Category Archives: Housing

Homeownership Losing Edge To Renting

Owning a home is generally viewed as a better deal than renting, but in cities with exploding home prices and relatively flat rents, that may not be the case anymore.

According to Trulia, it now makes more financial sense to rent than buy in the nation’s two most expensive markets — San Jose and San Francisco. The balance is also shifting in favor of renting in a few other high-cost cities, such as Honolulu, Seattle and Portland, Oregon, according to a recent study by the San Francisco-based company.

Trulia said the overall U.S. market still solidly provides buyers with a financial benefit. But in the five years since Trulia began estimating the financial advantages of buying versus renting, this is the first time renters have come out ahead in any of the major metros it tracks.

In San Jose and San Francisco, renting was 12 percent and 6 percent cheaper, respectively, for the consumer than buying a home, Trulia said. San Francisco and San Jose are outliers, though. The National Association of Realtors, for example, has estimated that for a person earning $100,000, just 2.5 percent of the June listings in San Jose and 9 percent in San Francisco were affordable. Trulia reported that buyers still have a significant advantage over renters in places like Detroit. 

Trulia estimated that on a nationwide basis, buying a home was 26 percent cheaper for a consumer than renting as of last month. This is the narrowest gap in five years, and has come down from 41 percent in 2016, according to Trulia. The key factor in closing the gap is that house prices have increased steeply along with mortgage rates, while rents are remaining relatively stable. In San Jose, for example, home prices have jumped up 29 percent in a year, while rents were unchanged. Home values rose 14 percent in San Francisco, and rents fell by 3 percent. 

“There are a lot of factors,” Trulia’s Senior Economist Cheryl Young said during an interview on Thursday. “Obviously, mortgage rates are going up. That is going to tip the scales a little bit toward renting, but also home value appreciation is far outpacing rent growth right now. So, rents are pretty much cooling out. As they cool down and home prices track up, that margin between buying and renting starts closing.”     

 Young said the balance could tip in favor of renters in other cities as well.  

 “There are markets that are always close to that margin, and things that could tip it,” she said. “If mortgage rates were to rise and we still see rents flattening and even decreasing as they have been in some places relative to rising home prices, we may see some markets tip.” 

Trulia’s calculations include forecasts on future rent and price appreciation, and also estimates on how much a renter can potentially earn by investing in other vehicles. Trulia assumes that the buyer will stay in the home for seven years, put 20 percent down on a 30-year fixed mortgage.

Other housing analysts told Scotsman Guide News that gauging the advantages of buying versus renting can be a tricky exercise. 

“The housing market doesn’t necessarily favor either one right now, as the choice of whether to be an owner or the renter is not a purely economic decision, but often includes the lifestyle decisions of an individual,” said Mark Fleming, chief economist for First American Corp.

Fleming also noted that in some of these high-cost cities, renters are in better position now to buy than when home prices were near their low point seven years ago.

“While housing prices are on the rise across the country, by historical standards they are still within reach in many markets,” Fleming said. “In fact, when you account for the historically low interest rate environment and rising incomes, consumer house-buying power is up nearly 24 percent since 2011,” he added.

Len Kiefer, deputy chief economist for Freddie Mac, said that rising home values tend to give the buyer a financial edge over the renter, who is gaining no equity.

“Certainly if we look back historically, homeowners have done pretty well relative to renters,” Kiefer said. “It doesn’t mean that it is going to be true in the future, but if you look at where our forecast is for the overall economy, we are still forecasting home prices to continue to rise at a pretty healthy pace over the next couple of years.”

Kiefer said in a few high-cost cities with high property taxes, homeowners will be hurt by new tax changes that eliminated or reduced homeownership perks in the federal tax code. This may give renters some advantage. He said the tax changes so far don’t seem to have reduced homebuyer demand significantly, though.

“Certainly in the high-cost, high-tax markets, places like parts of California, New Jersey, Illinois,  the cost of homeownership is going to be a little bit negative,” Kiefer said. “But if we look at actual data on what has happened in those markets,  it is hard to see a discernible impact in terms of slower overall activity that you could attribute to the tax law,” he said. Kiefer said rising prices and higher rates were likely making homebuying less appealing, however.

Renters have been less sold on the financial benefits of owning a home, according to recent Fannie Mae surveys. In January 2010, for example, 76 percent of surveyed renters saw an advantage in buying. That number has fallen to 68 percent as of the end of June. 

