patrick.net

New Renter says

There are still plenty of $400k-$500k starter homes in the Bay area.

starter home requiring 3 cars and tons of work. you can keep em.

egads101 says

you give me a payment 1/2 of current rent, and I really don't give a crap what the house costs! give me -10% interest rates, and I'll pay millions!

Says the guy who can't pony up 10K.

A bit of hyperbole, don't you think?

egads101 says

you give me a payment 1/2 of current rent, and I really don't give a crap what the house costs! give me -10% interest rates, and I'll pay millions!

Yeah, the condo I rent is $1900 a month, but sell for $450,000 and there is a 350 HOA so your monthly payment would be over $2500 if you shelled out a $95k down payment. So when rents go up to $5000 a month you will sound like you know what you are talking about in the RBA.

One item people tend to forget as well that I have constantly brought to CNBC, Wall Street Journal and Bloomberg is that this housing cycle isn't not well know for it's 20% down borrowers.

Take out the cash buyer and there are a lot people putting 3% 3.5% 5% 10% down on their homes because they simply don't have 20% down.

With housing inflation rising due to prices rising that 20% down is even more difficult to obtain.

This means you have to add MI calculations to the total payment equation.

Principal & Interest, Taxes, Insurance, ( HOA) and for CA condos can get pricey and mortgage insurance payment

Just for FHA you have UFMIP charge of 1.75% which almost always gets added to the loan balance and a MI monthly charge of 1.30% now.

Today's number

NAR: Pending home sales *down* 5.6% in September and fall 1.2% below year-earlier level. This is the first year-over-year drop in 29 months.

I tried to explain to the financial media it won't be until September until we see the the first real impact of the falling mortgage purchase applications because before May we had a 14% increase YOY on the index and those people were prequalified to buy.

It takes some time to filter out those buyers and you need to replace them. So it takes at least 4-6 months to see the impact on falling applications since there was a good rise in first part of the year

Purchase applications started their fall in May

Now again, this doesn't mean a collapse in housing but it shows that the capacity mortgage buyer has limits even when rates hit 4.5%

bgamall4 says

Is demand for treasuries increasing, decreasing or just holding stable due to these counter forces?

What we saw this year from that move of 1.60% -3% was truly epic. However, I always believed that the bond market was an over crowded trade and close above 2.21% was game on and the Fed could easily lose this market place.

- Once people saw negative returns on their bond market funds, they would split, we saw outflows form bond funds

- Major outflows from foreign country as well

- Computer trading, a lot technical damage done to that 10 year note

With all that said, that 3% was a solid line that didn't break, so the natural buying and selling of an asset would create a purchase cycle for bonds.

So at 2.51% we shall see what happens with the Fed talk. Taper gone for 2013 and Yellen is a big Dove so, I wouldn't expect her to talk taper too much until 2014.

Again, a historical look at the 10 year.. we are so far from normalized rates and my first target rate 10 year on coming back to normal is 3.71%... so we are still in bubble mode for the pricing of the 10 year.

Or the other case to be made is that we are Japan 2.0 and we are stuck in a liquidity trap for a while

We will always get Top status and Last Man standing Status in regards to our bonds because we are the biggest economy and have the biggest military.

I believe there will always be demand for our debt considering everyone else around the world.

On the Japan theory, if we don't get a increase on wages especially to profits by 2015 then the Japan 2.0 thesis will get more play.

I am willing to cut some slack here in the U.S. because historically it takes a country 9-12 years to recover from a financial crisis .

sbh says

That's my bet. How do you see the trap being resolved?

A spoon full sugar makes the medicine go down?

Such a difficult problem because of

-Globalization
-Technology
-Debt
-Demographics

Median incomes needed to be around 93K by now not 54K
So when you base your economy on debt and incomes don't rise you get yourself stuck in this low growth Japan style problem

You can do things in the short run, borrower money for a major infrastructure plan targeting the long term employed.

However, longer term, without innovation it's going to be difficult.

On a bright note our energy expansion is a plus for us here in the U.S.
If you see what is happening in North and South Dakota and their economies it's pretty clear.

I am not sure if we can maximize this. Take a look at Natural Gas.
This is one item where we have pricing and supply advantage over the world and we are not making a full commitment to it for obvious political reasons.

In fact I believe there are some acts being presented to congress to prevent the exporting of nat gas so we can keep the price cheap here in the U.S.

When it comes down to it. Look at our great innovations... Facebook, Twitter... these aren't companies that created millions of well paying jobs. Technology has done a number on labor.

We need a Henry Ford innovation and as of right now the supply and demand is in energy so.. time will tell..

There is no silver bullet to this issue and come 2022 our mandatory side of our yearly budget is going to expand due to demographics and net interest payments. So, it will be deficits forever until 2052-2057 time frame.

