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Housing Inventory Crisis will Continue in 2013


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2013 Mar 30, 8:01am   39,696 views  189 comments

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http://loganmohtashami.com/2013/02/27/housing-inventory-hangover-will-continue-in-2013/

For years Americans have seen the drying up of homes for sale. The drought has been harsh. Last year I wrote many articles talking about this trend and how this has had greater effect on a rise in sale prices than has pure demand. Now, this price rise caused by parched inventory is threatening to create another problem down the road which, if allowed to take hold, will only choke us further. What is this trend? I am not worried that home prices will bubble up into frothy foolishness, but I am concerned that this fast rise in prices will...

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1   bmwman91   2013 Mar 30, 10:20am  

This is only input from one RE agent, so take it with a grain of salt. When I was at an open house a couple of weeks ago, the agent said that he sees a potential jump in inventory if interest rates rise to 4.0-4.2%. Apparently a LOT of SFBA "would-be sellers" are watching the price increases with delight and delaying sales that they have been planning to see how high things can go. They are also watching interest rates, and he says that he thinks a lot of them will rush to sell if interest rates bump up a little as they worry that buyers won't qualify to pay the price they think they can get. And of course he ended it by stating that he has no idea when the rate will bump up and that it would probably not be a great idea to try to time it since you never know.

Oh, and the same agent also said, verbatim, "yeah I think that real estate here is in a bit of a bubble." It would seem that agents are OK with being more open and honest when they have multiple bids and no concerns about selling the property.

The other interesting thing I noted was that 4 of the 5 agents we met that day were ex-tech employees.

2   _   2013 Mar 30, 10:24am  

Honestly this is what I think about real estate agents and their market predictions. The worst are the ones that come on T.V. that claim to the best of breed.

http://loganmohtashami.com/2012/03/14/housing-experts-on-tv-beware-trust-yourself-first/

3   bmwman91   2013 Mar 30, 10:26am  

Yeah, nobody has a crystal ball. I was just surprised by their apparent candor. My expectations of them trying to get us to froth up our offer based on bidding-war scares didn't happen, and instead they basically seemed like they didn't give a fuck if we were interested or not. I mean, they really have no reason to at this point. My wife and I are not desperate, and even if we were we don't have enough cash to make an offer worth the agents' time in this environment.

4   _   2013 Mar 30, 11:22pm  

For sure it's a sellers market as long as this inventory crisis is at bay. I follow weekly inventory numbers and 2013 needs to look like 2010 ( but better) to have a strong inventory cycle. We won't get that this year for sure.

Prices rising faster than incomes isn't a good thing. Even the Spin Mister Himself Mega Cheerleader Lawrence Yun of NAR finally admitted this in the last existing sales number.

One thing when rates finally go up but at higher prices. Unless we get massive job growth and income growth here in the US there is no way for millions of Americans to make up the difference in housing inflation

5   lostand confused   2013 Mar 30, 11:57pm  

Logan Mohtashami says

Unless we get massive job growth and income growth here in the US there is no
way for millions of Americans to make up the difference in housing inflation

Well, we are getting massive growth in food stamp usage.

6   _   2013 Mar 31, 12:30am  

don't forget Disability as well. Both those charts look awful. I believe S.S. disability might have slowed down though.

Still, case in point that this economic cycle has had it's crazy uptick in food stamps, unemployment benefits, disability usage.

I am 3 financial bubble thesis guy. We are the first modern day country to have 3 different financial bubbles with in 20 years. This shows long term stress. The steady rise in growth we have had since 1934 might be long the tooth. This is why we have to always inflate our way out of bust cycles. We are doing it once again. Mis pricing in housing asset once again is a result of it.

-globalization
-debt
-demographics
-technology

these 4 are going to limit capacity growth this century for us here in America. I mean at best... VERY best we are a 2-3% GDP country. The days of the economy of the 50's and 60's are done where we averaged 4% plus GDP for 2 decades.

Then the mother of all (*&^ ups are coming. After 2022 is when our mandatory payouts explode due to demographics. By 13-18 years all government revenue will go to Medicare, Social Security and Net Interest payments... every single cent and then the rest is going to be borrower ed at higher rates..

