Landmark Links March 24th – Priced Out


Lead Story…. The Inland Empire (aka the IE) has been the primary growth market in Southern California for years.  As coastal areas soar in price, it has historically been one of the few markets in the region that is attainable to blue collar workers and first home buyers.  During the last cycle aka “The Housing Bubble,” housing production boomed in the Inland Empire as people who were priced out of the expensive coastal markets drove until they qualified for a home loan.  Back then living in Southern California was primarily a question of renting close to the coast versus owning further inland.  For as insane as coastal home prices got in the bubble, rents were actually relatively stable.  For those who couldn’t afford to rent (or buy) near the coast or buy inland, there was always the lowest cost option of an Inland Empire rental.  Then, in 2007/2008, the bottom fell out of the market and all hell broke loose in the IE as well as pretty much everywhere else.

The Inland Empire was hit as hard as any region in the US when the housing market collapsed.  It’s employment base was highly concentrated in residential real estate and homeowners there took on a disproportionate share of subprime loans, leading to massive foreclosures, shuttered subdivisions and a stubbornly high unemployment rate.

Fast forward 10 years or so and the coastal markets have recovered.  Both rents and home values have soared, thanks to an improving economy and little new construction outside of the luxury segment of the market.  However, the Inland Empire never really recovered, at least as far as housing is concerned.  Starts have remained stubbornly low even compared to the depressed levels along the coast and urban areas.  This can be attributed to several factors but stubbornly high impact fees and a low FHA limit are among the leading ones.

Since FHA limits are low across the massive Inland Empire region, it’s become very difficult for blue collar workers to afford a home, leading to a growing population of renters. This is problematic since little new rental product is being built in the region.  The result is that the last bastion of relative affordability in Southern California – the Inland Empire Apartment – is becoming both scarce and more expensive.  From Ben Bergman of NPR (emphais mine):

Though rents in the Inland Empire are still far cheaper, they’re rising as fast or faster than in Los Angeles and Orange Counties, according to a new report from the Center for Economic Forecasting and Development at UC Riverside’s School of Business It also found that the Inland Empire has a lower vacancy rate.

Only 2.4 percent of rental units in the Inland Empire were vacant compared to 3.3 percent in Los Angeles County and 3.2 percent in Orange County in the fourth quarter of last year, the study says. Meanwhile, the average rent went up by 5 percent in the Inland Empire, the same growth rate as in Los Angeles County and nearly twice as much as in Orange County.

The Inland Empire’s low vacancy rates are the result of not enough apartments being built. Traditionally, as people moved inland they bought single-family homes, but as people have gotten priced out of those, they’ve turned to a apartments.

“The inability of people to become homeowners there has meant more people are putting pressure on the rental market, and there’s not been a supply response, “ said Robert Kleinhenz, executive director of research at the Center for Economic Forecasting and Development.

If Inland Empire rents keep going up, Kleinhenz says workers will move somewhere cheaper.

“At some point those households have to think about whether they want to stay here,” he said.

If workers do not stay, all of those warehouses and logistics centers in the Inland Empire could have a harder time finding workers.

“There is a genuine need for more housing across much of California, and nowhere is the severity of the situation more apparent than in the Inland Empire,” said Kleinhenz.

This isn’t an issue of no one wanting to build apartments in the Inland Empire – developers would if they could (especially with the level of demand in today’s market) but it’s often difficult to get approvals and ever-rising impact fees and construction costs often mean that rents don’t justify the cost.  In short, even with rising rents projects often don’t make sense financially.  As such, they aren’t being built in anything close to the scale needed to meet demand.

Once people are priced out of the Inland Empire rental market, there really isn’t anywhere left to go in Southern California.  As Robert Kleinhenz noted above, eventually they are going to move out of the state, not because they want to but because they don’t have a choice.  As I’ve noted previously, an economy cannot run on white collar executives alone.  Someone needs to drive buses, clean floors, wait tables, etc.  Sadly, the state of California doesn’t seem to realize this and is going in the opposite direction.  We’ve already driven blue collar workers inland by not building enough near the coasts to keep a lid on costs, leading to more freeway congestion and sprawl.  Now the state is fast-tracking the misguided and destructive AB199 through the legislative process which would impact relatively affordable regions like the IE disproportionately.  Unfortunately, this is one problem that looks like it is going to get worse before it gets better.


Drip, Drip, Drip: Despite a surprising rally in fixed income since the Federal Reserve hiked rates last week, the quiet bear market in bonds is still alive and well.

Raising the Bar: When the job market was flooded with applicants, many employers began to require college degrees for entry level jobs.  Now they are finding it difficult to relax that criteria.


Proceed with Caution: Real estate fund investors are increasingly moving out of the equity space and loading up on property debt as caution abounds.

Extended Stay: Hotel occupancy has held up quite well so far this year despite substantial new supply.

Repent, The End is Here: So far, 2017 is proving to be the great mall apocalypse that it was projected to be, with over 3,500 stores projected to close in the next couple of months. See Also: Sears warns that that there is “substantial doubt” about company’s future.  Stock promptly crashes 12%.


Against the Grain: Demand for houses is still growing in spite of rising interest rates.

Caught in the Cross Hairs: Potentially lower business tax rates could claim low income housing and the tax credits often used to finance it as a casualty.


Easy: Statistics for NBA road teams are off the charts recently and home team winning percentages are at record lows, baffling statistical analysts.  The reason?  Players are now using Tinder and other messaging apps to get laid rather than hanging out in clubs, leading to extra hours of sleep and less drinking.

