Landmark Links October 24th – Hitting the Wall


Lead Story….. When a vibrant economy’s housing market gets too expensive the economic impact isn’t always instantly obvious.  Sure, there are increasing rumblings about the skyrocketing cost of rent and buying a home but the true economic implications can be disguised for a period of time for a relatively simple reason: compromise.  What do I mean by this?  A priced-out worker who once would have lived in her own apartment moves in with roommates until she gets priced out again and moves to further out location, again with roommates.  A family gets priced out of their well-located rental property and decides to move to a smaller unit and have their kids share a room.  Then they get priced out again and begin to move further away still, eventually commuting 90 minutes plus to get to work.  Some even go so far as to seriously entertain absurd living arrangements like this example of hypothetically moving to Vegas to commute to San Francisco in order to save money.

Most young people living in coastal California know someone who is coping with some level of this housing compromise.  Speaking from my own experience, I lived with roommates for 9 years when I purchased my first home in order to make ends meet.  California is a tremendous economic growth engine but that opportunity comes with a high cost and there are increasingly fewer desirable housing alternatives for those that wish to benefit from it.  As a result many workers end up compromising but even that has it’s limits.  When those limits being hit reach a critical mass, economic consequences that could once largely be swept under the carpet begin to rear their ugly heads.  Take the Bay Area for example.  The most vibrant economic region of California is starting to have issues related to job losses.  George Avalos of The Mercury News reported on some recent dismal jobs numbers in an article entitled Bay Area hammered by loss of 4,700 jobs (emphasis mine):

For the second straight month, the Bay Area lost thousands of jobs in September, making it the worst month for employment locally since February 2010.

The setback for the local economy comes as the crucial holiday shopping and hiring season draws near, and contrasts with a strong hiring picture statewide.

Taken on it’s own, two months of job losses aren’t the end of the world.  The key issue is why it is happening and that is where things aren’t looking so good for the Bay Area economy (emphasis mine):

The Bay Area’s job losses stem from two distinct phenomena: Some employers are slashing positions, and others are unable to hire. Some economists attribute this second problem to structural barriers posed by skyrocketing housing costs. The lack of affordable places for workers to live appears to have hobbled the region’s ability to fill jobs as briskly as in prior years.

“Housing is the chain on the dog that is chasing a squirrel,” said Christopher Thornberg, principal economist and founding partner with Beacon Economics. “Once that chain runs out, it yanks the dog back.”


The lack of housing also makes it tough for employees to live near their workplaces, forcing many into lengthy commutes on roads choked with traffic. Some prospective employees decide they’d rather not bother.

“The economy in the Bay Area has pushed up against the physical limits of a lack of housing and a lack of places for workers to live,” said Jeffrey Michael, director of the Stockton-based Center for Business and Policy Research at University of the Pacific.

The “unable to hire” group is what should be of concern here since it implies that companies are trying to grow but can’t attract workers since there is nowhere for those workers to live.  As I’ve said before and will reiterate again: it is impossible to run a vibrant economy with white collar executives and their families alone.  Every geographical region needs teachers, postmen, servers, bartenders, trash collectors, bus drivers, etc.  The pay for these professions is indeed better in the Bay Area but at a certain point, that extra economic opportunity just isn’t worth the financial and quality of life sacrifices that come with long commutes or living in a tiny apartment with roommates in a sketchy part of town.

The rest of California is still growing a a healthy clip despite the hiring slowdown in the Bay Area.  However, this is partially because the rest of the state is in an earlier stage of housing compromise and the cost of living is not quite as extreme as it is in San Francisco and Silicon Valley.  If Bay Area hiring troubles continue it should serve as a cautionary tale to the rest of the state: falling behind your housing supply needs is a long term economic risk that should be dealt with sooner rather than later.


As Stupid Does: There is a proposal floating around Washington to cap the amount that Americans can contribute before taxes to 401(k) plans and IRAs at $2,400 per year.  Clearly this is needed since it’s well documented that Americans are dramatically over-saving for retirement which is hurting the economy.  End sarcasm here.

Spillover: There’s an interesting argument in this Bloomberg View article by Connor Sen that high financial asset values could lead to long term economic benefits:

If stocks are cheap and bond yields are high, businesses will tend to buy financial assets or pay down debt. Conversely, when stocks are expensive and yields are low, financial assets aren’t as tempting, so those with capital are more inclined to expand a business or start a new one — which means hiring people and paying higher wages.

Made to be Broken: Why a strictly rules-based Federal Reserve is a dangerous thing.


Called Out: Co-working startup WeWork is now valued at $20 billion but critics contend that it’s little more than Regus with a hipper paint job and a valuation fueled by Silicon Valley pixie dust.

Thirsty: US cities are falling all over themselves in an effort to land Amazon’s second headquarters……but will it be worth the price?  See Also: Here’s a list of some of the lame and embarrassing things that cities have done to court Amazon.


Shrinking: Newly constructed American houses are increasingly getting larger while private outdoor space continues to shrink.

Not Just a Labor Issue: Lumber prices are at an all time high, leading to higher home building costs.


Ulterior Motives: The war to sell you a mattress is an internet nightmare where the lines between reviewers and advertisers are increasingly blurred.

Paying Up: Established tech companies are paying massive salaries for artificial intelligence talent, crowding out start-ups.

