patrick.net

Why not buy a basket of high yield international 10 years (if you could) and hold to maturity? Currency risk exists, but getting 8% a year sounds tantalizing.

Logan Mohtashami says

Brazil is way up there. Value for money is with USA. Putin is paying 10.5%.....he can keep his worthless bonds.

Blurtman says

Why not buy a basket of high yield international 10 years (if you could) and hold to maturity? Currency risk exists, but getting 8% a year sounds tantalizing.

You could, but they won't include US or Western Europe.

Strategist says

Brazil is way up there.

Brazil should be higher, they are a discount

Strategist says

You could, but they won't include US or Western Europe.

Sure. I don't think the Rooskies would ever default now.

Now the fun starts, come 2016, training wheels starting to come off

Logan Mohtashami says

If the economy does not get going soon, we will all be in deep shit.

I'd bite on 6% 10 year UST's as a start.

Blurtman says

I'd bite on 6% 10 year UST's as a start.

Not sure if we will get over 4.7%... a 2017 story line

Logan Mohtashami says

Blurtman says

I'd bite on 6% 10 year UST's as a start.

Not sure if we will get over 4.7%... a 2017 story line

You will only get those high rates if inflation takes a sizable jump. But then that will defeat the purpose.
If you want the best investment ever, buy homebuilder stocks or an ETF that tracks the builders. I put my life savings of a $1,000.00 in the ITB, and expect to turn it into $10 million by 2017.

Strategist says

If you want the best investment ever, buy homebuilder stocks or an ETF that tracks the builders. I put my life savings of a $1,000.00 in the ITB, and expect to turn it into $10 million by 201

Speaking of which I think I have to talk about or at least bring up a question on air to CNBC on Monday with the trading nation group next Monday 10:00 AM our time

When you adjust to inflation new homes are over the bubble just now

If you did the same for older homes it's not even close

sbh says

Blurtman says

I'd bite on 6% 10 year UST's as a start.

At 6% I'd become a permanent world traveler and never come back except to sample some BBQ brisket every couple of years.

California real estate generates 7%. :)

We wonder why have a housing inflation problem here in CA

If you guys wanted to read a good full report on California High Housing Cost.

Here is a good report

http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.pdf

Logan Mohtashami says

If you guys wanted to read a good full report on California High Housing Cost.

Here is a good report

http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.pdf

Loved it. Thanks for posting.
California has never built enough homes. In the last 8 years, neither has the rest of the country. Why is the rest of the country not building enough homes?

Strategist says

Why is the rest of the country not building enough homes?

Mix match to demand

The curve since the mid 1990's was for ownership when the demand curve about 30% of it fluff... so you need to fix the mix match to demand for rentals. This limits the builders to build affordable housing due to profit margin restraints

Hence why we have this now

Logan Mohtashami, a California-based loan officer, says the notion that lending standards are tight is a myth.
“There remain a number of highly respected housing ‘gurus’ who continue to profess that it is unfairly tight lending standards, not the lack of qualified buyers that are suppressing a housing recovery. The difference is not academic,” he says. “A quick review of the requirements for some of mortgage loans available may surprise you.”
VA loans require no down payment, for example, he notes. And buyers can get other mortgages with credit scores as low as 560, with 50% debt-to-income ratios, or down payments as low as 3%.
“At this point all you can do is bring back 0% down loans and stated income loans for wage earners,” said. “Look who is really pushing the tight lending thesis. People in New York, D.C., San Francisco. What I call economic bubble cities. Main Street America gets this thesis I am saying.”

"Renting The New American Dream"

http://blog.credit.com/2015/06/renting-the-new-american-dream-118437/

Logan Mohtashami says

Strategist says

Why is the rest of the country not building enough homes?

Mix match to demand

The curve since the mid 1990's was for ownership when the demand curve about 30% of it fluff... so you need to fix the mix match to demand for rentals. This limits the builders to build affordable housing due to profit margin restraints

Higher prices will fix that restrained profit margin real quick.

Strategist says

Higher prices will fix that restrained profit margin real quick.

Not only will that not fix the issue... it's creating a system supply where older homes are not only geographically more advantages to first time home buyers they're much more cheaper... hence why we are down in sales in terms of estimates made years ago...

Strategist says

Strategist says

Why is the rest of the country not building enough homes?

Don't forget... Monday with trading nation onn CNBC, if they still want me to debate the builders thesis, watch the question I ask and the answer they give ;-)

Logan Mohtashami says

Strategist says

Strategist says

Why is the rest of the country not building enough homes?

Don't forget... Monday with trading nation onn CNBC, if they still want me to debate the builders thesis, watch the question I ask and the answer they give ;-)

OK, I'll watch. Good luck :)

This will be brought up, what I discussed with the wall street journal

Nick Timiraos @NickTimiraos
How much house the typical family can afford on the median U.S. income when interest rates rise, via Deutsche Bank
‪#‎BS‬ Alert
Logan Mohtashami @LoganMohtashami
@NickTimiraos ‪#‎EconomicAlert‬
Outdated economic model 20% down 25% ‪#‎DTI‬ with No ‪#‎LTI‬ factor model based
A big sigh ..... smile emoticon
Logan Mohtashami @LoganMohtashami
@NickTimiraos Those who have 20% down don't make 53K
Flawed index created by economist who don't have a financial lending background

Context to new homes with a real proper model

The cycle has been blessed with low rates and the demand curve has been dreadful from main street.. but the Rich it has been solid

One of the points I have always tried to bring up going forward

Each housing cycle has had 2% 2.5% lower rates in the next cycle. For that to happen now you would need to see 10's base start at 0.95%

So you could have one more lower rate cycle left in the system, but the cow has been milked

Logan Mohtashami says

One of the points I have always tried to bring up going forward

Each housing cycle has had 2% 2.5% lower rates in the next cycle. For that to happen now you would need to see 10's base start at 0.95%

So you could have one more lower rate cycle left in the system, but the cow has been milked

Except that housing prices have no correlation to interest rates.

tatupu70 says

Except that housing prices have no correlation to interest rates.

