The 2016 housing market and my prediction for 2017
forgot password / register

reset password

register

patrick.net

 

#housing


#housing #investing #politics #random more»
778,877 comments by 11,519 users, 2 online now: jazz_music, TwoScoopsMcGee
new post
« prev   housing   next »

7
6

The 2016 housing market and my prediction for 2017

By iwog following x   2016 Oct 18, 12:29pm 9,272 views   153 comments   watch   quote     share  


I generally like to do these in August but it has been a very busy couple of months for me so my apologies for being late. Here are links to my previous forecasts:

2015: https://patrick.net/?p=1283984&c=1221579
2014: https://patrick.net/?p=1249835&c=1132586
2013: http://patrick.net/?p=1228104&c=1004843

As usual this applies most strongly to California however some trends can be applied to the rest of the country and especially the East Coast.

1. Price trends for 2016. Things have been holding pretty constant since 2012 and prices have continued to rise and make new highs as interest rates have continued their general long term decline. Although price gains have been the highest along the California coast and Denver, they are increasing everywhere and all national price surveys pretty much agree. I will be using a new index that I believe is a better measure of prices. It's called the "All Transactions House Price Index" and the data collection is very similar to Case-Shiller although it excludes more error since it uses conforming mortgage data instead of country recorder records.

2016 will go down in the history books as the year United States home prices finally recovered to 2006 levels.


California continues to benefit greatly from a foreign influx of cash and specifically Asian money. I am more convinced now than ever that the Untied States and specifically California will become the safe deposit box for the world's aristocracy. Since there are no restrictions on foreign ownership of American assets, this means middle class Americans will be competing with Chinese billionaires and their extended families for housing. When China falls, Americans will be competing with Indonesian billionaires and so on. As long as the United States remains safe, stable, and prosperous, this will not stop.

Most importantly is the fact that by all rational logic, China's housing market should have experienced a spectacular crash by now. The first ghost city articles were written a decade ago. Yet their market continues to make new highs. Coincidentally there's an article about it published just yesterday in Bloomberg. I ask the question: If China's market full of empty buildings can't seem to crash, how can California's market loaded with tenants and increasingly owned by the Chinese be expected to do anything but continue to increase?

http://www.bloomberg.com/news/articles/2016-10-17/what-bubble-china-s-home-prices-driven-by-demand-investment-mismatch

2. Rents. Rents are the engine that drives investors to spend ever increasing sums on buying real estate. Rents aren't staying flat or going down anywhere except in the most economically depressed flyover states. There are no trends that indicate rents will decline. There are no events that will drive rents significantly lower save a massive worldwide deflationary depression and this is off the table for 2017.

Rental vacancy declines have moderated a little in 2016 but if anyone is hoping for supply to rescue this market, you can forget about it. The nation is sleepwalking into feudalism and neither politicians nor the general media has shown two shits about relaxing construction rules and providing increased supply. Specifically in San Francisco we need to fastrack new high rise housing projects, allow selective landfilling of some areas of bay muck, and take another good look at how much open space we're "preserving" on both the North and South coastline where not 1 person out of 20 million has ever seen or will ever see. Good luck with that so rents will continue to increase.

3. Interest rates. For years now in nearly every housing forecast I have predicted that interest rates are going lower and in every year interest rates have continued to decline, even flying in the face of the FED and most "experts" on the subject. Interest rates will continue their long term decline trend and will exacerbate if a recession manifests itself in 2017. Remarkably as mortgage rates approach FREE the affordability index remains flat and low even as housing prices continue to increase. Since interest rates are still declining, affordability will not change much and the ability of the typical family to afford housing outside of fortress areas will also continue to remain decent.

Everyone bitterly complains about the high price of real estate. Meanwhile the average American continues to acquire loans and purchase real estate. This disconnect between perception and reality seems to parallel the general dissatisfaction with everything that millennials have fostered on our society. I continue to see people inside my bankruptcy office break down in tears that they can no longer afford to live in the Bay Area and I continue to see foreign families that specialize in landscaping and housecleaning save up a bunch of money and buy homes.