Chart of the Day


Gotta Hear Both Sides: A New Jersey man is suing United Airlines, saying a passenger who was allowed to board despite being clearly intoxicated urinated on him right before takeoff.

Thanks But I’ll Pass: McDonalds is coming out with a McVegan Burger that it’s currently testing in Finland.  I tried but was unable to come up with a worse idea than combining my two least favorite things about food: McDonalds and vegans.

Seems Like a Reasonable Response: Meet the British man who ran away from his home and lived in the woods for 10 years to escape his nagging wife.

Cross That One Off: Meet the Iowa man who started a police chase because it was on his ‘bucket’ list’.  He can now cross incarceration off as well.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links October 24th – Hitting the Wall

Landmark Links October 20th – Hazard Pay

Hazard Pay

Lead Story…. A little more than a month ago, I wrote a blog post called Send Help that detailed how damage caused by natural disasters in general and the hurricanes that hit Texas and Florida this fall in particular was going to further exacerbate the labor shortage and drive the cost of home construction higher.  Fast forward a few short weeks and another major natural disaster has struck – this time in the form of raging wild fires that leveled much of California’s wine region in Napa and Sonoma.  Given current tight conditions with regards to both labor shortages and rising commodity prices, the construction industry is already hobbled and ill-equipped to deal with normal volume let alone the deluge that we are beginning to see as large portions of Houston, Florida and now northern California seek to rebuild.  CNBC’s Diana Olick attempted to quantify just how dire the situation is in a recent post entitled (emphasis mine):

The exact tally is still impossible to calculate, but at least 10,000 homes and other structures have been destroyed by floods, winds and fires in the past three months. Given the acute construction labor shortage that was already at play before these disasters, reconstruction and its repercussions in residential real estate could pose yet another disaster.

“The housing market can’t take the shock of a natural event,” said Nela Richardson, chief economist at real estate company Redfin. “It can’t take any shock because we are so tightly wound with inventory. Any change is a big change, and you’ll see that play out across the South.”

The inventory of available homes for sale is acutely low across the nation and continues to fall, down 6.5 percent in August annually, according to the National Association of Realtors. As a result, home sales dropped for the past three months, and entry-level buyers are stepping aside. Supply remains leanest at the lowest end of the market.

With little relief in sight, the National Association of Home Builders has begun to lobby Washington for something desperately needed: a guest worker program to help fill some of the demand for construction workers.  However, anyone who follows politics at a casual level should recognize that getting that accomplished in today’s toxic environment is a long shot at best, positive economic impacts be damned.  More from CNBC (emphasis mine):

“A successful guest worker program will help alleviate the current labor shortage in the residential construction sector, quicken the rebuilding efforts in Texas and support the overall economic growth of this nation,” wrote NAHB Chairman Granger MacDonald in a September statement.

In California, the devastation from multiple wildfires still cannot be quantified, but it is already beyond imagination. Thousands of homes will have to be rebuilt from the charred ground up. That will take every available worker in the state and beyond.

“All the resources are being drained to the rebuilding effort,” Redfin’s Richardson said. “That is going to increase the cost of housing and renovation across the nation.”

As I’ve gotten back to work over the past couple of weeks, I have spoken with clients about the Napa and Sonoma fires and what impact that they could have in the local and regional housing market.  Two main takeaways are below:

  1. New Demand, Less Supply: The fires aren’t even out yet and I’m already hearing rumblings that demand for for-sale housing that is still standing in that region is off the charts.  This is consistent with the Houston market where demand (and prices) shot up for anything on high ground after Hurricane Harvey hit.  However, there is a critical difference here: much of the destruction in Napa and Sonoma hit million dollar plus luxury homes.  So far I’ve heard anecdotal evidence of wealthy cash buyers just looking for a place to live regardless of price with the assumption that they will sell once their rebuild is complete (h/t Jeff Condon).  Add this to the fact that there is limited inventory in the region to begin with and relatively little new construction and it’s a recipe for surging values.  The lower end is even worse with displaced residents desperate to find a place to rent anywhere near home and sometimes cramming more than one family into a small apartment due to lack of available space.  This is not a market like Houston where production can ramp up in short order when demand warrants.  In fact, there were only about 1.5 months of supply before the fires hit and displacement will only put downward pressure on this number.  It’s probably a good time to be a builder or developer in Napa and Sonoma if you will be delivering units soon assuming that they weren’t destroyed by the fires.
  2. Labor Vacuum: I spoke with a client earlier this week who had an interesting take on the coming rebuild in Napa.  The aforementioned wealthy home owners who lost their homes are likely going to care less about the cost of rebuilding a home than they will about getting their home rebuilt.  This is very different from the mentality of production builders who account for much of the construction employment in California.  There is a potential scenario whereby the massive number of custom home rebuilds in Napa and Sonoma siphon off a lot of labor from production builders since the pay will likely be better and projects will not have the same profitability constraints – someone rebuilding their personal residence does not need to account for builder profit like a production builder would (h/t Tad Springer).  Unfortunately this has become a zero sum game since there appears to be no ability to draw more domestic workers into the construction labor pool and no desire to loosen up border restrictions to attract international workers.

These natural disasters have been incredibly tragic.  Many people lost there homes and some lost their lives.  Unfortunately, the tragedy is likely to continue once the fires are finally put out as the already tight housing market feels even more pressure.


Daily Reminder: The reason that poor people can’t move to more productive cities for better jobs is 100% a housing affordability story brought about by restrictive zoning.

