patrick.net

Logan Mohtashami says

We need to get to 1.4 million avg on housing starts.

That is the quote for getting a healthy economy. Each housing unit creates jobs, and pays tax revenue.

Do we really need those housing units?

Again, your thread shows a manipulated Real Estate market place. The Fed, and our government want housing to bolster unemployment, while giving us projected tax revenue.

So, is this actually a bubble, or pure manipulation?

Logan Mohtashami says

What is telling about housing starts is the multi family aspect of it.

Does that include row houses?

It's the multiplier effect of housing the FED likes. This is why they want housing to spring back.

However, if income growth is weak, there is a limit long term to expansion. However, we clearly saw a bottom in new home sales and existing home sales have hit a bottom as well.

Years from now when rates are higher we shall see how many homes can be bought ( X cash buyers)

The number I am always looking at is Cash buyers to first time home buyers. Right now it's 30% /30% that number needs to get better for the first time home buyers and as well all know that hasn't happened yet

David Losh says

Does that include row houses?

All new SFR and Multi family construction

Logan Mohtashami says

All new SFR and Multi family construction

Yeah, that also means condos, but not so much for apartment building.

It's also interesting that today the Fed's Saint Louis President is talking cutting Quantitative Easing:

http://www.cnbc.com/id/100626267

and this money management fund is asking for the Fed to reign in the Easing:

http://www.cnbc.com/id/100625847?__source=xfinity|mod&par=xfinity

In the same day builder stocks are soaring.

I have an idea that we are on our way to the recovery of a normal financial market place.

What that means to me is that these builders, speculators, and hedge fund investors have a chance right now to cash out, and get well, financially.

If we get the builders out of the mess they made, we have a chance to have affordable housing, that makes sense to the middle class.

I would see slow steady growth rather than big bogus profits as the rule in the next five years.

robertoaribas says

Not

you have nothing to say professor

David Losh says

We can fix MediCare, and MedicAid by fixing our Health Care system. That's a long debate, but there are solutions to Health Care that we are tinkering with now.

Yes, we are paying 30+% more per capita than comparable countries, including those where the aged are a higher percentage of the population than ours (Japan, Western Europe). There is plenty of room for increased efficiency. Getting rid of marketing and sales costs by nationalizing health care would be the best way to go. Lots of money paid in commissions and spent on advertising.Logan Mohtashami says

The reason we will have a net interest payment problem is because S.S. and Medicare cost so much. Medicare cost are insane looking out long term. Also, this has to do with our demographics problem.

It's because the surplus was spent on the military and subsidies for corporations for decades, because in the 80s neither Reagan nor the Dem Congress wanted to raise taxes to pay for the burst of new defense spending. Had that money not been spent, there would be little to no problem.

We'll just have to eliminate subsidies, raise taxes on businesses and the top 1% (which are at post WW2 record lows), and cut "defense" (actually, power projection) 75%.

thunderlips11 says

Had that money not been spent, there would be little to no problem.

You're looking backwards. The reason our deficit is going to blow up is because our demographic profile is about to take a massive shift upward and collection on S.S. and Medicare are going to explode. Years ( 2022 and out)

More old people in the system more shelling out of money and our worker to payout ratio doesn't look great

Logan Mohtashami says

You're looking backwards.

Yes, because we have to understand the problem. Wall St. wants people to think the system was "always doomed", when it worked fine for 3 generations without a hitch, and indeed produced massive surpluses for decades.

We have to understand we need to reverse what happened over the last 30 years. Social Security and Medicare Surpluses were used to pay for then-current spending, mostly defense and tax cuts. To fix the problem, we have to run in reverse and use current spending - by cutting defense and raising taxes - to refund social security.

In other words, instead of SS being spent in the general fund, the general fund must now support Social Security.

I'm not worried about it. Old People vote reliably, and there are too many boomers who worked their whole lives and know that SS is the only thing keeping them off welfare. In a battle between the AARP and Northup-Grumman for spending, the AARP will win. There are just too many politicians who need the elderly vote to win.

No problem raising taxes - there is too much money chasing too few opportunities, because there is no growth in real incomes to create new opportunities. That extra tax money, had it remained in private hands, would have just gone to encourage deficit spending or start yet another bubble.

thunderlips11 says

when it worked fine for 3 generations without a hitch, and indeed produced massive surpluses for decades.

I am not explaining it right, this was NEVER going to workout in the long run. Our unfunded liabilities on Social Security and Medicare was always awful. It's just our bill is due years from now.

Now if we grew at 4-5% GDP then we can debate if it's sustainable

However, because of

1. Globalization
2. Technology
3. Debt
4. Demographics

Our capacity growth is limited to a 2-3% GDP country at best for this century. So not only is our payout ratio bad our estimated GDP growth isn't that great either.

