patrick.net

Heraclitusstudent says

I'm not sure who is saying sales would be 20%-30%

The number 1 housing analyst in America did for 2014 even though she revised all her E.H. sales to negative trend growth for 3 years
She still kept her 25% sales growth for 2014 even in April

http://loganmohtashami.com/2014/04/11/miss-housing-nirvana-crys-uncle/

We don't have a housing shortage we had on sale shortage we did hit 6 months inventory last year but only for 1 month and then inventory fell back. There were some sellers who didn't get want they wanted and pushed back from the market place

However, for the first time we did hit the 6 month mark last year

Logan Mohtashami says

If you truly believe in that then you would have stopped being a bull in 2003? correct?

I think I was confused about your question. I wasn't a long term bull in RE in 2003. Like I said, I rented rather than buying because I felt housing was overpriced.

But using inventory as a guide, it was clear that housing prices would continue to rise until some point in 2006.

tatupu70 says

Like I said, I rented rather than buying because I felt housing was overpriced.

So I assume you must have bought a home past 2006.

However, why does what you're talking about have anything to do with housing economics. You're just one man, my data points are a reflection of an entire housing market and the economic cycle we are in.

Logan Mohtashami says

So I assume you must have bought a home past 2006.

Yep.

Logan Mohtashami says

However, why does what you're talking about have anything to do with housing economics. You're just one man, my data points are a reflection of an entire housing market and the economic cycle we are in.

Huh? You asked if I was a housing bull, so I answered. Why do you think I am trying to imply that I represent the entire market? What are you talking about?

And they aren't your data points. They are data points. You have used them to arrive at a conclusion. The data is fact. Your conclusion is opinion.

tatupu70 says

The data is fact. Your conclusion is opinion.

The conclusion is fact the data points is to show why housing is soft in terms of demand. It's the other way around

Just like Janet Yellen said in her testimony today U.S. economy is growing but housing is the biggest disappointment

to be honest I don't know many people in the world right now that don't agree with this even some of the more active housing bulls have kind of thrown in the towel in terms of
demand because we should have had much stronger in total sales.

Actually in fact every single housing analyst and economist got it wrong in 2014 there wasn't anyone that had negative trend demand sales, not one on record.

This was the biggest housing bull in America Ivy Zelman and she was the biggest pro housing bull analyst and even she threw in the towel last year but kept here 25% sales growth call still in tact and that was her biggest mistake as that was one of the biggest miss sales estimates in housing ever

Article is here

http://loganmohtashami.com/2014/04/11/miss-housing-nirvana-crys-uncle/

Logan Mohtashami says

Civilian Labor force is over 156 Million

What we have seen is just soft household formation numbers up until the last report.

Do we have the total number of housing units (including apartments, single family homes and including owned and rented)?

Can we see the graph of the ratio: total housing units/ number of households?

Sales or inventory do not reflect the need for housing.

Heraclitusstudent says

Can we see the graph of the ratio: total housing units/ number of households?

Off the top of my head I believe we have a 123,000,0000 households
80 million are owners
43 million are renters

You do have a lot of multiple renter household especially in big cities so we have to find a data line that counts for that

The reason we have 10% vacancy for housing is that it accounts for 2nd homes which are vacant, roughly 1 million are in foreclosure but not in the market place

Call it Crazy says

we need dropping housing prices that accurately reflect dropping wages, not MORE units..

Housing prices reflect the wages of people who buy them. There are enough rich people to buy houses available now at the price they are sold for. Just look at cash buyers.
Only if more units are available will people with lower wages be able to buy and do so at lower prices.
Your sentence is a charade.

Call it Crazy says

Sure, everyone would love to own a home, just like everyone would like to be a millionaire.... But "wanting" and being "able" to buy based on reality in their lives are two completely different animals...

The median price for a new home in the US is around $260K. Meaning it is possible to build an average home at this level, and home builders make a profit.
The median sale price for an existing house in CA is above $400K.
A lot of people in between would "be able" to buy if we were just building these homes.