Policy Bubble? Warren Buffet made a large bet on  fossil fuels and human-driven trucks when he bought a controlling stake in the Pilot Flying J truck stop chain.  This was also essentially a bet against electric cars and self driving vehicles despite predictions of their coming dominance.  What does the Oracle of Omaha know that we don’t?

Workaholics: Great piece from JBREC about how the term “prime working years” is being re-defined by Boomers who refuse to or can’t retire.


Don’t Call it a Comeback: The suburban office market suddenly has a pulse again.

Reaching for Yield: Private Equity Fund KKR has raised a $1.1 billion fund that targets investments in the riskiest slice of commercial mortgage-backed securities at a time when many others are trying to reduce risk.


Different Approach: A new lender is providing a service to help mortgage borrowers crowdfund their down paymentsSee Also: Millennials’ new weapon in bidding wars – mom and dad’s home equity.  And: Meet the NY developer who is now allowing people to purchase condos with Bitcoin.


Looming Shortage: Lithium is the metal that powers modern batteries critical to so many technological advances.  There is plenty of it in the ground but not nearly enough mines to extract it.

Shrinking Customer Base: TGI Friday’s is getting killed as the middle class continues to struggle.

Moment of Truth: Tesla CEO Elon Musk is a brilliant visionary but massive shortfalls in vehicle delivery is going to invite more scrutiny from investors.

Chart of the Day

This explains a lot: Discretionary service spending is improving much slower than during the previous cycles.


Please Make it Stop: Business Insider provided this somewhat hysterical list of 16 Halloween costumes that are most likely to trigger your favorite Millennial.

Totally Worth It: A woman traded a packed of McDonalds limited edition Szechuan Sauce for a car with an idiot who didn’t realize that you could buy the same processed garbage in a grocery store, because apparently the gene pool is badly in need of cleansing.

There’s A Sucker Born Every Minute Part I: Someone bought a pair of Adolf Hitler’s underwear for $6,600.

There’s A Sucker Born Every Minute Part II: Rapper B.o.B. created a GoFundMe page in order to send a satellite into space to prove that the earth is flat.  Seriously.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links October 20th – Hazard Pay

Landmark Links October 17th – “It’s Another Day In Which To Excel”

I’ve been spending a lot of time with my family over the past few weeks and that has left me basically no time to blog.  For those of you who don’t know, my father in law passed away on October 1st unexpectedly and I have been busy both grieving and helping out with the estate issues that accompany such a tragic event.  Today’s blog post is a bit different from the normal Landmark Links fare – no funny pictures or goofy WTF headlines about the latest Florida crime wave – just a tribute to a member of my family and also a good friend.

There is an old saying in the commercial real estate industry that old brokers never retire.  Sadly, I’ve become all too aware of this over the past few of weeks.  Just a few short months ago, I was honored to attend a 40th work anniversary at CB Richard Ellis for my father in law, Ted Snell.  A lot of old friends from his time in the industry showed up to share old war stories and honor a man who had been a fixture at CBRE going on 4 decades.  Ted and his wife Nancy moved out to Newport Beach back in the late 70s when Orange County was in the beginning of an epic growth spurt.  As the story goes, Ted showed up in the lobby of the CBRE (then called Coldwell Banker Commercial) office in Newport Beach and basically refused to leave until they gave him an interview.  His persistence paid off when they offered him a job (if memory serves me correctly he was the first broker hire who wasn’t a USC or UCLA grad).  Mrs. Links and I brought our two young daughters to share in the moment of what their “Papa” had accomplished in his storied career. 

On October 1st, Ted passed away surrounded by his family in the hospital after suffering a massive heart attack a few days earlier.  For anyone who has never lost someone they love unexpectedly, the days after are both grief-stricken and chaotic.  Funeral and memorial arrangements need to be made, estate and financial matters need to get dealt with and most importantly of all, you need to be there to comfort your family.  To be honest, the last three weeks are already a bit hazy in my memory and could have just as easily happened a year ago (I’ve read that this is a fairly common human response to traumatic events).  The traditional way of honoring someone in writing is an obituary and Mrs Links wrote an excellent one that detailed Ted’s life as a family man, successful commercial real estate broker and prolific youth sports coach in our local paper.  Today, I want to take a bit different approach.  While time on earth is limited for each of us, the lessons and wisdom that we impart to others during that time potentially lasts much, much longer.  Today I want to share a simple but critical lesson that I learned from Ted in the time that I spent with him:

Trust Your Gut – Ted’s work persona could best be described as an old school broker’s old school broker.  He was a big, physically imposing presence with an even bigger personality.  Ted was far from computer literate, relied on business cards or memory rather than Outlook or his cell phone for contact information, and understood how the internet worked roughly as well as I understand nuclear physics.  However, he made up for this the way that the best old school brokers do: by forming deep relationships with clients from the top to the bottom of an organization and relying on good old fashioned gut instinct.

Ted was somewhat infamous among his family and co-workers for making snap judgments about people and he often drove his kids nuts by drawing quick conclusions about their friends or potential significant others.  But here’s the thing that they would reluctantly admit – he was almost always proven correct.  Ted was as good at making quick character and personality judgments as anyone who I have ever been around and it served him well in his career since it allowed him to quickly assess who he wanted to pursue business relationships with.  He was an absolute master at reading the subtle cues that people give which mostly go un-noticed.  It also made good business sense. Some of Ted’s best clients were relationships that went back decades and those relationships often started with his ability to read a prospective client. These were the type of relationships that were there in good times and bad. As anyone who works in an industry with unpredictible cash flow like commercial real estate brokerage knows, there’s a lot to be said for that and it often starts with ones ability to assess character. 

