Landmark Links October 25th – When Will The Empire Strike Back?

darth-vader

Retraction: Before we get to today’s post, Leonardo DiCaprio’s rep announced that he doesn’t support the anti-density initiative that I spoke about on Friday, despite his name being all over it’s literature. ¬†Maybe he is a regular Landmark Links reader and didn’t like getting called out ūüėČ

Lead Story….¬†Since I began writing this blog last year, one of my main areas of focus has been how the historical relationship between primary and secondary markets has broken down in this cycle, especially in CA. ¬†In the past, the inland production markets would heat up when prices rose¬†along the coast. ¬†This lead to a virtuous cycle where housing starts beget jobs which beget more employment, wage growth and ultimately more household creation and home buyers. ¬†This cycle has been different for several reasons:

  1. Difficulty of inland builders to develop affordable homes profitably due to low FHA caps and high impact fees
  2. Growth in preference for urban living among wealthier adults
  3. Declining home ownership percentage impacts the marginal entry level buyer more than the affluent one and historically, the marginal buyer is more likely to look inland for housing.

It’s become fairly common in our industry to look to increases in FHA limits¬†as the salvation of the secondary markets. ¬†However, for that to occur in any substantial magnitude (all indicators point to a small increase next year), ¬†Congress would have to¬†revise the statutory formulas that they set back in 2008 to govern FHA limits. ¬†As my colleague Larry Roberts wrote in OC Housing News, that is far easier said than done:

Through the lobbying efforts by the National Association of Homebuilders or the National Association of Realtors, Congress knows exactly how the conforming loan limit impacts home sales and new home development.I recently spoke with Scott Meyer and Michelle Hamecs of the NAHB. They provided me their NAHB Issues Update that detailed the FHA loan limit issue (click here for that document). It isn’t ignorance to the problems the prevents Congress from raising the limit.

The conforming loan limit demonstrates the tug-of-war between two conflicting desires of policymakers.  On one side, advocates for the housing industry and advocates for expanded housing opportunities to all Americans want to push the loan limit higher. On the other side, the more fiscally conservative lawmakers want to lower the limit to restore the prior mandate of insuring loans only for lower- and middle-income Americans. Further, they want to reduce the potential liability for the US taxpayer, who would currently cover all the losses if the market crashes again.

If the conforming loan limit were reduced, it would decrease the potential liability for taxpayers and reduce the size of the GSE operations and make it easier to someday dismantle them; however, the last time the conforming limit was dropped, Irvine, CA witnessed an 84% decline in sales volume in the price range no longer financeable with GSE loans. Ouch!

There is no doubt that increasing FHA limits would help. ¬†There is nothing particularly healthy about having a market that is 100% reliant on government-backed loans to function but unfortunately that’s the hand that we have been dealt. ¬†Raising FHA limits attacks the problem from the bottom of the prospective home owner pool by allowing buyers at lower price points to purchase homes with much lower down payments than what’s available using a conventional mortgage. ¬†Today, I want to look at a different scenario that could play out in the next few years. ¬†It’s more from the upper end of the pool¬†where coastal renters could find themselves once again looking inland if prices continue to rise. ¬†Today, I’m going to focus on Orange County and the Inland Empire but the demographic dynamics that I’m going to focus on could apply to many affluent coastal regions and their less-affluent inland neighbors.

On the surface, things look great in Orange County. ¬†Economic growth is strong as is employment¬†and home prices are now above their prior peak. ¬†Development is humming along and occupancy levels are extremely high in commercial and multi-family projects. ¬†In addition, OC has diversified it’s economy quite a bit as finance and tech have taken a large role as¬†the County has become less dependent on real estate. ¬†However, as the OC Register detailed last week, Orange County has a growing demographics problem and I think that the Inland Empire just might be the prime beneficiary. ¬†The problem isn’t that Orange County isn’t creating jobs. ¬†It is and we actually have the lowest unemployment rate in Southern California. ¬†It’s that the jobs being created often don’t come with wages that would allow someone to live here. ¬†Combine that with relatively few new housing units being built and the cost of existing units rising quicker than inflation and you have a recipe for what economists predict will be a¬†declining population of prime workforce age population (25-64 year olds) from 2010 – 2060. ¬†From the OC Register (emphasis mine):

