Landmark Links October 21 – Dense Hypocrisy

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Lead Story… There is little that I enjoy more than reading (or writing) about the hypocrisy of self-important celebrities.  However, one of my primary rules for writing this blog is to avoid politics – unless it’s land use politics (or water politics).  As such, I haven’t had the opportunity to write much about celebrity hypocrisy, despite frequent gnawing temptation to do so.  Today’s blog will be different.

At this point in his career, Leonardo DiCaprio is almost as well known for his environmental activism as he is for his acting, or, for that matter the number of supermodels that he’s slept with.  This is despite the fact that his anti-fossil fuel stance is frequently juxtaposed against his high-rolling lifestyle of flying around the world on carbon-spewing private jets and spending his vacations on yachts rented or borrowed from oil sheikhs, all of which is evidenced by his massive carbon footprint.    However, the above examples may not even be his most egregious examples of hypocrisy since they only deal with his individual actions and lifestyle.  His views on land use politics are far more disturbing and far more destructive from an environmental prospective.

So, now we come to the land use part of this story.  It’s not a controversial notion that the best thing that a city can do to cut down on pollution is build more density in it’s core as higher density in urban centers leads to less automobile use, which leads to less carbon emissions.  If residents are located closer together, there is less need to transport people and goods over further distances.  Therefore energy use is reduced, as well as water usage for that matter since higher density typically means less large lawns to water.  This is roughly as objectionable as someone making an argument that water is wet or that orange juice tastes like oranges.  So, imagine my surprise (end sarcasm here) when I recently read a story on Curbed LA about how self-styled environmental crusader Leonard DiCaprio (among other celebrity “activists”) had signed onto an anti-development campaign known as the Neighborhood Integrity Initiative demanding the following:  From Curbed LA  (emphasis mine):

(1) Direct officials to halt amendment of the City’s General Plan in small bits and pieces for individual real estate developer projects, and

(2) Require the City Planning Commission to systematically review and update the City’s community plans and make all zoning code provisions and projects consistent with the City’s General Plan, and

(3) Place City employees directly in charge of preparation of environmental review of major development projects, and

(4) For a limited time, impose a construction moratorium for projects approved by the City that increased some types of density until officials can complete review and update of community plans or 24 months, whichever occurs first.

This list of demands was presented to Mayor Eric Garcetti.  The group claims that they have enough signatures to get their measure on the ballot should Garcetti not submit to their demands.  This is NIMBYism, plain and simple.  There is just no other way to describe it  From Curbed LA (emphasis mine):

So, quite literally, the single best thing that a city can do for the planet is locate destinations—houses, jobs, grocery stores, schools—closer together so its residents expend less time, less money, and fewer fossil fuels traveling among them.

That’s how LA needs to think about density—as a long-term solution for climate change that will also deliver short-term social and economic benefits.

The problem with anti-density campaigns is that their boosters aren’t thinking about our city in a way that looks beyond what they see on their own block today.

Santa Monica’s anti-density measure, LV, is the most troubling, as it would require a citywide vote to approve any new structure over 32 feet. This would make it politically (and economically) difficult to erect buildings more than two stories tall in a prohibitively expensive city that already has limited room to grow, pushing workers farther and farther away from their jobs.

Again, as stated previously, the fact that increasing density in urban cores is good for the environment is not particularly controversial, nor is it an issue opposed by those on either the right or the left….until it happens near when they live.  In this case, it’s a matter of wealthy hypocrites who claim to be environmentalists trying to stop development because it happens to inconvenience their lifestyle a bit, despite the fact that the development would have a substantial positive impact on the environment that they claim to care so much about.  Again, from Curbed LA (emphasis mine):

Restricting building height and planning for cars goes against everything that environmental leaders and sustainability experts have been saying for decades: If you’re erecting a multi-use structure in a dense, transit-accessible neighborhood with centralized freight delivery systems, the environmental impact of that structure is lessened significantly over time.

Building a two-story building surrounded by a city-mandated parking lot on an extra wide street is not the worst thing you could do for the planet. The worst thing you could do for the planet is codify this kind of development into the land use and planning policies of your city to make building anything else impossible.

That’s why many cities and states are incentivizing dense, transit-accessible development as part of a larger climate-friendly mandate to not only decrease emissions, but also improve public health, clean the air, and slash energy costs.