I recall that Mrs. Links made me a bit nervous about this talent before I first met Ted several years ago.  It was a very short first meeting since we were running an errand at the time and I remember asking her how I did a few days later.  His verdict?  Something along the lines of “that guy is driven” – in other words, I passed.  I’ve been called that before but wondered how he was able to make such a judgement in a few short minutes.   Did this habit make him come across as the world’s friendliest person initially? Was he best buds with everyone or did everyone liked him instantly?  Of course not, but that didn’t seem to bother him at all which was part of his charm.  Some of my favorite stories at his memorial were about the dichotomy between his often gruff persona and the fact that he was basically a big teddy bear once you got to know him.

The lesson here is simple in theory but complicated in practice: it’s a basic social convention to give people the benefit of the doubt when you first meet them.  However, that shouldn’t mean that you ignore often-subtle cues that can provide an insight as to someone’s personality and or character in a relatively short period of time.  On a personal note, I worked on a couple of projects recently where my partners and I suspected that something might be amiss but continued to push forward anyway – both ultimately went nowhere.  In both cases, we would have wasted less time if we had trusted our gut instinct initially rather than telling ourselves that everything would work out.  Ted was the master at this and it’s a skill that I find myself wanting to improve upon.  

The quote that I used as the title to this post was a mantra that Ted repeated to his kids constantly when they were growing up.  It’s a perfect catch praise for someone who had the guts to drive across the country to a place where he knew no one, show up unannounced at one of the world’s top commercial real estate brokerages demanding an interview and then go on to a storied 40 year career.  He was one of a kind and will be dearly missed.  Rest In Peace. 

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links October 17th – “It’s Another Day In Which To Excel”

Landmark Links September 29th – Mark Up


Lead Story… Short on time this week so I didn’t have a chance to write a lead story.  However, I want to share the housing chart series from the Daily Shot which was fascinating this week and tells the story of aging housing stock and high prices beginning to have a detrimental impact on sales:

1. Let’s begin with the housing market. New home sales were weaker than expected in August, hitting the lowest level of the year. A portion of the decline was due to Hurricane Harvey, which flooded the Houston metropolitan area in the final days of the month.

The pricier homes saw the greatest slowdown.

The supply of unsold homes (measured in terms of months needed to clear the inventory) jumped to the highest level since 2014.

2. A slower rate of household formation this year has been a headwind for home sales.

Source: Piper Jaffray & Co.

Will household formation improve as young adults move out of their parents’ homes?

Source: Goldman Sachs, @joshdigga

3. New residential construction remains tepid. As a result, American homes are aging quickly, boosting the home renovation industry.

Source: Goldman Sachs, @joshdigga

By the way, the above trend, combined with all the hurricane damage, has pushed Home Depot shares higher.

4. Home prices are still climbing by almost 6% per year. Here is the national Case Shiller index showing housing inflation gradually rising.

Housing markets in some metropolitan areas have overheated. For example, below is Seattle’s real estate index rising at 13.4% per year. Of course, folks from Vancouver probably think that Seattle homes are still cheap.

5. Household mortgage leverage (the ratio of mortgage debt to disposable income) is drifting lower. Note that this chart does not include consumer debt such as student loans and credit cards.


Pinch Point: The Trump Administration’s proposals on tax reform are unlikely to happen.  Why? Because 52 Republican Members of the House who represent districts in blue states are unlikely to accept elimination of the ability to deduct state income tax payments.

Squeeze: Citigroup thinks that we are more likely to see an oil supply squeeze in the coming months than a flood of additional supply from OPEC.

Supply, Not Demand: A new paper finds that the declining male workforce participation rate is due to an increasing number of men getting disability benefits, not a weak labor market.


Ghost Town: Elmira, NY could be ground zero of the brick and mortar retail apocalypse.  Here’s why.


Money for Nothing? Lennar is trying to entice Millennial buyers by offering to make a payment to a buyer’s student loans of as much as 3% of the home purchase price, up to $13,000.

Out of Balance: The US housing market is unhealthy and increasingly mismatched with today’s buyers with little entry level product and inventory at mid-1990s levels despite population growth of more than 60 million since then.  See Also: Home prices pick up despite fewer sales.

Invasion: Flippers are swarming Houston looking to buy flooded homes on the cheap and renovate them for a profit.


When History Repeats: How the history of Sears – which started out as a mail order business and grew into brick and mortar retail – predicts nearly everything that Amazon is doing today.

Say What? Crypto fund king Mike Novogratz is starting at $500MM hedge fund to invest in cryptocurrencies yet claims that Bitcoin will be the biggest bubble ever.

You Don’t Say…: Early data indicates that cannabis legalization could be a boom for McDonalds and Taco Bell.


We’re Going to Need a Bigger Toilet: An Alberta town’s waterways are being invaded by giant mutant goldfish that reproduced and grew after people flushed some of the unwanted pets down their toilets.

Working Out Different Muscles: A recent UK study found that Britons spend twice as much time on the toilet as they do working out.  (h/t Steve Sims)

Video of the Week:  Watch a gopher mascot absolutely truck a child in a halftime football game and then put on a somewhat horrifying end zone celebration.  Also, it gave me an excuse to post this video of mascots destroying kids which I consider one of the 10 best Youtube clips of all time.