‚ÄúThey say demographics are destiny,‚ÄĚ Wallace Walrod, the Orange County Business Council’s Chief Economist told the conference. ‚ÄúIt is imperative that everyone in this room understand the consequences of pending demographic shifts.‚ÄĚ

The national trend of aging baby boomers moving into retirement, he said, is ‚Äúmagnified and exacerbated‚ÄĚ in Orange County, where the over-65 population is on track to nearly double by 2060 to ‚Äúa staggering 26.2 percent.‚ÄĚ

Unlike California as a whole, every age cohort other than seniors is shrinking in Orange County, where the median age has risen from 33 to 38 since 2000.

Most worrying, the prime working-age population ‚Äď 25-to 64-year-olds ‚Äď is expected to dip by 1 percent by 2060, even as overall population grows by 15 percent.

By contrast, working-age groups in Riverside and San Bernardino counties are on track to grow by 61 percent and 47 percent, respectively.

‚ÄúWe are losing not only our 25 to 34 year-old workforce ‚Äď millennials ‚Äď but also losing K-12 and the college-age cohort as well,‚ÄĚ Walrod said.

The trend, he warned, ‚Äúcould devastate O.C.‚Äôs pool of workers, creating talent gaps as large swaths of the workforce retires, leaving open positions that will likely go unfilled.‚ÄĚ

The Register went of to identify the the obvious culprit: housing. ¬†I frequently¬†hear friends, neighbors and co-workers and neighbors who live in Orange County complain that the area is being over-developed. ¬†The stark reality of simple math shows¬†that view couldn’t be more wrong. ¬†Again, from The OC Register¬†(emphasis mine):

A severe housing shortage has turned Orange County into one of the most expensive markets in the nation, with median home prices exceeding $650,000 and average monthly rents at about $1,900. Higher-density developments that could alleviate the shortfall are often opposed by current homeowners.

Rising values are ‚Äúgood news for current homeowners, but bad news for those looking to afford to relocate to O.C. or to buy a house and stay here, especially millennials,‚ÄĚ Walrod said.

As a result, he added, ‚Äúdomestic outmigration has been accelerating.‚ÄĚ

The report projects that “new job creation will significantly outpace projected new housing units over the next two and half decades, resulting in a housing shortfall that will grow from a current reading of 50,000-62,000 units to a staggering 100,000 units by 2040.

‚ÄúMany workers are being forced into neighboring counties to find more affordable housing, increasing their commute and complicating their work-life balance.‚ÄĚ

……

According to the report, it takes an hourly wage of $32.15 to afford a two-bedroom apartment in Orange County, putting it out of reach for minimum-wage workers in the county’s fast-growing service sector, given the current California wage floor of $10 an hour.

The story goes into much more detail about a developing skill gap and low wage job boom. ¬†However, I want to keep the focus on housing for this post. ¬†Note the above projections about working age populations in Riverside and San Bernardino Counties (growth of 61% and 47% respectively¬†from today until 2060). ¬†Those are massive numbers that will create a strong demand for housing and not all of it will be entry level. ¬†If you take the median income required to buy and rent a median-priced home in Orange County today, it is around $100k (assuming you can put down 20%) and $70k, respectively, so there are a lot of people with well-paying jobs that fall below that amount. ¬†Given the fierce opposition to density in the OC, it is likely that those numbers will only increase. ¬†Also, keep in mind that the averages above are for the entire county. ¬†The most desirable areas with the best school districts can easily be double those amounts which is incredible when you consider that median income to afford an apartment in the neighboring IE is around $55k. ¬†At some point, something has to give. ¬†My guess is that it’s a move towards more relatively affordable¬†housing markets, in this case the Inland Empire.