This is why every single budget looking at after 2022 looks awful. We simply don't have the growth to match the mandatory payouts. We are getting older and more obese.

The funny thing about the budget is that no one disagrees that things look awful after years 2022, it's just too far away to do anything about it politically.

A better way to explain unfunded liabilities

"The U.S. government is obligated under current law to mandatory payments for programs such as Medicare, Medicaid and Social Security. The Government Accountability Office (GAO) projects that payouts for these programs will significantly exceed tax revenues over the next 75 years. The Medicare Part A (hospital insurance) payouts already exceed program tax revenues, and social security payouts exceeded payroll taxes in fiscal 2010. These deficits require funding from other tax sources or borrowing. The present value of these deficits or unfunded obligations is an estimated $45.8 trillion. This is the amount that would have had to be set aside in 2009 in order to pay for the unfunded obligations which, under current law, will have to be raised by the government in the future. Approximately $7.7 trillion relates to Social Security, while $38.2 trillion relates to Medicare and Medicaid. In other words, health care programs will require nearly five times more funding than Social Security. Adding this to the national debt and other federal obligations would bring total obligations to nearly $62 trillion. However, these unfunded obligations are not counted in the national debt."

At some point in the future this country will have a discussion if the US people want all it's revenue going to Social Security, Medicare and net interest payments. At this stage the conversation isn't that important because it's still 13-18 years away.

Logan Mohtashami says

I am not explaining it right, this was NEVER going to workout in the long run. Our unfunded liabilities on Social Security and Medicare was always awful. It's just our bill is due years from now.

That simply isn't the case. Like I said, had we not spent the surplus when the population was overwhelmingly working age (1965-2005), there would have been little to no problem. The worker:retiree thing is a red herring, since almost everybody who reaches SS age paid a lifetime of SS withholdings, and the economy grew over those decades. Many people never collect SS, and some get it for a very short period of time. SS is basically pooled risk, a pretty much like a fixed annuity.

Not all wage income pays into S.S. and M.C. Remove that artificial cap, and require all salaries to be subject to withholding, and much of the problem disappears, even with the looting.

And, taxes are at post WW2 lows. If our taxes were at all time highs, AND if the S.S/MC surpluses hadn't been spent, there might be a case that S.S. is unsustainable.

Let's compare Soc Sec to the General Budget. Which one has been running a deficit for the past few decades and which has been solvent since the moment it was created?

SS projections are an accounting trick, like the USPS going bankrupt, but only because they are forced to pre-fund the retirements of people they haven't even hired yet. Nobody in the private or any other public sector does 75-year projections. And the idea that nothing will change in 75-years is absurd.

thunderlips11 says

If our taxes were at all time highs

Good luck on getting any party to raise taxes on middle class. I agree that taxes need to go up, but both parties are in fantasy land on taxes.

With Clinton tax rates, Marginal rate increase on the middle class brings 3 times more revenue than that taxing the rich.
Raising taxes on the rich brings only 800- 837 Billion over 10 years ( White House Numbers) next 10 years

Where raising it on the middle class is roughly 2.4-2.7 Trillion next 10 years

So you need to raise taxes on the middle class and both parties won't go there.

See, the problem is that both parties are addicted to Bush Tax Rates for the middle class

http://loganmohtashami.com/2012/12/30/fiscal-bluff-shows-addiction-to-bush-tax-cuts/

Logan Mohtashami says

Good luck on getting any party to raise taxes on middle class.

Don't need to.

Logan Mohtashami says

Raising taxes on the rich brings only 800- 837 Billion over 10 years ( White House Numbers) next 10 years

I don't know what this means. Is this income taxes? Eliminating loopholes? Capital Gains taxes?

The top 1% own 90% of the wealth, and 80% of the income. It's impossible that taxing the middle class - if the taxes are levied as a percentage of income - would produce more revenue than increasing the taxes on the wealthy.

I suspect Obama, the good neoliberal Democrat that he is, was not intending to raise capital gains taxes or eliminate the plethora of new loopholes since Clinton, but simply raise the marginal rate.

thunderlips11 says

The top 1% own 90% of the wealth, and 80% of the income. It's impossible that taxing the middle class - if the tax is a percentage of income - would produce more revenue than taxing the wealthy.

Not even close. See marginal tax rates go based on income. So, when you raise taxes on the marginal side for incomes above $250,000 that is only for incomes after that 250,000 level.

So, if you made $251,000 your income of only 1,000 gets taxed at a higher rate.

Most people don't know that even today on the marginal tax side.

I am all for tax reform and killing a lot of deductions. However, the revenue is in the middle class tax rate because majority of the income base is from that $250,000 level and below.

We simply don't have enough rich people to tax. I believe the last number I saw is that if you taxed the rich 100% it will provide 121 days of funding and that's it.