Gotta Hear Both Sides: A swinger’s party in Michigan ended when a jealous wife who attended the party with her husband attacked him with a mini-van.  Perhaps it’s just me but I never envisioned people going to swinger parties in minivans.  To each their own, I guess.

Measured Response: A woman had an affair with her daughters husband, then tried to run him over with her car after he came clean about the cheating because, Florida.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links September 29th – Mark Up

Landmark Links September 26th – Living on the Edge

Ice fishing

Lead Story…. 2017 has been a truly dreadful year for natural disasters in the United States (and Mexico for that matter), and we still have a few months left to go.  After several quiet hurricane seasons, the southeastern US and gulf coast have been hit with major storms and flooding which have caused loss of life and billions of dollars of property damage.  The impact on the US economy will be substantial.  Patrick Clark of Bloomberg took a bit of a different look at this ongoing issue last week in an article entitled Home Prices Soar in Disaster-Prone Areas (emphasis mine):

Amid the terrifying recent events is a worrisome finding from a new report: The parts of the U.S. most at risk of natural disasters are also the places where property values are highest and increasing most quickly.

The chart comes from Attom Data Solutions’ natural hazard index, which matches geographic areas to government data on risk of flood, earthquake, tornado, wildfire, hurricane, and hail.

The riskiest 20 percent of U.S. counties have the most homes, the highest average home values, and the greatest price appreciation in recent years. Why? Buyers who pay premiums for ocean views and mountain lookouts may be getting some additional disaster risk as part of the bargain, said Daren Blomquist, senior vice president at Attom. Those kinds of geographical attributes are likely secondary factors in driving price appreciation, though. More importantly, Attom’s list of disaster-prone areas overlaps with engines of economic activity.

I had never really thought about our economy this way before but, as the statistics bear out, it really is the case that economies tend to be stronger in disaster prone areas. The big question is why is this the case.  I have a few thoughts:

  1. The Weather is Better – It’s been fairly well documented that population and economic growth tends to be greatest in so-called smile states that make up the sunbelt.  People may be drawn by warm climates initially but economic growth also tends to beget more economic growth and these trends have been in place for quite a while.  It’s an unfortunate reality that warmer places tend to be more prone to tropical storms and hurricanes meaning that the very thing that drew people in the first place is also the cause of risk.  I was reminded of this in Michael Grunwald’s excellent essay in Politico a few weeks ago entitled A Requiem for Florida, the Paradise that Never Should Have Been.  In that piece, Grunwald details the history of the Sunshine State and how it was considered uninhabitable swampland until developers figured out how to drain it, making population growth possible.  However, in doing so, it made large portions of the state extremely unacceptable to storms since the former swamps were low lying and in the path of hurricanes and tropical storms.
  2. The Geography is Better – People generally like to live near the coasts.  The weather is more temperate and natural ports historically allowed for more commerce meaning that this is where large, vibrant cities tended to pop up and grow  A city near the water is more susceptible to flooding and storms than a city located inland.  As above, the very feature that  draws people to live or build there is what makes a region more prone to natural hazards.
  3. The California Effect – I would be remiss if I did not bring up my adopted state here.  California has the best weather and some of the most dynamic cities in the US.  However, almost the entire state is fraught with earthquake risk, not to mention fires during the dry season and hillside slides during the rainy season.  It’s also the largest state in the US by population and has a toxic marriage of some of the most restrictive housing policies and some of the best job growth which has led to a major affordability crisis with home prices around 2.5x the national average.  The Golden State absolutely plays an out-sized role in driving up average housing prices higher in high risk zones.

I tend to suspect that people will be more cautious about topography in Houston and Florida going forward.  In fact, we are already seeing this behavior in Houston as homes that didn’t flood are now selling for a premium.  California, on the other hand hasn’t had a major earthquake in quite a while and I suspect that we are becoming too complacent.

In conclusion, I wouldn’t expect much of anything to change when it comes to home prices in regions with high natural disaster risk.  It all comes down to trade-offs.  After all, would you rather live near a coast in a dynamic city with good job prospects and face the risk of an occasional natural disaster or would you rather live in Cleveland?  I know what my answer is. (Side note: I considered writing an apology for that last part – especially to my handful of friends who grew up in Cleveland.  Then I remembered that they understand this better than I do).


Get Real: Real wage growth has been strong of late because inflation has been low. However, firmer inflation caused real wages to dip in August and they could fall further if that trend continues.

A Tale of Two Cities: Economic prosperity is concentrated in America’s elite zip codes, but economic stability outside of those communities is rapidly deteriorating.

Toxic Mix: Believe it or not, bubbles aren’t necessarily bad things…..unless debt is involved.


Still Going Strong: The predicted CMBS slowdown hasn’t occurred yet.  In fact, there has been a flurry of activity according to CoStar.

Under Pressure: Mall REITs are tanking again as debt continues to haunt ailing retailers in the wake of the Toys R Us bankruptcy.


What’s Next: The Fed is about to embark on a quantitative easing unwind which will likely result in higher mortgage interest rates.

Low Hanging Fruit: The mortgage market is ripe for disruption despite fintech startup missteps.  Can incumbent lenders get innovation before the startups get market share?


