patrick.net

still for pure demand we need this chart to look a lot better

Logan Mohtashami says

Lower end market would be lighter than the upper end areas in California in general. More transaction are higher end homes rather than lower end homes.

That simply amazes me. I can't think of logical explanation. It seems as though investors would be more interested in those low end market for rental purposes and high end would be move up or first time live-in buyers. Confused.

bubblesitter says

That simply amazes me

What I see once the Robo signing settlement was signed and California homeowners act law was put into motion the process of putting lower end homes into the market was simply just delayed because there is now a legal process on trying to make a loan modification work for these type of homeowners

Logan Mohtashami says

there is now a legal process on trying to make a loan modification work for these type of homeowners

Won't it apply to both low and high end?

bubblesitter says

Won't it apply to both low and high end?

There more financial struggle is on the lower end side. If you remember the sub prime credit cycle it was the lower end scale of income that took on that massive amount of capacity debt that can't be own.

There are plenty of people in California who have no problem making their mortgage payments before, during and after the housing bubble. So the higher end homes that went to distress are small in nature but they are still out there. Now the lower end homes it's another story and that is why lower end sales home are down like over 40% because they simply aren't to market

The Professor says

Scary chart. How do we fix the transmission?

Pay better wages and get better income growth

One item to remember with this chart and many other economic charts. When you have constant bubble economics going, these highs in income and wealth aren't really supported by true supply and demand economics

So, even though home prices are back to mid 2004 levels median incomes aren't for the many factors in this cycle.

However, in world economy where

Globalization
Techonology
Debt
Demographics

Are 4 forces that are very strong can we really see income growth in areas where we don't have supply and pricing power.

We have tech boom ... that's a small workforce

Facebook 150 Billion Dollar Market Value only employs 5,000 people

JC Penny 2.7 Billion market cap employs 120K people

So the wealth is created in such few industries in terms of incomes and liquid asset wealth ( Stock Option)

Energy is a plus for us, we have that going for us and charts there are good to look at. So that is one area where we can expand and we have a decent jobs recently.

However, it's tough to fix this with those 4 items above.

Not to say everything is gloom and doom, but I believe naturally we are a 2-3% GDP country at best case nothing more than that and wage growth is going to weak in many sectors because those jobs.. the manual labor services just doesn't demand strong incomes

http://www.businessinsider.com/the-most-important-charts-in-the-world-2014-4#paul-diggle-capital-economics-43

This goes into my article that I worked with Bloomberg with on the lack of first time home buyers on any metric

http://loganmohtashami.com/2014/03/05/first-time-home-buyer-whats-that/

Logan, You make some great points on the economic struggle, Maybe if government gets out of the .50 of every dollar we make earn and spend it might make a difference, do the math on it.
Thanks for your work...

beershrine says

government gets out of the

You're asking the impossible as in 10-13 years all mandatory payouts will exceed even the bullish government revenue estimates

http://t.co/8fsr5nIxgF

Hey Logan,

Can you specifically comment on what you see in the Anaheim Hills, Yorba Linda, Tustin markets? Specifically interested in inventory and prices and what your forecast for these areas in the next 6-12 months.

Thanks

Doing a transaction right now in North Tustin
Orange County inventory is up
Pricing is stable but really it all depends on the seller and asking price.
Some homes go right away and some just stay on the market for days. If you can't get an offer with in 30 days you're priced to high in this market.
Pricing should stay strong in that market place.
Cash buyers slowly leaving the O.C. Irvine has flooded the market with new homes and the Chinese will be picking those up. Had an agent said she has a Chinese cash buyer in Y.L. 2 weeks ago

Orange County is the same of So Cal market
- More inventory
- YOY sales will down
- Pricing have staying power though ( unrealistic sellers) getting a dose of reality

There shouldn't be a 1% rate spike like it was last year that slapped the market place around so those areas of the OC should be stable. However, I see a big difference from real sellers and sellers who are too aggressive on their pricing

hanhvu02 says

Logan, do you think some day housing price will go down again - I know it will not be like 2009-2011.

A real drastic declines needs 2 things

1. A lot inventory 7-9 months on sale

2. Job loss recession to where you get distressed sales

- The people who are getting mortgages now do have the capacity to own the debt. So, unless they get some type of economic event to where they can't own the debt, they will be staying put. So, its back to a normal housing market where a recession is needed to get drastic home price declines.