That is a scary long term economic model. Also, this is why all the budget talks basically end at 2022. They have no answer yet for the legions of old people coming to collect.

7   Bubbabeefcake   2013 Apr 4, 8:18am  

Logan Mohtashami says

real estate agents and their market predictions

http://www.youtube.com/embed/BV2rNlabaGA&list=UUtYKx1PZgMkVemCRc91mIrA&index=1

8   _   2013 Apr 4, 9:37am  

When Housing Bulls tell me they see a long term bull market in housing I say this

70% of the market place is fueled by cheap money that can't get cheaper and the other 30% are cash buyers a lot of them looking for good yield and investors

What can possible go wrong when rates normalize and housing inflation is already moving up because mini bubble 2.0 in prices is already here

Some get what I am trying say!

9   bmwman91   2013 Apr 4, 9:42am  

You have to consider the possibility that ZIRP is going to be the "normalized" rate going forward. Japan did it and managed to maintain the status quo enough to prevent any major social unrest. As of now that is the only real goal that our government and central bank have: maintain the status quo. My bet would be on them mimicing Japan rather than trying to revert to the way things ran before this massive asset bubble blew since actually deflating it would cause chaos.

10   _   2013 Apr 4, 12:42pm  

I actually think the Fed will revise it's thesis on it's metric on when to raise short term interest rates. 6.5% unemployment rate is tricking with the participation factor.

QE I see ending at the 2nd quarter 2014.

We don't want to mimic Japan. 0.34% on their 10 year note today. Was looking at some charts of them. What a UGLY mess!!!

However, our society is much different that Japan. We aren't savers but spenders here.

11   Bubbabeefcake   2013 Apr 4, 3:36pm  

Logan Mohtashami says

What can possible go wrong when rates normalize and housing inflation is already moving up because mini bubble 2.0 in prices is already here

I would have to say it's not a question of what could go wrong, on the contrary it'll be a question of what will finally go RIGHT!

I'm smelling a housing liquidation...

12   Bubbabeefcake   2013 Apr 4, 3:46pm  

The Professor says

Logan Mohtashami says

Unless we get massive job growth and income growth here in the US there is no way for millions of Americans to make up the difference in housing inflation

Yep.

YEP!

Cali at 9.6 highest in the nation
http://www.bls.gov/web/laus/laumstrk.htm

13   Bubbabeefcake   2013 Apr 4, 5:20pm  

bmwman91 says

Yeah, nobody has a crystal ball.

Big time investors say rising prices will go on for years but then again I 've heard that same ole song and dance

14   _   2013 Apr 5, 2:41am  

(70% of house appreciation is based on interest rate... Based on what? You toss of numbers as if they meant something, when in reality you pull them out of your tail)

70% of the buyers are mortgages based so the interest rate factor plays a part into that equation) Since rates are at historically low levels we can't expect the next 10 years to have rates stay below 4%. These are roughly the trend reports that are being reported with sales numbers each month

14 11:43pm Thu 4 Apr 2013 Share Quote Permalink Like Dislike
Logan Mohtashami says

I actually think the Fed will revise it's thesis on it's metric on when to raise short term interest rates. 6.5% unemployment rate is tricking with the participation factor.

(6.5% is tricking with the participation factor? Wtf is that supposed to mean? Do you speak English?)

FOMC baseline metric for short term rates to rise is 6.5% unemployment rate. I don't believe the Fed will stick with that metric because of the trickling factor of the participation rate falling. Evident today with the jobs report. This means that the unemployment rate is falling faster due the lower participation. So, watch for the fed to revise that metric. At current trend they are looking at 2015 to be the first year to raise short term rates. You can read the previous Fed minutes they can explain it better that I guess because my English isn't great

(I'm glad mommy and daddy gave you a job writing mortgages, but, that hardly means you know anything)

I did a interview with Bloomberg financial last week making a counter argument against Ben Bernanke and his thesis on lending standards being too tight. If you find my thesis to be wrong against the Fed, then feel free to challenge it in any way

Here is a podcast of it

http://media.bloomberg.com/bb/avfile/Economics/On_Economy/vC4cgpLEdNzg.mp3

15   bubblesitter   2013 Apr 5, 2:50am  

Logan Mohtashami says

One thing when rates finally go up but at higher prices. Unless we get massive job growth and income growth here in the US there is no way for millions of Americans to make up the difference in housing inflation

Welcome to the third world order in America.