“Renters’ view of the financial benefit of owning has come down a little bit,” said Mark Palim, deputy chief economist for Fannie Mae. “That probably reflects that home prices are up substantially.”

Palim said that renters are still expressing a strong desire in buying homes for non-financial, quality-of-life factors. He said the improved economy and a surge in household formation has kept the buyer demand up in spite of rising home prices and rates. 

“Millennials have really moved into the market in a big way, and they are closing the gap relative to other generations,” Palim said. “People have far more financial means to afford a home and go out and buy a home, and that has translated into pretty brisk demand.”

Source: Scotsman Guide

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The Number Of Americans Living In Their Vehicles “Explodes” As The Middle Class Collapses

If the U.S. economy is really doing so well, then why is homelessness rising so rapidly?

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As the gap between the rich and the poor continues to increase, the middle class is steadily eroding.  In fact, I recently gave my readers 15 signs that the middle class in America is being systematically destroyed.  More Americans are falling out of the middle class and into poverty with each passing day, and this is one of the big reasons why the number of homeless is surging.  For example, the number of people living on the street in L.A. has shot up 75 percent over the last 6 years.  But of course L.A. is far from alone.  Other major cities on the west coast are facing similar problems, and that includes Seattle.  It turns out that the Emerald City has seen a 46 percent rise in the number of people sleeping in their vehicles in just the past year

The number of people who live in their vehicles because they can’t find affordable housing is on the rise, even though the practice is illegal in many U.S. cities.

The number of people residing in campers and other vehicles surged 46 percent over the past year, a recent homeless census in Seattle’s King County, Washington found. The problem is “exploding” in cities with expensive housing markets, including Los Angeles, Portland and San Francisco, according to Governing magazine.

Amazon, Microsoft and other big tech companies are in the Seattle area.  It is a region that is supposedly “prospering”, and yet this is going on.

Sadly, it isn’t just major urban areas that are seeing more people sleeping in their vehicles.  Over in Sioux Falls, South Dakota, many of the homeless sleep in their vehicles even in the middle of winter

Stephanie Monroe, managing director of Children Youth & Family Services at Volunteers of America, Dakotas, tells a similar story. At least 25 percent of the non-profit’s Sioux Falls clients have lived in their vehicles at some point, even during winter’s sub-freezing temperatures.

“Many of our communities don’t have formal shelter services,” she said in an interview. “It can lead to individuals resorting to living in their cars or other vehicles.”

It is time to admit that we have a problem.  The number of homeless in this country is surging, and we need to start coming up with some better solutions.

But instead, many communities are simply passing laws that make it illegal for people to sleep in their vehicles…

A recent survey by the National Law Center on Homelessness and Poverty (NLCHP), which tracks policies in 187 cities, found the number of prohibitions against vehicle residency has more than doubled during the last decade.

Those laws aren’t going to solve anything.

At best, they will just encourage some of the homeless to go somewhere else.

And if our homelessness crisis is escalating this dramatically while the economy is supposedly “growing”, how bad are things going to be once the next recession officially begins?

We live at a time when the cost of living is soaring but our paychecks are not.  As a result, middle class families are being squeezed like never before.

A recent Marketwatch article highlighted the plight of California history teacher Matt Barry and his wife Nicole…

Barry’s wife, Nicole, teaches as well — they each earn $69,000, a combined salary that not long ago was enough to afford a comfortable family life. But due to the astronomical costs in his area, including real estate — a 1,500-square-foot “starter home” costs $680,000 — driving for Uber was a necessity.

“Teachers are killing themselves,” Barry says in Alissa Quart’s new book, “Squeezed: Why Our Families Can’t Afford America” (Ecco), out Tuesday. “I shouldn’t be having to drive Uber at eight o’clock at night on a weekday. I just shut down from the mental toll: grading papers between rides, thinking of what I could be doing instead of driving — like creating a curriculum.”

Home prices are completely out of control, but that bubble should soon burst.

However, other elements of our cost of living are only going to become even more painful.  Health care costs rise much faster than the rate of inflation every year, food prices are becoming incredibly ridiculous, and the cost of a college education is off the charts.  According to author Alissa Quart, living a middle class life is “30% more expensive” than it was two decades ago…

“Middle-class life is now 30% more expensive than it was 20 years ago,” Quart writes, citing the costs of housing, education, health care and child care in particular. “In some cases the cost of daily life over the last 20 years has doubled.”