You want more revenue you need to get tax reform and the middle class has to pay more taxes period.

Logan Mohtashami says

There is a sale inventory shortage but maybe not a house shortage. If you look at the "overbuilt" in the boom years (compared to the baseline), it roughly compensates the "underbuilt" for the past 5 years. Inventory is surpressed b/c of underwater houses and the foreclosure pipline. The supply will come back in a couple year when prices raise.

Mobi says

"underbuilt" for the past 5 years.

The last 4 years have been the worst construction levels for new housing starts dating back to 1959. This is a by product of the housing crash.

This whole debate we were having on this thread was that the on sale inventory is low.

2013 the inventory crisis was going to be with us because, we have too many homes underwater, starts aren't big enough yet and distressed homes still take too long.

2014 has a better profile for real inventory coming back

Call it Crazy says

How does the supply come back when the prices rise if wages don't rise along with them? Wages have been falling, so what's going to support higher prices?

This is the crucial part for housing for the future years. Prices are rising, but rates haven't budged too much higher from the lows of last year.

However, if we don't get income growth here in the US, we will see a negative effect for first time home buyers who are already 10-13% below historical levels for the purchase market

Logan Mohtashami says

2013 the inventory crisis was going to be with us because, we have too many homes underwater, starts aren't big enough yet and distressed homes still take too long.

We also shifted to apartment construction.

We over built, that's just a fact shown in your charts. The housing units that were built are still there, they didn't go away, and like I said we are in a period of alternative choice.

The point is that no one needs to buy. There is no reason for the price of housing units to increase, because it just causes debt.

The consumer, even though they may pay a lower payment on a mortgage, is still saddled with debt.

Everything you have posted here shows that consumers should be smarter to pay down debt.

Holding Real Estate at this point isn't a great idea.

David Losh says

We over built, that's just a fact shown in your charts.

I am curious too see what your beliefs are on household formation then. Also, this discussion really was about on sale inventory and how it was low due to the multiple factors displayed.

In regard to renting, I have always believed that we simply don't have enough qualified home buyers here in the US ( excluding cash buyers)

even though 70% of all purchases are done with mortgages, first time homes buyers are very weak considering where rates are and it doesn't surprise me one bit. We never had the capacity to own all those homes, hence it was an excess in false demand.

However, we do need to build more homes ( multi family or SFR) population growth doesn't stop because we had a bubble in housing.

robertoaribas says

you claim your business success...

According to this site, you're rated the worst real estate agent: http://bit.ly/11T8KJD

Logan Mohtashami says

even though 70% of all purchases are done with mortgages

When I started in Real Estate in the 1970s I could buy a house for cash. Me, a kid, working a trade job, could save enough to buy a house.

I had to do a couple of trades to get into my first one, I had partners, but it was pretty easy to buy a house.

In the 1980s I bought a house two blocks from my folks for $35K. I bought it on an owner contract with $10K down, and paid it off in 5 years.

By the end of the 1980s when you owned Real Estate you had equity. In the 1990s you had a lot of equity, until 1998.

The flow of cash into property from tech stocks first drove up prices, until the Community Reinvestment Act took over with the easier financing of property.

Now it is all about the house payment, or car payment, or student loan payment. Banks took over Real Estate.

In the 2000s I was saying banks weren't making loans, they were buying Real Estate. Banks now own the residential Real Estate market.

Banks have made a ton of cash with these mortgages, even without the government help.

So you would be banking on creating equity with leverage. If you banked on your cash making higher returns you would be betting against a fully funded banking system, that is global, and has already collected it's profits.

Logan Mohtashami says

I am curious too see what your beliefs are on household formation then

I think people should avoid, use, or abuse housing to get to an end of no debt. If it takes ten to a household then that's what people should do.

That household formation is kind of contrary to the claim we have an aging population that isn't productive. Do you see immigration in there some place?

robertoaribas says

More lies from the liar...

OK, take a look at my over all package, and read what I write. My whole thing is to get rid of debt.

I'm one of those very bad people Roberto who thinks banks are scum, and I will use every legal means to screw them.

Did you see a bankruptcy in my records? No? It's because it's not needed.

I follow all the laws the rest of corporate America uses, and bankruptcy is still one of my options.

I'm liquid professor. I sold in 2005, 2006, and 2007 for a little bit more than you did, and kept the cash.

You on the other hand didn't time the Residential Real Estate market.

If you read my stuff I would have told you to sell in 2005, 2006, 2007, so you could buy back in to the panic of 2008, 2009.

You waited, you hesitated, and bought in 2010, from what you tell us.

You bought into a stable market place with the idea it might go up in price, but you weren't sure, you took a chance, you were lucky.