4. Misc. factors. Inventory is flat and not increasing throughout most of California. Prices were extremely hot in the Spring until approximately June and then began to moderate more than last year. The bell-weather rich county of Santa Clara did not see the rapid gains in 2016 that it saw in years prior however it did not see the price swings either so that market as well as other fortress areas may be approaching equilibrium between buyers and sellers. Not so much for more affordable areas that are becoming refugee centers for people who can't or don't want to pay ridiculously high housing costs. Sacramento for example continued to see high price increases and did not slow down.

I expect recreational marijuana will become legal in California in November and it's worth noting that both Colorado and Washington experienced VERY big price increases in their real estate markets as pot users from other states rushed in. Do not underestimate this effect. I was in Colorado last month and the growth there is ridiculous. Although California is late to the pot party, the legality of this drug will make California the top destination for wealthy people who indulge frequently.

5. Bottom line: Prices will continue to increase into 2017 but the increases will moderate and possibly even decline slightly if we see the recession that many people expect. I calculate the odds of a real estate crash at 0%. There are simply no economic factors that argue for a collapse in the market and numerous factors that argue for continued bullishness.

The hottest markets will continue to be in places like Sacramento, the Inland Empire, and Morgan Hill where jobs can still be found within an hour commute of affordable housing. The most expensive markets will replace house refugees with members of the worldwide aristocracy as wealth concentration and increasing disparity continues unabated. Neither Trump nor Clinton will alter this forecast. A recession will temporarily stall price increases but there will be no general decline in 2017.

#housing #politics #economics

« First    « Previous     Comments 114 - 153 of 153     Last »

114 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:09am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

why don't you index that chart for housing and medical costs?

I did... I gave the % and the distribution pie

It's not my fault that you're paranoid about some deflationary collapse

I am trying to ease your suffering before you move to Chile

115 iwog   ignore (1)   2016 Oct 21, 7:12am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

I did... I gave the % and the distribution pie

It's not my fault that you're paranoid about some deflationary collapse

I am trying to ease your suffering before you move to Chile

What paragraph have I ever typed here that says I'm paranoid about anything?

I think it's amazing that you can have so much faith and build such a mountain of economic predictions on nothing more than demographic trends. I think it's incredibly reckless and I would never make investments on that kind of logic.

116 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:15am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

I'm paranoid about anything?

The notion of a American deflationary collapse in the next 24-36 months is borderline Gold Buggy

Gold buggies were easy to take down these last 8 years

But Now The left is coming up with deflationary collapse and secular stagnation

iwog says

economic predictions on nothing more than demographic trends.

117 iwog   ignore (1)   2016 Oct 21, 7:18am   ↑ like (0)   ↓ dislike (0)     quote        

Just a pro tip here. You lose people every time you spam those charts. Regardless of your views, a wall of data is never going to convince anyone of anything.

ONE chart per post combined with a logical analysis and questions answered. That's how I do it.

Logan Mohtashami says

I am trying to ease your suffering before you move to Chile

I find it ridiculous that you keep posting things like this to someone who not only makes a living being an investment professional but has accurately called every major trend REAL TIME on this very website.

118 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:25am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

d REAL TIME on this very website.

Economic cycles comes and go ...

Any data miner post WWII can track front line data to show recession or front line data to show when inventory in housing is going above 6 months....

That's not the question

The question is ... you're bringing a deflationary collapse thesis into a a prime age labor force growth timeline

Your best hope for this collapse is 2018, less than 4 months, that's the only hope you have and that would require massive inflation to spike up like other countries with weak currencies ... importing heavy tied to commodities

119 iwog   ignore (1)   2016 Oct 21, 7:35am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

The question is ... you're bringing a deflationary collapse thesis into a a prime age labor force growth timeline

Again this is all you have. It's your entire argument. You're so convinced that this is all that matters that you've turned it into your own personal dogma.

However when I examined this effect in many other different nations, I don't see this pattern at all. You just make excuses for why positive demographic trends didn't work THIS TIME or didn't work THAT TIME "but don't worry folks!! The USA is different in every case."

