patrick.net

Done the math, to met sales expectation we would need to see 574K print for the next 5 month report and revision need to trend higher

Hence why new home sales will miss estimates for the 3rd year in row, but, YoY growth will happen due to a low bar 437K print work off number

Logan Mohtashami says

If this were median cost of all home purchases or median cost of first time buyer home purchases, it would be more useful. First time buyers have to pay something proportional to their income (adjusted by interest rate). The only exception would be people with inheritance, but these people wouldn't impact the median too much. If you look at repeat buyers, their purchases are linked to their income, but are skewed by recent gains / losses in the housing market. If housing had doubled in the previous 10 yrs, these repeat buyers would be flush with housing gains, and that would affect prices paid. When you limit the chart to new homes, there could be all sorts of things affecting the median. How do the incomes of people buying new homes relate to the incomes of people buying existing housing? I would guess that the new home purchasers are in a higher income bracket. If so, you should be tracking the income of that income bracket on the x axis.

YesYNot says

it would be more useful. First time buyers have to pay something proportional to their income (adjusted by interest rate)

First time home buyers are only 15%-20% for new homes, out of 500K, very small portion of homes bought new

YesYNot says

How do the incomes of people buying new homes relate to the incomes of people buying existing housing?

New homes are much more expensive that existing homes, but the buyer profile is very strong. The strong middle class and rich people buyer. This is the reason why adjusted to population sales are so low even in year 7 of the economic cycle with rates below 5% since 2011. Supply is over 5 months, so the product is there to buy, it's just a limited pool of buyers

YesYNot says

you should be tracking the income of that income bracket on the x axis.

New homes median square footage back in the year 2,000 was roughly 2,000. Now it's 2,500 which means they homes they're selling bigger homes so they can make their profit margin. That's a big reason why Median sales is so much bigger than existing homes

Homes over 400K broke the line compared to homes under 200K

Logan Mohtashami says

New homes are much more expensive that existing homes, but the buyer profile is very strong. The strong middle class and rich people buyer. This is the reason why adjusted to population sales are so low even in year 7 of the economic cycle with rates below 5% since 2011.

Incomes in the upper quintile have increased much more than the median. So, the ratio of new home price to median income would be much more constant if you focused on the incomes of the people who are buying those houses.

YesYNot says

Incomes in the upper quintile have increased much more than the median. So, the ratio of new home price to median income would be much more constant if you focused on the incomes of the people who are buying those houses.

Sales expectation for new homes have missed for 3 years in row.

Back in 2013 they were pushing 725K in sales by 2015 and now we are fighting to break over 500

There is a reason why New Home Sales have had their worst sales number post WWII and have missed sales expectation for 3 years running now

1. PITI Inflation model is based on Real Incomes and Liquid asset

2. The thesis that lower rates would supply the strongest new home sales cycle was flawed from the start because that would imply a higher portion of Americans
Who actually had 20% down to start off with

( Pool) of strong middle class and those who can afford a new home is simply a lot less that what everyone thought

Hence why Adjusting to population New Home Sales in year 7 of the economic cycle with 4% rates are -50% below 1963 levels

I understand the bar for sales is low and the 50 year average is 715K but the amount of people that can buy a new home is not as big as the housing pundits think.

You should see my new home buyers profile. The cream of the crop in America. A lot new home buyers since 2013 have moved to existing homes because

A. A lot cheaper
B. Geographical advantage over a new home in any city

Not even the lowest bar in home sales and rates being below 5% since 2011 could get new home sales back to it's 50 year avg in 7 years, we aren't even close to that level yet

Ironman says

Strategist says

Becoming empty nesters very quickly will allow us to travel more.

Just make sure you change the locks when they leave, otherwise they will return!!

Darn pests.

Logan Mohtashami says

Strategist says

Strategist says

This report for you

White Paper from the MBA

http://mba.informz.net/MBA/data/images/15292_Research_Growth_White_Paper.pdf

The bottom line from the article:::
"Bottom Line
The Great Recession had a clear impact on household formation, and therefore on demand for housing, in ways that should unwind as unemployment continues to decline and real wages rise. Over the next decade demand for housing will grow significantly and warrant housing construction and financing of all kinds
— both owner-occupied and renter-occupied, multifamily and single family."

