Landmark Links April 5th – Proceed With Caution


Lead Story…. DISCLAIMER: This is not in any way meant to be financial advice, simply pointing out a potential issue down the road in the housing market: There is some evidence that seniors in the Baby Boomer Generation are beginning to shun home ownership in favor of renting when they retire.  First off, every story written about Boomers seems to have one of two themes.  They are either: 1) flush with cash that they will spend generously in their remaining years with the remainder passed on to their heirs; or 2) so broke that they will be working for the rest of their lives. Just like Millennials, Boomers are a huge group so there are plenty that fall into both categories and even more that fall in between.  That brings us to the renting vs. owning issue.  First off, there is a difference between equity risk and cost risk.  One is the  risk of principal and the other is the risk of increased holding cost.  Say what you will about home ownership in the wake of the housing bust but, if done properly, it does lead to a level of cost stability that renting never can, even if the home goes down in value.  If a person buys a housing in their 30s with a 30-year fixed rate mortgage, it will be paid off by the time that they retire…. so long as the borrower doesn’t do anything irresponsible in the interim. Paying off a house means one less major expense that the home owner has to deal with in retirement.  Even with a relatively small mortgage payment, at least costs are mostly fixed (aside from taxes, insurance and maintenance that can vary but typically not that much) that you can budget for on a fixed income.  Even in the event that the value falls it doesn’t have much of an impact if the owner has little to no debt.  Renting is completely opposite.  Don’t get me wrong here.  There are a bunch of advantages to renting: you don’t tie up a large amount of equity, have far more mobility and don’t have to pay for repairs and maintenance.  However, unless there is rent control (which can still have issues), a renter is taking on a variable liability on a fixed income.  When inventory is tight, rents tend to go up which could leave a retiree on a fixed income with difficult choices: either move away from family and friends to a more affordable unit or draw down on retirement savings if fixed income fails to cover rent.  It’s easy to see that this could be headed in a bad direction when you factor in that people are living longer. If you have any doubts about this, take a look at what’s happening in the Bay Area today.  The problem here is not with the first group of Boomers that I mentioned in the beginning of the post.  They have plenty of cash and assets to weather increases in rents.  The issue is with the rest of the Boomer crowd that lacks the assets but might want the flexibility and mobility of renting but can’t afford the risk of variable cost.


The Gig is Up: For all of the hype over the past few years about the so-called Gig Economy, it turns out that it just doesn’t translate that well beyond ride-sharing app Uber.  Just because something sounds great in the Silicon Valley bubble doesn’t mean that it’s going to translate well in the real world.  Gig-based startups aiming to be “The Uber of ___” are finding this out the hard way as the VC welfare subsidizing unprofitable business plans begins to dry up.


This Doesn’t Help: Just when you thought that the CMBS market couldn’t possibly get worse, a new rule could force lenders to reserve capital to account for so-called “step in risk” or the  risk of a lender taking over a loan after securitization in the event of a default.


Reverse Flow: For all of the talk about people moving to the suburbs vs. the city, here’s a handy cheat sheet: If you’re high-earning, college-educated and white, you are probably moving to a more urban area.  If not, you’re probably moving to a more suburban area.  If that sounds like the exact opposite of historical patterns, that’s because it is.

Game Changer? A Chinese inventor has come up with a 3-d printer that can build 10 houses a day at a cost of $5,000 per house.  With costs rising for traditional construction, could this technology help solve the affordable housing crisis in the US?m(h/t John Musial)

High Design: A developer in Washington DC is reaping profits on new condos by offering grow closets for marijuana.


Mass Appeal:  Tesla announced it’s new Model 3 last week.  It’s the electric car maker’s first foray into a (relatively) affordable price point and hundreds of thousands of people turned out to put down a thousand dollar deposit sight-unseen.  If successful, this will be a game changer for Tesla which has, until now been mostly a niche product for wealthy consumers.  If previous Tesla products are any indication, this will do very well.

Square Peg in Round Hole: E-Commerce is wreaking havoc on the trucking industry as expectations of cheap shipping and next-day delivery of large items have shippers scrambling to keep up.

Chart of the Day


Workers Paradise: Batshit crazy North Korea is once again on the edge of a famine and is encouraging their citizens to eat roots and grass to survive. Don’t worry though, it appears as if Dear Leader Kim Jong Un is still eating well. (h/t Steve Sims)

Mother of the Year: A mother hired a stripper for her 8 year old’s birthday party in (you guessed it) Florida.

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