Each new prime age worker is also a consumer. If wages equal or exceed the cost of living than it's a positive. If wages are less than the cost of living then these new workers will make things worse. You're confused about where productivity is going and for some reason, even after 35 years of Reagan idiocy, you still think it goes to the worker.

120 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:40am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

However when I examined this effect in many other different nations

Well aware of demographics and productivity

We are not Europe, Japan or any other small economy...

Again this is all you have, it's your entire argument. You're so convinced that we are Japan and Europe

121 iwog   ignore (1)   2016 Oct 21, 7:44am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

Again this is all you have, it's your entire argument. You're so convinced that we are Japan and Europe

Sorry but it doesn't go both ways.

Tell me about debt? Tell me about interest rates approaching zero? Tell me about home ownership rate dropping below 1965? Tell me about an anemic recovery after both the United States government and the fed engineered a river of raw cash?

There are black swans all over the place. YOU YOURSELF post them on many of your charts. Unprecedented events that would have been considered impossible 10 years ago. You have not addressed any of them. I can only guess you just pretend they don't exist.

122 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:47am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

Tell me about debt?

As a debt to income ratio and liabity to income ratio guy...

It's the main thing I will talk about at the Conference in Austin in less than two weeks with economist and others

http://www.americatalyst.com/content/2016-americatalyst-fast-forward

No deflationary collapse in the woods, because debt just needs to be serviced

123 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:48am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

There are black swans all over the place

Ordered 267 of these for Christmas presents for my Gold Bug, MMT, Anti Fed, Secular Stagnation friends

124 iwog   ignore (1)   2016 Oct 21, 7:50am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

Ordered 267 of these for Christmas presents for my Gold Bug, MMT, Anti Fed, Secular Stagnation friend

I mentioned a lot of specifics. How come every time I use the word "Black Swan" you run away from the specifics?

125 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:50am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

There are black swans all over the place

Name me a black swan thesis

126 iwog   ignore (1)   2016 Oct 21, 7:50am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

No deflationary collapse in the woods, because debt just needs to be serviced

You're missing the point. You think Americans are voluntarily giving up debt or do you think it's more likely that discretionary income is drying up and all of it is going to landlords?

127 Strategist   ignore (1)   2016 Oct 21, 7:51am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

Logan Mohtashami says

Again this is all you have, it's your entire argument. You're so convinced that we are Japan and Europe

Sorry but it doesn't go both ways.

Tell me about debt?

You will find this interesting. Our debt is both affordable and sustainable.

http://www.tradingeconomics.com/country-list/government-debt-to-gdp

128 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:53am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

You think Americans are voluntarily giving up debt or do you think it's more likely that discretionary income is drying up and all of it is going to landlords?

So you're rental inflation thesis , which is hot, for sure

Still consumption levels are at all time highs, even in a light demographic patch years 2008-2019.. off a household debt bubble too

129 iwog   ignore (1)   2016 Oct 21, 7:54am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

Name me a black swan thesis

Excuse me? The term Black Swan IS the thesis. It's an event that is so rare that it's almost never seen throughout history.

0% interest rates for example. More than a decade of stalled wage growth. Home ownership rates making 50 year (50 year) lows in just a few years. I could go on but it's clear you can neither contest these events as black swans nor address them.

Black swans are data points. Not theories.

130 iwog   ignore (1)   2016 Oct 21, 7:56am   ↑ like (0)   ↓ dislike (0)     quote        

Strategist says

You will find this interesting. Our debt is both affordable and sustainable.

Yes public debt is totally sustainable. At 0%, the government can borrow infinity dollars with no ill effects.

Private debt is the issue. Logan can't explain why consumer debt is declining after about what.......200 years of gains? He thinks it's choice apparently.

131 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:56am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

It's an event that is so rare that it's almost never seen throughout history.

Because it doesn't exist

causation correlation and representation economic timeline have always led to any recession

Black Swan is a myth

Ghost stories Nassim Taleb marketed for Zero Hedge readers

132 Logan Mohtashami   ignore (0)   2016 Oct 21, 7:58am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

Logan can't explain why consumer debt is declining after about what.