The rental demand is just very strong in this cycle, if you look at the data from 2010-2015 it's been a rental demand boom

Logan Mohtashami says

Off the top of my head I believe we have a 123,000,0000 households

80 million are owners

43 million are renters

You do have a lot of multiple renter household especially in big cities so we have to find a data line that counts for that

The reason we have 10% vacancy for housing is that it accounts for 2nd homes which are vacant, roughly 1 million are in foreclosure but not in the market place

What I want to see is the graph of the ratio: total housing units/ number of households. I don't care how many rent or own or even vacancy.
If this graph is trending down, there is your problem.

Heraclitusstudent says

If this graph is trending down, there is your problem.

We had a mass expansion of building to to own and not enough to rent, this is your problem. Too little supply of rental unit to match the demand for renting.
Rent inflation has been too strong in this cycle because we don't have enough rentals out there

Logan Mohtashami says

We had a mass expansion of building to to own and not enough to rent, this is your problem. Too little supply of rental unit to match the demand for renting.

Rent inflation has been too strong in this cycle because we don't have enough rentals out there

I don't see why a home can't be rented.
If there were many houses to rent there would be no reason for rent prices to go up (including home rentals prices). But they did.

As far as the "mass expansion" of the 2000's you have to put that in perspective of the tens of millions added to the population since then.
I think the "overbuilt" phase is long gone.

Heraclitusstudent says

I don't see why a home can't be rented.

If there were many houses to rent there would be no reason for rent prices to go up (including home rentals prices). But they did.

As far as the "mass expansion" of the 2000's you have to put that in perspective of the tens of millions added to the population since then.

I think the "overbuilt" phase is long gone.

I have no idea what you're talking about now

Call it Crazy says

There is approx 5 months of house supply currently on the market?? How many MORE months do you need?

5-6 months is a normal market.
When you actually make a logical point, I'll answer it.

Heraclitusstudent says

5-6 months is a normal market.

When you actually make a logical point, I'll answer it.

You had 5-6 month inventory for a few months last year actually, especially during the strong seasonal months
you did know this correct?

Logan Mohtashami says

I have no idea what you're talking about now

How many houses were built in the "mass expansion of building" you referred to?
By how much did the population grow?
Do we have the total units number?

Logan Mohtashami says

You had 5-6 month inventory for a few months last year actually, especially during the strong seasonal months

you did know this correct?

So?

Heraclitusstudent says

So?

Are you joking or being serious?
Avg month of supply was 5.2 months in 2014?

Logan Mohtashami says

Heraclitusstudent says

So?

Are you joking or being serious?

Avg month of supply was 5.2 months in 2014?

The entire discussion is about restricted demand and restricted supply.
My entire point is: just because the inventory looks normal doesn't mean there is not a much larger demand for housing - because of the price at which this inventory is sold.
So Seriously: why are you listing these numbers? It doesn't affect logically what I said.

Heraclitusstudent says

So Seriously: why are you listing these numbers?

Because total inventory was 4.9 months in 2013
Total inventory was 5.2 months in 2014
and the total demand was negative in 2014 from 2013 level
So the more supply leading to more sales didn't work in 2014

We had more supply of homes per months for total in 2013 and 2014 than we did from 1999-2005

Logan Mohtashami says

Because total inventory was 4.9 months in 2013

Total inventory was 5.2 months in 2014

and the total demand was negative in 2014 from 2013 level

So the more supply leading to more sales didn't work in 2014

When you say inventory was 5.2 months in 2014, you refer to a ratio with sales. The ratio is normal, not the inventory. You have low inventory and low sales.

You go back to your own point, which I think everyone agrees with: prices rose, which killed sales, there was a slight increase in inventory but clearly (by your own account) not enough to affect prices, and therefore trigger sales.

You don't answer my point: how many housing units are available per capita?
If this went down, then this explains what you are describing: i.e. a housing market that works only in the upper price range.

It's over 136 million total housing units, 2010 was the last time I believe Census ran this number and it was near 132 million back then I believe

Logan Mohtashami says

It's over 136 million total housing units, 2010 was the last time I believe Census ran this number and it was near 132 million back then I believe

So about 4 millions extra units?