Break Out the Tinfoil Hats: A fascinating look inside the luxury doomsday bunkers where the rich and famous will ride out the apocalypse.

Too Much of a Good Thing: How a usage mismatch and lack of storage capacity is causing renewable energy headaches in California.

Making a Move: The story behind Amazon’s battle to break into the $800 billion grocery market with the goal of becoming a top 5 grocery retailer by 2025.

Chart of the Day

This is incredible



Flying High: Smack addicted parrots are raiding poppy fields in India to fee their opiate addiction and driving farmers crazy.

Forever Alone: A new pet brush allows you to groom your cat by licking it, you know – how cat’s groom themselves.

Paging Mr. Darwin: An teen accepted a bet to jump into crocodile infested waters after a couple of drinks in Australia.  It did not go well.

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

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Landmark Links March 24th – Priced Out

Landmark Links March 21st – Wrong Way

Wrong Way

Lead Story…. As mentioned last week, LA’s Measure S crashed and burned in an epic ballot box beating, with more than 70% of voters opposing it.  While it’s good to see NIMBYs get spanked at the ballot box (they rarely do in California), all this really does is preserve the status quo – and the status quo is not good.  In other words, Measure S’s defeat means that a moratorium that would have hurt housing affordability substantially didn’t pass but it does nothing to actually put a dent in the housing affordability crisis.  Carson Bruno of the Pepperdine School of Public Policy pointed this out in an article for

In addition to defeating any ballot measure that creates controls, mandates, or new rules on housing development, our leaders need to be actively tearing down barriers to entry for housing development at the municipal, regional, and state levels. Even the most basic process in California to get a housing project passed – whether its infill or not – is so byzantine its amazing anyone has the courage to actually propose a project. Between local General Plan zoning mandates that almost require multiple advanced degrees to comprehend, constantly changing opinions and attitudes of city councils, the myriad of appointed planning and environmental commissions, and CEQA and the guaranteed lawsuits to follow CEQA review, it takes a huge amount of effort, patience, and money to even get a proposal approved. Then building starts, which is further governed by employment and wage mandates, additional environmental review, and likely, new litigation. Being a Californian developer is not for the faint-of-heart.

In California’s current housing environment, it is no surprise, then, that the most commonly built new development is luxury housing. Given the amount of time, effort, and money required to get a proposal approved and then built, luxury housing is the only type that can guarantee a profit for developers (and even then, it is sometimes cutting it close). However, not only might this issue not be as big a problem as NIMBY-Residentialists like to make it, it also goes to prove that our current land use system is massively out-of-whack.

Think of housing needs as a ladder. Right now all the ladder’s rungs are full with a long line of people at the bottom wanting to climb up. But if we add a new rung is added at the top (i.e. luxury housing), then those who could afford the new higher rung and on the ladder can climb up, thus creating space for others to climb up below. By relieving supply pressure at the top, even adding luxury housing can ease the housing unaffordability issue below. And we are seeing examples of this happening already (albeit slightly) in places like San Francisco. This, however, doesn’t happen overnight. Patience is needed by both politicians and the community alike.

But more housing at all income levels is ideally what we ought to be achieving. And to do so, you need to cut away the mandates, rules, and process layers that increase the cost to approving and constructing new housing. This is the only sustainable way to incentivize developers to build units up and down the income spectrum. By tearing down the barriers, the housing will come.

The problem is that not only are more affordability friendly measures not being pushed but that there are several measures being proposed in Sacramento (AB 199 being the most egregious) that would make building affordable housing more difficult.  Most of the bills making their way through Sacramento lately deal with either raising wages for contractors or creating more state subsidies for affordable housing.  The prevailing wage bills would be bad for affordable housing across the board.  The subsidy bills would amount to little more than a drop in the bucket in terms of satisfying the actual demand for affordable units. California’s housing affordability problem can be solved but we need to take a step in the right direction first by proposing legislation that actually deals with the disease (it’s too difficult and expensive to build) rather than the symptom (subsidies for affordable units that often drive prices higher).


I Don’t Think the Hard Stuff is Going to Come Down For a While: According to Vanguard, the price of four years at a private college could be as high as $500k 18 years from now.  Have a nice day.

No Roadmap: How a lack of rotational programs and more diverse employers recruiting on campus make it more challenging for college grads to find a job than ever before.


Risky Business: Rising interest rates have more borrowers opting for cheaper floating rate debt when buying or refinancing, taking interest rate risk in order to make a deal pencil today.  Somehow, I feel like I’ve seen this movie before.


Binging: Goldman Sachs has been on a delinquent mortgage buying spree, snapping up over $4.5 billion of Fannie Mae backed loans in an effort to make good on a portion of it’s $5.1 billion settlement with federal and state governments for it’s rose in selling and packaging loans during the bubble.  See Also: How ‘consumer relief’ after the mortgage crisis can enrich the big banks.

Thanks Captain Obvious: A new report by the National Low Income Housing Coalition found a shortage of 7.4 million affordable and available rental homes for extremely low income renter households (below 30% of their area median income).  This is most pronounced on the west coast (surprise, surprise).


Miracle in a Corn Field: How financial de-regulation in the credit card space transformed Sioux Falls, South Dakota from a struggling agricultural town to one of the best performing economies in the United States over the past 30 years, bucking the greater downward trend in the midwest region.

