Los Angeles rents soared as wages stagnated

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Rent prices in Los Angeles County increased by nearly 15 percent over a recent period as wages remained unchanged, putting pressure on renters to find other ways to make ends meet or face potential homelessness.

The U.S. Census Bureau pegged the median household income in L.A. County at $56,196 in 2015, the most recent year for which data are available. That was virtually the same as in 2011, when that figure was $56,266 in inflation-adjusted 2015 dollars.

But over the same period, rental prices in the area shot up increasingly quickly. Rental website Zillow, which compiles nationwide home and rental data, found that the median monthly rent increased by 14.5 percent from the end of 2011 to the end of 2015.

That increase didn’t happen steadily. Instead, rents increased significantly in a short period of time. After remaining stable for a few years, the median rent in L.A. County increased rapidly in 2014 and 2015, with a peak year-over-year increase of 8.2 percent from June 2014 to June 2015.

Zillow’s rental index is calculated to reflect changes in the monthly median rent and account for fluctuations in the kinds of homes that are available to rent. This makes it suitable for comparisons, but individual data points are not a reliable indicator of median rent at the time.

It’s not obvious what led to soaring rents, but the trend has not slowed down. Zillow found that in July 2017, the median rent was more than 4 percent higher than a year earlier.

Official income data isn’t available after 2015, which makes it impossible to identify whether rent increases continue to outpace changes in income. Both the state of California and the city of Los Angeles have increased the minimum wage since 2015, to $10 and $12, respectively. Those minimums are set to increase to $15 in the coming years.

California’s statewide minimum wage had increased during the survey period before 2015, but those changes didn’t seem to affect the real dollars Angelenos could afford to spend after accounting for inflation. For example, the state minimum wage reached $9 per hour in July 2014, but the real median household income in L.A. County remained essentially unchanged.

The increase in rental costs might have had major impacts on individual lives. According to municipal government data, the number of homeless people in the Los Angeles area increased by 12 percent from 2013 to 2015, as rent prices increased dramatically.

That city and county data, compiled by the Los Angeles Homeless Services Authority, showed an increase in the total homeless count from 35,524 to 44,359 across the survey area, which did not include the cities of Long Beach or Glendale.

Though census income data isn’t available after 2015, continuing increases in rents and the numbers of homeless people suggest that this trend increased. The municipal governments’ 2017 homeless survey found that 55,188 people lived without homes in the L.A. area, an increase of 24.4 percent from 2015 and 55 percent from 2013.

Median rent has also continued to increase by sizable margins — it’s now 8 percent higher than in 2015 and 24 percent higher than in 2011, when the survey period began.

Chonieconomics: The Men’s Underwear Index

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Throughout the course of history, people have been caught with their pants down (so to speak) on various occasions by shifts in the economy—some sudden; some cyclical. Little did the gentlemen among these folks know that underneath said pants, was one of the more obscure metrics tracked as an indicator of the relative health of the economy.

The Men’s Underwear Index is, apparently, a real thing. So said Alan Greenspan in the 70’s.

underwear index_9 3

The orangutan, the zebra and the stork clearly lived in economic prosperity.

As we’ve discussed in class, economics often gets a bad rap because many people’s exposure to it consists of a bunch of old, white guys on TV talking about the most widely used economic indicator—the stock market—in what sounds like an alien language. However, despite it including the synthesis of a lot of real-time information, the stock market is a leading indicator (a measure of what people think is going to happen) and is, by nature, speculative. To some extent, the talking heads on TV are guessing, and they know it.

Chonies as an indicator, on the other hand, are referred to as lagging. (I know…sorry, gents.) A lagging indicator is simply a compilation of data points from what has already happened—in this case, purchases of men’s underwear. This empirical measurement has been a fairly solid indicator of what has happened with the economy since it came into existence almost half a century ago.

Per Esquire (repurposed from Business Insider), men purchase an average of 3.4 pairs of underwear per year. That number has tended to increase in times of economic prosperity and decrease in difficult economic times.