And thanks to the trade war, prices are going to start going up more rapidly than we have seen in a very long time.

On Tuesday, we learned that diaper and toilet paper prices are rising again

Procter & Gamble said on Tuesday that it was in the process of raising Pampers’ prices in North America by 4%. P&G also began notifying retailers this week that it would increase the average prices of Bounty, Charmin, and Puffs by 5%.

P&G is raising prices because commodity and transportation cost pressures are intensifying. The hikes to Bounty and Charmin will go into effect in late October, and Puffs will become more expensive beginning early next year.

I wish that I had better news for you, but I don’t.  We are all going to have to work harder, smarter and more efficiently.  And we are definitely going to have to tighten our belts.

Many middle class families are relying on debt to get them from month to month, and consumer debt in the United States has surged to an all-time high.  But eventually a day of reckoning comes, and we all understand that.

The U.S. economy is not going to be getting any better than it is right now.  So it is time to be a lean, mean saving machine, because it will be important to have a financial cushion for the hard times that are ahead of us.

Source: ZeroHedge

Lumber Futures Dump As US Construction Spending Slumps – Worst June In 18 Years

Lumber futures prices are limit down today, falling to their lowest price since Dec 2017, erasing much of the post-tariff surge in prices as US construction spending unexpectedly tumbles in June.

Lumber prices are free falling back towards pre-tariff levels…

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And with home starts, permits, and sales all weaker…

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It is no surprise that US construction spending tumbled in June…

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Bearing in mind the upward revision for May, this is the worst construction spending drop for a June since the year 2000…

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Still seem like a sustainable 4% economy?

Source: ZeroHedge

Philadelphia Plunders Its Property-Owners For Cash

Like a lot of major cities in the United States, Philadelphia is in pretty rough financial condition.

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One of the city’s biggest problems is its woefully underfunded public pension, which has a multi-billion dollar funding gap.

In 2001, Philadelphia’s pension fund was still in decent shape with a funding level of 77%, meaning that it had sufficient assets to meet 77% of its long-term obligations.

By 2017 the funding level had dropped to less than 50%.

Part of this is just blatant mismanagement; while most of the market soared in 2016, for example, Philadelphia’s pension fund lost about $150 million on its investments, roughly 3.17% of its capital.

It’s interesting that, along the way, the city has actually tried to fix the problem. Between 2001 and 2017, the amount of money that the city contributed to the pension fund actually increased by 230%.

Yet despite increasing contributions to the fund, the fund’s solvency level keeps shrinking.

Mayor Jim Kenny summed up the grim situation in his budget address last year:

The City’s annual pension contribution has grown by over 230 percent since fiscal year 2001. . . These increasing pension costs have caused us to cut important public services while the pension fund’s health has grown weaker. In fact, our pension fund has actually dropped from 77 percent funded to less than 50 percent funded during the same time our contributions were so rapidly increasing.

So, desperate for revenue, the local government has been relying on an old tactic to get their hands on every spare penny they can.

The city of Philadelphia owns the local gas company – Philadelphia Gas Works (PGW). It’s essentially a local government monopoly.

And over the last few years, PGW developed an automated system to comb its billing records, find delinquent accounts, and file a lien on those properties.

If you’re not familiar with real estate law, a ‘lien’ is a formally-registered security interest in which your property serves as collateral for a debt.

When you borrow money from the bank to buy a home, for example, the bank registers a lien over your home for the value of the mortgage.

The lien prevents you from selling the home until you satisfy the debt. It also means that if you don’t pay the debt, the lien

holder (the bank, or the gas company) can seize the property.

In PGW’s case, the gas company is filing liens over people’s properties due to unpaid gas bills for as little as $300.

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There is essentially zero due process here.

It’s not like the gas company has to go in front a jury and prove that there’s an unsatisfied debt.

They just have their automated system file some papers, and, poof, the lien is registered.

So someone could have their home encumbered for a $300 late bill that ended up being an administrative error.

More importantly, it’s curious why the gas company is filing a lien against the property… because it’s entirely possible that the delinquent customer isn’t even the property owner.