My broader point here is that you can’t have it both ways.  This isn’t an issue where there is a credible case that increasing density in urban cores isn’t better for the environment than doing the opposite: incentivizing sprawl by making it impossible to build in urban areas.  You can’t be an environmental advocate only when it suits your personal interests and expect not to get called out on your hypocrisy, especially when you stake out as hard-line of a position as DiCaprio has.

Economy

Watching the Horizon: According to Bloomberg, odds are that the next financial crisis will come from depressed lenders, shadow banks or China.

Conscientious Uncoupling: How a massive surge in divorce rates in couples over 50 years old is forcing people to work longer and putting retirements at risk.

Commercial

Rise of the Machines: Industrial robots are driving some major changes in both warehouse design and workforce composition.

Residential

History Lesson: The New York Times published a fairly balanced history of the story behind the prop 13 tax revolt and it’s consequences.

Bad Rap: Luxury condos and apartments get a bad rap when it comes to the increasing cost of housing when restrictive zoning is more often the real culprit.

The Missing Middle: By continuing to focus primarily on housing prices in San Francisco and NY, the media is missing a bigger story – rentals are becoming un-affordable nation-wide for middle class families.

Profiles

What’s the Story?  HGTV has achieved something incredible: a bunch of hit shows with no serialized narrative drama that is the hallmark of the modern successful series.

Video Of the Day: Meet Rox Zee, the Boise State football team’s kickoff tee fetching Labrador Retriever.  In related news, I think that I just became a Boise State fan.

Troll So Hard: Twitter’s infamous army of anonymous trolls played a roll in Salesforce passing on offering to acquire the troubled social media platform.

Farm to Cart: Target is experimenting with so-called vertical farms where produce is grown in-store.

Chart of the Day

WTF

Political Metaphor: A Hillary Clinton tour bus was busted dumping human waste down a storm drain in an Atlanta suburb, resulting in a hazmat team getting dispatched to the site.  If you’ve ever seen National Lampoon’s Christmas Vacation, you are aware that this can end really, really terribly.  On a personal note, I can’t wait for this election season to end.

Revealing Protest: Porn actors (I never understood why they are all called stars) are picketing on the streets in Hollywood to protest a ballot proposition which would impose mandatory condom use for any adult video filmed in the state.  Los Angeles passed a similar law in 2012 that decimated the adult industry, causing permits to plunge from 480 in the year it was passed to just 25 last year.

Pack a Day: Meet Azalea, the chain smoking chimp who has become the star of North Korea’s new national zoo in Pyongyang.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links October 21 – Dense Hypocrisy

Landmark Links July 29th – Taking Out the Trash

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Lead Story… Regulatory changes are rapidly leading to the demise of one of the seedier portions of the real estate industry: Non-Traded REITs.  I’ve written about Non-Traded REITs a couple of times before.  For those of you not familiar with the product, Investopedia defines a Non-Traded REIT as (emphasis mine):

A form of real estate investment method that is designed to reduce or eliminate tax while providing returns on real estate. A non-traded REIT does not trade on a securities exchange, and because of this it is quite illiquid for long periods of time. Front-end fees can be as much as 15%, much higher than a traded REIT due to its limited secondary market.

Basically, it’s exactly like a traded REIT, only far less liquid and with much, much, much higher fees.  This definition doesn’t even get into the other myriad of above-market management fees that the Non-Traded REIT companies charge their investors.  If you can’t already tell, I’m no fan of this “asset class”…or really any other that exists mostly to enrich sponsors and sales people at the expense of unwitting investors.  That’s why I was incredibly pleased to find an article earlier this week in Investment News entitled Nontraded REIT sales fall off a cliff as industry struggles to adapt outlining how regulator changes have crippled the third-tier brokerages that traditionally fed capital to Non-Traded REITs.  This is not a business with a bright future:

Sales of nontraded real estate investment trusts, the high-commission alternative investments sold primarily by independent broker-dealers, have fallen off a cliff.

Heading into 2016 facing a number of hurdles, namely a flurry of legal and regulatory changes that would quickly impact how brokers sell them, the nontraded REIT industry’s worst fears have come true.

Over the first five months of the year, sales of full-commission REITs, which typically carry a 7% payout to the adviser and 3% commission to the broker-dealer the adviser works for, have dropped a staggering 70.5% when compared with the same period a year earlier, according to Robert A. Stanger & Co. Inc., an investment bank that focuses on nontraded REITs.