Going Pro: Once considered a sleazy business run by the mob and other nefarious characters, sports betting is beginning to look a lot more like Wall Street.

Grand Theft Auto: Google and Uber are locked in a vicious patent fight over technology for self driving cars with the former claiming that the latter stole their intellectual property.

Chart of the Day



People are Strange: In the latest example of things that make me lose faith in humanity, people with too much money and too little common sense are now getting plastic surgery for their pets.  Example A:

“Dogs of the Upper East Side” artist Linda Olle told DuJour, “I knew someone who planned to get his bulldog puppy ball implants. He said he thought it would make the dog look and feel better about himself.” She had her doubts, she said, but then recalled how happy she’d seen friends’ pets after, say, a haircut.

Ouch: A drunk guy in China stuck two fish up his butt and almost died.  Fortunately he made it and will remain in the gene pool for another generation.  In related news, he’s applying for US citizenship and plans to settle in Florida.

The Truther is Out There: There is now a dating website exclusive belt for tinfoil hat wearing conspiracy theorists.

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

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Landmark Links March 21st – Wrong Way

Landmark Links March 17th – What’s Going on Here?


Lead Story… Back in mid-December I noted in a post titled Liftoff that the NAHB Housing Market Index had soared to it’s highest level since 2005 despite steadily rising interest rates.  That post also had a chart from that showed how builder confidence had de-coupled from it’s historical relationship with housing starts:


I want to revisit this issue today since the divergence is substantially wider today than it was back in December.  The following chart is from Mark Hanson and highlights just how large this gap has become.


Builder confidence is on a moon shot.  I know this is hard to believe but the index is now at a level that it was last at in 2005 at the height of the housing bubble.  Starts tracked tightly with the index up until about 2012 but today they are at less than half of their 2005 level and around 65% of their level during the tech boom when the index was in the same territory.  Historically, confidence has been an important leading indicator of where starts are heading.  Generally speaking, a confident builder is a builder who is acquiring land and ramping up starts.  A negative builder is doing the opposite.

So, why is sentiment diverging from starts to such a substantial level?  At first glance, there are several likely explanations:

  1. The housing market is about to go on an epic run, at least when it comes to starts.
  2. Sentiment is irrational right now for a variety of reasons and will soon come back to earth.
  3. Builders are overly optimistic due to de-regulation, especially on environmental issues.  However, starts aren’t keeping up with that enthusiasm due to a lack of lot inventory.
  4. Builders are enthusiastic about their business outlook but either can’t find lots that make sense from a financial prospective.  This could either be due to a dearth of financing or cost inflation outpacing revenue inflation.

While I hope that the first option is correct, I’m far to skeptical by nature to buy into that theory.  I’m also not enough of a Cassandra to accept the idea that builder sentiment suddenly became irrational after tracking starts tightly for so long.  Recent conversations with clients lead me to believe that there is some truth to both items three and four. However, it doesn’t seem like  either of those would allow for such a dramatic divergence and neither really explains why the divergence began back in 2012.

Let me propose a more simple answer: the index itself is broken.  From the NAHB’s own website:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

As  CNBC’s Diana Olick pointed out in December, one issue with the NAHB index is that the survey covers mostly smaller private builders and not the large, high production publics.  Public builders have always had an advantage in the market due to their scalability and lower cost of capital.  However, in the wake of the housing crash, they have taken an even larger market share in the wake of the housing crash.  This happened largely because the equity and debt sources that private builders largely dried up, leaving them reliant on capital from private equity funds which are a poor fit for home building finance for a bunch of reasons.  As a result, public builders are dominating the market like never before but they are under represented in the NAHB’s survey.  In fact, private surveys similar to the one that John Burns Real Estate Consulting conducts that focus more on high production builders have shown substantially less of a change in builder sentiment.

In many markets, private builders could be ramping up production and it would barely register a blip in the starts data since they have become such a small portion of the sample size.  The sky-high sentiment numbers may be an accurate reflection of private builders and their pipeline but still not be representative of the market as a whole.  The mystery of the historical divergence between builder confidence and starts may not be anything more than an under-sampling of the public home builders who are more reflective of the market as a whole today.  I suppose we will find out if this is the case soon enough but the divergence appears to be as much about who is replying to the NAHB survey as it about actual market conditions.


The Surge: Small business confidence has been soaring since the election but can reality live up to expectations?

The Price is Right: Inflation expectations are finally hitting a level where the Federal Reserve is comfortable hiking interest rates.

Uneven Impact: Fed rate hikes from today’s low levels are painful for borrowers who have floating rate debt but do little to help savers when it comes to deposit rates offered by banks.  See Also: The Fed raised rates this week and will likely shift forward their plan for future hikes.


The Final Nail?  Rising interest rates could speed up the clock on retail’s $3.7 billion bond maturity time bomb.  See Also: If retailers tank, it isn’t likely to knock the Federal Reserve off of it’s rate-hiking course.


Off the Sidelines: Contrary to conventional wisdom, rising mortgage rates are pulling buyers off of the sidelines and leading home builder stocks higher.

Can’t Have it Both Ways: It will be impossible for California to meet it’s highly ambitious climate change carbon emission goals unless it embraces density in a major way.  See Also: CA growth will will eventually stop without densification in urban areas.

Scheinfreund: LA’s Measure S got absolutely crushed at the polls last week.  Bad news for the NIMBYs.  Great news for pretty much everyone else.  See Also: This map shows how Measure S lost all across Los Angeles.

