Landmark Links May 23rd – Amateurs


Lead Story…. I’ve written a lot over the past couple of years about how home building has not kept up with demand – especially along the coasts – and how it’s contributing to a massive affordability crisis. I’ve also noted how institutional buyers purchasing large home portfolios to rent and people staying in their homes longer, further are drying up entry-level inventory.  However, there is another factor at play here that I hadn’t really considered until recently.  CNBC did an interview with Glenn Kelman, CEO of Redfin about the lack of available inventory and Kelman had a very interesting point:

The number of homes for sale in America has been falling steadily for the past year, but the situation is apparently getting much worse as spring demand heats up.

“The inventory is reaching historic lows. It’s never declined faster than it did last month. It’s freaking us out — it’s affecting our business; it’s limiting our sales,” said Glenn Kelman, CEO of Seattle-based Redfin, a real estate firm. “We’re going to be fine in terms of market share, but I think the overall industry for the first time is seeing sales volume really limited by the inventory crunch.”

Kelman considers Redfin more as a technology company and touts his ability to track closely the more than 80 metropolitan markets it covers. He blames the lack of inventory on a new dynamic in housing.

“It’s a new landlord nation where everybody is renting out their basement. When somebody moves up they don’t sell their old place, they rent it out to somebody else, and it’s because they want to keep that 30-year mortgage for 30 years, and it’s because they can easily find somebody on Airbnb who will take the place,” Kelman said.

That last quote from Kelman is a succinct description of logical move-up buyer behavior in today’s housing market.  What makes me think that?  Because it’s something that I’ve actually done myself.  In a “normal” housing market, move up buyers sell their entry level homes and use the equity for a down payment on their next house.  That entry level home then becomes a starter home for someone else, helping to perpetuate a positive cycle.

However, put yourself in this situation: you bought a starter home several years ago and have an incredibly low interest rate on a 30-year loan.  You’ve also seen rents go straight up since and have substantial equity in the house through a combination of amortization and price inflation.  If you have saved up a large enough down payment to purchase a new home and the rental income from your starter home will provide positive cash flow, why would you sell?  My family went through this decision a couple of years back and ended up keeping our home when we moved to our new place.  Sure, it made the budget quite a bit tighter but the old house is in a great neighborhood and we have really good tenants.  I can’t be certain but I suspect that we will be glad that we held on to it.

While I doubt that move up buyers holding on to starter homes as rentals is as large of a contributor to low starter home inventory as other factors like institutional rental pools or people choosing to remodel rather than sell, every little bit counts in a market that is this tight.  A growing number of mom-and-pop landlords holding on to starter homes when they move up probably isn’t helping.  Chalk this up as another perverse side effect of all-time-low interest rates.


Black Box: The biggest problem with productivity is that it’s so damn difficult to measure.

Low Standards: Auto loans are going bad despite strong employment, a sign that lending standards are too loose.

Efficiency: Americans are paying $38 to collect $1 of student debt.  Great deal for debt collection agencies.  Not so much for students or the American tax payer.


Against the Grain: Bank of the Ozarks has expanded construction lending – albeit at low advance rates – while other lenders continue to pull back.  So far, it’s paying off.  (h/t Tom Farrell)

Up In Smoke: Adelanto wants to be the Silicon Valley of medical marijuana. (h/t Tom Farrell)


Land of Opportunity: Large Chinese developers are emerging as big bidders for US home builders.

Tall Tales: Nobel Laureate Robert Shiller lays out a convincing case of the power of narrative in explaining how he believes that tales of flipper riches led to the housing bubble.


Short Memory: Bond buyers are flocking back to online lenders’ debt after getting badly burned just a few short quarters ago.

Told Ya So: A new study finds that dogs really can talk to humans so please stop looking at me like I’m crazy when Pepper and I are having a deep discussion.

Depressing: A growing body of research is pointing to Instagram being the most harmful social network for your mental health.  For those of you who haven’t figured this out: pretty much everyone on Instagram is full of shit.  If their lives were really that wonderful, they wouldn’t be glued to a smart phone trying to convince you.

Chart of the Day



SMH: Five people in Sacramento have been hospitalized after eating gas station nacho cheese.  It should go without saying but this is why you should NEVER eat gas station nacho cheese or any other food product prepared in a gas station.

Dinner Time: Authorities broke up a massive 7,000 bird cockfighting operation in Val Verde, CA last week.  Colonel Sanders was not available for comment.

No I Will Not Make Out With You: A Florida man is in critical condition after he was bitten on the tongue by a rattle snake while trying to kiss it.  This is a real quote from his friend:

“Ron was just acting silly, you know?” he said. “I guess he said he could kiss the devil and get away with it, but evidently he didn’t.”

No word from the clearly-traumatized snake who apparently slithered away after swapping spit (and venom).

It’s Lit: A man walked into a Denny’s in Hayward and tried to light several patrons on fire because, Denny’s.

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