The notion that somehow an affluent set of Millennials is going to shift the housing market is not happening. What is happening is rather clear; historically low housing inventory is causing prices to inflate in the face of what has been very low new home building. If you want to buy, your options are usually an outdated crap shack that is already at an inflated price or in some new areas, glorified condos where builders are trying to max out every square inch of development where you can smell what your neighbor is cooking. The fact remains the same, over the past decade there has been a dramatic shift of renter household formation (not homeownership). For Millennials, tastes are dramatically different. Sure, you have Taco Tuesday baby boomers glued to Fox, MSBC, or CNN (typical age of viewers is 60+) so many are simply out of touch with the wants of younger Americans. Builders however understand this dynamic and multi-family unit construction has been running briskly for the last few years. Many large cities have now converted into renting majority locations.

Majority Renter Cities Expand

More than 20 large cities are now renting majority cities. This is a big shift and of course goes against the trend that things are back to “normal” in the sense that if you want to own in certain locations you will need to overpay for a crap shack. Low inventory and house humping logic are powerful draws. Many over spend dramatically when they buy. You see this with DINKs – they buy with two incomes but then pop out a kid and suddenly realize that in many overpriced hoods that daycare is expensive if you want to maintain a dual income household. We’re talking $1,200 to $1,800 a month. Forget about feeding an extra mouth or two. Yet they assume today will be like tomorrow. Nothing in their formula accounts for unexpected costs.

Take a look at this list that now shows 22 large cities that have shifted to renting majority areas:

Out of the 22 cities, 7 (33%) are in California. You have places like Stockton, Anaheim, Santa Ana, San Bernardino, San Diego, Sacramento, and Fresno. The cause of course is affordability. The vast majority of people are renting because of lifestyle choice and money.

Many baby boomers assume that their way of life is going to be the way of life for future younger Americans. It is not. Technological change, pensions, job security, and all of these changes of a slower paced life are not congruent with how things are today. The above numbers speak rather clearly. The vast majority of household formation in the last decade came from renter households.

And some places have an incredibly high number of renters:

Of course, Los Angeles makes the list. This is the all hat and no cattle land. There was a report showing that credit card delinquencies are starting to shoot up because people are living on borrowed funds. Low down payment mortgages are back and I’ve had the chance to talk with multiple banks. The housing ATM is creeping back once again. And in some areas, homelessness is a big issue.

It’ll be interesting to see how this impacts future elections. You also are seeing kids growing up that witnessed their families struggle in the midst of the 7,000,000+ foreclosures that happened. Do you think they have a Leave it to Beaver vision of home? No, they witnessed struggles and stress all related to paying the mortgage and it is no surprise that their view on homeownership is more practical. It is telling that the housing cheerleaders like to look at the cold numbers when it is in their favor but then use emotive logic like “but you can paint your walls” or “your kids have a secure place” or “prices are going up for a reason” when justifying owning a home. They forget about opportunity cost, taxes, insurance, maintenance that never goes away, and yes that home prices can go down and dramatically so. In other words, there is a reason why renting household formation has dominated over the past decade.

If the decision was so simple there wouldn’t be an ongoing debate. This is the biggest purchase a family is going to make. And many cities are now renting majority cities so the idea of being an “owner” is lost on them and now that we are in a time of raging populism, it’ll be interesting to see how people feel when they wake up to realize that there is no free lunch when you go into deep debt to pay for life.

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