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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?
So?
Are you joking or being serious?
Avg month of supply was 5.2 months in 2014?
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.
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
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
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.
5-6 months is a normal market.
Exactly, so there is no "restricted" inventory constraints like your stating...
You totally missed the point.
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.
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!
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?
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
we simply couldn't have enough qualified home buyers once you X out the cash buyers
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?
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
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
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.
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.
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.
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
Maybe it is because Patrick's book is finally getting some traction?
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
You totally ignored the points I made:
- cash financing doesn't mean it is EXTRA demand that wouldn't have happened otherwise. It's just a financing preference.
- you assume that people paying cash are particularly rich. But this includes a lot of retired people who have cash because that's their retirement savings. They are not rich. That's the money they need to survive through years of retirements.
- most of these houses are not empty, therefore they do not contribute to a lack of housing availability for other people
- if there is an extra demand, why isn't it met with extra production? Let's take the example of the smartphones market, that is well supplied: how long do you think it would take for an extra demand to be satisfied with extra supply? Why isn't the same happening for this extra demand for housing?
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
Two points on this:
- These homes are not on the market.
- Most of the distressed homes ARE OCCUPIED. Assuming they were foreclosed and dumped on the market, that means some people will be dumped on the market on the demand side: for rental most likely.
Therefore I don't see how you could consider this like a potential extra supply of homes that could fall from the sky tomorrow.
This simply isn't the case.
You totally ignored the points I made:
- cash financing doesn't mean it is EXTRA demand that wouldn't have happened otherwise. It's just a financing preference.
I don't agree with this thesis either, you're basing this on a economic assumption theory. This is why the demand bulls missed their sales expectations. They believe you actually have net mortgage growth demand when the trend has been negative adjusted to population and working force. This is biggest miss and mistake I have seen from people in housing and it primarily comes from people who don't have a financial lending background
This thesis that mortgage demand would have taken over cash demand I have used for years speaking at economic conferences as the biggest mistake in housing
economics ever.
Even with 6 years of data to show this it is still doesn't work.
New home sales came in at 481,000, about where they were in 1992.
Why is building so tepid in spite of the very high prices?
Therefore I don't see how you could consider this like a potential extra supply of homes that could fall from the sky tomorrow.
The supply is there, you just don't have the demand, this is why you had lower total month supply in 1999, 2000, 2001, 2002, 2003, 2004 and 2005
and the market sales grew because you had a lot fake mortgage demand back then
New home sales came in at 481,000, about where they were in 1992.
Why is building so tepid in spite of the very high prices?
This about how low home sales are but the price inflation is off the charts
What happened in 2014 was that the expected sales growth was 20%-30% and demand went negative actually even with a 429K total sales
So the builders paid the price in sales but made up for it in prices
I expect to see at least 8% sales growth this year because it's such a low bar to work with, if you do see back to back negative sales builders will adjust and cut prices to stimulate demand
New home is more a rich man's game than ever 90% mortgage market less than 15% first time home buyer market
Toll average selling price is $782,000 ... this sector has nothing to do with main street America any longer
- cash financing doesn't mean it is EXTRA demand that wouldn't have happened otherwise. It's just a financing preference.
I don't agree with this thesis either, you're basing this on a economic assumption theory.
I think cash being a financing preference is not an assumption.
In any case, assuming there was an extra demand, with investors rushing to buy on lower prices. This just changes who buys. It doesn't change the overall availability of housing for people looking for a roof (rent or buy) provided investors actually rents these units.
So you didn't answer by points. You also didn't answer as to why extra demand is not met with extra supply.
You also didn't answer as to why extra demand is not met with extra supply.
What extra demand are you talking about? There is no extra demand out there for existing homes
I don't know how else to say this, this cycle has had the worst mortgage demand ever recorded post WWII but has the highest cash buyer demand post WWII
and even with the high level of cash buyers sales growth trend have turned negative.
For example we saw a 6% YoY drop in cash buyers in Jan 2015 from Jan 2014 is this trends continues at 6% and you have negative purchase applications again on a YoY basis you're going to have back to back negative home sales years in year 6 and 7 of the economic cycle
What happened in 2014 was that the expected sales growth was 20%-30% and demand went negative actually even with a 429K total sales
So the builders paid the price in sales but made up for it in prices
Are you assuming demand doesn't depend on prices? Really?