The article focused mostly on the demand side of the equation. What we know for sure is the housing supply has been severely suppressed for the last 8 years. The gap between housing demand mostly due to demographics, and suppressed supply continues to expand. What is needed is a catalyst to start shortening that gap. It's just a matter of time when that happens, and when it does, home construction, purchases and RE activity will go through the roof.
Housing is also the largest sector of the economy, which will result in healthy economic growth. The stock market will follow to with new records, and the world's largest economy will lead the rest of the world to sustained economic growth. China is just a side show, with unnecessary over reactions.

Strategist says

will go through the roof.

You won't see through the roof ... but the demand curve for ownership will be better years 2020-2024

The question for the builders is when do they cry uncle and start really building out starter homes, I still see that has a 2020-2024 storyline

Logan Mohtashami says

Strategist says

will go through the roof.

You won't see through the roof ... but the demand curve for ownership will be better years 2020-2024

The question for the builders is when do they cry uncle and start really building out starter homes, I still see that has a 2020-2024 storyline

No. How can that be when so little has been built in the last 8 years?
No matter how you play around with the variables on the demand side, the lack of supply dwarfs it all.

Strategist says

No. How can that be when so little has been built in the last 8 years?

No matter how you play around with the variables on the demand side, the lack of supply dwarfs it all.

Don't forget about the existing inventory in that equation, they make their money on Single Family, rental demand is about to explode into it's 2nd gear.

Places like L.A. over 50% of the working population are dual household renters

This is why the government tax code is pro housing and against renting.

Logan Mohtashami says

Strategist says

No. How can that be when so little has been built in the last 8 years?


No matter how you play around with the variables on the demand side, the lack of supply dwarfs it all.

Don't forget about the existing inventory in that equation, they make their money on Single Family, rental demand is about to explode into it's 2nd gear.

Places like L.A. over 50% of the working population are dual household renters

This is why the government tax code is pro housing and against renting.

You are referring to the inventory of homes available for sale. I'm referring to the shortage due to the lack of constructing new homes. It shows up better in the rent spikes.

Strategist says

You are referring to the inventory of homes available for sale. I'm referring to the shortage due to the lack of constructing new homes. It shows up better in the rent spikes.

Biggest silent enemy for new homes is cheaper older homes.

This is the core problem when you just build bigger and bigger homes, the pie and pool of capacity to own that debt is less and less.

The Best way to attack this is with a dual income factor model because pushing the limit of the rate variable.

I don't blame the builders for doing this in this cycle coming off the housing bust, but you lose footing in a longer battle for a short term gain

Logan Mohtashami says

Strategist says

You are referring to the inventory of homes available for sale. I'm referring to the shortage due to the lack of constructing new homes. It shows up better in the rent spikes.

Biggest silent enemy for new homes is cheaper older homes.

This is the core problem when you just build bigger and bigger homes, the pie and pool of capacity to own that debt is less and less.

The Best way to attack this is with a dual income factor model because pushing the limit of the rate variable.

I don't blame the builders for doing this in this cycle coming off the housing bust, but you lose footing in a longer battle for a short term gain

OK, let me put it this way:
If there is an island with 100 hundred families, but 50 homes, what happens?

Strategist says

there is an island with 100 hundred families, but 50 homes, what happens?

We Call that Los Angeles

I have always said Starts have legs due to Demographics but profit margin matters with builders. There is a reason I have harped that TOL would be an under performer

How many people can buy a median 724K home

With today's near 8% decline they are under where they were back in early 2013

Logan Mohtashami says

Strategist says

there is an island with 100 hundred families, but 50 homes, what happens?

We Call that Los Angeles

I have always said Starts have legs due to Demographics but profit margin matters with builders.

When you have demand exceeding supply, the price goes up, keeps going up, until the builders can make a healthy profit and start building. At some point you have an overshoot, where prices get so high, builders can't build enough, their margins go sky high, their stock prices go sky high.
That is when you start selling, be it real estate or homebuilder stocks.

Strategist says

, be it real estate or homebuilder stocks.

You could use that Logic with Toll brothers and as of 08/25/2015 they're below early 2013 levels

https://vine.co/v/ejnrBWVBvd6

Not all builders are equal

Logan Mohtashami says

Strategist says

, be it real estate or homebuilder stocks.