Back Above Water: Over 1 million US home owners regained positive equity in 2016.

Lipstick on a Pig: Flippers are targeting increasingly older properties.  In some cases, that can mean more cut corners, non-permitted renovations and a major money pit for home buyers.


Stunning: New study finds that people are actually bigger assholes than they think they are, shock ensues.

Hypocrites: Battles between a growing homeless population and wealthy homeowners are putting Berkeley’s liberal image to the test.

Chart of the Day

And you thought that it was expensive here….

Source: The Economist


Meanwhile, In Russia: A Moscow petting zoo is suing an ad agency for using one of it’s raccoons in a lingerie commercial. During the shoot, the critter took a model’s bra off and the footage ended up online.  The zoo was not amused and filed suit for animal abuse.   The raccoon could not be reached for comment but has been offered a spot on the next season of Russia’s version of The Bachelorette.

FAIL: Women’s clothing chain Forever 21 is in hot water after shoppers noticed that some of their shirts have prominent Nazi symbols printed on them.  (h/t Trevor Albrecht)

Subtle: A man was arrested at JFK Airport for smuggling cocaine worth approximately $164k.  You have to see the picture to appreciate just how obvious it was that he was hiding something.

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

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Landmark Links March 17th – What’s Going on Here?

Landmark Links March 14th – Fight For Your Right


Lead Story…  I guess that this is what getting old feels like.  The Skyrocketing level of student debt is one of the most substantial headwinds facing the US economy in general and the housing market in particular.  More and more young people are living at home after college, unable to afford their own place.  This delays household formation substantially which has all sorts of negative ramifications for the economy.  Much of this is due to the ever-rising cost of higher education.  However, a new survey from LendEDU gives some insight into another issue with student loans: in many cases, the proceeds are too generous and borrowers don’t understand the default ramifications (sound familiar?)

In general, I’m sympathetic to the plight of student borrowers and the amount of debt that they increasingly carry when they graduate.  Today’s students are caught between a rock and a hard place when it comes to paying for college.  They are given two unpleasant options after graduating high school (excluding those fortunate enough to have rich parents or get a full scholarship): go into debt to obtain a degree or don’t go to college and fall behind (technically, there is a third even worse option which is to drop out of college with a debt balance).  The first option is bad.  The second is even worse.

I start to become less sympathetic when college kids make genuinely stupid decisions that put them further into debt.  I’m not talking about kids who go to non-accredited diploma mills (many of these are scams and prey on those who don’t know any better) or even those who major in subjects that will likely land them job at Starbucks (I was a political science major so I have no room to talk).  I’m referring to something far worse: using student debt to pay for spring break trips (and other non-educational or living expense related expenditures).  At this point, you’re probably thinking who on earth would be dumb enough to use debt that can’t be discharged through bankruptcy to finance a boozy spring break trip? A new study by LendEDU entitled Spring Break Student Loan Study: Beers, Bikinis, & Student Debt has the depressing answer (emphasis mine).

When one considers the financial limitations of most students, it is easy to ponder this simple question: How are all these cash-strapped college students footing the bill for a one week destination getaway?

Here at LendEDU, we understand that the vast majority of students need student loans to attend college. The popularity of expensive spring break trips amongst students that borrow so heavily did not make much sense to us. We not only wanted to discover how students were funding their spring vacation, but also how they fund other aspects of their lifestyle. To answer this, we conducted a survey of 500 current college students that are going on spring break this year. The respondents also had to have outstanding student loan debt.

The results of our study were alarming and frustrating. We conducted our survey via Pollfish and Whatsgoodly. Both companies used the same screening questions and criteria.

I have to admit, I’ve often wondered the same thing for the same reason.  It gives me flashbacks to the expensive vacations and fancy cars that people were paying for with HELOC dollars in the mid-aughts.  I also have the same question about increasingly luxurious student housing accommodations.  So just how bad is it?

According to the LendEDU poll, 30.60% of college students with student debt claim that they are using money they received from student loans to help pay for their spring break trip this year. For reference, you can use student loan funding for living expenses.

The National Center for Education Statistics calculated that 20.5 million students will be attending college this year in the United States. Orbitz reported that 55% of students will be going on spring break. Using this data, we can roughly calculate that 11,275,000 students will be going on spring break this year. And, it is estimated that 69% of all current college students use student loan debt by the time of graduation. By doing some additional arithmetic, we can calculate that roughly 7,779,750 student debtors are going on spring break this year.

Factoring in our data, and assuming the claims made in our survey are accurate, this means that 2.38 million students are using money received from student loans to pay for their spring break excursion this year.

Considering the severity of the student loan crisis in the United States right now, this number is severely disappointing. In a previous study, LendEDU found that 49.80% of college students incorrectly believed the government would forgive their federal student loan balance. This means that a number of college students are using government money to pay for spring break and are fully expecting the government to forgive their lavish expenditures. In another study, 51.20% of parents that cosigned on their child’s student loan said their retirement has been put in jeopardy due to late payments made by their child. Many students are hamstringing their parent’s ability to retire because they are using their student loan money to pay for an island adventure.

A whopping 30.6% of students with college debt are using a portion of the funds to pay for spring break trips.  Any way that you look at it, that’s a substantial number and much larger than I would have expected.  This is poor decision making at it’s worst.  Many of these kids are going to graduate from college and have a difficult time paying rent or buying a car or a house because of the debt load that they took on to get wasted on the beach in Panama City or South Padre Island.  To make matters worse nearly half of them appear to believe that the government will forgive their debt.  They are in for a very rude awakening.  The survey results ended with a depressing list of the other things that college students pay for with their student loan money (I’m not even going to bother highlighting this because I’d end up bolding the entire thing).

