patrick.net

low new home sales is bullish for housing price.

SFace says

low new home sales is bullish for housing price.

This is very true, homes 200K are flat but all the growth in home sale prices are coming from homes 400K and up so this takes the new home median price higher

bgamall4 says

You know what bothers me about this Logan? This little blip forced prices up to pre crash levels. Looks like it was done by Voo Doo.

It really is the make up of the new homes sold

One of the reasons why new home sales are roughly 34% below trend considering where we are in the economic cycle is that only the upper end market is selling. If the 150K-300K buyer came into play then you would see more sales growth. However, this cycle primary demand growth has come from the upper income level buyer

200K and under Homes

https://research.stlouisfed.org/fred2/graph/?g=1crM

400-750K range

https://research.stlouisfed.org/fred2/graph/?g=1crK

Logan-

Looking at the OP chart, it appears to me that the average new single family home sales prior to the bubble was 600K or so. Then the bubble pulled ahead a lot of demand because people who shouldn't have qualified (yet) were able to buy. If you push that "extra" demand back, it looks to me like things are about right.

tatupu70 says

it looks to me like things are about right.

3 points on that discussion

1. we had strong demographics from 1996-2007, it wasn't like that was all fake, it's just the renting profile needed to be much bigger. This cycle didn't have good demographics and why I always tell people wait until years 2020-2024 before making a peak affordability case for housing

2. Adjusting to population and the rate curve this has been dreadful but the demand for the upper levels homes has been good enough to keep the cycle positive but the sales trends are weak because the lower end starter homes for new homes sales have been dead

(This is where it's puzzling everyone) such a low bar for new homes we should be running at 700K by home and that is where the Ivy Zelman's of the world, the number housing anaylst in America blew it because she used a demographic model and interest rate factor where she should have had a better understand on the capacity to own the debt. Her call in that "Housing was In Nirvana" will go down in history as one of the worst economic theory thesis in housing ever recorded and it all goes back down to the capacity to own the debt. She has 20% miss on estimates which if she wasn't Ivy Zelman she would have been fired already

http://www.cnbc.com/id/100533720

3. Price inflation

A lot of this that the builders are building bigger homes and not starter material, existing homes are just so much cheaper now than new homes that you really have to be well off to buy a new starter home and this is why sales of 200K homes are low and sales of homes 400K -750 are rising for new homes

Year 7 of the economic cycle with rates under 5% since 2011 and we are about 200K below the 50 year average

A chart of Toll Brothers since 2013 is telling

Logan Mohtashami says

Adjusting to population and the rate curve this has been dreadful but the demand for the upper levels homes has been good enough to keep the cycle positive but the sales trends are weak because the lower end starter homes for new homes sales have been dead

There is no adjustment for rate curve. Low rates spur refinancing, but not buying.

Logan Mohtashami says

Year 7 of the economic cycle with rates under 5% since 2011 and we are about 200K below the 50 year average

A chart of Toll Brothers since 2013 is telling

Yep--because a lot of the first time buyers that should be buying now--already bought during the bubble.

tatupu70 says

Yep--because a lot of the first time buyers that should be buying now--already bought during the bubble.

They're renting

Especially when they leave their parents home

Household formation is actually 4 million plus rental and still negative for ownership

A good way to track demographics is here with the Census link http://www.census.gov/popclock/?intcmp=home_pop

Ages 17-29 .... big... they will rent longer than in previous cycles and get married later in life

Still 30% of all mortgage demand are first time home buyer

For new homes that metric is running between 15%-17% the last 2 years

Logan Mohtashami says

They're renting

Sorry, should have added more detail but I thought it was obvious.

They bought, were foreclosed, and now are renting or living with their parents.

Logan Mohtashami says

Still 30% of all mortgage demand are first time home buyer

For new homes that metric is running between 15%-17% the last 2 years

What does it typically run?

tatupu70 says

They bought, were foreclosed, and now are renting or living with their parents

You're talking about Gen X buyers
I am talking about new household formation numbers since 2009, it's been primarily renting ages 25-35

Very strong demand for Apartments this cycle

tatupu70 says

What does it typically run?

40% is the normal %

Logan Mohtashami says

You're talking about Gen X buyers

I am talking about new household formation numbers since 2009, it's been primarily renting ages 25-35

I'm talking about the "missing" current demand that was pulled ahead during the bubble.

tatupu70 says

I'm talking about the "missing" current demand that was pulled ahead during the bubble.

People don't stop aging in a cycle, 2009-2015 population growth X ages 25-35 who never bought home are renting in this cycle in big numbers. There is nothing wrong with this, it's just that this group doesn't have the capacity to own the debt. You can't front load the demand curve with a 7 year time gap and then trend lower with adjusted sales.

Data doesn't work that way

Logan Mohtashami says

People don't stop aging in a cycle, 2009-2015 population growth X ages 25-35 who never bought home are renting in this cycle in big numbers. There is nothing wrong with this, it's just that this group doesn't have the capacity to own the debt. You can't front load the demand curve with a 7 year time gap and then trend lower with adjusted sales.

Data doesn't work that way

Of course it does. People who "should" have bought at 35, simply bought at 28 because they were able to with the crazy loans. And demand is almost back to normal now. The big loss was only 2-3 years after the bubble, so you were only pulling ahead for that short time. So it was a 30 year old buying at 27 instead. You don't think that's possible?

tatupu70 says

And demand is almost back to normal now.

The reason why everyone is making a huff about housing demand is that this cycle adjusting to population has been the worst demand cycle in 70 years at the lowest rate curve post WWII. This is something that has kept the Fed from raising rates and if you look at estimate trend lines from 2012-2014 we have the biggest miss on home sales ever recorded in American economics at the lowest rate curve post WWII. This is why everyone is scratching their heads on housing demand

A good example and this is all real data,

Cash buyers back to their normal historical % ( net total demand) at Great Recession Low

Historical 10% this cycle for years 30% ... though this year falling which is a plus for housing ( starting back to a normal cycle)

Then on top of that people use the headline numbers but again have to factor in the cash buyer

So headline at best we get back to 2000 levels

When rates were at 8%
40 million less Americans
17 million less Americans working

The adjust that to population growth and you're negative -15.6% with rates at 4%

As always why the low demand curve from main street with population growth so much larger than the year 2000

Capacity to own the debt. So, the Rich have done their part buying homes at the biggest clip ever when rates have been this low as a % of the market place

Looking back at new home sales adjusting to population it's even worse

revise the chart above with yesterday's numbers it's 49% adjusting to population and 13% headline
But the key is all this at the lowest rate curve post WWII

Years 1-4 are very understandable coming from the Great Recession but years 5-7 with rates 3.5%-4.5%.... this is what has gotten everyone up in Arms.

As always it all fall back on this

Starting at 10:25

https://www.youtube.com/embed/o9O_FDLPdgA&t=10m35s

http://loganmohtashami.com/2015/04/28/the-fall-of-homeownership-in-america/

Demand for higher price homes in this cycle for new homes has been good, builders know their buyers, they will build to sell for $$$