Let’s say you’re a landlord and renting out your investment property to a tenant… and the tenant doesn’t pay his gas bill: PGW will put a lien on your property, even though it’s not your bill.

Even worse, you wouldn’t even know about it, because PGW would be sending the late notices to the tenant… not to you.

At that point it turns into a total bureaucratic nightmare.

If you’re lucky enough to even find out about it, you call PGW to try and get the lien removed.

But (according to court documents), PGW tells angry landlords that they have no control over the lien process, and tell people to file a complaint with the Pennsylvania Public Utility Commission.

But then the Pennsylvania Public Utility Commission tells you that they have no jurisdiction over liens in Philadelphia, and that you should talk to the utility company.

Classic government bureaucracy. You just get bounced around between various departments and nothing ever gets resolved from a problem that you didn’t even create.

Well, a bunch of landlords finally had enough of this nonsense, so they got together and sued the city in federal court.

It seemed like a slam dunk case. Why should property owners be held liable for the actions of their tenants?

If tenants don’t pay for their own gas, the tenants should be held responsible… not the property owners.

Common sense, right?

Wrong. The landlords lost the case.

Two weeks ago the US District Court for the Eastern District of Pennsylvania ruled that the City of Philadelphia was well within its rights to hold property owners responsible… and to file a lien on the property without even notifying the owner to begin with.

This is a pretty strong reminder of how low governments will sink when they become financially desperate.

Source: ZeroHedge

Mortgage Prison: Sydney Home Prices Suffer Largest Annual Decline Since 2008

Home prices in Sydney and Melbourne are back to 2016 levels. That is a tiny down payment as to what is coming.

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News AU reports House Prices Drop in Sydney, as Melbourne Prices Stall.

Tumbling house prices in Sydney and Melbourne are the main drivers behind the first annual drop in national property prices in six years, a new report shows. The national median house price fell 1.0 per cent over the June quarter and year, according to a report by property classifieds group Domain released on Thursday.

It is the first time values have fallen on an annual basis since June 2012.

The negative national growth rate reflects weakening house prices in Sydney and Melbourne, which together represent about two thirds of Australia’s housing market by value.

Sydney house prices fell by 4.5 per cent in the 12 months to the end of June for their largest annual drop since 2008. Sydney units also fell by 3.5 per cent over the same period.

The figures chime with those released this week by property data firm CoreLogic, which said overall Sydney prices fell 5.0 per cent in the 12 months to July 22.

“House and unit prices in Sydney are now back to values seen at the end of 2016,” Domain property analyst Nicola Powell told AAP. Tighter credit availability and a high number of units being built are key factors behind the dive, Dr Powell said.

Apartment Boom Comes to End

Next up, please consider Construction Set for Biggest Decline Since the Global Financial Crisis

Australia’s building commencements, fueled by investor apartment construction, look like heading from boom to bust, according to forecaster BIS Oxford Economics.

In a reality check for investors who bought at the top of the apartment boom, BIS is predicting the biggest correction since the global financial crisis hit in 2008, with housing starts set to fall by almost 23 per cent by 2020.

Associate director Adrian Hart told the ABC’s AM program that the slump would be led by high-density dwelling construction, which is set to halve over the next two years

A key factor in the residential slowdown has been tougher regulation by the Australian Prudential Regulation Authority (APRA) to curb investor lending, while the Foreign Investment Review Board (FIRB) and tax office has been clamping down on overseas buyers.

Mortgage Prison

Finally, and most importantly, please consider Aussie Homeowners Trapped in ‘Mortgage Prison’.

Australian homeowners are trapped in “mortgage prison” because of a rule change. And there is no easy way out.

Changes in bank rules around living expenses calculations have effectively wiped huge amounts off the maximum a bank will allow you to borrow.

Many people are now finding they originally borrowed more than a bank would lend them under current conditions, meaning they haven’t got the option of shopping around to get a better interest rate — no bank will lend them the amount they need.

Precise numbers of Australia’s mortgage prisoners are hard to come by, but Mozo investment and lending expert Steve Jovcevski told news.com.au that he expected most of them are those who have borrowed and bought in the last five years.

Oops!

Jovcevski gave an example in which a couple was able to borrow $800,000 a year ago can now only borrow $680,000 under the same rules.

They are now trapped in a mortgage with no way to refinance and no buyers because of declining prices.