I come here to learn something from these great people who post comments, and threads. You have nothing to say, so why bother with me?

David Losh says

That household formation is kind of contrary to the claim we have an aging population that isn't productive. Do you see immigration in there some place?

So is that your answer on household formation. I am saying this in regard to Boomerang kids and the fact that they need leave their parents home ( Buy or rent) most likely rent because they can't buyt. A reason why the number is going up excluding population growth

The Professor says

Has anyone told Ben?

FMOC minutes today looks like more discussions about a possible end of QE. I still think Q2 2014 the Fed calls it quits. More of a debate on cost benefits between the FOMC members

Logan Mohtashami says

Boomerang kids

You're a good guy, and I appreciate all of the information you have posted.

Those kids can take over the family home, and might, you're in another area that doesn't have statistics.

My take, since the first tax credit, is that Real Estate had a fundemental shift away from practical application to a contrived bubble.

I see large investors cashing out.

Logan Mohtashami says

FMOC minutes today looks like more discussions about a possible end of QE.

A rise in interest rates would make other investments more attractive.

What I really think is that these investors will cash out here first, then move on to Europe, Asia, India, Russia, and South America. There is tons of untapped equity in the "emerging markets."

Cash is king, and investors will suck as much cash as they can while they still can.

At some point with prices rising those that aren't looking for yield will cash out on their investments

The one item with household formation is that we got to an epic level and these kids need to leave their parents home even if it's rent.

You can see that the major players in housing still have a rental theme out there and that no matter how low rates are out the demand for housing isn't that strong because simply put Americans can't buy homes.

DTI is too high and liquid assets are soft. Rates made a strong move in early 2011 from 5% to a low of 3.25% and you didn't see a big rise in demand from MPA

This is why if you don't get income growth this next decade here in the US, it's going to have a real impact in housing because rates can't stay below 4% forever

Logan Mohtashami says

I still think Q2 2014 the Fed calls it quits

...and Ben will be there to soak up all the Glory "Ere", I mean
Yellen will take the heat for the fall

robertoaribas says

Sure...

judgements settled irs negotiated, your point?

what was my take on that debt mess?

Logan Mohtashami says

in early 2011 from 5% to a low of 3.25% and you didn't see a big rise in demand from MPA

What you saw was a decrease in inventory. What I suspect is that is when big players came into the market place, borrowed at low interest, and built portfolios. Banks were doing the same by pulling properties from auction.

It has driven up prices and banks have been getting more, and more from distressed properties.

Where will it top out? 2014, and the end of the Easing.

David Losh says

What you saw was a decrease in inventory.

So you agree then there was a decrease in inventory for on sale inventory since Middle of 2010

Take a look at week 31 in 2010 and chart it out to now

Logan Mohtashami says

So you agree then there was a decrease in inventory

No, what I'm saying is that the inventory got sold. Sales are steady.

According to this last chart "inventory" is steady also for 2013.

http://www.bloomberg.com/news/2012-11-19/u-s-existing-home-sales-rose-in-october-to-4-79-million-rate.html

and then

new home sales fell:

http://www.bloomberg.com/news/2012-11-28/sales-of-new-homes-in-u-s-fell-0-3-in-october.html

It all adds up to robust market, but it's still a bubble.

The shadow inventory is still there, all the homes built are still there, and we are building alternative choices to housing.

It's all there.

Seriously if you wanted to go for a thread you could say that demand is super high.

• 1,927,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.

• 1,483,000 properties that are 90 or more days delinquent, but not in foreclosure.

(Future Inventory) not everyone of these homes will end up in foreclosure or a short sale but most will

• 1,694,000 loans in foreclosure process. ( Shadow)

a href="http://patrick.net/?p=1223313&c=951133#comment-951133">Logan Mohtashami says

• 1,927,000 properties that are 30 or more days, and less than 90 days past
due, but not in foreclosure.

• 1,483,000 properties that are 90 or more days delinquent, but not in
foreclosure.

(Future Inventory) not everyone of these homes will end up in foreclosure or
a short sale but most will

• 1,694,000 loans in foreclosure process. ( Shadow)

The inventory that you cannot possibly count, those that have been underwater for years that will sell as soon as they are not upsidedown..............

yup1 says

he inventory that you cannot possibly count, those that have been underwater for years that will sell as soon as they are not upsidedown..............

This is true, 10 million plus homes underwater. However, we can't expect people to put there homes onto the market right when they turn positive. Have to look at after transaction cost. This is why a lot 90-99 LTV homeowners are still in limbo.

Logan Mohtashami says

This is true, 10 million plus homes underwater. However, we can't expect
people to put there homes onto the market right when they turn positive. Have to
look at after transaction cost. This is why a lot 90-99 LTV homeowners are still
in limbo.

True, when they can cover transaction costs they are out.