Their recent sharp drop in sales is part of a longer cycle. The amount of equity raised, or total sales of nontraded REITs, has been sinking by about $5 billion a year since 2013, when sales hit a high watermark of nearly $20 billion.

Times have changed dramatically. Stanger estimates total nontraded REIT sales in 2016 will reach between $5 billion and $6 billion, or roughly 25% of their level in 2013. That year, former nontraded REIT czar Nicholas Schorsch and his firm, American Realty Capital, were at their zenith, and broker-dealers fattened their bottom lines from REIT commission dollars.

All that has changed as sales of nontraded REITs at independent broker-dealers have dried up. Industry bellwether LPL Financial said in its first-quarter earnings release that commission revenue from alternative investments, the lion’s share of which comes from nontraded REITs, was just $7.8 million, a staggering decline of 86.7% when compared with the first quarter of 2015.

Other broker-dealers are reporting similar results. Sales of nontraded REITs at Geneos Wealth Management are down 60% to 65% year to date, according to Dean Rager, the firm’s senior vice president.

So, what led to fundraising for an investment product like this tanking?  Two new regulations.  The first one, from FINRA introduced a new rule whereby brokers selling illiquid investments need to make pricing transparent.  Seems reasonable.  The second, which will come into effect early next year will introduce a fiduciary standard for brokers working with client retirement accounts as opposed to the lower “suitability” standard currently being used.  Also seems quite reasonable.  The result is a nearly impossible fundraising environment when:

  1. Brokers have to show clients that the fees that they would pay are exorbitant (and there is no way that a broker would sell Non-Traded REIT shares without the high fees); and
  2. There is no chance that a broker can recommend an investment where a return of over 17% must be achieved just in order to break even by offsetting the 10% broker fee and up-to 5% upfront fee to the Non-Traded REIT sponsor.

If this industry is going to survive, it will need to change substantially, meaning lower fees and far more transparency.  The thing is that, at a certain point, there is basically no reason for it to exist since investors can always buy far more liquid Traded REITs.  The good news is that would-be investors are far less likely to be taken to the cleaners.  The other good news is that there are other real estate alternatives with a far better alignment of interest between investor and sponsor that will likely to be the beneficiary of capital that would have otherwise gone into Non-Traded REITs.  Good riddance.

Economy

Yield Curve Update: The yield curve continues to contract.  However, unlike in past cycles, it may not be signalling a recession and instead a response to the international hunt for yield spurred on by negative interest rates and foreign economic chaos.  Either way, it doesn’t give the Federal Reserve much latitude.

And You Think We’re Bad: The incredible story of how Italian banks used high pressure sales to entice Italian households to load up on their risky subordinate debt during the financial crisis, imperiling their economy today.

Residential

This is Why We Can’t Have Nice Things (or Affordable Housing): …..At least not in San Francisco.  A proposed housing development in the Mission district lost 85 percent of it’s unit count at planning commission, shrinking it from 26 new units to only 4.  The reason: Planning Commission decided that it wanted to preserve the auto body shop that currently resides on the site.  Ironically, the same people opposed to this project will continue to shed crocodile tears about how San Francisco has become un-affordable due to a complete lack of common sense or economic literacy.

Crickets: The lack of affordable housing in the US should be a major campaign issue but neither party seems to want to touch it.

Rocket Fuel: Bay Area private bank lenders are offering wealthy techies 0% down mortgages with low interest rates to buy homes up to $2mm, fueling concern about both bubbles and growing inequality.

Profiles

What’s in a Name?  Lenders are continuing their age-old practice of re-branding loans to high risk borrowers.  B&C lending became stigmatized so they re-branded it “subprime.”  After “subprime” blew up, they started calling it “near-prime.”  When near-near prime doesn’t go well, get ready for not-quite-prime.

The Tortoise and the Hare: Video games that are immediate mega-hits often flame out almost as quickly.  I’m looking at you, Pokemon Go.

The Machine that Builds The Machine: Take a tour through Tesla’s 5.8 million square foot Gifafactory Sparks, Nevada.

Follow Friday: If you’re on Twitter check out @DPRK_News  It’s a satirical North Korean news feed and one of the funniest things I’ve seen.  Here’s a couple of sample tweets:

 

Chart of the Day

This warms my cold heart.

