California Dreamin’

April 25, 2023

It was once thought to be the “American Dream.”

A home to call your own surrounded by a picket fence with a yard and… well you know what I’m talking about. 

And maybe 50 or so years ago if you were just starting out looking to buy a home, you might borrow a down payment from your parents. 

But those days are long gone. Today few people’s parents can help any more.

But leave it to California to come up with a solution.

One that will likely cripple the state’s economy (even more)…

Making All Your Dreams Come True…

It ain’t cheap to live in California. (Average monthly rent for a one-bedroom apartment in LA is $2,327. You can get the same in San Fran for $3,428.)

So it’s not surprising that homeownership in the state ranked last in the nation. According to the Epoch Times…

When comparing owner-occupied housing units to the state’s populations, Ruby Home Luxury Real Estate—a firm specializing in high-end properties in Southern California—concluded April 7 that California’s homeownership rate of 18.35 percent ranks last

The median home price in California in March 2023 was $744,000 so a 20% downstroke is a hefty chunk of cash for anyone to come up with for anyone living in what’s known to be one of the costliest states in the union.

But being the home of Disneyland — where all your dreams come true — the state fathers or whatever they call the people that run it, passed a piece of legislation called the “Dream for All” home loan program.

The original bill discussed in 2021 proposed $10 billion over $10 years (that’s a billion a year if you’re counting) to help first-time homeowners with their down payment. That number was negotiated down to $500 million in 2022. Finally…

…with the state facing a $25 billion budget deficit for the next fiscal year starting in July, [Governor Gavin] Newsom decreased the allocation to $300 million for its introduction in 2023.

[As a bit of a crazy side note, the paper also reported…

The lowest eligible income for the program is $159,000 for several counties throughout the state, with San Franciscans and Silicon Valley residents in Santa Clara and San Mateo residents eligible if they make $300,000, the highest. Los Angeles’s limit is $180,000, and Orange County has the highest income limit in Southern California, at $230,000

So you’re considered poor in Cali if you make between $159 and $300 grand?? But I digress…]

Needless to say the program was a hit, burning through the whole $300 million in just 12 days.

The (rough) details of the program were that for qualifying applicants, the state would fund up to 20% of the cost of the home in exchange for a share of the property. Ultimately, the initial funding — plus a portion of the appreciated value of the home — gets paid back to the state when the owner sells the property. 

In other words, the state becomes an investor in your property. 

Does that sound familiar?

Remember 2007?

It wasn’t that long ago we endured something called the Great Financial Crisis. It was the near meltdown of the global financial system thanks to the widespread sale of (fake) triple-AAA rated junk investments called CDOs. 

They got those ratings because they supposedly contained mortgage backed securities which were considered to be the safest debt you could buy as an investor. 

The math on those instruments, however, never factored in what might happen to their values if the real estate market ever went down. Because real estate never went down… You know how that ended.

Cali’s investment logic assumes an “appreciated value of the home.”

California Home Price Index

Source: The Federal Reserve Bank of St. Louis

California Home Price Index (Percent Change)

Source: The Federal Reserve Bank of St. Louis

Would it surprise you that, like all dumb investors, the state is buying the high?

Make the trend your friend, 

Bob Byrne
Editor, Streetlight Daily