More than Just Grades: Being a member of a fraternity in college lowers a student GPA by approximately 0.25 points on the traditional four-point scale, but raises future income by around 36%, according to a paper, “Social Animal House: The Economic and Academic Consequences of Fraternity Membership,” published by two economists from Union College in Schenectady, New York.  See Also: The friends that you make in the first year of college can impact how well you do.

Contingency Plan: Amazon is a lifeline for some retail workers but only if they happen to live in the right city.

Someone is Going to Jail: There was some highly suspicious bearish trading in Equifax options right before the largest data breach in history was announced.  However, whether it’s criminal or not all comes down to who initiated the trade order.

Chart of the Day

US housing prices continue to diverge from wages. Here is the updated comparison since the early 1990s. Is this trend sustainable? Some housing analysts say that it is as long as inventories remain low.

Source: The Daily Shot

Shooting self in foot:

The US protectionist move against Canada’s lumber hasn’t worked out as intended. Lumber prices soared as Canadian firms pass the tariffs (and higher margins) to the buyers. New US homes will become more expensive.



Employees Must Wash Hands: Someone (allegedly) put semen in soap dispensers at Detroit’s airport. It’s a good thing the perp wasn’t caught or he would have missed his flight home to Florida.

Today in Brilliant Marketing: Charmin has offered free toilet paper to the Colorado Springs ‘mad pooper’ if she turns herself in.

Truth in Advertising: A coffee called ‘death wish’ has been recalled because it actually might kill you as a result of contamination from botulism.

You Don’t Say: An NYC restaurant that served raw cookie dough in bowls (mainly to hipsters) has been hit with a class action lawsuit for making people sick.  Apparently it’s not a great idea to consume a lot of raw eggs.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links September 26th – Living on the Edge

Landmark Links September 22nd – Myth Busters


Lead Story…. There are few forces on earth more powerful than that of mean reversion. I’ve written about common media narratives regarding Millennial preferences quite a bit since I started this blog.  Since the beginning of this cycle, the US media has latched on to a juicy narrative that was too good go pass up – that Millennials were unlike any other prior American generation and would forego things like home ownership and car ownership “forever” in favor of renting, mass transit and ride sharing.  I’m really not sure where this view originated.  Chances are that it was someone or a group of people with an ax to grind against suburban sprawl who saw that Millennials were increasingly foregoing home and car ownership.  Rather than investigating the underlying causes, they simply attributed these life decisions to reasons that fit their pre-existing biases.  Media outlets took the bait and the Millennial-as-perpetual-urban-renter theme became accepted as fact.  For several years, John Burns Real Estate Consulting (and others) have pointed out the fallacy of this thinking – there is a critical difference between what someone would like to do and what they are actually doing.

In the years following the Great Recession, Millennials did indeed rent in the city and forego purchasing cars in droves.  However, as this generation has aged, it’s behavior is reverting to the mean just as it did with previous generations.  Two stories came out this week that helped clarify the difference between what young people are doing with regards to home ownership and what they would like to be doing.  The first was from Daniel Taub at Bloomberg who referenced a joint study by the National Association of Realtors and non-profit American Student Assistance that found that heavy student debt loads delay home purchases by 7 years on average (emphasis mine):

The typical student debt load for millennials in the U.S. is $41,200, surpassing their median annual income of $38,800. One impact of that burden: first-time home purchases are being delayed by seven years.

That’s according to survey results released Monday by the National Association of Realtors and the nonprofit group American Student Assistance. Only a fifth of millennial respondents own a home, with 83 percent of non-owners citing student debt as the reason they aren’t buying. Among those who do own, 28 percent said they’d sell their current home and purchase a better one, if not for student loans.

It’s difficult to buy a home when debt service on student loans eats up so much of your income and potential down payment savings.  This is a problem that previous generations didn’t have to deal with at nearly the same scale.  However, young people are still buying homes (and SUV’s for that matter) once they form families and start having kids.  They are just going through these rights of passage later than previous generations did.  Another story from NPR’s Emily Sullivan and Sonari Glinton pointed out that older Millennials are buying suburban homes and SUVs, just as previous generations did and completely counter to the Millennial-as-perpetual-renter narrative (emphasis mine):

But now, as millennials get older — and richer — more of them are buying SUVs to drive to their suburban homes.

The National Association of Realtors’ 2017 Home Buyer and Seller Generational Trends study found that millennials were the largest group of homebuyers for the fourth consecutive year.

Zillow’s chief economist, Svenja Gudell, says that for millennials, growing older is beginning to mean buying a house in the suburbs.

The Great Recession acted as a pause button for many choices that Gudell says millennials were already going to be slow to make.

“We’re seeing that the age at which women have kids has also gone up. And so instead of having children in their late 20s, you might start having kids when you’re in your early 30s at this point,” she says.

Generationally speaking, the stereotype of millennials as urbanites falls flat when it comes to home ownership. The Zillow 2016 Consumer Housing Trends Report found that 47 percent of millennial homeowners live in the suburbs, with 33 percent settling in an urban setting and 20 percent opting for a rural area.


Michelle Krebs, an executive analyst at Autotrader, says college debt kept millennials out of the car market, but now that’s changing.

In 2011, millennials were just 20 percent of the market. They’re about 30 percent now, and Krebs says that they’ll be 40 percent of the market before the next decade if current trends continue.

Erich Merkle, an economist with Ford, says that as millennials cross the threshold into family life, they’re buying large SUVs.