16   _   2013 Apr 5, 4:02am  

Obesity charts look awful. Our entitlement problem in terms of payouts looking long term can be broken down to this. In roughly 13-18 years staying at current pace all Mandatory payouts will exceed government revenue. Which means every cent will go to people 62 and over and net interest payments. Globalization, technology, debt and demographics will limit capacity growth here in the U.S. This century. We are at best a 2-3 percent GDP country and starting 2022 and on our demographic aging boom will kick in and payouts wil rise.

17   _   2013 Apr 5, 8:35am  

lostand confused says

Logan Mohtashami says

Unless we get massive job growth and income growth here in the US there is no

way for millions of Americans to make up the difference in housing inflation

Well, we are getting massive growth in food stamp usage.

Food stamps and S.S.D.

expansion on both have been epic

Looking out long term our aging demographics and the dependency ratio looks awful

18   lostand confused   2013 Apr 5, 8:39am  

donjumpsuit says

Is a person who is in a self inflicted state of physical attrition deservant
of consideration for disability?

Well, Octomom who intentionally got pregnant was getting $3,000 a month in welfare. She already had 6 kids, then DECIDED to do it again. Now my tax money goes to support her and her kids.

This country has become too politically correct and everybody gets a gold star and nobody can be be called out on their choices. Taking responsibility for your actions may soon become a sign of stupidity, in these strange times.

19   _   2013 Apr 5, 8:48am  

Wanna bet me!

I'll take that be that long term rates ( 30 year fix on the conforming side) can't stay below 4% for the next 10 years.

Fed has already indicated that they are starting to get concerned with their balance sheet. It will be north of 4 trillion dollars next year

If your prediction does come true then we have just become a bigger version of Japan. They just started the Godzilla of QE over there. I believe I saw their 10 year at 0.34%

That's not where we should be going.

20   yup1   2013 Apr 5, 8:53am  

Logan Mohtashami says

Obesity charts look awful. Our entitlement problem in terms of payouts looking long term can be broken down to this. In roughly 13-18 years staying at current pace all Mandatory payouts will exceed government revenue. Which means every cent will go to people 62 and over and net interest payments. Globalization, technology, debt and demographics will limit capacity growth here in the U.S. This century. We are at best a 2-3 percent GDP country and starting 2022 and on our demographic aging boom will kick in and payouts wil rise.

Logan Mohtashami says

I'll take that be that long term rates ( 30 year fix on the conforming side)
can't stay below 4% for the next 10 years.


Fed has already indicated that they are starting to get concerned with their
balance sheet. It will be north of 4 trillion dollars next year


If your prediction does come true then we have just become a bigger version
of Japan. They just started the Godzilla of QE over there. I believe I saw their
10 year at 0.34%

You are totally contradicting yourself. Low growth means rates can and probably will stay low.

21   _   2013 Apr 5, 9:10am  

yup1 says

You are totally contradicting yourself. Low growth means rates can and probably will stay low.

The Fed has been more than 70% of the market place in term of purchasing assets.

Well over 3 Trillion dollars already and with MBS going at 85 Billion a month they are heading well past 4 trillion by next year

Fed members themselves are saying they are concerned with the Fed's balance sheet and they are thinking about unwinding process.

At some point they will stop. If you looked at the fund flows last year that intra 10 year note low came after the Spanish Default fear trade pushed a lot money into our bonds.

Looking at a 1.35 ish intraday level then we saw a move up above 2%

How many times historically has the 10 year note yielded lower than the GDP level. Doesn't happen often historically here in the US. However, if GDP growth estimated between 2-3% and the yield at 1.71 .. that metric can't stick. Something has to give. Either growth needs to reduce or yields have go higher because the Fed's intervention is coming to and end. I still believe by the 2nd quarter of next year the Fed calls it quits on QE

Now in regards to ZIRP. Fed has been clear on that. They want to see 6.5% unemployment rate before they start to raise short term rates. However, that is a different ball game than long term rates. We have already seen long term rates rise and mortgage rates have made a move higher since the lows put in last year

22   _   2013 Apr 5, 9:20am  

USA IS JAPAN! 20 years ago

What we are missing here in the US now is the dollar collapse like what the Yen is doing now. The dollar has been acting stronger lately and while risk on asset rising.