US population:
2000-01-01 280.976 millions
2010-01-01 308.833 millions
2015-01-01 320.367 millions

Yes we added 12 millions people since 2010, and close to 40 millions people since 2000 (more than the entire population of California).
From your numbers, we're just adding 0.33 housing units for 1 of them, whereas we had 0.428 units per person before.

http://research.stlouisfed.org/fred2/series/POP

Call it Crazy says

5-6 months is a normal market.

Exactly, so there is no "restricted" inventory constraints like your stating...

You totally missed the point.

Heraclitusstudent says

US population:

2000-01-01 280.976 millions

2010-01-01 308.833 millions

2015-01-01 320.367 millions

Civilian labor for is over 156 million
Working population is over 140 million

So, obviously we don't run a 1 to 1 metric model based on population because children 1-18 live with parents a one home can carry 4 people

Age 23, 24, 25 are the biggest age group in America, hence why we need rental supply because this group will be renting.

Logan Mohtashami says

Math, Facts, Data... the final number is what matters but there is a story behind those numbers ( Why) factor is really what separates economic analysis

They quickly dismiss that as mere a priori logic, which is tantamount to using religion to think with. They demand a hard science "proof" of economics which makes as much sense as an elephant in a bird cage.

I see where you are coming from on this as you have to make a living dealing with these people.

Even though Krugman is full of shit, he is actually a very smart person so you would have to talk to him with a modicum of civility. I just think that most people do not know that they do not know economics, instead they suffer from the indoctrination to government memes. Who you going to believe me (the government) or your lying eyes type deal.

Not to mention that there is so much going on in economics it would be impossible for anyone person to know everything that is going on.

Last floor plan that I rented prior to owning is currently over 61% higher than my last year on the lease and went up over 12% per year on average since then. Renters are gonna end up in a checkmate where they will have no choice but to rent for life and that's assuming that they keep their jobs. If this keeps up, I can see young adults negotiating something with their parents so they keep living at home until they save up downpayment to buy and bypass the intermediary step of renting. Inflation sucks!

Logan Mohtashami says

So, obviously we don't run a 1 to 1 metric model based on population because children 1-18 live with parents a one home can carry 4 people

Age 23, 24, 25 are the biggest age group in America, hence why we need rental supply because this group will be renting.

I never said the ratio was 1 to 1. We had 0.428 units per person before. We added 0.33 per person.

I don't get the distinction owning vs renting. People rent homes or own homes. It's all the same.

Otherwise how do you explain your own numbers: why is demand low?

Heraclitusstudent says

Otherwise how do you explain your own numbers: why is demand low?

Housing is the cost the shelter to your own capacity to either own the debt or liability cost of the shelter.

The issue with this cycle which was always my root core thesis is that

Mathematically we simply couldn't have enough qualified home buyers once you X out the cash buyers to call this a real recovery.

Cash demand strong, rental demand strong, mortgage buyers have been very weak, something that we haven't ever seen in any housing cycle to date.

The problem with the rental cycle is that we have rental wage inflation rising well above wage growth so it makes it harder and harder for that group to even have the capacity to save for that down payment.

One form or another housing will always be bought each year because it's shelter. The demand weakness we have seen recently is primarily due to the capacity to own the debt of housing. Rental demand has been smoking hot and that is a plus for the builders

Logan Mohtashami says

we simply couldn't have enough qualified home buyers once you X out the cash buyers

Logan Mohtashami says

The problem with the rental cycle is that we have rental wage inflation rising well above wage growth so it makes it harder and harder for that group to even have the capacity to save for that down payment.

You're not answering my question: if supply is ample, and housing is not scarce, then why did both rents and sales prices go up so much? In any market with sufficient supply, prices would align with what people can afford. This is not what we are seeing.

