Renters Struggle As California Home Prices Climb Faster Than Official Inflation Rate

By Jeff Paul

The US government likes to pretend that the rising cost of living is under control. People in Southern California know better. According to a new report in the Los Angeles Times, median house prices in Southern California have nearly doubled in the last five years.

LA Times reports:

In many corners of Southern California, home prices have hit record highs. And they keep going up.

In Los Angeles County, the median price in June jumped 7.4% from a year earlier to $569,000, surpassing the previous record set in May. In Orange County, the median was up 6.1% from 2016 and tied a record reached the previous month at $695,000.

Across the six-county region, the median price — the point where half the homes sold for more and half for less — rose 7.5% from a year earlier and is now just 1% off of its all-time high of $505,000 reached in 2007, according to a report out Tuesday from CoreLogic.

The price increase was even greater than the 7.1% rise recorded in May, and some agents say there are no signs of a slowdown in the Southern California market.

One of Twitter’s funniest economic sleuths, Rudy Havenstein, points out the obvious problem:

In case you’re confused, Rudy is referencing that the US government and its central banking partners desire a 2% inflation rate. Government measures the prices consumers pay for a basket of goods and services to determine the official inflation rate called the Consumer Price Index (CPI). However, the “core” CPI doesn’t include vital things like food and energy.

The chart below from the Bureau of Labor Statistics illustrates how much more dramatic the cost of living rate moves when food and energy are added:

Market optimists tend to quote the core CPI number because it’s less dramatic, but it’s not as accurate as the “headline” CPI with food and energy included. But the core CPI claims to be a good measure of housing costs. Until 1983, the measure of homeowner cost was based largely on house prices. Today, they use some voodoo math since a home is considered an investment and a living expense. Simply put, it attempts to account for owner-occupied homes which may be going up in value, but the monthly cost remains stable. Whereas rents in the same market will rise due to the increased value of homes.

A more reliable measure of home prices, the Case-Shiller Composite Home Price Index, was also released this week. It showed a nationwide increase of 5.6%, closer to Southern California’s rate than the CPI.

The Case-Shiller Index chart below looks very similar to the LA Times chart showing the boom in home prices beginning in 2012.

Home prices alone don’t tell the whole story. Renters are struggling the most. According to a recent report in the Orange County Register, the average rent for a house in Orange County is $3,114 per month and $2,548 for a home in Los Angeles County. The median household income in LA County is around $56,000, before taxes. So rent eats about 50-60% of wages. And Southern California is a microcosm of what is happening in many other cities in America.

The LA Times correctly identifies the market forces causing the price increases: “growing economy, rock-bottom mortgage rates and a shortage of homes on the market.”  And, of course, the LA Times shepherds government action to stop the surge in home values.

Government officials say they are trying to take steps to address the problem of affordability.

In Los Angeles, Mayor Eric Garcetti is advocating for a fee on new development to raise money for below-market housing — a policy known as a “linkage fee” and used in cities such as San Francisco, San Diego and Oakland.

And in Sacramento, Gov. Jerry Brown and legislative leaders have said they will put housing at the top of their agenda when they return in August from a monthlong break.

Legislators have proposed a package of bills aimed at raising money for subsidized housing and making it easier for developers to build all kinds of housing, which often faces pushback from residents concerned over traffic and neighborhood character.

Some cities in Southern California have already made some absurd laws trying to reduce cost of homes like banning Airbnb-type short-term rentals. Watch the video below where Activist Post’s Vin Armani explains this wrongheaded approach:

Markets tend to correct themselves without government interference. People also adapt. It’s one reason the co-living trend is exploding. However, sooner or later not enough people can afford house prices and a correction will begin. For instance, some people will move away and new housing units will be built to accommodate supply and demand.

Take a look as Case-Shiller’s HPI chart below from the boom-bust period of 2002 through 2008. You can clearly see the 2007 correction begin to have its effect.

After loose lending practices, low mortgage rates, and shady Wall Street re-packaging of housing debt enabled the boom period and inevitable bust, the downward trend continued until about 2012 as previously indicated.

Today rates are even lower. Lenders are getting creative again because Millennials don’t qualify due to high student debt and low wages. And Wall Street is as corrupt and greedy as ever. Combine that with the bloated municipalities in desirable areas making it expensive or impossible to get new building permits, and home prices may continue rising at this rate for a couple more years.

Jeff Paul writes for Activist Post and Counter Markets newsletter. Like us on Facebook, subscribe on YouTube, follow on Twitter and at Steemit.

This article is Creative Commons. You may republish in full with attribution and link to this post.


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8 Comments on "Renters Struggle As California Home Prices Climb Faster Than Official Inflation Rate"

  1. Vlad TheSkewerer | July 30, 2017 at 10:27 am | Reply

    So banks keep thousands of empty homes off the market to keep inventory tight and prices high, people cant afford to live in these artificially high rent areas so they subsidize the construction of new affordable housing as taxpayers, subsidize Obamacare with Fannie/Freddy profits, and the banks make bets with BS mortgage securities and derivatives in which the taxpayer is on the hook for the bank losses but doesnt share in the profits. And the punchline, this is called the “free market”.

  2. Louis Charles | July 30, 2017 at 11:39 am | Reply

    See what happens when a nation lets counterfeiting to be a “legal” enterprise and legitimize it by calling it “banking”? Learn about the Talmud. Ignorance is killing us.

    • You don’t need the Talmud to learn about banking, just read the “History of Money” at xat.com and learn how the Bank for International Settlements; currently located in Basel, Switzerland, is the head of the snake. The Rothschild clan and extended family, “friends” and cohorts own/control virtually every bank on the planet, right down to the local credit union, through their private and operated strictly for profit, global central banking system, which also creates “out of thin air” all of the fiat currency/fake “money” we peasants have been gulled into using. See “Almost Anyone Can Understand the Global Central Banking System” in order to grasp the grave danger all of humanity faces today. See “Freedom to Fascism”; the director’s cut, by Aaron Russo and search “The Globalist Agenda” in order fully grasp how monolithic this global “money” machine is and how profoundly it affects the lives of everyone and every thing on the planet.

      • Louis Charles | July 31, 2017 at 6:50 pm | Reply

        you need to understand the talmud to see what motivates certain people to perpetrate criminal activity against certain other people, such as counterfeiting and have no regrets about it. It’s not the “system” which needs analysis, it’s the criminal minds of those who subscribe to the talmud as their bible.

    • Amazing. How much you said in a few short sentences. Good show.

  3. Crapfornia is succeeding the union so who really cares

  4. This has been going on for years. It is called price gouging. The builders/ owners ask these prices and they get it. They build crap houses and over price and the sheeple pay it. We are going to have another housing crash, it will happen soon.

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