Still we are the safety trade, our bonds and dollars. If that ever really goes away which I have see it in the numbers to believe then it's a different story.

Still, looking out long term our long term budget looks awful. It's just that the run away budgets don't happen until years 2022 and out so like D.C. does they will wait until very end to try to fix our mandatory payout problem.

23   _   2013 Apr 5, 9:23am  

KarlRoveIsScum says

USA IS JAPAN! 20 years ago

Look what they did today?

The majority of western countries will all be like Japan.

it's called being FUCKED!

Western economic model you can see being questioned at this point. The growth is coming from the eastern countries.

50 Trillion of debt on the books

200 Trillion dollars of unfunded liabilities

This is a major sovereign/government debt bubble out there

Net interest payments years 2034-and out look horrible on any budget CBO, OMB, GAO.

24   yup1   2013 Apr 5, 9:24am  

Logan Mohtashami says

Doesn't happen often historically here in the US.

And how often historically has the Fed had a 3.5 Trillion dollar balance sheet and ZIRP? NEVER.

KarlRoveIsScum says

USA IS JAPAN! 20 years ago

Exactly, and not understanding this is where Logan and others FAIL!

25   _   2013 Apr 5, 9:29am  

I am more of a 3 financial bubble thesis guy

To have 3 different financial bubbles with in a 17 year period hasn't happened before.

It shows economic stress. We have no choice here but to believe in a economic principle of inflating assets to get out of our financial mess.

This isn't a good long term model we have seen what it does in Japan. Our economic profile is much different that Japanese by nature we aren't savers we spend. We don't have a problem spending beyond our means where the Japanese, you can't get them going.

Their new QE over there is epic in it's size. It will be interesting to see if household spending picks up there

26   yup1   2013 Apr 5, 9:35am  

Logan Mohtashami says

We have no choice here but to believe in a economic principle of inflating
assets to get out of our financial mess.

In fact we should see that Japan did NOT inflate asset prices, even with all the QE.

27   _   2013 Apr 5, 9:39am  

yup1 says

In fact we should see that Japan did NOT inflate asset prices, even with all the QE

I believe off the top of my head the Nikkei 225 is still down 30% from the year 2000

All that QE and not even the inflated asset in equities. You can see why they want to de value the Yen and inflate the Nikkei. Desperate times calls for desperate measures but for them it's the same old act

28   yup1   2013 Apr 5, 9:45am  

Logan Mohtashami says

Desperate times calls for desperate measures but for them it's the same old act

Why do you believe that for US it isn't the same old act.

Logan Mohtashami says

I believe off the top of my head the Nikkei 225 is still down 30% from the
year 2000

Try Dec 1989 Nikkei 225 = 38916, today = 12833

29   yup1   2013 Apr 5, 9:51am  

Nikkei just totally busted through July 1985 levels, FUCK YA!

28 years 0% growth. DEFLATION!

But you go ahead and keep thinking all this QE shit is gonna work.

I will tell you the solution.

Massively increase the minimum wage.
Make it easier for workers to unionize.
Convert corporate profits to worker pay and benefits.

If you do all those things and punitively tax those that think their days labor is worth 50 times or more than their workers labor, and maybe just maybe we might exit this financial HELL that we are in.

30   _   2013 Apr 5, 9:57am  

yup1 says

Why do you believe that for US it isn't the same old act.

It's the same act for us, it's just a different dance partner. That's why I question the real core long term GDP growth here in the US

We have low taxes, low interest rates and spent trillions of dollars to try to inflate our way out and we are 2 - 2.5% GDP country even with all that.

Jobs average monthly in 2011 and 2012 roughly 150,000 -155,000 a month

We have had a recovery from the bottom of 2009 in a lot economic numbers but look at what we had to do to get there.

1989 Nikkei ... wasn't that a bubble over there... What an Epic Disaster since then.

31   _   2013 Apr 5, 10:04am  

yup1 says

But you go ahead and keep thinking all this QE shit is gonna work.