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WTF

Born to Ride: Watch a Walmart customer on a Rascal Scooter rob a store an then get away after ramming an employee into a dumpster with his trusty steed.  When you see what the employees and customers who tried to stop him look like, the fact that he escaped on a Rascal Scooter will make more sense.

Worse Than Tofu: Cockroach milk could be the superfood that the world has been waiting for.  No, this is not from The Onion.

Entrepreneurial Drive: Drug dealers in Rio are selling Olympics branded cocaine to take advantage of their city hosting the games.  Who says there is no economic benefit to hosting the Olympics?

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 29th – Taking Out the Trash

Landmark Links July 19th – One Size Fits All?

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Lead Story…. Nobel Laureate Robert Shiller wrote a piece in the NY Times this weekend titled: Why Land and Homes Actually Tend to Be Disappointing Investments that caught my eye.  In the article, Professor Shiller discusses both farmland and residential land and makes a case they are both subpar investments over time (highlights are mine):

Over the century from 1915 to 2015, though, the real value of American farmland (deflated by the Consumer Price Index) increased only 3.1 times, according to the Department of Agriculture. That comes to an average increase of only 1.1 percent a year — and with a growing population, that’s barely enough to keep per capita real land value unchanged.

According to my own data (relying on the S&P/Case-Shiller U.S. National Home Price Index, which I helped create), real home prices rose even more slowly over the same period — a total increase of 1.8 times, which comes to an average of only 0.6 percent a year.What all that amounts to is that neither farmland nor housing has been a great place to invest money over the long term.

To put this in perspective, note that the real gross domestic product in the United States grew 15.5 times — or, on average, 3.2 percent a year — from 1929, the year official G.D.P. numbers began to be kept, to 2015. That’s a much higher growth rate than for real estate. But why?  For home prices, a good part of the answer comes from supply and demand. As prices rise, companies build more houses and the supply floods the market, keeping prices down.  

The supply response to increasing demand may help explain why real home prices nationwide fell 35 percent from 2006 to 2012 (and even more in some cities). Investment in residential structures in the United States was at near-record levels as a percentage of G.D.P. just before the price declines. Prices have been rebounding since then — and so has construction of new houses.

 

While the idea of supply and demand balancing out the housing market makes perfect sense from a textbook economic perspective, it quickly falls apart when you take into account the most local of all factors that has quite possibly the largest impact on both land and home prices: politics.  Essentially, there are two primary restrictions to developing more residential units.  The first is geographical.  This includes mountains, bodies of water and scarcity of available water resources for new units.  The second is political.  This includes restrictive zoning, discretionary approval rights, etc.

Shiller’s analysis is perfect for markets with little to no geographical restrictions and even fewer political restrictions.  For example, land and home prices are incredibly stable in a place like Houston, Texas where new homes can be added quickly.  However, it fits poorly in coastal California which is hemmed in by mountains and the pacific ocean, has incredibly restrictive zoning and a populace with political leanings typically hostile to new development.  I was a bit surprised that Shiller wrote this piece as he knows what I just wrote better than anyone.  In fact, the Case Shiller Index that bears his name tracks housing prices in individual cities and backs up what I just wrote.  For example, look no further than the difference between the Case Shiller Chicago Index (the don’t track Houston) and the Case Shiller San Francisco Index to see how land use restrictions can lead to explosive moves in asset pricing when coupled with real economic growth.

Shiller goes on to explain how adding density keeps land and housing prices stable over time (highlights are mine):

Of course, underneath every home is a piece of land. Although that is typically only a bit of former farmland, it is often in an urban or suburban area, where a plot of land tends to cost much more than in the country.

Sometimes that little piece of land dominates the value of the home, particularly in dense urban areas. But if we are to understand long-term trends, we need to realize what land represents, even in Manhattan or Silicon Valley or any booming area. People in such places usually aren’t buying land for its own sake but for the myriad services that housing provides. A home is not just a place to sleep and store clothing and keepsakes. It can be a place that is convenient to a stimulating place of work, good schools and entertainment and, indeed, part of an entire human community.