I want to make an important caveat about what I wrote above: I haven’t a clue as to when this change will actually take place and more affluent workers will start to look inland to buy or rent. ¬†However, one thing that I’ve learned witnessing¬†our current market is that things¬†change incredibly quickly once they hit a critical mass. ¬†Just a few short years ago we were subject to an endless barrage of “renting is superior to buying” articles in the mainstream and business press. ¬†Just this week, Bloomberg ran a piece that argued that it’s almost always better to buy. ¬†Such an article would have never seen the light of day in 2011. ¬†Both types of articles are virtually assured to be wrong since they argue in absolutes. In reality¬†it’s sometimes better to buy and sometimes better to rent¬†but that level of nuance doesn’t¬†lead to¬†many page views.

My comment about how quickly things change goes for regional and local trends as well.  For example, 15 years ago, pretty much no one with a college education wanted to live anywhere near downtown LA.  Within the past 10 years that has changed rapidly and an area which was once in the grips of urban decay has become one of the most desirable locations for young, affluent home owners and renters in the US.  Some of the same conditions that created the LA gentrification/urban renewal boom have caused the Inland Empire to lag: delayed household formation by Millennials, preference for urbanization among high earners and a downward trend in the percentage of Americans who own a home.  However, I have serious doubts that these are permanent trends and there are other factors at play already that could begin to create more inland demand:

  1. Addition of urban elements and amenities to existing CBD and downtown regions. ¬†This is already happening in downtown Riverside as more density and foodie oriented retail are on their way. ¬†There are other urban areas out in the IE that could experience the same thing over time, downtown San Bernardino for example. ¬†It’s probably difficult to imagine right now but that’s ok. ¬†Downtown LA as it currently exists was¬†didn’t seem feasible back in 2001 either and I doubt that many of us foresaw luxury condos and apartments going up next to Skid Row.
  2. Self driving cars could help to ease commute stress in markets without mass transit infrastructure.  The technology is advancing rapidly and the Inland Empire will arguably be the region that will benefit the most in the US.
  3. Bank lenders are starting to compete with the FHA for low down-payment loans to entry level buyers. ¬†Bank of America has been so successful with their 3% down program that they are doubling it. ¬†These lending programs are still tiny by comparison but it wasn’t long ago that they didn’t exist at all.
  4. Millennials are getting older.  Many of the oldest Millennials are now entering their mid to late 30s which are the prime household creation years.  Once people start families, studies show that they are more likely to favor the stability of owning over the mobility of renting and the family-friendly single family home over an apartment.

The Inland Empire is down but I wouldn’t count it out over the long term. ¬†The current trends that have hurt the¬†housing market there aren’t likely to last forever and the region is adjacent to¬†too many incredibly expensive areas¬†to not experience some spillover as even relatively high earning families eventually get priced out of the coastal regions. Conventional wisdom is that only an increase in the FHA loan limit can revitalize the IE housing market. ¬†In the short term, that may very well be the case but a sustainable recovery just might come from higher earners moving into the region.

Economy

The Walking Dead: How bankrupt oil companies that are continuing to pump could keep a lid on oil prices.

Stay In:¬†It’s getting more expensive to eat out even as grocery prices are falling.

Commercial

The Spigot: Pension funds have been steadily increasing commercial real estate allocations¬†for the past few years and that isn’t likely to change in 2017 despite signs of a maturing market. ¬†See Also: REITS have become a¬†more attractive target for activist investors.

High Times: A San Diego based medical marijuana landlord just filed for an IPO.

Residential

Further Afield: High prices and low yields near the coast have investors looking for rental homes in cheaper locations through management and investment services like Home Union, Investability and Roofstock. ¬†However, a lack of local knowledge can lead to out of area investors paying the dumb tax by thinking that they are getting a good deal when they aren’t.

Profiles

Pull the Lever: How smart phones and app developers create digital addiction by mimicking slot machines.

Paradise: The Cubs paved the way for the Dodgers to come to LA by hosting their spring training on Catalina Island. See Also: For the Cubs oldest fans, this year could be their last chance. And: There are people trying to get 6 figure ticket prices for a single seat at World Series games at Wrigley Field.

Chart of the Day

WTF

Hard at Work: Meet the TV weatherman who got bored with his job after 23 years and decided to become a porn star.

Not a Detail Person: Russian oligarch has giant hideous boat built at a German port on the Baltic Sea. Ship draws too much to get out of the straits at the entrance to the Baltic. Epic FAIL ensues.