Nearly a quarter (23.80%) of respondents stated that they have used money received from student loans to pay for drinking some type of alcohol. This answer also included spending money at bars.

A third (33.40%) of students answered that they have used money received from student loans to pay for clothing and other accessories.

Similarly, the same amount (33.40%) of students said that they have used money received from student loans to pay for restaurants and take-out.

6.60% of respondents responded saying that they have used money received from student loans to pay for drugs.

Finally, 5.60% of students that participated in our survey stated that they used money received from student loans on gambling or sports betting.

Look, I’m all for enjoying one’s time in college but it’s never too early to learn to live within your means, even if that entails not spending thousands of dollars that you don’t have on lavish trips.  I can assure you that these kids will regret it when they are still living with their parents at 29 years old because they have too much debt to be able to afford a place of their own.  However, the college students aren’t even the ones who deserve the most blame.  As irresponsible as the students are when they borrow like this, the lender (in this case the Federal government) is even worse.  College students are going to make dumb choices because it’s what they do.  If you offer college kids what amounts to a blank check to pay for trips and booze that doesn’t get paid back for years, they are going to spend it because most of them don’t yet have the perspective to recognize that it will come back to hurt them down the road.  The Feds are well-aware that there is a massive problem here – the default rate on student loans is north of 11% – and yet they are still allowing enough excess borrowing to pay finance spring break trips.  Perhaps it’s time for the Federal government to re-examine their student loan policies in order to try to prevent this type of misuse of funds.  The student debt problem is only getting worse and this seems like the easiest place to start at least attempting to take some control of it.  Student loans should pay for the cost of school and basic living necessities, not expensive vacations, booze, etc.  Binge borrowing by students who don’t understand how debt works to pay for things that they don’t need has some eerie echoes of HELOC abuse 12 years ago.  But maybe I’m just getting old.

Side note: I never went on a real spring break trip in college.  Instead, I spent spring break week freezing my ass off in a tent in rural Maryland because that was where the Tufts Sailing Team did our training week/camping trip, so perhaps I’m just jealous.


The Chase Is On: Seven charts that confirm that investors are still hungry for yield.

All in the Family: How family offices became the preferred investing vehicle for the ultra-high net worth set.  (h/t Alex Kamkar)

Bottoms Up: The fact that wage growth is now faster for lower paid workers than higher paid ones is the most underrated story about the US economy.


The Big Short 2.0: Traders are buying up credit default swaps written against bonds made up of mall mortgage debt in the expectation that 2017 will be the year when many go bust.


Deferred Maintenance: Americans are flipping the oldest houses on record — and making the most money on record too as the focus shifts from foreclosures to properties in need of some TLC.

Believe it or Not: It’s still cheaper to own than rent in most US markets.


Taken to the Cleaners: How a terrible early-2000s deal allows California utility providers building to continue power plants that we don’t need at the expense of consumers.

Please Make it Stop: Time changes suck whether you are springing ahead or falling back. But I never knew just how awful it was until I had young kids.

This is Not Surprising: New study finds that young Wall Streeters regularly use drugs and pay for sex.

Chart of the Day


Employee of the Month: A recently fired employee stabbed and tried to run over his boss because, Florida.

Up in Smoke: A Florida lawyer’s pants caught on fire during a trial thanks to a faulty battery on an e-cigarette.  His client was on trial for Arson.  Seriously.

On Demand: Pizza Hut introduced something called Pie Top sneakers which contain a blue tooth device that sync’s up with their mobile app, allowing users to order pizza from their shoe.  This would be cool if it could be used to order an edible pizza rather than Pizza Hut.  It’s also a perfect illustration of why America has an obesity epidemic.

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

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Landmark Links March 14th – Fight For Your Right

Landmark Links March 10th – Misunderstood


Lead Story… The attitudes of Millennials towards housing are written about endlessly but are chronically misunderstood for a handful of reasons.  Among those reasons are:

  1. The Millennial generation is the largest generation in American history.  As such, it is extremely diverse and does not fall neatly into a one-size-fits-all stereotype.
  2. Most media outlets are based in and around major urban centers where renting tends to be more popular with young people than it is in the nation as a whole.  The close proximity of media outlets to cities means that urban trends tend to be somewhat over-sampled when it comes to demographic stories.  The lifestyle of the stereotypical skinny-jeans-wearing, neck-bearded Millennial gets more attention because he’s what writers actually see, whether he is reflective of the group as a whole or not.
  3. It’s easy to misconstrue desires with choices.  Just because someone chooses to live in a 300sf studio apartment doesn’t mean that was their preference.  It may be the option that they settle for.

The resulting confusion created by the factors outlined above means that much of what you read about Millennials and their housing preferences are a triumph of narrative over real scientific evidence.  In fact, when actual studies are conducted, they frequently find that Millennials would like to own homes but often can’t afford to in many areas where they want to live due to high prices and poor finances.  Recent studies from Harvard and Zillow are the latest to confirm that Millennials do indeed want to own homes but may not have the finances to afford them.  Philip Molnar of the Los Angeles Times summed up the studies (Emphasis mine):

Reports by Zillow and Harvard University break with stereotypes of America’s largest generation, namely that they prefer to rent because they favor experiences over building equity and want to live in urban environments.