Yes it's called foreclosures and short sales which is the majority of debt reduction

Have to do better than this...

133 iwog   ignore (1)   2016 Oct 21, 7:58am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

Black Swan is a myth

Black Swan can't be a myth. It's a defined term which simply means an event is extremely rare.

Where the fuck do you get this stuff?

134 iwog   ignore (1)   2016 Oct 21, 7:59am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

Yes it's called foreclosures and short sales which is the majority of debt reduction

Really now!!!

8 years into the recovery. Housing prices back to 2006 highs. But...but.....no new consumer debt??

How does that work in your universe? Americans suddenly all got rich and paid cash?

135 Strategist   ignore (1)   2016 Oct 21, 8:00am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

Yes public debt is totally sustainable. At 0%, the government can borrow infinity dollars with no ill effects.

Private debt is the issue. Logan can't explain why consumer debt is declining after about what.......200 years of gains? He thinks it's choice apparently.

I think, in part, it's tight lending standards, especially the biggest debt by consumers.....the mortgage. It ties in with dropping home ownership rates.

136 Logan Mohtashami   ignore (0)   2016 Oct 21, 8:02am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

But...but.....no new consumer debt??

Lesson number 1

67%-70% debt are mortgages

this cycle has had the single worst demand curve from mortgage buyers ever recorded in U.S. history

That means over leveraged cycle compared to the weakest cycle would have a gap spread

Demographics and affordability and issue, not inventory..

However, it turns positive soon

Right in your Deflationary collapse thesis ... you're fighting legions of Americans with this thesis

2016 Existing Home Sales Destroys Low Inventory Myth

https://loganmohtashami.com/2016/10/20/2016-existing-home-sales-destroys-low-inventory-myth/

137 iwog   ignore (1)   2016 Oct 21, 8:02am   ↑ like (0)   ↓ dislike (0)     quote        

Strategist says

I think, in part, it's tight lending standards, especially the biggest debt by consumers.....the mortgage. It ties in with dropping home ownership rates.

It's a widespread decline in disposable income. It hasn't happened before. It's a black swan.

138 iwog   ignore (1)   2016 Oct 21, 8:02am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

this cycle has had the single worst demand curve from mortgage buyers ever recorded in U.S. history

Yup. Means nothing apparently.

139 Logan Mohtashami   ignore (0)   2016 Oct 21, 8:03am   ↑ like (0)   ↓ dislike (0)     quote        

Even with all that

2016

highest home sales, highest mortgage buyers

Back to 1998 levels but still growing in a light demographic patch

140 iwog   ignore (1)   2016 Oct 21, 8:05am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

Back to 1998 levels but still growing in a light demographic patch

LOL....seriously I just laugh when I see this.

EVERYTHING IS DEMOGRAPHICS TO YOU. Can't you see this?? Debt black swan? Demographics. Home ownership back to 1965? Demographics. Flat wages? Demographics. 0% interest rates? Demographics.

WTF man?

141 iwog   ignore (1)   2016 Oct 21, 8:07am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

highest home sales, highest mortgage buyers

You mean the aristocracy is getting richer and buying all the houses instead of consumers?

You think the 1% buys as many cars and phones and widgets as the 99%?

143 Logan Mohtashami   ignore (0)   2016 Oct 21, 8:08am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

Can't you see this??

One of the things people make a mistake on ...

They think 1996-2007 was all a bubble

That's not true, speculation demand curve came in 2003-2006

However, demographics for housing was good years 1996-2007... and 2007 for the first time in decades prime age labor force growth peaked and decline

144 Strategist   ignore (1)   2016 Oct 21, 8:08am   ↑ like (0)   ↓ dislike (0)     quote        

Nice debate Iwog/Logan

145 iwog   ignore (1)   2016 Oct 21, 8:12am   ↑ like (0)   ↓ dislike (0)     quote        

Strategist says

Disposable income continues to increase in real terms.

This is the same graph Logan uses and I've criticized many times. The bulk of which is capital gains held by the richest averaged with people working at McDonald's. Long term it's just a measure of productivity and short term it's just a measure of rich people selling shit.