Gentlemen, I would recommended this movie when it comes out for DVD or nextflix

Money for Nothing, about the Federal Reserve, it's history and economic bubbles

http://moneyfornothingthemovie.org/

evilmonkeyboy says

It seems to me that purchasing in the "affordable" Bay Area might result in A) locked in high property taxes and B) a property that would be unaffordable to buyers in the future if interest don't stay at record lows.

Under Prop 13 property taxes do adjust downward when the value of the home dips.

Of course the taxes also track back up with the value of the house up to the purchase point + 2% annual.

I'm sure a smart person could figure a way to reset the value of the house to the lower value.

sbh says

I don't see how savings can be pried out of the hands of corporations and paid into the hands of labor without spooking the capitalists.

With Pitchforks!

Updated today, looks like we have bottomed in early 2013 on the inventory cycle. First time all year we had a positive YOY number on the inventory side, albeit 0.3%

Total inventory is still very low, but should get to the 6 month on sale inventory some time next year.

bgamall4 says

only the wealthy are buying.

33% cash buyers is very high, especially at this stage of the economic cycle with rates under 4.5%.

We can't ignore the fact that the Student Loan Debt problem with be here for years to come

Every single economic conference I went to this year, every housing bull had that is a major long term concern

The Young and the Renting ....

http://loganmohtashami.com/2012/10/26/the-young-and-the-renting/

Call it Crazy says

How do these people come up with money for down payments???

The answer is they don't.
In fact let me give a stat so far this year, this is a very small pool.

My purchase clients for 2013 so far that have bought a home (not a pre q) have had a total household income range of 108,000 - 198,000 and the number of them that had 20% down = 0

The market is leaving FHA to go to 95%-85% conventional loans, because the MI is better but still 20% down isn't there.

This is why the NAR affordability index needs a serious * to it because they base their assumptions on a 20% down 740 Fico Perfect teeth and children borrower at a 25 DTI base. Hmmmm

Updated for today's MPA numbers and the FED

"housing sector has slowed somewhat in recent months"

bgamall4 says

Supposedly, individuals are supposed to save when times are tough, but we aren't. We are too poor to save as a nation. Only the corporations save. And the individuals live 76 percent paycheck to paycheck.

In the 90's it was 50 percent. Now it is 76 percent. How high can it go before rules are in place to stop the speculation in assets/commodities?

I am a saver (and will continue to be one), but sometimes I think the rules have changed. I question the financial lessons my parents taught me. My world is very different than theirs. They told me that the goal of my personal finances should be to save enough to live in on the interest.

I am not always 100% sure what I am saving for. My money is growing so slowly that it seems silly sometimes. It seems like there is some wisdom in being in debt, especially if inflation is coming.

Low rates and inflation make me question my saver's stance. I guess I am having some existential reflections this morning.

bg says

but sometimes I think the rules have changed. I question the financial lessons my parents taught me.

Yeah, they REALY want you over into some risk assets, whether you want to be or not. To pump the value of their assets and give them access to yours, of course.
sbh says

to require ones capital to be productive. Saving is only the first part of the undertaking that allows one to embark on the relationship between time and rate of return. Saving is a necessary predicate but it can be the least satisfying of the trio because its outcome is always at risk of loss or being spent.

Sure, it is safe once "one" turns it over to the racketeers that promise to "grow' it for you.
In an environment of rampant accounting fraud and stock manipulation in a market place of vipers slinging Dark Pool money in High Frequency microsecond "trading" I am afraid you are a hopeful lemming in a lion den, not an investor "deploying capital".
And I don't care about your success stories, the winnings are always yours only until Goldman/Chase/Morgan decide to harvest the muppet's money.

Goldman on housing: "Clearly identifiable reason for the recent weakness ... the sharp increase in mortgage rates"

https://www.youtube.com/watch?feature=player_embedded&v=9OpIbiFmY60#t=3

sbh says

fragged

Not sure what fragged means.
Does it mean financial independence from a fairly young age, doing whatever the hell I want every day, all day?
Thats me!

I am going to use this all the time.

sbh; How ya doin' Robert?
Me; I'm Fragged, Baby. Fragged to the bone!

"I will reap mine, as I always have"
"I'm getting exactly what I thought and sought"
sbh, His Royal Pompousness

3 years ago, no doubt since you warned us about mortgage purchases dropping, the market has fallen badly since then?

How much has it fallen near you?

or, in simpler terms, how do you dare to even think you know antyhing about housing economics, when you've been 100% wrong since you joined this site?

youareworthless says

how do you dare to even think you know antyhing about housing economics

Because the taper spike lead to negative year over year growth

In fact as soon as rates went up, purchase applications started a 18 month negative growth rate ending in 2015

leading the lowest or purchase applications ever recorded adjusting to population in 2014 :-)

Next?

See that downward slope action .... 2014..

Lowest level of purchase application demand this cycle and adjusting to population the lowest ever recorded since the data was collected

:-)

You're better than this