Lawsuit of the Year Nominee: A woman is suing KFC for $20MM because she felt that her bucket of chicken wasn’t full enough.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links October 25th – When Will The Empire Strike Back?

Landmark Links September 27th – Unusual Trend

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Lead Story… “When Orange County catches a cold, the Inland Empire gets the flu.” ¬†If you’ve spent any time in the real estate industry in Southern California, you’ve probably heard some variation of this truism. ¬†The relationship has held¬†up¬†over the years because the two regions are closely linked in terms of geography and economy: OC has white collar jobs and executive housing, whereas the IE traditionally has more blue collar jobs and¬†more plentiful affordable housing. ¬†In a typical cycle, OC home prices rise first, followed by IE prices. ¬†When the cycle turns, the IE pricing and volume typically falls off first when entry level financing disappears and blue-collar employment falls off. ¬†The price movements in the Inland Empire are typically greater in percentage terms (although substantially¬†less in nominal dollar terms) to both the upside and the downside since values there are lower. ¬†This cycle, that historical relationship has broken down, as I¬†detailed in a blog post titled Mind the Gap¬†back in May. ¬†Last week, JBREC’s Rick Palacios JR posted a research piece about¬†the disjointed nature of the recovery across housing markets in the US, summed up neatly in the chart below:

jbrec_housingcycle-marketbymarket_q32016_black3

The first thing that I noted on the chart¬†is that, aside from Houston, every market on here is still on the positive side of the slope. ¬†Larry Roberts at OC Housing News wrote a follow-up post that helps put the above¬†chart in context about how Dodd Frank’s crackdown on so-called affordability products will dampen volatility in future housing cycles.

The second thing that I noticed is more local and that is that JBREC classifies both OC and LA as late Phase 2 to early Phase 3 while the Inland Empire has barely made it out of Phase 1 and is plagued by relatively low levels of housing construction.  Orange County prices exceed the prior cycle peak while Inland Empire prices are still 20% Р30% below.  IMO, there are several reasons for this:

  1. While development impact fees are very high in both Orange County and the Inland Empire, they are far higher as a percentage of new home price in the Inland Empire. ¬†Housing prices crashed in the late aughts but impact fees didn’t, making it very difficult to build homes profitably in further out locations that haven’t experienced the coastal recovery.
  2. The Inland Empire is a less diverse economy than Orange County and is¬†more¬†reliant on real estate development to power it’s economy, which has struggled in light of the low number of housing starts the region is experiencing from what we would typically see at this point of the cycle.
  3. There was a far higher level of distress in the Inland Empire markets during the housing crash which took longer to work off than it did in Orange County.
  4. Perhaps most importantly, the Inland Empire is an affordability-driven market. ¬†Orange County is not. ¬†Riverside and San Bernardino Counties are both highly reliant on FHA financing that allows for much lower down-payments than conventional financing options. ¬†San Bernardino and Riverside Counties¬†are constrained by the FHA limit of $356,500 which is absurd given the massive geography of these two counties – if they were their own state it would be the 11th largest in the US by land mass. ¬†At or below this loan amount a borrower can put¬†up¬†a down-payment¬†as low as 3%. That down-payment¬†goes up substantially for loan amounts above $356,500. ¬†That is a huge problem for builders in the IE since they are essentially¬†sandwiched between rising impact fees /¬†regulatory costs and an FHA price ceiling. ¬†If a builder wants to sell homes priced¬†at or below FHA, he¬†has to find cheap land and it’s still tough to make a profit. ¬†Price above it and¬†his¬†absorption dries up due to a lack of a buyer pool with substantial down payment capacity. ¬†Orange County has an FHA limit of $625,500. ¬†Even still, Orange County just isn’t that beholden to FHA limits because home prices are so high here. ¬†Perhaps the only silver lining is that it’s highly unlikely that the FHA will reduce loan limits for Riverside and San Bernardino Counties next year and increasingly likely that they will raise it¬†a bit. ¬†Still, being constrained by a¬†completely¬†arbitrary government loan cap on a huge and diverse area is hardly a healthy situation, even if you can get some relief when that cap increases.