Millennials make up about 10% of the nation’s homeowners. Nearly half of those were in the suburbs in 2016, 33% in urban areas and 20% in rural places, said Zillow’s Group Report on Consumer Housing Trends. The report used U.S. census data and a Zillow survey of more than 13,000 home buyers, sellers, owners and renters.

Of millennial buyers who moved in the last year, 64% stayed in the same city and just 7% moved to a different state, the Zillow study said.

I found this passage from the Harvard study particularly interesting (emphasis mine):

“The evidence suggests, however, that homeownership decisions by younger households have much more to do with affordability than location and lifestyle preferences,” study authors said.

The Harvard study found homeownership rates for millennials were 5% higher in metro areas where median home prices were 20% below the national median. The idea was that if millennials could afford to buy a home, they would, and did so in low-cost markets such as Birmingham, Detroit, Minneapolis and St. Louis.

Yes, it’s true that Millennials have a historically low home ownership percentage as an age group.  However, that appears to have more to do with finances and housing affordability issues than it does with attitudes towards housing.  This is not to say that the influx of young professionals into urban areas isn’t real – it clearly is and the impact has been substantial.  Just be careful what you attribute that influx to.


What if I Told You…. There is growing evidence that everything that the market thinks about inflation may be wrong.  See Also: The best predictor of inflation is actually past inflation.  And: Economic growth expectations are quietly vanishing.

Unintended Consequences: Swedish residents are substantially over-paying their taxes as a pragmatic way to avoid negative interest rates.

Out of Balance: This is a fascinating visual depiction of how poor the post-recession recovery has been in the middle of the country versus along the coasts.


Anchors Aweigh: Malls are so desperate for anchors that they are now courting grocery storesSee Also: The saddest mall on earth – how one struggling mall in Virginia replaced storefronts with vending machines.  And: It’s really getting challenging to come up with a bullish thesis for shopping mall REITs.


Too the Moon: The Fannie Mae Home Purchase Sentiment Index is now at an all-time high despite rising mortgage rates.

Tug of War: The Coachella Valley is locked in a political battle between old guard residents and new short-term rental landlords that will shape it’s future.


The Future is Now: Here are the ten most impactful new technological breakthroughs for 2017.

Exclusive Club: Hook up app Tinder now has a secret, invite only section for certain users (CEOs, super models, and other hyper-attractive/upwardly affluent types).

Battle Lines: Venice has become ground zero for gentrification battles as the quirky LA beach town deals with new tech wealth and a booming homeless population.

Chart of the Day

The Relative Growth Performance of the Housing Sector Moves with Mortgage Rates


Source: Federal Housing Finance Agency, Goldman Sachs Global Investment Research


Porn Again: Meet the porn star who quit her $300k a year adult film job to become a pastor.

Meanwhile, In Florida: Someone left a 5-foot long, dead shark in a shopping cart outside of a Walmart because, Florida.

Colorful Side Effect: Just in time for Easter, Oreo came up with a Peeps flavored cookie that turns your poop bright pink.  I’m going to run out and buy a box ASAP to see if this is true.

Peak Russia: A new Russian reality TV show based on the Hunger Games is currently in production.  The participants “have all signed a release of liability for injury, as well as death waivers, in addition to agreeing to not hold the organizers accountable if they were to commit a crime during filming.”  It also involves criminals being released from a local jail and bears.  This has to be the most Russian thing ever.

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

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Landmark Links March 10th – Misunderstood

Landmark Links March 7th – The World Needs Ditch Diggers Too


Lead Story… Early in the classic American comedy Caddyshack (possibly the finest film ever made, IMHO) protagonist Danny Noonan is caddying for Judge Elihu Smails in order to try to brown nose his way to an inside track for the Bushwood Country Club Caddy Scholarship.  Noonan tells the judge that he wants to attend college but his family can’t afford it, expecting some kind words of advice on how to better position himself to get the scholarship.  Instead, the always-caustic Smails responds with “Well, the world needs ditch diggers too.”  As harsh as Smails words are, they are technically correct and it’s advice that California should heed.

California is getting unbalanced and I’m not talking about the oft-repeated urban legend of the state breaking off at the San Andreas Fault and plunging into the ocean when the big one finally hits.  Phillip Reese of the Sacramento Bee wrote a rather un-nerving story this weekend about how California is losing lower income residents to other states while wealthier residents move here.

California exports more than commodities such as movies, new technologies and produce. It also exports truck drivers, cooks and cashiers.

Every year from 2000 through 2015, more people left California than moved in from other states. This migration was not spread evenly across all income groups, a Sacramento Bee review of U.S. Census Bureau data found. The people leaving tend to be relatively poor, and many lack college degrees. Move higher up the income spectrum, and slightly more people are coming than going.

About 2.5 million people living close to the official poverty line left California for other states from 2005 through 2015, while 1.7 million people at that income level moved in from other states – for a net loss of 800,000. During the same period, the state experienced a net gain of about 20,000 residents earning at least five times the poverty rate – or $100,000 for a family of three.

