from last year.

Overall, the U.S. is ranked 43rd of 65 contenders, 17 places lower than last year. But its reputation was already falling before the election results came in. As recently as 2014’s survey, the US was No. 5. One bright spot is that 69 percent of expats have a favorable view of the American economy.

Some 72 percent of expats in the US say health care is unaffordable; the world’s largest economy ranks 50 by measures of health and well-being. Its transportation infrastructure was rated “very good” by just 15 percent of the expats, less than half of the global average. Meanwhile, the US ranks last for affordability of child care and 39 out of 45 countries ranked for education affordability.

Despite all the talk about President Donald Trump stoking resentment against immigrants, expats still view the US as a welcoming country. Though that perception is beginning to shift...

“Three years ago, 84 percent of expats rated the U.S. positively on “friendly attitude to foreign residents,” and just 5 percent negatively. By 2017, the negative ratings had tripled, and the positive ratings had dropped 16 points.”

Many smaller economies outranked larger developed countries. Ironically, the top-ranked country in 2017 was Bahrain. We wonder: Would Bahrain’s sizable population of Asian “foreign workers” feel the same?

“The top-ranked country in 2017 is Bahrain, given high marks by its expats as a place to work and raise a family and for making foreigners feel welcome. It vastly outranks Persian Gulf neighbors such as Kuwait, Saudi Arabia and Qatar, which ranked in the bottom 10 of the 65 countries in the survey.”

While the US and UK have both experienced a reputational hit, surprisingly it was Australia that saw the largest drop of any national present in the rankings, sliding from tenth most expat-friendly country to 34th. Meanwhile, Greece ranked dead last, despite its warm climate and beautiful beaches.

“Greece was at the very bottom of the list, weighed down by the country’s economic problems. Australia, which ranked in the top 10 last year, dropped more than any other country, to 34th place. Expats’ ratings of jobs, career prospects, work hours and work-life balance all dropped.”

In another twist, China ranked as one of the expats’ favorite places, despite the severe pollution and the quality and cost of health care and education. Two-thirds of respondents said they were happy with their careers, though the country ranked 55 out of 65 for overall quality of life. Elsewhere in Asia, Taiwan, which topped last year"s list, slipped to fourth place, while Singapore climbed into the top 10. Hong Kong languished at 39, up from 44 last year.

The survey was conducted by InterNations, a Munich-based network of 2.8 million expats. The survey includes interviews with executives, skilled workers, students and retirees who live outside the country where they grew up. There are about 50 million expats worldwide, according to market research by Finaccord, and the number is expected to hit 60 million over the next five years.