Is There A Housing Bubble In Your City?

Tyler Durden's picture

Submitted by Mark Hanson of MHanson.com,

My analysis below highlights how out of scope house prices are from end-user, shelter-buyer, employment & income fundamentals in the most economically important cities.

This massive divergence has been driven largely from the things present in all bubbles; unorthodox capital, credit & liquidity driving speculation.

Like Bubble 1.0, house prices in the most lofty regions have been driven for years by “non-end-users” SPECULATING on rentals, second/vaca homes, and flipping – riding a wave of cheap & easy credit, liquidity & leverage – believing prices always go up.

While speculative cycles come & go, end-user, shelter-buyer demand is omnipresent.  And end-user employment, income & credit fundamentals are what house prices will ultimately gravitate to.

With between 40% & 50% of buyers putting less than 10% down for years – and because it takes at least 10% equity to sell & rebuy – it doesn’t take much downside to swamp the nation in “effective negative equity” once again.

ITEM 1) INCOME INCREASE NEEDED TO BUY THE MEDIAN PRICED HOUSE IN KEY CITIES.

Bottom Line:  On a “national” basis, it doesn’t look too badly.  But, most of the most economically important US cities are experiencing “BUBBLE-LIKE” conditions again.

ITEM 2)  Same methodology as the previous chart, but at the MSA level of various economically important regions.

 

ITEM 3)  THE MOST BUBBLY REGIONS IN THIS CYCLE ARE IDENTICAL TO BUBBLE 1.0

Note, the pink/red shades highlight the regions in which the average earning household spends more than it earns each year to live. And the size/shades match up well to the regions in Items 1 and 2, showing the divergence between average household income and housing affordability.

Further, these are the exact regions that were the most bubbliscious in Bubble. 1.0.  Yet, most think “it’s different this time”.

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cnsteph's picture

Or just move out of the city.  

WVHillbilly's picture

No, because I r two smrt to liev in a city

Bastiat's picture

Just how the hell can the average working class person in San Francisco spend $83K per year more than they make?

Billy the Poet's picture

They make it up on volume.

ParkAveFlasher's picture

good joke, but seriously, this math is off.

For example a median-income buyer is not shopping for high-price real estate. Inventory movement is the best metric.  Buyers not buying, sellers not selling. 

I do believe that the NAR prices its offerings to screw the consumer as much as possible, however they have a credibility threshold (they do!  they really do!).  And the market is tipping on the new fed chief.

shankster's picture

Just use common core math..works better that way.

Shitonya Serfs's picture

Robot labor, and 15 illegals living in a studio

shankster's picture

I saw that 4 real in Houston.

loebster's picture

The headline SHOULD BE:

Is There A CURSE Over America? http://wp.me/p4OZ4v-3z

bobcatz's picture

The US is full of bubbles... that soon will pop.

XBroker1's picture

I don't think so. Maybe spot markets, As a whole RE is now historically MORE affordable when pegged to gold.

free_as_in_beer's picture

If 15 live in a studio, there would not be enough parking spots for their $30,000+ Silverados.

 

A Sentinel's picture

Not sure. When I lived in Philadelphia, my house market value was around 350-400 ... paid off. Key.

What sucked the cash flow was the real estate tax: school taxes were rising at a reliable 1000 a year and the total was already around 16,000. That’s almost a $200,000 mortgage, rising at an effective 12-1500 a year.

That meant that at 10k down, you’re paying an effective 550-600k. Actual prices had downward pressure and when I sold (having already moved) I had to settle for 250.

Crazy numbers in every direction but one thing was clear: buying the same house (on mortgage) would have set me back cash flow associated with more than double market price. (And yeah, I was already paying the men with guns a 200k mortgage.)

Freaking disaster of dilettante communists colluding with their sainted educators (yeah - starting was over 100. 20 years to retire at 80% and more administration than “educators.” Oh- and they rebuilt every freaking school in the district for bond funded shits and giggles.

Perhaps I’ve broken into a rant, but I virulently loathed those ice blooded communist motherfuckers.

XBroker1's picture

Other areas in PA must have Philly fever then. I watch the area where I grew up and the taxes are taking off like a rocket, but the home values are tanking in lockstep w/ the increases. Unlike Philly, NePA has nothing to offer in exchange for rapey taxes. There are houses on the market there for 7 years now. Nice houses, but high tax bill  with news of more to come, makes them a no go zone.

pupton's picture

They don't.  The bullshit model uses "Appliance repair" as the assumed breadwinner's job.  So they get $50k per year income instead of a more realistic $100k+ income.  Total crap.  Ignore that completely.  Author is a hack.

Jack's Raging Bile Duct's picture

Mind you, that $83k is household income, not individual. It's also pre-tax income. Helps put things in further perspective. Also, a great deal of working class people don't live in SF. Very few people actually live in SF. They commute in. Many commute 6 hours daily from places like Stockton.

Skateboarder's picture

Brotha Jack, I been on the BART a couple times the last couple of months during peak commute hours and holy moly is it packed. Sardines. The commutes go everywhere now. The freeways are packed on the weekends. It's LA out here and I hate it, cuz I'm in LA for work, and it's not fun to see the same bullshit back home when it used to be normal.

FoggyWorld's picture

Doesn't work in NY, NJ or CT.  Have to leave those states entirely.

Justin Case's picture

Herd goats and sheep in Montana.

drreadski's picture

I might be movin' to Montana soon...just to raise me up a crop of Dental Floss

toady's picture

just me'n the pigmy pony, over by the dental floss bush.