These services have developed enormously over the last 100 years, changing the spatial and geographic dimensions of housing. There are vastly more highways and automobiles, telephones and various electronic connections, enabling people to leave center cities and still obtain the housing services they want. Thus, from a long-term perspective, these developments relieved a great deal of the upward pressure on home prices in cities.

Right now, there are some interesting developments in the supply of housing services that economize even further on urban land. We have recently seen interest in “micro-apartments,” which may be little more than 200 square feet but manage to squeeze in a kitchen, a bathroom and an entertainment center. For many people, this tiny space, with its proximity to like-minded people, interesting neighborhoods and restaurants, is preferable to living in a house in a far-flung suburb. Carrying this idea further, keepsakes can be kept in remote storage, maybe deliverable someday, on demand, with driverless cars. Already, rules are being changed in many cities, including New York, allowing the little apartments to be built and to accommodate many more people per acre of city land. These factors could lead to near-zero future demands on valuable urban land.

First off, micro-units are wonderful as a means to drive housing prices down for those wishing to live in a high-priced urban area IF AND ONLY IF YOU ARE ACTUALLY ABLE TO GET APPROVALS TO BUILD THEM.  Clearly Professor Shiller has not attempted to get such a micro-unit development approved in a wealthy, coastal region of California – say Orange County, for example.  If a developer were to propose such a thing in a high-priced neighborhood, he’d be run out of town on a rail or worse for even daring to bring it up.  This type of concept that works great in some places (cities without restrictive zoning and economics text books) and not at all in others (pretty much every major city on the west coast and a few on the east coast as well).  In addition, adding density typically results in INCREASING underlying land values rather than causing them to fall. Please note that I’m not disagreeing with Shiller as to the premise of his article from a strictly economic perspective (at least when it comes to homes – not necessarily land) only noting that politics MUST BE taken into account because they play such an out-sized role in some regions.

I am far from an uber-bull when it comes to housing prices.  Trees don’t grow to the sky and asset values can go up in a straight line for an extended period of time.  That line of thinking has been fully debunked by the debacle that was the housing crash and Great Recession.  IMO, one buys a house for stability and as a hedge against future rising rents, especially in supply constrained regions.  If you are looking at a house soley as a means of making a large return on investment, you are doing it wrong.  Unlike say tech stocks, housing is a necessity.  Therefore the only way to properly judge it as an investment is versus the alternative: renting.  You either do better over time as a renter or an owner depending largely on economic and political factors where you live.  All real estate is local and making broad generalizations about housing supply being able to meet demand regardless of location and political climate is next to impossible even for an economist as accomplished as Shiller.

Economy

Bass Ackwards: How negative interest rates have turned the world’s economy upside down.

Delay: Britain has now pushed the projected date of the Brexit back to 2019.  The odds of this thing actually occurring are falling by the day.

Reaching: Someone published a research note on Seeking Alpha theorizing that the Pokemon Go app will lead to higher oil prices.  Color me skeptical.

Commercial 

That Didn’t Take Long: WeWork is cutting it’s revenue forecast and its CEO is asking employees to change it’s “spending culture.”

Residential

Over the Falls: London luxury home sales are plunging post-Brexit.

Profiles

Class Act: Tim Duncan was the greatest basketball player of his generation – sorry Lakers fans but deep down you know its true and not all that close.  True to Duncan’s persona, he left quietly, shunning the typically season-long distraction/going away party that players of his caliber so often demand in the modern era.

Fading Away: Why golf is going the way to the three martini business lunch.

Chart of the Day

The condo development capital stack is becoming a convoluted mess as banks pull back (h/t Tom Farrell).

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WTF

Such a Bummer: McDonalds has stopped allowing customers to stream porn on their free in-store wifi.  It will be interesting to watch how this impacts the bottom line as I’m pretty sure that the free porn was the only reason anyone still went to McDonalds.

Headline of the Year Contender: Woman Decapitated By Passing Train During Sex will be a difficult one to beat.  In a twist that should surprise no-one, this happened in Russia and she was drunk at the time.

Inevitable: Someone shot a gun at a couple of teenagers playing Pokemon Go. Did it happen in Florida? Of course it did.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links July 19th – One Size Fits All?

Landmark Links June 21st – Worth the Investment?