Mortgage Slaves for Life

This is precisely what some us foresaw years ago. It’s finally come home to roost, and at a time China is highly unlikely to bail out these buyers.

People may be trapped for decades. So expect to see more articles like this as desperation sets in: Australia Housing Insanity: Tent Outside, Full Use of Apartment, Cheap, $90 Per Week.

That was from a year ago. Rates will drop fast. Buyers will need tenants to stay afloat.

Special Mention

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Dateline July 23, 2017

13-Year-Old Kid Buys $552,000 Home

Meet Akira Ellis a 13-year-old kid. He just bought his first piece of real estate, a $552,000 four-room one bath house in Melbourne’s Frankston.

Right at the peak of the market a 13-year-old kid (with obvious help from his parents), bought a house costing over half a million dollars.

I noted “Akira is already looking for his next property.”

I asked “What can possibly go wrong?”

Today, we found out.

Source: ZeroHedge

If California Is Split Into 3, What New State Will Have The Hottest Housing?

https://www.mercurynews.com/wp-content/uploads/2018/07/0715-BUS-SPLIT-CA-01.jpg?w=842In this June 18, 2018, photo, venture capitalist Tim Draper points to a computer screen at his offices in San Mateo, showing an initiative to split California into three states qualified for the ballot. Opponents of an initiative are asking the state Supreme Court to pull the measure from the ballot. (AP Photo/Haven Daley)

Voters will decide in November on a proposition that calls for California to be split into three new and separate states.

This column isn’t the place to debate the merits of the idea. Nor will I ponder its odds at the ballot box. And I’ll leave to other pundits the vast legal, political and operational impacts of such a historic change — and that’s only if the breakup ever got all the necessary approvals after a winning vote.

We are here to talk one thing: What might these three new state housing markets look like based on historical trends. Geographically speaking, the plan creates new state borders along county lines.

There’s the retooled “California,” essentially the coastal counties from Los Angeles to Monterey. There’s the oddly named “Southern California” combining Orange, San Diego, Riverside and San Bernardino counties up through the interior to Lake Tahoe. And there’s “Northern California,” everything else or basically the Bay Area plus everything up to Oregon.

Knowing the new county lineup, I filled my trusty spreadsheet with historical housing data provided by Attom Data Solutions. Looking at stats from 2000 through 2018’s first quarter, here are 10 things you should know about the housing markets within each of the new proposed states.

1. Price tags: When you shuffle the counties into three states, what does a sales-weighted median for 2018’s first-quarter selling prices for all properties look like? It’s no surprise that it would cost the most to buy in Northern California at $580,200. Next was the new coastal California at $571,900. Southern California was most affordable — remember all the cheaper inland properties are in this new state — at $426,000.

2. Best bet: Where was the best performance this century, as measured by growth in median selling prices for all properties, 2000 through this year? Well, seaside property rocks. The Pacific-hugging new California’s 181 percent gain was tops vs. Southern California at 148 percent and Northern California’s 120 percent.

3. Most pain: Split or not, don’t forget the pain of housing’s bubble bursting! What new state’s housing market would have fared the worst in the 2006-2011 downturn? Northern California’s 46 percent price drop was the largest loss and a shade ahead of Southern California’s fall of 45.6 percent and new California’s 41.4 percent tumble.

4. Top recovery: Where was the post-recession rebound the best, measured by the 2011-2018 selling price upswing? Northern California produced 108 percent in gains in seven years vs. Southern California at 84 percent and new California’s 83 percent.

5. Predictability: Split the state into three, expect the same crazy real estate. Just peek at the nearly uniform best and worst 12-month periods since 2000! New California’s best was up 30 percent vs. its worst of down 35 percent; Southern California ran from up 29 percent to down 37 percent; and Northern California ranged from up 29 percent to down 42 percent.

6. Big sellers: Ponder the size of these markets, in terms of purchase transactions closed in the past 18 years. Most sales activity in 2000-2018 was Southern California’s 3.2 million sales followed by Northern California’s 2.9 million and new California’s 2 million.

7. Sales dips: Home buying is down since the turn of the century as homeowners choose to move less and ownership is less affordable. New California’s sales pace is down 19 percent since 2000; Northern California is off 10 percent; Southern California is down 4.5 percent.