Perhaps I’m incorrect and the historical relationship will remain in tact¬†when the market eventually turns. ¬†However, it seems unlikely given that the Inland Empire really hasn’t experienced much of a real estate recovery while¬†Orange County has. ¬†It’s a lot more painful to fall off of a ladder than off of a curb.

Economy

Happy Losers: So much of what’s wrong with the US economy is summed up in this paragraph from the Washington Post:

Most of the blame for the struggle of male workers has been attributed to lingering weakness in the economy, particularly in male-dominated industries such as manufacturing. Yet in the new research, economists from Princeton, the University of Rochester and the University of Chicago say that an additional reason many young men are rejecting work is that they have a better alternative: living at home and enjoying video games. The decision may not even be completely conscious, but surveys suggest that young men are happier for it.

Quick to Jump Ship: Why decreasing employee tenure could be a positive sign for the economy.

Paycheck to Paycheck: Small businesses are now surviving but still not thriving. A new JP Morgan study found that the average small business has less than a month of cash operating reserves.

Residential

Movin’ Out:¬†KB Homes is seeing more young people entering the first time home buyer market. ¬†Apparently, there are a few more vacancies in mom’s basement now.

Slim Pickin: Home sales fell in August as inventory fell over 10% from this time last year.

Super Sized Incentives: Builders are constructing super sized homes because they are highly economically incentivized to do so.

 Profiles

Acquisition Target: Suitors are beginning to line up to acquire beleaguered Twitter. Google and Salesforce are the among the latest rumored to be interested¬†as is Disney. ¬†See Also: Why is Salesforce interested in Twitter? ¬†It’s all about the data.

Fashion Statement: Snapchat is entering the hardware business with a line of camera-equipped sunglasses.  This is great news as is it will instantly ID people who deserve to get punched in the face.

Gross: Hampton Creek is a San Francisco startup that wanted to become “the first sustainable-food unicorn” in part by selling a vegan concoction called “Just Mayo.” ¬†The problem was that it apparently tasted like crap and the company was busted buying gallons of their own disgusting concoction¬†from Whole Foods and other stores in an effort to boost it’s sales. (h/t Mike Deermount)

Chart of the Day

REITs get their own sector in major S&P 500 makeover

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WTF

No Regrets: A 27 year old man from Boston attempted to create something he called a “scuba bong” by filling a scuba tank with marijuana smoke. He failed miserably and lost both of his testicles when the tank exploded. The gene pool has been chlorinated once again.

Stupid Is As Stupid Does: As many of you probably know, Apple got rid of headphone jacks on the iPhone 7 leading to angst among many loyal Apple users. A prankster posted a video purporting to show owners of the new phone how to “add” the headphone jack by drilling a hole in the phone. The video went viral and idiots are now breaking their phones by drilling them out. Imagine a person of average intelligence. Now consider that half of the world’s population is dumber than that person.

Florida Has Jumped the Shark: A tweaker on a 5-day methamphetamine binge cut off a certain part of his anatomy and fed it to an alligator because, Florida.  A friend first sent me this story and I thought it was a fake.  It appears to be legit.  When it comes to Florida weirdos, reality is often stranger than fiction. (h/t Andrew Shugart)

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links September 27th – Unusual Trend

Landmark Links July 1st – East Coast Edition

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Happy 4th of July! ¬†First off, Jason Pierre-Paul of my beloved Giants and his disturbingly-mangled hand has a public service announcement for you: don’t light fireworks off in your hands as doing so can leave you disfigured and also cost you tens of millions of dollars in the NFL free agent market. ¬†To paraphrase¬†Apu from the Simpsons: “Celebrate the independence of your nation by blowing up a small part of it….just make sure that it doesn’t include your hand.”