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Welcome to summer!  Fortunately, we avoided the apocalypse that a crackpot astrologer (redundant) predicted last night when the full moon coincided with the summer solstice.  I know you’re all as relieved as I am.  Now, on to the news:

Lead Story… I recently read two studies that came out in the last week or so that appear contradictory, at least on the surface.  First off, the National Association of Realtors and SALT published a survey that strongly suggests that student debt is holding back the housing market:

Seventy-one percent of non-homeowners with debts from student loans said the burden of those monthly payments was keeping them from buying a home. More than half said it would likely continue do so for more than five years, according to a new study by the National Association of Realtors and SALT, a consumer literacy program provided by nonprofit American Student Assistance.

Second, John Burns Real Estate Consulting posted a story on their blog about rising college graduation rates are contributing to income inequality:

Rising college graduation rates, particularly for women, have significantly contributed to a greater share of high-income households. Among married couples, 23% now both graduated from college—a percentage that has steadily risen for decades. When both spouses went to college and work, household incomes at the top rise!

Consumer spending data provides strong support to the JBREC hypothesis of college education contributing to income inequality:

So which one is it?  Is college debt holding graduates back and not allowing them to take place in the “American Dream” of owning their own home or is the rising percentage of couples where both have a college education (and probably a bunch of student debt) leading to out-sized earnings for a percentage of the population?  I would contend that it’s both.  First off, we need to distinguish between cost and return.  Yes, college is expensive – arguably too expensive seeing as it’s cost has far outrun inflation for a long period of time.  However, if we are making the case, as the Realtor study is that college debt is holding back the housing market then we have to ask a simple question: what, is the alternative?  That’s where the problem lies.  Sure there are tech founders that didn’t graduate college only to become billionaires but they are extreme outliers, pure originals that can’t be replicated.  If they weren’t outliers, by definition they would never be able to earn that type of out-sized return.  Unfortunately, not everyone is able to change the world, even if they all got a trophy in youth soccer.  If a student isn’t independently wealthy enough to not take on debt (a proposition similar to winning the lottery – pure luck), the alternative is not to go to college.  Statistically speaking, that is a horrible bet.  This piece of Study.com sums it up perfectly:

Considering the high cost of a college education, potential students may question whether the expected earnings after graduation outweigh the possible debt incurred from student loans. In 2002, the Census Bureau looked at lifetime earnings of employees with bachelor’s degrees and those without for 1999: non-degree holders could expect to earn 75% less than bachelor’s degree holders, who could expect to earn $2.7 million over their lifetimes. However, since 1999, bachelor’s degree holders can now expect to make 84% more than high school graduates.

As the above numbers, and the JBREC study show, college is becoming more and more of a necessity to get ahead in the modern world.  If you want to join the middle or especially upper-middle class, a high school degree is not going to get you there (unless of course you happen to be the aforementioned tech genius/ future billionaire).  Yes, the debt is a necessary evil with an important caveat: not all colleges or all majors within a college are created equally and that’s where I believe that studies like the NAR one are in error: they overly generalize a very complex issue.

The seventy one percent referenced in the NAR study is an eye-popping number but there are a few issues with the way that the study was conducted: 1) There is a no segmentation (at least none was provided in what they published).  For example, the results aren’t sorted based on whether the respondent attended a 4-year college, a 2-year junior college or a for-profit college let alone what their course of study was.  2) There is no differentiation made between those that received a college degree and those that took out loans but did not complete a degree.  It’s easy to see where this is problematic.  I highly doubt that student debt is as large of an issue for an engineering grad from a top school as it is for a someone who dropped out of a for-profit college before receiving a degree.  Alas, we don’t know from this study since the data wasn’t provided.

Yes, the rate of increase in the cost of a college degree in recent decades has been massive.  However, if looked at strictly from an economic standpoint, the yield on investment is still quite good, IF you graduate AND and chose a major that will get you somewhere other than flipping burgers or spending your time at political rallies asking for debt forgiveness (yes, I know that was a cheap shot).  The primary reason is that the baseline for comparison: a high school degree provides little if any earning power even when debt is taken into account.  Like it or not, many jobs that previously required only a high school degree now require college.  So when will college cost begin to moderate?  IMO, it’s when the return on investment no longer justifies the outlay.  You can already see this happening in for-profit schools which have proven over time to be a poor investment for students which is why their stock performance has been utter crap.  As a further illustration, here are the 25 colleges with the best Return on Investment and the 25 colleges with the worst ROI.

