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This site is the inspiration of a former reporter/photographer for one of New England's largest daily newspapers and for various magazines. The intent is to direct readers to interesting political articles, and we urge you to visit the source sites. Any comments may be noted on site or directed to KarisChaf at gmail.

Tuesday, April 8, 2014

Hot Air Hisses Out Of Housing Bubble 2.0: Even Two Middle-Class Incomes Aren’t Enough Anymore To Buy A Median Home -- Wolf Richter www.testosteronepit.com, Posted at Zero Hedge

As home prices have soared in cities around the country, sales have cratered. The weather has been blamed, though the weather has been gorgeous in California where sales have crashed too, even in temporary boom town San Francisco. The “lack of inventory” and other excuses have been dragged out as well. In reality, homes have gotten too expensive....

Even for hedge funds, private equity funds, REITs, and other forms of Big Money with access to the Fed’s limitless free juice. They’d become powerful buyers over the last two years, gobbling up vacant homes sight-unseen by the thousands, in order to get them off the closely watched for-sale list and shuffle them over to the ignored for-rent list, where they might languish undisturbed. The hope is that they might rent them out somehow and sell them later at a big fat profit, to the dumb money via a ridiculously hyped IPO. But now their business model has collapsed.

 “Prices have gotten to the stage where we cannot buy a house, renovate it, rent it, and still make a reasonable return,” explained Peter Rose, a spokesman for Blackstone Group, a private equity giant whose real-estate division, Invitation Homes, has grown in two short years from nothing to the largest landlord in the country with 41,000 rental single-family houses to is name. “There was a moment in time where it made sense,” Rose said.


Turns out, even two middle-class incomes aren’t enough anymore for a median home in many cities around the country. Real wages that have stagnated for the last 25 years – thanks to that wondrous elixir of inflation – are now colliding with soaring home prices. Based on non-distressed homes listed on the Multiple Listing Service as of March 30, Redfin reports that in 40 large cities, only 10% of the homes are affordable on one median salary. It defined an affordable monthly payment as 28% or less of gross monthly income. And it found that “just 41% of homes currently for sale across 40 US cities are affordable for a family earning two median incomes.”

In San Francisco, where the median home lists for nearly $1 million, and in Santa Ana in Southern Cal, only 7% of the homes were within reach of a family with 2 median salaries. In San Diego 9%, in LA 12%, in Miami 19%, in Denver 23%, in Nassau (Long Island) 24%, in Austin 32%.

There are some cities where the fiasco is less pronounced. For example, in Atlanta a family with two middle-class incomes can afford 59% of the listed homes – but even there, who is going to buy the other 41% that are priced beyond the reach of two middle-class incomes?! The richest 1%? Or people who have to overextend themselves and become house-poor for years to come, assuming that another housing downturn, or a layoff, or an illness doesn’t wreck their homeowner status?

And where the heck are all the high-income people who will buy the median homes when investors, speculators, and PE firms that have become the largest landlords in the country are pulling up their stakes? There aren’t that many high-income people around, and they don’t like to live in median homes. Sales are already heading south. And last time this debacle happened, prices followed soon after. So this is going to be, let’s say, an interesting scenario.

And a direct consequence of the Fed’s policies that engineered an environment where Wall Street can borrow unlimited amounts for nearly free, buy all manner of assets, drive up prices, take huge risks that it then shuffles off at peak valuations to other entities, hopefully to the unsuspecting public via over-priced IPOs, toxic synthetic structured securities of the kind that blew up the banks during the financial crisis, and other shenanigans that end up getting stuffed into conservative-sounding funds that people buy for their retirement.

It starts here: evictions in San Francisco hit the highest level since 2001, when the dotcom bubble was disintegrating. Everything these days gets benchmarked against the last bubbles: the dotcom bubble that blew up in 2000, the housing bubble that blew up in 2007. Read.... Bay Area Home Sales Plunge To 2008 Levels, Prices Soar

 (Click link below to read more)
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