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8. Home sweet home: Now let’s think about single-family homes under the proposed three-way split. Southern California would have 2.77 million single-family homes worth a combined $1.44 trillion. New California gets 1.84 million single-family homes worth $1.41 trillion. Northern California is home to 2.87 million homes worth $2.18 trillion.

9. Price extremes: Where’s the budget-busting housing in the proposed new states  … and where are the bargains? Southern California’s priciest single-family homes are in Orange County at an average value of $871,635 vs. the cheapest county, Kings, at $202,699. New California’s priciest is Santa Barbara County at $804,942 vs. San Benito County’s $541,434 low. Of course, Northern California has an insane gap: the highest prices are in San Mateo County at $1.61 million vs. the cheapest county, Modoc, at $89,158.

10. Tax bite: Ownership equals property taxes. How would that cost for single-family homes slice up among the three proposed states? Southern California’s 2017 tax collections for single-family homes ran $12.13 billion or $4,372 per average taxpayer. Northern California property taxes totaled $15.53 billion or $5,419 per average taxpayer. And the biggest individual tax bills were in the new California where $10.38 billion in collections translates to an average $5,636 per property.

Source: by Johnathan Lansner | Mercury News

From Cash-Strapped Roommates To Airbnb Billionaires

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A decade ago a pair of San Francisco roommates decided to make rent money by using air mattresses to turn their place into a bed-and-breakfast when a conference in the city made hotel rooms scarce.

The brainwave led to the creation of Airbnb, a startup now valued at more than $30 billion which boasts millions of places to stay in more than 191 countries, from apartments and villas to castles and tree houses.

Here are some key facts about the sharing-economy star, which has sent tremors through the hotel industry:

– Humble beginnings –

– In late 2007, with hotel rooms selling out due to a design conference in San Francisco, Brian Chesky and Joe Gebbia decide to make some extra money to help cover the rent in the apartment they share, by using air mattresses to turn it into a bed-and-breakfast.

– A third former roommate of theirs, Nathan Blecharczyk, teams with Chesky and Gebbia in a venture they call “Air Bed and Breakfast,” launching a website in August of 2008.

– Struggling to get the business off the ground, the startup founders stage a quirky stunt at the Democratic National Convention in late 2008, selling boxes of cereal custom-branded “Obama-O’s” and “Cap’n McCains” for $40 each — raising enough money to stay afloat, and earning much-needed publicity.

– The startup name is changed in March of 2009 to Airbnb as it envisions being about more than sleeping on air mattresses.

– In April of 2009 Airbnb gets $600,000 in seed funding from Sequoia Capital after a string of rejections from other venture capitalists.

– Disrupting an industry –

– In 2011, Airbnb boasts of being in 89 countries and of booking more than a million nights’ lodgings. The startup becomes a Silicon Valley “unicorn” valued at a billion dollars based on some $112 million pumped into it by venture capitalists.

– In June of 2012, Airbnb announces that more than 10 million nights of lodging have been booked on its service, with some three-quarters of that business coming from outside the US.

– In 2012, Airbnb is hit with the problem of some guests leaving homes in dismal condition due to parties or other raucous activities. The startup puts in place a million-dollar damage coverage policy as a “Host Guarantee.”

– In September of 2016, Airbnb raises funding in a round that values the company at $30 billion.

– In November of 2016, Airbnb launches Trips, tools that tourists can use to book local offerings or happenings.

– Growth, and backlash –

– Airbnb begins facing trouble as cities and landlords crack down on “hosts” essentially turning homes into hotels.

– In late 2016, Airbnb implements policies aimed at preventing racial discrimination by hosts and creates a permanent team aimed at fighting bias, following growing complaints.

– In early 2017, Airbnb announces plans to double its investment in China, triple its workforce there and change its name to “Aibiying” in Chinese.

– In September of 2017, Airbnb teams with Resy, which becomes a minority shareholder in the new venture, to offer table reservations at 700 restaurants in 16 US cities.

– Airbnb is reported to have made a profit of $93 million on $2.6 billion in revenue in the year 2017.

– In 2018, battling a global backlash against “sharing economy” startups disrupting traditional industries, Airbnb is forced to cancel thousands of reservations in Japan to comply with a new law regulating short-term rentals.

This fellow has a series of videos about how to run your own Airbnb business…

Source: Yahoo News