The NAR study is factually correct: every dollar of additional debt that you take on be it student or otherwise will indeed make it more difficult to qualify for a mortgage. However, if one graduates with a worthwhile degree, that debt should still be a good investment over time and make the borrower more likely to be able to purchase a house than the alternative of not taking 0n debt by not attending college at all.  It’s a shame that the NAR data didn’t include a further breakdown because it would have made for a far more interesting story than the shocking 71% number.  It’s almost as if they had an agenda here….

Economy

What Gives?  Gregory Mankiw of New York Times on five possible reasons for our sluggish economy.

Cream of the Crap: The US economy is doing great….compared with pretty much everywhere else.  See Also: Swiss government debt now has a negative yield all the way out to 33 years, which makes even Japan look good in comparison.

The Fed Who Cried Wolf: The Federal Reserve has spent the last few months saber-rattling about imminent interest rate hikes only to backtrack at their monthly meetings.  The act is getting old and they are now at risk of losing investor faith in their policy rate path.

Demographics Are Destiny: This animated demographics chart from Calculated Risk is almost mesmerizing to look at.

Commercial

Refi Madness: America’s malls have been on the ropes for quite some time and would have plenty of issues even if they were not leveraged at all.  Unfortunately for their owners, they have billions in debt coming due.

Storm Clouds: PIMCO sees a potential downturn in the next 12-months for U.S. commercial real estate as tightened regulations, a wall of debt maturities and property sales by publicly traded landlords take their toll.

Residential

It’s Complicated : Morgan Housel of the Motley Fool is one of the best financial writers in the world.  He has also long been a critic of the concept of a home as an investment.  Recently he and his wife bought their first home after they started having kids.  I think this assessment of the complicated nature of the home buying process and it’s impact on transaction fees is spot on:

I consider myself reasonably astute in personal finance, because it’s so much of what I write about for a living. But I can’t count how many times I had to stop, realize something confused me, and spend an hour of research to understand what I was about to sign. After going through our loan documents I sent at lest 10 emails to the bank with various forms of, “What’s this?” What is this?” “WHAT IS THIS?”

Even with a realtor, home buyers need to be amateur lawyers to fully understand what they’re doing. I can’t imagine what it’s like for people for whom finance is already a daunting topic. And that’s most people.

This probably explains why transaction fees are still high. When you combine emotion with legalese, the path of least resistance is to just sign your name without considering what you’re doing. I had a few moments of, “They wouldn’t be offering me this if it wasn’t in my best interest” only to stop, want to slap myself, and keep researching.

For a Price: Multi-family landlord’s are offering free rent as a concession in San Francisco as a flood of units finally hit the market but you can’t get it unless you can afford a luxury apartment (h/t Jeff Condon).  See Also: San Francisco’s housing mania may finally have reached it’s limit.  And: Luxury housing demand appears to be on the wane.

Profiles

Hero: Meet the hacker who is fighting ISIS by spamming their Twitter accounts with porn.

Worker’s Paradise: Venezuela’s descent into failed state status where citizens fight in the streets for food is even worse when you consider that, based on it’s vast natural resources it should be one of the wealthiest countries in the world.

Bird Hunting: After Microsoft purchased Linkedin, the next question in Silicon Valley is who will buy perpetually-struggling Twitter.

Chart of the Day

A couple of fascinating graphics from JBREC.  It amazes me that still only 23% of the married population consists of couples who both have degrees.

share of married couples with college degree

percent of adults with bachelor's degree

WTF

What a Gas: Activists are planning a “Fart-In” at Hillary Clinton’s DNC acceptance speech this summer in Philadelphia (h/t Steve Sims).

All the Rage: England’s newest fitness craze known as Tantrum Club involves screaming obscenities and popping balloons with bad words written on them while stomping on bubble wrap.  This is right up there with the Shake Weight when it comes to dumb workout fads.

Keeping up with the Floridians: An obese naked man was videotaped relieving himself outside of a Georgia Waffle House in broad daylight.  When asked for comment, a spokesperson for Florida replied “see, it’s not only us.”

Boom: A group of arsonists set off fireworks in a Walmart in Phoenix leading to the building needing to be evacuated.  Fortunately, someone had the good sense to videotape it.

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

Visit us at Landmarkcapitaladvisors.com

Landmark Links June 21st – Worth the Investment?