- Investors especially looking for yield aren't going to flood the market place with there homes. However, some will look to take the capital gains but not looking for a lot inventory from them this year.

While ZIRP is in play and the 10 year yield is so low, there isn't a lot others places to park money for return. However, due the massive price gains you can see cash buyers aren't willing shell out the money like they have had before in terms of pure volume

Logan Mohtashami says

Had an agent said she has a Chinese cash buyer in Y.L. 2 weeks ago

Funny you say that cuz it seems like there are TONS of chinese buying in YL right now. Had one co-worker tell me his neighborhood near black gold is ALL chinese. Went to look at new homes in that area and they had signs in chinese with all chinese sales people.
I was bored one day and looked at all the 1.3M and over homes that sold in YL last year. Majority were with some chinese buying agent. I know this isnt proof that these were all sold to chinese, but I suspect that many were.

Miike says

Funny you say that cuz it seems like there are TONS of chinese buying in YL right now

Here in Irvine agents are making presentation in China for the homes here in Irvine. I believe 85% of the net new buyers in Irvine are Asian. I got that stat from the UCLA Anderson Economic conference last year. It's a different market for sure. My 2 bedroom condo with 4 attached neighbors is going for 585,000 and 1 bedroom 824Sq foot home below me went for $375,000 and got 2 offers in the first week.

hanhvu02 says

and I believe something may happen when we have anything - not normal.

Crash.

hanhvu02 says

I believe something may happen when we have anything - not normal.

When I speak to economist this is what I say

Since April of 2012 home prices have gone up 15%-45% depending on where you live. Now in a good economy where incomes are rising and more people are working better pay jobs that would still be considered to be a high % increase

However, in this cycle, you have a lot jobs recovered low wage paying jobs, you have a parabolic chart on student loan debt, record amount of cash buyers, record low interest rates for a long period of time, and a housing bubble hangover on the inventory side rising prices way beyond the reality of this economic cycle.

"Blank Look or Blank Answers" their model is broken, they believe since demographic trends favorite housing that it assumes people will buy... well that didn't happen

The government may be corrupt, but they're not stupid. They have been smart enough to set up a system to where nothing they're involved with can crash.

When you need some extra money, just add a few extra zeroes to your bank balance. It's really that simple.

exfatguy says

few extra zeroes to your bank

http://www.businessinsider.com/jpmorgans-q2-complete-guide-to-markets-2014-4#jp-morgan-funds-q2-guide-to-the-markets-42

They can just "re-normalize" those numbers such that the 22% number goes back to 5%.

When you have a credit card with no limit and no penalty for never paying it back, you can charge forever.

Logan Mohtashami says

When I speak to economist this is what I say

Since April of 2012 home prices have gone up 15%-45% depending on where you live. Now in a good economy where incomes are rising and more people are working better pay jobs that would still be considered to be a high % increase

However, in this cycle, you have a lot jobs recovered low wage paying jobs, you have a parabolic chart on student loan debt, record amount of cash buyers, record low interest rates for a long period of time, and a housing bubble hangover on the inventory side rising prices way beyond the reality of this economic cycle.

"Blank Look or Blank Answers" their model is broken, they believe since demographic trends favorite housing that it assumes people will buy... well that didn't happen

Exactly.

The housing market is like beanie babies, in that everyone thinks they're rare and snaps them up at any price so as not to miss out on something that's sure to skyrocket in value as time goes on.

The only difference is that this time they're right.

Mandy Lifeboats says

Walking Dead! She's turned hardcore.

I had to use this against Joe from BusinessInsider because he always claims that unemployment claims and the stock market are a great correlation and today Claims got to it's best level in this cycle and the market tanked even with the dovish comments from the Fed yesterday. However, that is a different discussion than housing

Could it be something has changed that we have yet to understand?

hanera says

Could it be something has changed that we have yet to understand?

In regard to what?

In regards to increase in house prices. Could be sustainable. We just don't know the fundamental reasons.

hanera says

In regards to increase in house prices. Could be sustainable. We just don't know the fundamental reasons.