Lead Story…¬†The Panama Canal will be opening up a new lane for larger ships in the coming weeks. ¬†One of the economic winners will be owners of industrial buildings¬†in a quaint area of South Carolina 200 miles from the sea where a construction boom is underway to accommodate goods coming into the Port of Charleston,¬†which is currently undergoing dredging that will make it the deepest harbor on the east coast. ¬†Consider it the new Inland Empire of the South. ¬†From the Wall Street Journal:

In the past few years, the rolling hills and farmland surrounding Greenville and Spartanburg have given way to massive warehouses and industrial parks. Restaurants in Greenville, S.C.’s formerly neglected downtown cater to corporate managers and engineers from Germany and Japan. Trucks clog the two main interstates, carrying engine parts and finished goods to and from the region’s growing number of manufacturing plants.

More development is on the way: over six million square feet of warehouse space is under construction in the Greenville-Spartanburg region, a scale typically seen in major cities like Philadelphia and St. Louis, according to CBRE Inc., a real-estate brokerage.

The construction frenzy is being fueled by developments at the Panama Canal, nearly 2,000 miles away. The new, wider ship channel will allow bigger ships to pass through, lowering the cost of bringing Asian-made goods directly to the East Coast.

Industrial boom

Sound familiar? ¬†It should if you’eve ever spent time in the former¬†cow pastures west¬†of I-15 in San Bernardino and Riverside Counties that now have millions of square feet of class-A warehouses¬†that¬†serve¬†as a massive distribution hub for the ports of LA and Long Beach. ¬†Some are arguing that the canal widening will allow Asian exporters to hedge against the labor issues that have boiled over in LA and Long Beach in recent years, grinding commerce to a halt even at the expense of a few extra shipping days to get to market. ¬†The counter argument is that days to market will still rule and there isn’t likely to be much of any drop off in LA and Long Beach. ¬†Either way, the net volume of traffic going to east coast ports¬†is likely going up to some extent and that is what industrial developers are anticipating. ¬†This could potentially be a massive economic stimulus for¬†an area that was formerly a textile hub and lately had¬†best been know for automotive manufacturing. More¬†from the Journal:

The expanded Panama Canal ‚Äúis going to drive industry and create even more businesses there,‚ÄĚ said Joel Sutherland, director of the Supply Chain Management Institute at the University of San Diego. ‚ÄúHaving a regular flow of containers‚Ķwill attract major manufacturing, then their suppliers, then their suppliers‚Äô suppliers, and ultimately more people.‚ÄĚ

From the Port of Charleston‚ÄĒwhich is dredging its harbor to be the deepest on the East Coast‚ÄĒcontainer cargo makes the quick trip by rail to a freight hub in Greer, S.C., known as the Upstate‚Äôs ‚Äúinland port.‚ÄĚ

Trucks pick up those containers of component parts and retail goods bound for nearby factories and distribution centers. And from there, truckers can reach Atlanta or Charlotte, N.C., in two or three hours, and most of the rest of the Eastern U.S. within a day’s drive.

‚ÄúThe Panama Canal is not even completed, the port dredging has not been completed, but we‚Äôre already attracting major distribution and manufacturing companies,‚ÄĚ said Trey Pennington, an industrial real-estate broker with CBRE in Greenville. ‚ÄúThe Panama Canal will fundamentally change the market dynamics of South Carolina in the coming years.‚ÄĚ

It’s also a given that more economic growth and well-paying¬†jobs will lead to more residential and retail development which leads to…..you guessed it¬†–¬†NIMBYs who, as always are coming out of the woodwork to protest anything new being built:

In downtown Greenville, higher-end residential and retail development‚ÄĒa Brooks Brothers clothing shop opened on Main Street in 2013‚ÄĒis forcing out some longtime residents. Across Greenville and Spartanburg counties, residents say traffic congestion has never been worse.

The Upstate‚Äôs main roads are lined with razed fields where warehouse structures rise in various states of construction. Conservationists say the region‚Äôs natural landscape in the foothills of the Blue Ridge Mountains‚ÄĒwhich draws outdoor enthusiasts and an especially large number of professional and amateur cyclists‚ÄĒis under threat as housing and industrial construction push further out from the cities and transportation corridors.

‚ÄúThe Upstate needs to balance this development with protecting valuable green spaces and water quality,‚ÄĚ said Andrea Cooper, director of Upstate Forever, an environmental advocacy group.