What I don’t understand is why this is considered some genius insight. It makes sense that in a down economy people would not spend money, primarily because they don’t have it.

The best explanation I’ve been able to find is that underwear is deemed a necessity, which sets it apart from other clothing items and makes it a better baseline. That hasn’t stopped economists from developing other obscure indicators as well. Hemlines, dry cleaning, ties and lipstick have all been referenced to measure the health of the economy, but the common thread through all of them is that people purchase more when the economy is good and they have the money to do so. Regardless of what CNBC analysts tell you, it’s as simple as that.

Greenspan trolled us all, but I suppose I should thank him. He gave me a reason to write about underwear in a class blog.

What chart should I keep my eyes on?

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To sell or not to sell.

Business Insider publishes every year the list of The Most Important Charts in the World .

To put up the list, they ask some of the world’s most influential analysts, economists, hedge-funders and traders one question: What charts are you always keeping your eyes on?

Almost all the answerers – 50 experts in economy – give a different answer. And that does not make an ordinary reader like me wiser.

I believe the 50 professionals – among them Nobelist Paul Krugman and Bloomberg’s chief economist Michael McDonough – follow more or less the same economic indexes, but what is the most important for each, depends on the job they do and the decisions they have to make.

So there is no such thing as the most important chart in the world.

 

I have not really been keeping my eyes on any economics chart, but now I am about to sell a hut. It is a tiny seafront cottage in my hometown Helsinki. It is surrounded by 100 other tiny cottages in the area that used to be a recreational place for city’s policemen and public transit workers.

At the turn of the millennium the city of Helsinki, who owns the land, decided that it was time for all the residents of the city to enjoy this place. Anyone living in Helsinki was allowed to buy a cottage from the area – if somebody was willing to sell.

I was one of the first “outsiders” to buy one. I bought it from an old constable’s widow for €6,000. I was lucky. The area is charming and prices of the huts soon started to go up.

Last year one of my neighbors sold her hut for €50,000. Another sold his for €38,000.

I did not consider selling mine until this August. My study year in California turned out to be more expensive than I expected (this is why).

The question is now: should I sell it or wait until later? What chart should I keep my eyes on?

 

I looked again at the Business Insiders most recent list of ”the most important charts in the world” (February 2015).

None of those indexes seemed to relate to my situation – except for Eurozone charts that showed that the economic situation in Europe is nothing but deteriorating.

As I need the money, I decided to follow my instinct with help of one chart.

 

Consumer Confidence Index (CCI) is measured world wide and ”based on households’ plans for major purchases and their economic situation, both currently and their expectations for the immediate future”, as OECD explains it.

In the U.S. the consumer confidence went down the first half of the year 2015 but increased during the summer months.

In the Euro area the confidence was increasing the first four months of the year but has since decreased. Finland’s figures are in line with the European ones.

Every month national center of statistics interviews 1200 Finnish consumers and compares their opinions to a ”normal” state. Long-term median value of the CCI in Finland is 11,8.

In June 2015 it was 10,8. In July it was 6,9.

With this in mind I figured that I should sell my cottage for any price as fast as I can, before consumer confidence is in zero.

However, when comparing to last year’s index, the CCI shows that confidence is in fact increasing. In August 2014 it was only 2,2.

When taking closer look I realized that opinions varied a lot. According to the most recent CCI 30 percent of the Finns believe that the economic situation of Finland will get better in year’s time. 27 percent believe that it will deteriorate.

What can I learn from this?

 

I do not think consumers are well-informed with the economics. In my opinion media fails to tell about money and markets comprehensively, and even the best economists fail to predict the future.

However, economy are not just facts. It much about trust and feelings.

When one consumer reads that – according to the CCI – other consumers are gaining confidence in the economics, he might think that: yes, it is time to buy the hut of his dreams.

And I am the one to sell him that.

There still might be people who have courage to buy a trendy cottage for a good price.