“We expect them to carry on as they age with three-row SUVs and likely go larger simply because they need the space to accommodate children that are now teenagers or preteenagers,” he said.

Ford expects all SUV sales to grow from 40 percent to more than 45 percent of the total U.S. new vehicle market within the next five to seven years.

Millennials just might be mainstream after all.

Young people increasingly moving to the suburbs and purchasing SUVs both fit nicely with the demographic trend that my favorite chart from Calculated Risk illustrates:


As Millenials age, they are acting exactly as previous generations acted – just a few years behind due to student debt and the unfortunate reality of coming of age during the Great Recession.  Look for this mean reversion to continue as the 30-39 year old age group grows dramatically over the next decade or so.  Deferring home and car purchases due to personal financial limitations may not be as sexy to write about as a sea change in attitudes amongst an entire generation towards two bedrocks of American society. However, it is a far simpler explanation and, per the actual data, also has the advantage of being the correct one.


Tale of Two Demographics: New data shows that retirees are on the move but young people are increasingly staying put.

Warning Signs: The next financial crisis is far more likely to be brought on by untested and largely unregulated Silicon Valley fintech startups than by Wall Street.

It’s Been a While: The incremental bump in US incomes that we have been experiencing of late does not erase the 50 years of stagnating wage pain that preceded it.


Leveraging Up: Interest from bond investors is prompting publicly listed mall owners to issue debt at record levels this year even as equity investors rush for the exits.

Winter Wonderland: Landlords are tying to turn under performing open-air shopping centers into winter hangouts complete with skating rinks, fire pits and programmed entertainment in an effort to drive foot traffic in colder months.

Short Commute: Not driving to work is the new high end job perk and the more that you make, the less likely you are to take public transport.


Whatever It Takes: A new startup called Loftium will give you up to $50,000 to put a down payment on a house but only if you agree to continuously list an extra bedroom on Airbnb for 1-3 years and share income with them during that time.

Tightening: Bank financing for residential acquisition, development, and construction suggests that banks are getting more selective.


Virtual Roller Coaster: Bitcoin’s wild ride shows the truth – it’s value depends on it becoming digital gold or being used by criminals – and that value is most likely zero. See Also: Bitcoin has become all about the payday, not its potential.  But See: What Jamie Dimon gets wrong about Bitcoin and Tulips.

Disappearing Act: The fascinating post-baseball story of former Giants super star pitcher Tim Lincecum, as reclusive an athlete as you will ever find

Chart of the Day

Some housing stats from The Daily Shot

Existing home sales dipped again, missing economists’ forecasts. Affordability is becoming more of an issue.

Source: Piper Jaffray

Most housing analysts blame these slowing sales on shrinking inventories. Home listings are seasonal, and for this time of the year, the availability of houses for sale is the lowest since the 90s.

Source: The Daily Shot


Truth Serum: A new survey of British plant eaters has found that one in three vegetarians eat meat every time they’re drunk on a night out because not eating meat sucks.

Over Confident: A shaman was killed while swimming in a crocodile invested lake in Indonesia.  He jumped in there in an effort to prove his  supernatural control over crocodiles after a villager had been killed the previous day.  The whole ordeal was caught on video.  It’s easy to say in retrospect but this was probably a bad idea.

Good Samaritans and Better Headlines: Topless car wash raises cash for deputies wounded in gun battle at Rastafarian pot farm

Gotta Hear Both Sides: A Colorado Springs woman is wanted for questioning by local police after having been spotted pooping on a family’s lawn multiple times.  The manager from the local Chipotle was unavailable for comment.  (h/t Dave Landes)

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links September 22nd – Myth Busters

Landmark Links September 15th – Toxic Brew

Meals on Wheels

Lead Story…. One universal truth about the financial industry is that it inhabits an ever-changing spectrum of fear and greed.  Real estate finance is certainly no different.  When greed is rampant, lenders bend over backwards to get money out the door so long as a perspective borrower can fog a mirror.  When fear rules the day, the process of obtaining financing is more akin to a full proctology exam.  People generally like to think that we learn from past mistakes.  However, when it comes to finance, memories are short and lessons generally only stick for a short period of time.  After that, they become lost in the dustbin of history or rationalized away by some variation of the ever-popular “it’s different this time” meme.  So, imagine my lack of surprise when reading a story this week about an Australian real estate financing scheme virtually certain to end in tears for all involved.  From Frank Chung at (emphasis mine):

THE Australian mortgage market has “ballooned” due to banks issuing new loans against unrealised capital gains of existing investment properties, creating a $1.7 trillion “house of cards”, a new report warns.

The report, “The Big Rort”, by LF Economics founder Lindsay David, argues Australian banks’ use of “combined loan to value ratio” — less common in other countries — makes it easy for investors to accumulate “multiple properties in a relatively short period of time despite high house prices relative to income”.

“The use of unrealised capital gain (equity) of one property to secure financing to purchase another property in Australia is extreme,” the report says.

“This approach allows lenders to report the cross-collateral security of one property which is then used as collateral against the total loan size to purchase another property. This approach substitutes as a cash deposit.

“This has exacerbated risks in the housing market as little to no cash deposits are used.”

To clarify what is happening here: if an investor in Australia owns a rental property and wants to buy another, lenders are letting him or her cross collateralize the original property and use the equity from that initial property as a virtual down payment, negating the need for the investor to actually invest any additional cash.  When done in scale, this introduces a massive amount of risk into the system since it drives leverage ratios through the roof.