List of reasons why home prices are rising

- Economic cycle turned, jobs were being created and thus home buying cycle turned

- Interest rates got very below 5% since early 2011 and have stayed there

- Due to the fact that the FED has had ZIRP for so long and rates have been low for so low we have had a higher than normal cash buyer level in recent years 20-25% above normal trend. So that has helped the market in terms of demand

However, the biggest key is that inventory got so well below 6 months that the pricing power changes for the positive side and thus began the pricing cycle higher. Supply and demand, low inventory = prices are going to rise

but... 15%-45% is very unrealistic in 2 years where wage growth is running at 2% really. However, low inventory cash buyers and low rates will help demand and in a low inventory cycle give pricing power.

Plus we have to remember that we have millions of homes still delinquent and in distress more than twice as many as on sale inventory now. So with more conventional sales it just makes price cycle stronger even though there are millions of homes in trouble.

In certain states it takes 1000 days to foreclosure on a home.

Due to Demographics and the Great Recession Half the U.S. is getting some kind of government assistance

The Housing Nirvana Queen just cried Uncle this morning

Nick Timiraos @NickTimiraos
Zelman existing home sales forecasts: 2014 at 4.8M (vs earlier 5.4M); 2015 at at 4.9M (vs 5.7M); 2016 at 5.0M (vs 5.9M). 2013 was 5.09M.

Nick Timiraos @NickTimiraos
Ivy Zelman slashes existing home sales forecast: now -5% for 2014, vs earlier +6% forecast. New home sales forecasts unchanged.

Cancy Crush Four Horseman

we've gone from everybody being able to buy a house to nobody being able to buy a house to actually needing a job and a down payment to buy one.

you should probably at least plot it on a log chart unless you're intentionally trying to distort things.

oh shit, are we still trying to convince people to not buy? did I not get the memo?

You don't need to convince people not to buy. Some of us have enough sense to know a seller's market when we see one. I buy when it makes sense, not during a trendy and manipulated market. I don't take foolish risks because everyone else is doing it. Maybe that's why we are doing so well?

the smart buyers are waiting for the real crash. Not like those foolish risky people two years ago, but the REAL crash where the only things worth anything are Gold and ammo.

toothfairy says

oh shit, are we still trying to convince people to not buy? did I not get the memo?

The problem with that thesis is that this is what I do for a living so trying to persuade a national public to not buy wouldn't benefit me personally nor do I carry an economic narcism theory that any data point can change the eventual outcome of a single household to buy a home.

With that said. Housing is the cost of shelter to your own capacity to own the debt.

So is the question, why did the most bullish housing market analyst who just recently said on National Television that "Housing Nirvana" is around the corner just cut her numbers aggressively not for this year which is a -6% in sales compared to up 5% but all the way out to 2016

Zelman existing home sales forecasts:

2014 at 4.8M (vs earlier 5.4M);

2015 at at 4.9M (vs 5.7M);

2016 at 5.0M (vs 5.9M).

2013 was 5.09M.

toothfairy says

you should probably at least plot it on a log chart unless you're intentionally trying to distort things.

but you didn't answer my other question.

Logan Mohtashami says

why did the most bullish housing market analyst who just recently said on National Television that "Housing Nirvana" is around the corner just cut her numbers

So you're saying she was wrong before but now she's right? Sorry, I have no idea who Ivy Zelman is.

toothfairy says

you should probably at least plot it on a log chart unless you're intentionally trying to distort things.

Here is a shorter duration time frame to bring the scale down. Mind that I am a big believer that we shouldn't reference peak bubble economic numbers as a mean to reverting back to a normal cycle.

Just taking a log scale of the 10 year, we have done everything to make the actual cost of debt cheap, and effective tax rates haven't been any lower than what it is now for middle class

So why is carry cover demand hard for housing. soft For me at least we simply don't have enough qualified home buyers because
- Incomes are too low
-wage growth too low
-Liquid asset availability to light
-DTI and LTI metrics still too high

While the size of the economy is growing there has been a big price to pay as majority of the wealth gains are financial assets at the expense of incomes.
-Globalization
-Technology
-Debt
-Demographics
Have their hand to play in this party

Logan Mohtashami says

Here is a shorter duration time frame to bring the scale down

That doesn't help. You need a longer time frame and a log scale.

If you think incomes are too low I would look at *historical* price to rent ratios and see what people are currently paying in rent.