QE is a flawed concept, it's just inflates asset prices without relationship to real time incomes. I don't believe in an economic principal that is based around the Fed's wealth factor model.

32   _   2013 Apr 5, 10:05am  

KarlRoveIsScum says

AT WHAT COST! TRILLIONS UPON TRILLIONS UPON TRILLIONS

Just to reach the avg from 6 years ago

8 Trillion dollars of liquidity for all that

33   _   2013 Apr 5, 10:07am  

yup1 says

Massively increase the minimum wage.

Agree, We do need massive rise in incomes,

Still I believe

Globalization
Technology
Debt
Demographics

will limit capacity growth here in the US this century

34   David Losh   2013 Apr 5, 10:20am  

Logan Mohtashami says

Some get what I am trying say!

Logan Mohtashami says

Housing Inventory Crisis

The problem is the term Housing Inventory Crisis.

There is plenty of inventory all over the country. The crisis, if you want to hype that, is in the mind of the buyers, Real Estate agents, and Mortgage Brokers.

You made some good points about the economy, but it all has to do with debt. The consumer is cash strapped, and in debt.

The consumer needs to step back and figure out how to pay off the debt they have, and get more cash.

You can do that with Real estate, but you need to be willing to play a different game, than crisis inventory.

35   David Losh   2013 Apr 5, 10:26am  

Logan Mohtashami says

will limit capacity growth here in the US this century

Man, you have a knack for hyteria.

The United States has an unlimited growth capacity, because we have been idled by the financial market distractions. We have a rust belt for God's sake. We have a manufacturing base in Detroit that is in ruins.

We have cheap labor to the South, Trade with Asia in the West, a growing need for government in the East, New York Financial markets, and a Paradisio in Florida. All of that adds up to a haven for foriegn investment while capital flight drains out of China, and India.

We are set for growth.

36   _   2013 Apr 5, 10:45am  

David Losh says

You can do that with Real estate, but you need to be willing to play a different game, than crisis inventory.

Have you taken a look at the national inventory levels here in the US. It has been awful

3 Big Reasons

-5.1 Million loans in either foreclosure or delinquency

-10 million plus homes underwater

- Housing Starts have had their worst 4 year period dating back to 1959. We simply aren't building enough homes

This is why we have less than 5 months of on sale supply in the market place today

37   _   2013 Apr 5, 10:52am  

David Losh says

Man, you have a knack for hyteria.

Really, so do you think we can hit GDP levels over 4% like we did in the economies of the 50's and 60's on a consistent basis for a 2 decade period without the Fed being so involved?

We are at best a long term GDP capacity 2-3% the days of growing 4% with globalization, technology, debt and demographics in the works are over with. We had our time of expanded growth and we are slowing down

Even the Fed's long term capacity growth rate is at 2.5%, CBO, OMB, GAO none of financial think tanks has us growing at 4% GDP. Those days are over.

What we need to do is desperately innovated here in the US. We need to make something here in the US where we have supply and pricing power against the world.

The world has too many people that produce goods and that is why the economies of the 50's and 60's are dead to us

38   _   2013 Apr 5, 11:27am  

yup1 says

Nikkei just totally busted through July 1985 levels, FUCK YA!

This one is for you Yup, The Epic disaster of Japan and QE to infinity and beyond

39   _   2013 Apr 5, 11:32am  

Godzilla QE no good

40   David Losh   2013 Apr 5, 12:48pm  

Logan Mohtashami says

Have you taken a look at the national inventory levels here in the US. It has been awful

3 Big Reasons

-5.1 Million loans in either foreclosure or delinquency

-10 million plus homes underwater

- Housing Starts have had their worst 4 year period dating back to 1959. We simply aren't building enough homes

This is why we have less than 5 months of on sale supply in the market place today

Number one, builders are concentrating on apartments that they ignored for ten years while they over build residential housing unit. Evey under water property is salable with the right price, terms, and conditions, that goes especially for foreclosures.

There is tons of inventory for sale around the country, it's just not as appealing as those 18% appreciation market places.

So, it isn't inventory. We over built inventory in the go go years of 1998 to 2007, even 2008. Now we are rebuilding our lagging rental market to drive those prices down.

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