Insights of a part time real estate agent

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A private Realtor, a restaurant owner and a market owner (former state farm branch owner as well); these are things that describe the professional affairs of Gopal Sood, an experienced worker to say the least. Though I originally planned to investigate on the economic status of his very delicious 23rd Street Café, upon discovering that Gopal was also a Realtor I was urged to interview Gopal the Realtor. Considering how the housing market has diminished so much since 2007 the opportunity to know more about the real estate industry was a chance I could not miss.

Let’s go back before 2007 before the crash of the housing market.  At this time I always heard from friends and relatives talking about how great it must be to work as a Realtor. One of friends’ mothers even told me at elementary school how great it was being a Realtor during a career day event. I believed her when I saw her rolling out of the school parking lot in a convertible Jaguar. It was also likely at this time Gopal felt the same. I asked him how his business was at this time.

“You wouldn’t even believe it now; I was closing 10 to 15 houses … a month.”

Considering how little I knew about the business, I figured that was a lot.

I asked him how it was now.

“Maybe one or two”

The housing market essentially crashed in 2008 and combining the edges of my memory I remembered how frequently the term housing market came about within conversations about the recession. So I asked the next question off my list: What economic data do you think impacts your business the most? He said the economy itself is the data that gives him the most information. Not really sure what that meant, I asked instead: What happened?

He explained that because the banks are unwilling to give out loans it is harder for people to buy homes and since current homes prices are so low people are unwilling to put their homes in the market as well. This leads to less, almost none, real estate inventory making it very difficult for the real estate industry.

Still a bit confused I looked up information on the housing market trend in the local area. In all of Los Angeles, between 2007 and 2009, the recession led the house market price to drop almost 25%. It is only since the beginning of 2012 that the prices of homes are slowly beginning to increase. Currently the average price of homes has recovered about 40% of the amount it lost from the recession. So, even though prices of homes are cheap, it is difficult to buy a home because loans are not being given by the bank.

It was at this time I remembered from my Economics class how the recession occurred when banks met a higher than expected rate of foreclosures after eagerly giving out loans to people who were unable to pay the mortgage. So essentially, because of the recession banks are unwilling to give loans to home buyers.

He adds, “Unless you have a job that is what’s called recession proof. Even I, an owner of several businesses would not be able to get a loan for a house.”

That may be why he does not do any marketing whatsoever. All he has is his card and word of mouth (which is the same for his restaurant).

Curious to know more about the condition of his real estate business, Gold Star Realty, I asked him more on the current affairs of his business. What he told me was surprising.

The majority of his clients are attorneys. He enlightened me that because the yield on interest rates for savings accounts dropped so low, people have grouped together to collectively buy a house with the purpose of gaining a higher yield in their investments. It’s no wonder why as soon as a house becomes available, it is almost instantly bought.

But like I questioned earlier, how can it be possible that the housing market is bad if home prices and loan interest rates are so low? Banks are unwilling to give loans to people who do not have recession proof jobs; so, it would be likely that it is the practitioner professionals who the only ones making these investments.  But, this is untrue.

The number of individuals and families that enter this collective contract allows middle-class earning investors to afford the purchase of properties in places such as Beverly Hills.

“The last house I sold was in Beverly Hills and it sold for $1.3 million. I met with the attorney and he brought it all — in cash.”

The obvious assumption is that the middle class people have continued their real estate investments by collectively purchasing a house with on-hand cash, since they are unable to get a loan from banks.

“What many will do is buy a house, and then flip it so they can sell it for a higher price. That’s what I do”

Gopal truly is a man of experience. His real estate company is housed in a small suite in San Fernando Valley and uses it only during the rare moments he is with a client. He pays zero dollars for marketing and relies purely on the word of mouth. Nonetheless, this strategy was able to benefit him very well before the crash of the housing market. Luckily the crash of the housing market did not put his business in debt due to his realty business being self-run. Today his realty business survives through the rare occasions he is able to come across an open house as well as through his other businesses.

“People say to me all the time after seeing my car that my business must be doing great. But that’s not true. I got that car back when I was selling all those homes”