A chart of disposable income for the bottom 95% would look RADICALLY different and those are the people who need to have extra cash to keep the jobs in place.

146 iwog   ignore (1)   2016 Oct 21, 8:13am   ↑ like (0)   ↓ dislike (0)     quote        

Logan Mohtashami says

They think 1996-2007 was all a bubble

Never said that. Why do you think it took trillions of dollars to scrape the American economy off the pavement in 2008 and 2009? Fundamentally what has changed since then?

147 Logan Mohtashami   ignore (0)   2016 Oct 21, 8:13am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

people working at McDonald's

McDonald's employs 2 million people over 100 countries and most are 2nd wage earners

148 Logan Mohtashami   ignore (0)   2016 Oct 21, 8:16am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

Fundamentally what has changed since then?

Demographics is getting better..

155 Million working

81.8% full time workers

43 year lows in Unemployment claims

Highest Job opening print in 2016 the world has ever seen

Real wages at all time highs, net worth all time highs

Whistle ...

Even with the oil crash, even with the weakness in Europe, Japan, and China...

Nothing breaks us..

We are the United States Of America

The only Zombie economics is the money walking dead makes

149 NuttBoxer   ignore (1)   2016 Oct 21, 11:55am   ↑ like (0)   ↓ dislike (0)     quote        

iwog says

bought a home for $200,000 in 2009 and averaged over the entire period it has earned $2200 per month. That's a 13% gross return or about 10% net after insurance, taxes, and upkeep. That means over the 8 years I will have owned this investment property (in 2017) I will have received in income ALMOST THE ENTIRE PURCHASE PRICE back in rents. However this house is no longer worth $200,000, it's worth close to $500,000. If a catastrophic deflationary depression occurs and I see a 60% dead drop in prices like in 2008-2009, I will only get my initial investment back and pocket $160,000 in income.

Now do you see why what you said is nonsense?

I appreciate you using real numbers, and not just ranting "Housing will never go down", but using the same financials, I would still choose to invest in something else. You tied up $200k for eight years, plus the time it takes you to do upkeep, unless that's something you pay others to do, in which case it's part of that 3%. Your realized profit depends entirely on your ability to sell for an inflated value. If I had that kind of cash up front, I would look into starting up my own business, or put it into gold and silver, which if you sold at peak, that you saw, would have netted you more than your house will, and you'd have it right now.

Silver 8 years ago was around $15/oz. Topped out about a year or so ago, let's say you sold for $40/oz. With a $200k initial investment your take would have been $533k(approx). That's a net of over $300k, and you'd already have it to re-invest in something else.

150 anon_7c0c9   ignore (1)   2017 Nov 2, 4:01pm   ↑ like (0)   ↓ dislike (0)     quote        

Isn't the next one of these due by now? I really would like an accurate forecast for 2018.
151 anon_a2dbc   ignore (0)   2017 Nov 2, 4:16pm   ↑ like (0)   ↓ dislike (0)     quote        

Don't worry about a thing. Iwog isn't here anymore but you will get the same high quality discussions and loads of good information from our new friend sniper.
152 anon_0d1ef   ignore (0)   2017 Nov 2, 4:21pm   ↑ like (0)   ↓ dislike (0)     quote        

Actually I really miss the back-and-forth between Iwog & piggy. If you click on the 2013, 2014, 2015, threads, you see Piggy taking a shit on Iwog's predictions only to see them be correct, whereupon Iwog would pick up piggies turds and force-feed them to him. Classic comedy gold!
153 anon_7c0c9   ignore (1)   2017 Nov 2, 4:57pm   ↑ like (0)   ↓ dislike (0)     quote        

I didn't enjoy reading all the trash talk but Iwog always seemed to do his best to answer questions and support his views.

« First    « Previous     Comments 114 - 153 of 153     Last »


Comment as anon_6135f or log in at top of page:

users   about   suggestions   source code   contact  
topics   best comments   comment jail   old posts by year  
10 reasons it's a terrible time to buy  
8 groups who lie about the housing market  
37 bogus arguments about housing  
get a free bumper sticker:

top   bottom   home