You could use that Logic with Toll brothers and as of 08/25/2015 they're below early 2013 levels

https://vine.co/v/ejnrBWVBvd6

Not all builders are equal

You know what, Logan? It is fun debating with you.
The problem is, you are Not an asshole. Why can't you be like Dan, SBH, Bob, and other normal people?

Strategist says

The problem is, you are Not an asshole.

Ask my wife this question she might give you a different answer ;-)

Speaking of which, crap it's our 4th Anniversary tomorrow I better go get something from 1-800 Flowers.com

Logan Mohtashami says

Strategist says

The problem is, you are Not an asshole.

Ask my wife this question she might give you a different answer ;-)

Speaking of which, crap it's our 4th Anniversary tomorrow I better go get something from 1-800 Flowers.com

No no no no. YOU better get her something. Flowers, Godiva candy, hot date, card etc.
I've been married 28 years. Let me assure you, women are strange creatures.

The other reasons why I believe the total 550K number is a miss is because of this trend data

Mortgage applications for new home purchases decreased by 4% in July relative to the previous month, the Mortgage Bankers Association said Thursday.

“Mortgage applications to home builder subsidiaries for new homes declined at a rate in line with the slowdown observed in the overall purchase mortgage market,

If you have soft middle data line, and revisions are 4 months lower, which we have seen. You need the back ( front loaded) demand data to be surprising to the upside.

Let's get the government out of the housing business. You want a house? 20% down please plus closing costs. And have half-way decent credit. Banks will have no problem holding mortgages like that. Who cares what the Real Estate salespeople think or say. These "people" can go back to working fast foods or standing on the street corner.

jvolstad says

Let's get the government out of the housing business. You want a house? 20% down please plus closing costs

Old article from 2012, in response to tight credit, brought in Joe Friday for this one. The government nor the private sector would mandate 20% down mortgages with home prices where they're are that would wipe out first time home buyers ( That don't have access to capital) as they would be buying homes in their early 40's

That's the reason the have 0% - 3.5% down payment

Hence why the tight lending thesis is simply dreadful

Diana Olick: Just a Few Questions, Ma’am

http://loganmohtashami.com/2012/03/30/diana-olick-just-a-few-questions-maam/

You’re a housing reporter, Ma’am. You know how it is. People listen to you. Lots of people listen.

Don’t reporters report facts, Ma’am? Just the facts? So, you won’t mind if I ask you a few questions?

I won’t take much of your time.

Twice this week you made the statement on CNBC that Mortgage lending standards are too strict. We’ve heard that opinion before. We’re familiar with that claim. I’m just here to investigate a bit further. You won’t mind, I hope Ma’am? Like I said, I won’t need much of your time. I’ll be brief.

Right now in the United States what a person needs as core requirements to buy a home is:

620 FICO Score
3.5% Down Payment
Income verified which shows a financial capacity to own a home
These are the simple facts. They are not strict guidelines. They make common sense. And, interest rates on mortgages have been at historic lows for over two years. But still we don’t have enough qualified homebuyers meeting these guidelines to absorb the true current inventory.

What do you make of that? I will tell you what I make of it. We are still trying to work through the trouble too many exotic loans that lax standards brought.

Here’s another thing. If it was up to me, I would raise the FHA down payment requirement to 7.5% and the FICO requirement to 660 to inject discipline into the housing market. FHA was not designed to be the primary loan for Americans to purchase homes. FHA capital reserve ratio is horrid. Do you know what that means, Ma’am? I’ll tell you what it means. It means if we have another recession in the next five years, you can kiss the 3.5% down payment goodbye because FHA will be in big financial trouble.

So, back to the reason I’m here, Ma’am. I have just a few questions, if you don’t mind. Won’t take long to answer them. I’m sure there are other folks, folks like me, who’d like to know.

Which guidelines, which you say are too strict, do you want to see changed for home purchases?
Do you want to bring back stated income loans?
Do you want to abolish appraisals for home purchases?
Do you believe there should be a no down payment option for home purchases?
As you can imagine, I believe the Lending standards are just fine the way they are. Yes, the lending process is horrid as I deal with crazy conditions from lenders every day. However, to change the core requirements just to get more home buyers into the market is very distributing in my view.

The private sector can do anything they want. If they want to make loans with only 3.5% down, great. Just don't expect taxpayers to guarantee these loans. 3.5%. That will not even cover the commission for a Realtard.