So what’s the big deal, you might ask.  Wealthier people moving in means higher incomes, less drain on government services, and arguably more consumption that drives the economy.  Unfortunately, it’s nowhere near that simple.  An economy can’t run on white collar workers alone.  You need the aforementioned truck drivers, cooks and cashiers as well as relatively low paying professional positions such as teachers and public safety personnel.  Once these people can no longer afford to live in close proximity to their place of employment, it has major negative consequences for an economy.  Yes, these jobs often pay better in San Francisco than say, Cleveland but the incrementally higher pay is eventually not worth it when an employee has to drive 1.5 hours each way to find a place where rent doesn’t cost 50% of their paycheck.  The consequences are everywhere.  For an example of how this is playing out in real time, San Francisco has been offering signing bonuses to teachers to help deal with a shortage  caused by the high cost of living there.
The problem, of course is that we aren’t building close to enough housing which has allowed for prices near job centers to soar while displacing hundreds of thousands of workers who don’t make $100k or more a year.  Again from the SacBee (emphasis mine):

The choices facing millions of low-income workers trying to rent in California’s urban centers are stark, LisaHershey (Hershey, executive director of Housing California) and others said. They can commute from far-away locales.

“People are having to move so far away from their jobs – driving two or three hours,” Hershey said.

They can spend a huge portion of their income on rent. Many experts recommend not spending more than a third of gross income on housing. But in California, “We are actually excited to see if people are spending less than 50 percent on housing,” Hershey said.

They can live in a cramped house with others sharing the bills. More than 750,000 California households live in a rental containing more people than rooms, according to the U.S. Census Bureau.

Finally, they can move to a more affordable area. “This is like the ultimate displacement,” Hershey said. “People are being displaced so quickly not only in our communities but from the whole state.”

Leaving CA
The cost of living has gotten so out of hand that it’s not longer only impacting blue collar workers and teachers.  Even tech workers are not immune to struggling with the high cost of living.  I’ve read several articles in recent months about how senior engineers making six figures are struggling with the high prices in the Bay Area.  Displacement is the ultimate outcome of decades of failed housing policy in the Golden State.  When the economy booms in a place like Houston, more housing units get constructed to meet the demand of a growing population.  However, coastal areas of California have devolved into a zero-sum game between the haves and the have-nots.  Thanks to CEQA and restrictive zoning, it takes years to get projects approved and even in the best years not nearly enough units are being built to satisfy demand.  The end result is that the housing supply in California has become somewhat of a finite good where rents and property values get bid up in a good economy and supply is not allowed to ever meet demand until a recession hits.  It’s not too late to do something about this.  However, recent efforts like AB 199 and LA’s Measure S would result in far less housing being built which is exactly the opposite of what we need right now.
The conclusion of the SacBee article was telling:

Other than housing, a key reason many are leaving is intense competition for jobs. Even in San Francisco, where the unemployment rate is low, there are so many people trying to make it that those without much education or training have trouble finding work.

“I just helped someone apply for a cashier position at CVS,” said Michael Bernick, a job training expert and former director of the state Employment Development Department. “Very competitive. The person I applied with failed, even though he has a college degree.” 

San Francisco “is the best employment market in the state – and yet even here, the cashier jobs, the restaurant jobs, are getting tens of applicants for most positions,” he said.

With persistence, it is easier to get an entry level job in some parts of California than others, though education and training helps greatly. “The minimum qualification for most jobs at $11 an hour is a high school diploma,” said Terri Carpenter, workforce development director at the Sacramento Employment and Training Agency. “If you don’t have any long-term experience to supplement a high school degree, you don’t have too much opportunities. Your most successful candidates are those who have at least a two-year degree.”

Several experts noted a growing income disparity between Californians with and without college degrees. That shows up in the data on domestic migration: About 800,000 more adults 25 and older without a bachelor’s degree left California for other states than came here; there was a simultaneous net gain of adults with graduate degrees.

“On a social basis, college degrees largely serve as sorters,” Bernick said. “People without college degrees are at a disadvantage in many jobs, especially decent paying jobs.”

Without a college degree, workers are generally, at best, stuck in low-paying jobs. And many of them decide to leave.

The jobs with the biggest net loss to other states from 2005 through 2015 were cashiers, cooks, truck drivers, material movers, retail sales reps and customer service reps. Those jobs alone accounted for a net loss of 200,000 California workers.

The professions with the highest net gain from other states? Software developers and physicians.

I suppose in some utopian fantasy land it would be wonderful for every citizen to have a college degree.  However, when one is required as a pre-requisite for an $11/hour cashier job at CVS, it simply doesn’t provide a very good return on investment.  It’s important to have software developers and physicians for sure but the world needs ditch diggers (and teachers, construction workers, police, cooks, drivers, cashiers, social workers and waiters) too in order for the economy to function on a daily basis.  Californians would do well to heed the immortal words of Judge Elihu Smails.


Can’t Do it All: There is simply no way for the Federal Reserve to maximize employment, stabilize prices and tame high asset prices all at the same time.  Something has to give.

It’s Happening: Fed Chair Janet Yellen all but confirmed that the Federal Reserve will be raising rates again at their March meeting.

Drill, Baby Drill: In the face of OPEC production cuts, shale drillers are proving to be more resilient than many believed they would be.  See Also: Bullish commodity bets hit record highs as investor seize on signs of growth.


Getting Out of Balance?  Big box warehouses are getting constructed at a rapid pace but tenant interest is waning and vacancy has started to tick up slightly.

Lame Excuse: How do you know that traditional retailers are screwed?  They are now using delayed IRS income tax refunds as an excuse for poor performance.  Let the downward slide continue.


Final Frontier: The biggest test yet for the boom in luxury urban living is downtown Detroit.

Counter Intuitive: How developer Extell is selling units in Manhattan’s largest condo tower into a saturated market by raising prices.