The first thing that you are probably thinking is how the hell is this going on when the housing bubble happened so recently?  Well, here’s a bit of perspective: that was the case in the US but not in Australia.  A fairly recent crisis is far less of an impediment to bad behavior when it happens in a different country thousands of miles away.  As the chart below shows, Australia had a brief market correction around 2008 but it’s housing market has been headed to the moon ever since, largely buoyed by massive inflows of capital from international buyers:

Image result for australia versus us housing

When I initially read the article quoted above, my first thought was whether or not rents are high enough there to cover expenses when properties are essentially 100% financed.  Short answer: they are not.  More from Frank Chung (emphasis mine):

The report describes the system as a “classic mortgage Ponzi finance model”, with newly purchased properties often generating net rental income losses, adversely impacting upon cash flows.

Profitability is therefore predicated upon ever-rising housing prices,” the report says. “When house prices have fallen in a local market, many borrowers were unable to service the principal on their mortgages when the interest only period expires or are unable to roll over the interest-only period.”

LF Economics argues that while international money markets have until now provided “remarkably affordable funding” enabling Australian banks to issue “large and risky loans”, there is a growing risk the wholesale lending community will walk away from the Australian banking system.

“[Many] international wholesale lenders … may find out the hard way that they have invested into nothing more than a $1.7 trillion ‘piss in a fancy bottle scam’,” the report says.

The report largely sheets the blame home to Australia’s financial regulators, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. “ASIC and APRA have failed to protect borrowers from predatory and illegal lending practices,” it says.

This is a “business plan” that is 100% reliant on substantial appreciation to be successful.  From the article, it appears as if many of these loans have a built in interest only period and aren’t even covering debt service during this I/O period.  Once the loan adjusts and begins to amortize, the borrower needs to refinance or sell.  Otherwise he or she will have to continue to feed the project (or have the loan negatively amortize) every month in order to cover the loss.  Such a business plan is successful if and only if the property appreciation is greater than the amount of cash or negative amortization needed to cover the negative cash flow.  Perhaps the worst part is that the market doesn’t even need to fall in order for a borrower to get wiped out (remember all of the properties are cross collateralized under this scheme).  Instead, the market simply needs to move sideways and, due to the negative cash flow and borrower’s inability to refinance in a flat market, the borrower will eventually default.

Notice that the regulators are already being blamed for not reigning in the banks and allowing predatory lenders to prey on borrowers.  Let’s be honest: these borrowers know exactly what they are doing.  They are trying to amass a portfolio of investment properties with minimal investment and as much debt as possible with a complicit lender taking on equity risk in order to get more dollars out the proverbial door.  This isn’t some middle class worker who was sold on the dream of home  ownership by a smooth-talking mortgage banker and got in over his head.  The lenders here are being blinded by greed and the borrowers are as well.  Both are 100% culpable for the mess that they are going to cause. I feel a bit like I’ve gone back in a time machine writing this post since it reminds me so much of the shenanigans in the US mortgage market back in 2005 and 2006 when negative amortization pick-a-payment loans were all the rage.  Our current system in the US is far from perfect and is still too restrictive thanks to the ongoing housing bubble hangover but thank God that US mortgage lenders aren’t doing what Australian lenders are.


Strategy Shift: In a tight labor market, companies are looking to set up in cities with large numbers of underemployed people who would leap at a new opportunity.

Contrarian: An unconventional Bank of International Settlements paper makes the argument that global demographics- which have played a role in driving global deflation – will change course and cause inflation to increase in the coming years.

Grinding Higher: US Median income has now hit a new high. but still isn’t much greater in real terms than it was in 1999.


Assessing the Damage: In the wake of hurricane Irma 25% of homes in the Florida Keys were destroyed and thousands more were damaged.  Meanwhile, millions of people in the Southwest were still without power as of early this week.

Can’t Stop. Won’t Stop: Houston’s housing market seems undaunted by Harvey as buyers and builders are keeping deals on track.


Trail of Disruption: Since being released 10 years ago, here are all of the things that the iPhone has helped to destroy.

Tightening the Noose: China is planning to ban the trading of bitcoins and other cryptocurrencies traded on exchanges after banning ICOs last week.  The country accounts for nearly a quarter of bitcoin trades and cryptocurrency was largely seen as a means to move cash offshore in light of capital controls from Beijing.

Subtle: When asked about Bitcoin at a recent conference, JP Morgan Chase CEO Jaime Dimon was quoted as saying “It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”  Sometimes I wish that these corporate types would stop with the overly PC answers and let us know what they really think.  Contra: Dimon has trashed Bitcoin in the past and it’s nearly always been a buying opportunity.

Chart of the Day

Important Difference: Global income inequality hasn’t grown since the financial crisis

However, wealth inequality has.

Source: The Daily Shot


Strange Visual: Denny’s announced a new mascot this week that looks like a turd with eyes.  Actually, it look exactly like Mr. Hankey from South Park.

Keeper: A runaway bride in Great Britain was arrested after skipping town with 13,000 pounds of her fiance’s bachelor party fund.

Exposed: A married couple was busted for public indecency when they posted videos of themselves getting busy in public places online.  See Also: Nude model jailed for topless Egyptian temple shoot vows to keep stripping at holy sites.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at

Landmark Links September 15th – Toxic Brew