If buyers really want a house (oops, sorry NAR, I meant to say "home") , then buyers will find a way to cut back and save more. Of course that does not go over well in today's society. But I'm old school. BTW, my credit score is 824 with no outstanding debt.

Screw the Real Estate salespeople and the mortgage brokers. Neither one represents the buyers best interests.

jvolstad says

The private sector can do anything they want. If they want to make loans with only 3.5% down, great. Just don't expect taxpayers to guarantee these loans. 3.5%. That will not even cover the commission for a Realtard.

Almost 85% of all loans get sold to the government, private loans that are held are really the cleanest high quality, high income, top of the economic food chain.
Capital reserve ratio requirements kind of make it impossible for the private sector to ever have 50% plus share of the mortgage market.

Private market wants a government guarantee, they don't want any of this action unless they get it

Logan Mohtashami says

Which guidelines, which you say are too strict, do you want to see changed for home purchases?

Do you want to bring back stated income loans?

Do you want to abolish appraisals for home purchases?

Do you believe there should be a no down payment option for home purchases?

Yes
No
Yes

Also add:
Sub Prime 25% down
Interest only 25% down
No questions asked loans with 50% down.
Ease up on picky picky rules.

Strategist says

Yes

No

Yes

Also add:

Sub Prime 25% down

Interest only 25% down

No questions asked loans with 50% down.

Ease up on picky picky rules.

Stated income loans are here

Actually the most popular loan we have this year is the 12 month bank statement loan
Again, as I have always said, this is a small portion of the American population that can does these loans

Less than 8.9 million out of 150 million plus are self employed

Bank statement loan clients are between 22-29K a month

FHA, VA and GSE all have sub prime qualification rates

Min 620

Fico scores for GSE, VA and FHA

So that is and has been here already. In fact FHA can go as low as 560

Interest only loan is back 20% down, have to qualify on a 20 year amortization loan with a 2% higher note rate.

Again, only a small portion of people can do it

No question loans will never happen due to the anti money laundry laws in effect in America to prevent money laundry through mortgages and real estate purchases

Strategist says

Do you believe there should be a no down payment option for home purchases?

VA 0% down
GSE 3% down FTB, 5% conventional
FHA 3.5% Down

very very low

How about this. 3.5% down plus Realtor and mortgage broker commissions, plus any closing costs. That works for me. No more funny loans on the side (80/20) either.

jvolstad says

No more funny loans on the side (80/20) either.

80/20's are banned, not coming back, the mortgage insurance the rest of the non 20% down payment loans

Wealthy Income California residents do have access to 10% down 2nd lien to make up the difference after a $625,500 first lien up to 1.1 million.

However, as always these are 200K-500K income buyers who have access to this loan and they need 10% down

VA loans are the only 0% down loan in America

bgamall4 says

Sounds like the Chinese are coming since they were burned in their own stock market:

It's still a very small portion of all the homes sold in America and it tends to be So Cal location specific.

logan, it appears that YoY home sales price growth has been trending down since 2013 - eventually one would expect this to taper down to 0% sales price growth YoY and then eventually head to negative sales price growth.

this perhaps could be a turning point on the current cycle, but for different reasons than over-supply - is this due to the cash buyer ramping down? could it be the buyer side of things from a demand standpoint (affordability) that leads this cycle into the down slope?

builders can go smaller/cheaper but what can banks/investors and the rest of the existing home sellers do to mitigate this effect?

landtof says

logan, it appears that YoY home sales price growth has been trending down since 2013

One thing with new homes, the total volume is low, working from 2 years of just 430K sales total,( 2013 and 2014 not that many homes

In this cycle what has happened is make up shift of sales is bigger to smaller, first time gap over 400K more than 200K

Builders have to make money, they were smart here, the smaller home business model didn't make sense, so I give them much kudos for not even attempting to go small and just build out multifamily homes big time.

So the lower trend in median sales price to be actually a plus for demand, either the make up shift a bit better or they're discounting on the top end.

Either way it's better for sales growth.

Median sales price of new houses sold in July was $285,900, up from June and a year ago

http://bit.ly/1KgfnhB

The bay area will follow, I think we are already entering the correction with a nice blow off top, I think we will see a considerable slowdown August into winter. If the Fed stalls yet once again on their measly quarter point hike it may get a temporary breather, but it's coming.

I've been doing everything to help all home sales. The solution is simple. Overpay for shacks.

I just can't get it through thick skulls .