Leveraged Algorithm's picture

Why the hell Montana? They have some high tax rates and the California crowd is driving up ranch prices beyond any realistic use.

l8apex's picture

Montana is not out of the realm of high tax rates.  There is no sales tax, but there is a hefty state income tax.  And property taxes are booming.  The county says my house went from 450k to 590k in 12 months.  So my property taxes went up 31% in one year....

 

 

vealparm's picture

Montana is an awesome place to live and play.....as is Idaho and Utah, Wyoming is nice but truly the entire state is in the middle of nowhere. I am sure the natives like it that way.

Refuse-Resist's picture

but but but muh diversity. muh culture! muh starbucks!

Kidbuck's picture

You move out of the city and you are only getting fucked once by your declining buck. In the City you get thrice the ass reaming. Once by the declining buck and a second time by the increasing rent that those free bucks friends of the fed use to buy housing and increase its price, and a third time by the government that funnels section 8 money into propping up their friend's rental properties.

Bigly's picture

No. Nobody is beating down the door to move to high tax CT.

ParkAveFlasher's picture

That's because CT is a satanic wormhole, populated by she-demons and their balding slaves, traipsing about the hillsides in search of new colors.

RumpleShitzkin's picture

Thank God my city is no where near anything on that map.

You can’t get here from there.

A Sentinel's picture

The title of an awesome song from rem’s debut LP “fables of the reconstruction” — before they got all gay. Their first short album was also good.

Fidel_Cashflow's picture

Wow, all democrat dominated sectors. Correlation not causation I guess LOL

therover's picture

Yeah, because those repub dominated sectors never suck up any fed dollars from the dem dominated sectors.

Why doesn't every state get a $1 back from every $1 sent to the shit hole D.C. ?

What states and therefore, sectors, are getting a lot more for their $1 ? 

City_Of_Champyinz's picture

The two biggest expenditures in federal spending are defense (military) and social security. Guess what a lot of "Red" states have...military bases and retirees (often from "Blue" states).

Most Blue states don't want military installations...they want to be protected, but not have the actual bases. So guess what, the federal government spends a lot of money in Red states (that often have small populations) to build and maintain military bases to protect ALL Americans. (think Minot AFB in North Dakota for example).

So just looking at per-capita federal spending is not a reflection on how much federal money the citizens of that state actually get. In fact, if you worked your whole life in say NY (and paid taxes), but then retired to Hilton Head Island and collected SS...it would show a positive for NY (taxes collected) and a negative for SC (SS paid). Maybe they should restrict people from retiring to different states...

 

Here is the number of military personnel and

total population of selected states:

 

Red States:

 

South Carolina- 103K military personnel, 4.7

million population- 2.2%

 

Mississippi- 33K military personnel, 2.9 million

population- 1.1%

 

Louisiana- 46K military personnel, 4.6 million

population- 1%

 

Alabama- 66K military personnel, 4.8 million

population- 1.3%

 

 

 

Blue States:

 

Illinois- 76K military personnel, 12.8 million

population- 0.6%

 

Wisconsin- 25K military personnel, 5.7 million

population- 0.4%

 

Oregon- 17K military personnel, 3.9 million

population - 0.4%

 

Minnesota- 26K military personnel, 5.7 million

population- 0.5%

 

California- 212K military personnel, 38.3 million

population- 0.6%

 

 Each of these military personnel is paid via federal funds. So a lot bigger percentage of people in the "Red" states, which mind you may not be from those states at all, are counting towards that states federal funding. This does not even include the base facilities or overhead. If you just estimate say 50K per military personnel (which is probably low), then a state like Alabama gets over 3 billion in federal funding towards military...with a population of just 4.8 million that is about $690 per capita. Now looking at IL, the 76K military would equal about 3.8 billion, but only $300 per capita.

So you can see how easy it is for these red states to "seem" like they are getting a larger % of federal funding, but in reality it is for federal military (that many Blue states don't want in their state) and not for the general citizens of those states.

If more Blue states were willing to have more military installations/personnel in their state, they would see a bigger share of federal money.

 

Jack's Raging Bile Duct's picture

These megacities are self-perpetuating in their growth. With advancements in production, international wage arbitrage, and extreme barriers to entry, people have to find employment--they can't easily create it. With the nuances of the US economy being largely service based, employment is where people are. Hyper-specialization of labor also helps perpetuate this.

That's my theory at least.

Refuse-Resist's picture

They are supported by Ctrl-P, and government guns. By fraud and by force.

They cannot stand.

Endgame Napoleon's picture

Because, the Swampians must be fed.

Sy Kloine Bee's picture

Denver market here, so yeah it's bubbly, but it might cool off since other states are now dude weed friendly.  Ceteris paribus.

rtalcott's picture

I'm on the other side of the divide...it's cheaper but still rising fast

Sy Kloine Bee's picture

I was thinking of heading out that way, but still, I wouldn't buy now.  Too many people with too much credit at too low interest rates chasing too few properties.  Rents have crept up, but for the shitty broom closet that I live in, not too much.  There's been a lot of tenant turnover here, so they've probably pushed rents as far as they can go in my neighborhood.  Of course, that doesn't mean that there aren't people here still buying every single family house that wasn't a meth lab, and even some that were.  Lots of young, dumb couples buying; the end could be near.

Freddie's picture

Anywhere near a ski area is nuts.

neptune-klm's picture

I live in a small summer tourist area on Lake Erie, our market never fully corrected in the last crash :(  We are way over valued as far as I am concerned.  Drop about 50% maybe then we can talk.

drreadski's picture

Cleveland is a small tourist area for sure ... LOL