In a strange way, I’m relieved to see that the “If You Build It They Will Whine¬†(and most likely sue you)” crowd doesn’t confine itself to coastal California. ¬†If the Panama Canal expansion ends up resulting in a 10% – 20% increase in goods going through Charleston as some predict, the Upstate could be in for a prolonged economic boom that will likely keep the anti-growth NIMBY crowd busy for the foreseeable future. ¬†If that scenario does play out, look for the region to become a prime growth corridor with all of the positives (and yes, some negatives) that go with economic expansion. ¬†South Carolina may be getting it’s own version of the 909¬†so be on the lookout¬†for the flat brimmed hats, barbed wire tattoos and lifted pickup trucks.

Economy

Stick a Fork in It: The futures markets are now saying that the Fed won’t raise interest rates until 2018 post-Brexit. ¬†See Also:¬†Government bonds from developed economies have been this year’s jackpot investment.

News Flash: It’s really, really expensive to raise a child in the US. ¬†Per the US department of agriculture,¬†the average¬†cost to raise a child born in 2013 from birth to 18-years old is $245,340, ranging from $176,550 for low-income families to $407,820 for high-income families. ¬† This only covers a kid¬†to age 18 so it DOESN’T include college. ¬†It’s truly a wonder that young people are delaying household formation coming out of the Great Recession…..

Commercial

Scarcity: 1031 exchange buyers are having a difficult time finding enough deals to trade into, leading them into unfamiliar markets and product types and helping to bid up already-high commercial real estate prices.

Residential

Unintended Consequences:¬†There has been no group of people more wrong over the past 7 years than the “interest rates have nowhere to go but up” crowd. ¬†The Brexit is just the latest example of why this line of thinking has been incorrect. There¬†is also a credible argument that Brexit¬†could set off a chain of events that would result in mortgage rates in the 2s. ¬†I’m not saying that it will happen or even that it’s likely but the possibility shouldn’t be ignored based on the deflationary forces that we are seeing in the world economy.

Not in the Ballpark: US housing supply continues to lag far behind demand just as it has been doing since 2009.

Unsustainable: Inflation-adjusted rents rose 64% from 1960-2014 while real household incomes increased only 18%, resulting in the share of cost-burdened renters nationwide exploding from 24% in 1960 to 49% in 2014.  If you want to know why so many people struggle to save for a down payment, this is a good place to start:

Profiles

Hero:¬†Meet the world’s first robot lawyer, a free online chatbot who has managed to overturn 160,000 parking tickets in London and New York, saving users¬†nearly $3.9MM in fines since it was launched 21 months ago. ¬†The 19 year old British coder who invented this should win a Nobel Prize.

Predictable: There is one industry that is about to make a fortune on the Brexit regardless of what happens with regards to markets and the economy: lawyers.

Stressed:¬†The Federal Reserve’s annual bank stress tests have spawned¬†a multibillion-dollar industry where banks hire consultants to manage other consultants¬†¬†in order to help them pass, fueling¬†a never-ending feedback loop of red tape and bureaucracy.

Chart of the Day.

Supply and Demand for Housing

Supply = Blue, Demand = Gold

Difference Between Housing Supply and Demand

WTF

Breast in the World:¬†Just in time for July 4th, the Journal of Female Health Sciences recently released a new study that found the US rules the world¬†in a very important category: American¬†women have the world’s largest boobs. ¬†The study¬†excluded¬†surgical enhancements, which of course naturally meant that only two women in Orange County – which qualifies as a very different type of Silicon Valley – were eligible to participate. ¬†Yes, this is blatant click-bait but I’m going to milk it for all it’s worth as I feel it‚Äôs my duty to augment your base of knowledge by keeping you abreast of important news.

Video of the Day: In a development that will likely alter the path of human history, some genius figured out that beer pong is more fun and challenging if the cups are placed on top of a Roomba vacuum cleaner which is then placed on top of the beer pong table.  Bring a Roomba to your 4th of July BBQ and you will be the most popular person there.  Guaranteed.

Vegan News Roundup: Vegans are now forcing their bat-shit-crazy religion on their dogs (which, by the way are carnivores) because vegans are mostly insane.  Side note: this definitely qualifies as animal abuse.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 1st – East Coast Edition