Don’t Try This at Home: It has proven incredibly difficult to build another Silicon Valley in other regions primarily due to a lack of capital and less depth of talent.  Google’ Kansas City Fiber experiment is just the latest example.

Cloak and Dagger: How Uber used a secret greyball tool to deceive authorities worldwide.

Never Would Have Guessed: I’ll give you one guess which state had the most consumer fraud on a per capita basis in 2016.  Spoiler: it was Florida. (h/t Darren Fancher)

FAIL: How an Amazon typo took down the internet last week.

Chart of the Day 

Productivity levels in residential construction sucks


Source: CityLab


Why Did the Chicken Cross the Freeway? Meet the crazy vegan who crashed her car into a chicken truck on a highway in order to “save the chickens.”  She fled after the incident but her license plate fell off, leading to her eventual arrest.  Just consider this your daily reminder that vegans are dangerous psychopaths.

What a Way to Go: A 50 year old Japanese man was found dead, buried under 6-tons of porno magazines that he had collected in his home nearly six months after he died.

Hard Grader: The world’s first “Smart Condom” claims to be able to grade your performance plus detect certain STD’s.

Nothing to See Here: A woman caught having sex with a homeless man behind a Walgreens was arrested for drug possession because, Florida.

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

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Landmark Links March 7th – The World Needs Ditch Diggers Too

Landmark Links March 3rd – Deep Impact


Lead Story… The first step in solving a problem is admitting there is a problem to begin with.  If you are in the residential real estate development industry in California and/or a regular reader of this blog, you are likely well aware that California has a massive problem with high development impact fees that make it very difficult to build new housing that people can afford (if you want to know how we got to this place, click here.)  In being close to the problem it’s easy to forget that much of the general home buying public does not even know what an impact fee is, nor do they care.  I would assume that the extent of most people’s knowledge about home prices in the Golden State is that housing supply is scarce in California, not much gets built in desirable areas due to land use restrictions, the weather is really nice here and the economy is good, therefore it’s expensive.

IMO one of the first steps to generating real, meaningful push-back against excessive impact fees is to educate the general public on just how high fees are.  I know what you are probably thinking right now and you’re right: no consumer wants to listen to another boring, boilerplate financial lecture.  However, there is an easy way to accomplish this objective that one of my partners at Landmark, Steve Sims pointed out earlier this week: itemized pricing.

When you purchase a new home today, the builder will typically break out the base price and any available options and upgrades minus any discounts in their marketing material.  Steve’s idea is simple: builders could itemize pricing on their marketing material by showing the base price net of the impact fees, then they would add in the impact fees as a separate line item just like they would an upgrade.  The total advertised price of the home doesn’t change at all but the buyer is now aware that he or she is paying $40k-$80k in impact fees that are substantially impacting their purchase price.  This should sound familiar if you’ve ever purchased a car since it’s similar to the way that auto dealers represent pricing on their lots.

I know that this is just a token step nor have I looked into the legality of it.  However, an informed consumer is an empowered consumer and I believe that a lot of California home buyers are in the dark about where all that money that they are spending for a new home is actually going.   I would wager that they won’t be too happy about it once they find out.  Consumer advocacy groups should be in support of such a proposal since it increases transparency when it comes to the largest economic decision that most people make in their lifetimes.  Hopefully, this is something that the BIA will be willing to take a closer look at.


A Different Approach: Vocational coding schools are offering a different job path for middle America and providing a gateway to flexible well-paying employment opportunities that didn’t exist just a few years ago.

It’s Not Working: Four years in, Japan’s era of ultra-accommodative central bank policy including negative interest rates isn’t working and may even be having the opposite impact from what was intended.

Wishful Thinking: Whether you like globalization or not, there is no denying that it has increased productivity.


Headwinds: Foreign investors have tons of capital that they want to invest in US real estate. However, rising interest rates, a maturing real estate cycle and shifting geopolitical and regulatory environment present looming challenges.

Unicorn: SoftBank is set to invest over $3 billion in co-working start-up WeWork which pushing it’s valuation to over $20 billion.


Hanging in There: The latest FHFA home pricing data indicates that rising interest rates are not slowing down home prices (yet).

Sea Change: As the home ownership rate continues to dip, America is increasingly becoming a country of renters and landlords.


Everything Old is New Again: Apple and Samsung have an unexpected new challenger to their smart phone empires.  Feature phones similar to old Nokia and Motorola models have seen 2 straight years of rising global shipments and are making gains in emerging markets where price sensitivity and battery life are big issues.

Underdog: How traditional car companies are beating Silicon Valley when it comes to autonomous cars.

Chart of the Day

Staying put

Source: Housing Wire


Nope: The ‘chicken’ in Subway’s ‘chicken’ sandwich only contains around 50% actual chicken DNA.  The article didn’t say what else was in there but in light of Subway’s sketchy past, this or this would probably be good places to start.

Well, Where Was He Supposed to Put Them?  A man was arrested for smuggling 54 Xanax pills in his rectum, because, Florida.  (click on link for epic mugshot)

Lawyers Delight: The world’s first cannabis-infused gym scheduled to open in May in San Francisco.  Generally speaking, I have no issue with people smoking pot but plaintiff’s attorney’s are going to have a field day with this when someone inevitably gets injured. (h/t Ingrid Vallon)

Pay Up: A $20 debt lead to a melee at a Girl Scout cookie stand because, Florida.

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

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Landmark Links March 3rd – Deep Impact