I think you are confusing the causality here.
Builders are focusing on the upscale market and THEREFORE very few people can afford it.
I go back to the example of smart phones: imagine smartphone makers were selling only upscale expensive phones. How long would it take for one of them to beak rank and address the demand for low priced phones? Within a year you would have factories spitting out low priced junk phones by the hundreds of millions.
Why isn't the same happening for houses?
What extra demand are you talking about? There is no extra demand out there for existing homes
You just explained above that cash buyers are extra demand.
Are you assuming demand doesn't depend on prices? Really?
The YoY price gains are slowing down that is a fact, and this is including 3 million homes that are in distress that is not in the market place so you have a lot more conventional sales that distress
You're creating a hypothesis without looking at all the data, you're excluding 100% increase of distress inventory that isn't in the market place and a near 50% demand drive for the richest Americans and foreign buyers for years.
causation
correlation
representation
It's all in the data for everyone to see
I can't just exclude 3 million distress homes out of the equation in regard to real term pricing which has disconnected from main street America.
That shows no discipline
I can't just exclude 3 million distress homes out of the equation in regard to real term pricing which has disconnected from main street America.
That shows no discipline
But you are excluding the people living in these homes and this is ok?
But you are excluding the people living in these homes and this is ok?
Those aren't homeowners they aren't paying for their mortgage, A lot of them haven't paid on a mortgages for 2-4 years and 1 million of those homes are empty
There is no way I can ignore that information, that is creating a false narrative
Every year I talk about this number and showing why rental demand will be strong because these Americans will be renters not homeowners when they finally lose their homes
Look, you are describing low demand, low mortgage origination and at the same time high and rising prices. With no explanation.
In what market does it make sense? It doesn't.
You just can't explain it, unless there is a lid on the supply.
Those aren't homeowners they aren't paying for their mortgage, A lot of them haven't paid on a mortgages for 2-4 years and 1 million of those homes are empty
There is no way I can ignore that information, that is creating a false narrative
But you ignore they will need a roof if they hit the curb, and this is not a false narrative?
Every year I talk about this number and showing why rental demand will be strong because these Americans will be renters not homeowners when they finally lose their homes
I'm talking of the mismatch between the number of people needing a roof and the number of roofs available.
You are talking of things that do not affect this mismatch.
You are not answering my point.
With no explanation.
In what market does it make sense? It doesn't.
I have explained this 11 times on this thread, so I am going to explain one last time
You have an unreal supply and demand market place
1. 100% plus inventory which would equal 10 months of supply has been kept off the housing market due to legal constraits
2. You have near 50% demand from the Richest Americans and foreign buyers creating a false sense of pricing power which is ok with them but for main street
it has priced a lot Americans out of the housing market
Causation
Correlation
Representation
Causation
Correlation
That is as clear as I can make it
Lowest purchase application demand this century
Lowest first time home buyer demand this century
1. 100% plus inventory which would equal 10 months of supply has been kept off the housing market due to legal constraits
2. You have near 50% demand from the Richest Americans and foreign buyers creating a false sense of pricing power which is ok with them but for main street
it has priced a lot Americans out of the housing market
Again you are assuming rich Americans grab houses, wall them off, and generally make them unavailable for people to live in. This isn't the case.
Again you are assuming distressed properties are a miracle supply of empty homes that will fall from the sky. They aren't.
I'm talking of the mismatch between who needs a roof and what roofs are available to live under. This mismatch is what results in high prices, both rents and sales.
You are talking of things that DO NOT AFFECT this mismatch.
This is a mute conversation. I'm going to stop there.
This is a mute conversation. I'm going to stop there.
This I can agree with it :-)
Good talk though! It shows people can have a civil economic discussion on the net
Hey Logan, after yesterday with Tat and now this discussion, do you ever feel like this with them?
The best clue that one is on the wrong side of a discussion is if you and Indigenous back him/her up.
Herc brings up good points actually, but I really think Logan is so wrapped up in the details that he can't see the big picture.
The bottom line is that prices are rising even with low demand. Obviously that points to a supply issue. There is absolutely no other way to frame it.
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