- Cash buyers cannot explain it unless you are saying there is just enough supply for these buyers, which essentially is the same as saying there is not enough supply for everyone.
- Investors cannot explain it either: they just move housing for sale to the 'for rent' category, and rent prices are high too.
- You could say there are too many houses and not enough apartments. It doesn't explain why prices and rents for houses went up too.
- you can't say it's a temporary imbalance because it's been lasting for years.

So what is the answer?

Heraclitusstudent says

You're not answering my question: if supply is ample, and housing is not scarce, then why did both rents and sales prices go up so much?

1. We didn't have enough rental supply for the rental demand

Heraclitusstudent says

Cash buyers cannot explain it unless you are saying there is just enough supply for these buyers, which essentially is the same as saying there is not enough supply for everyone.

2. If cash buyers weren't in this cycle 20% above historical levels we would still be in recessionary sale levels even in year 6 of the cycle with rates this low.

This is to me is the biggest miss from people. It usually comes form people who don't have a financial background or don't follow housing because the levels of rich Americans and foreign buyers for this long period of time is something that we haven't seen in the last 40 years even.

The supply of homes is there if the real net demand could take it, but outside of the Rich buying homes the demand from majority of the population is weak

When you don't have the mathematical income models right

PITI I + DTI w LTI factors going against real median incomes then you get data line charts like this

But rental demand you see this

Axis them out and you get this

Hence why in 2014

We saw 2 major housing demand metrics hit 21st century lows which we didn't even see in the great recession

Logan Mohtashami says

1. We didn't have enough rental supply for the rental demand

If we have enough supplies, but not enough renting supply, it means we have excess 'for sales' houses, and prices should go down, everything else being equal. So by itself this explains nothing.

Logan Mohtashami says

2. If cash buyers weren't in this cycle 20% above historical levels we would still be in recessionary sale levels even in year 6 of the cycle with rates this low.

Ok but...
- What do the "rich" do with these houses?: I suggest that a lot of these houses are just investment properties (for example bought by retired people sitting on retirement savings). Or they are bought by people who will actually live in them, and "cash" financing is just a preference based on wide availability of cash savings and rare investments opportunities. Most of these are not vanity houses kept empty by people who don't care to pay taxes and maintenance on a depreciating asset. So they don't decrease the supply. If rentals they just move it to the rental category.

- You seem to be saying this is a special demand that is not matched by corresponding supply. Then basically you agree this is a supply problem. If we were building more to match this extra supply, then this wouldn't impact prices. And it's been years already and extra supply is nowhere in sight in spite of the massive price signal. If that is the case we should have a building boom right now. Why isn't that happening?

- foreign investors: Again, are these people gonna live the units empty? I rather doubt this is the case for a large number. If they come to live in the US, then they are added population. If no extra supply is created for this added population, then this goes back to my point exactly: extra supply doesn't match the extra population.

Logan Mohtashami says

When you don't have the mathematical income models right

Again, income models wouldn't matter if supply was available. Prices would just align with these income levels, even if that meant much more basic homes.

Heraclitusstudent says

Again, income models wouldn't matter if supply was available. Prices would just align with these income levels, even if that meant much more basic homes.

I couldn't disagree more with this thesis on supply and demand and here is why.

If 45% of all the homes in America are bought with cash and those who make 2.5 -3X median income that is a big enough net demand driver to keep prices rising in disconnection from what main street America can afford in a below balance market place

( Note) that even today we still have more than 3 million homes that are either in distress or in foreclose but not in the market place, that is well above the total inventory in the market place day. So, on net you're missing double the homes on the market that would be distress sales adding to 100% increase in total net inventory

That is a massive amount of homes that isn't in the market place and again nobody talks about this even thought the data is there each month to show it

So we have a disconnection in price gains to main street America

Hence why this data point was created in this cycle

Which leads to this data point

Even today Mortgage purchase application are showing a negative 2% YoY print even with the 21st century lows set into the market place last year. Even I thought we could show at least 5% conservative growth year over year

What you are showing is a symptom of the Fed meddling both with the money supply and over the long haul (40yr) the exchange rate.

This even surprises me because we are working off a 21st century low on purchase apps