But the demand curve does have correlation to

PITI inflation (DTI) (LIT) factor models

It took me about 20 minutes to show wall street how this worked but they got it, it's just we have used outdated affordability indexes not adjusting to economic equilibrium

limf(x0 = sky
x-a

Can't exist

More and more economist and professors that I am talking to are starting to really understand what I am trying to explain, it's actually kind of fun talking to that group even though our worlds don't really collide much

“All truths are easy to understand once they are discovered; the point is to discover them.”
― Galileo Galilei

I love the purity and direction of math & numbers.. but it's a boiling frog thesis when talking economics due to economic equilibrium which each cycle.

This group really wants to me discuss the economics of the housing inflation story in California, primarily the L.A. area where homeless has risen the last 2 years

Logan Mohtashami says

But the demand curve does have correlation to

PITI inflation (DTI) (LIT) factor models

Not sure why you are trying to make this more complicated than it needs to be. Demand is strongly correlated with income. Period.

tatupu70 says

Demand is strongly correlated with income. Period.

I can't except that thesis for this factor model

If you just took out the extra % cash buyers in the last 4 years since rates were below 5%

The net demand is actually still at Great Recessions lows ....

Which is actually 21st century lows

Problem is the demand curve thesis

Since 2000

40 million more Americans are here
17 million more Americans are working
Rates were 8% then and 4% now

and even with the net 20% of extra cash buyers the demand curve is still at great recession lows from main street.

Even taken the housing bubble factor out of it ... the trend demand is awful

Logan Mohtashami says

I can't except that thesis for this factor model

If you just took out the extra % cash buyers in the last 4 years since rates were below 5%

The net demand is actually still at Great Recessions lows ....

Which is actually 21st century lows

Problem is the demand curve thesis

Since 2000

40 million more Americans are here

17 million more Americans are working

Rates were 8% then and 4% now

and even with the net 20% of extra cash buyers the demand curve is still at great recession lows from main street.

Rates have gone down from 8 to 4% and demand is all time low according to you. Doesn't that tell you something? Maybe rates aren't that important??

Median income on the other hand has gone nowhere. Isn't that a better explanation?

When 2020-2024 comes around the demand curve will look a lot better

A lot more dual income college educated household having kids, so those years look much better because the
Wage inflation metric is much more stronger on that front that simple Avg wage growth

tatupu70 says

Maybe rates aren't that important??

I am a big rate person, but in terms of demand curve it stopped the expansion curve from growing in 2013

#causation
#correlation
#representation

Thesis in 2013 was than when rate rise it wouldn't matter... because rates don't matter..

excuse me.. puke.. sorry, that was a dreadful thesis because the demand curve was awful

PITI inflation factor is a weak cycle

what happened in the taper spike

This is the beauty as I am have shown the data on this over and over again which made people realize

Warning article on May 7th 2013

http://loganmohtashami.com/2013/05/07/housing-mammoth-stuck-in-tar-has-bigger-problems-to-worry-about/

What happened after the rates spiked?

#FIRST time ever ... in American economic history

We had a reversal of demand trend in a up cycle in the later years of the cycle with rates under 4.5%
It created the bear market in purchase applications even though it was year 6 of the economic cycle

Something that no economist, housing pundit could ever imagine because in their mind they see rates at historic lows and the equate that to housing affordability
when the index it self is outdated anyway

MI2MP models shows but that's never the true story

The Pie capacity is smaller ... the dual income factor model is more important than ever...

There are 5 simple and obvious reasons why the financial media and housing pundits got it wrong in terms of demand for home purchasing and year over year growth in existing home sales in 2014.

Lending standards are not too strict
First, since none of these pundits have any financial lending experience they all naturally assumed that lending standards would ease making demand grow. It was painful to watch Steve Liesman on CNBC try to make a case to Diana Olick that if lending standards eased it would stimulate demand. Sadly, this is a misconception held many in the financial media and Wall Street firms. Mortgage standards are not overly rigorous in America. In fact, all you need to buy a home in America is a 620 fico score, 3.5% down payment and a debt to income ratio of not greater than 43%. Once this is recognized, the real problem, no wage growth and the lack of good paying jobs, will become the focus of how to grow the housing market.

Courtesy of Professor Anthony Sanders

http://confoundedinterest.wordpress.com/2014/04/30/hangover-mortgage-applications-plunge-6-purchase-applications-down-21-from-last-year/

mbap0430140

Housing internals are weak
Second, those housing pundits tend not to consider the “internals” of the housing market. The internals tell the story for those who care to look.

In a normal cycle we would see the following:
90% mortgage buyers
40% of that first time home buyers
10% cash buyers

In this cycle, however we see the following:

67-70% mortgage buyers
27-30% first time home buyer
30% plus cash buyers for the past several years

The internals show weakness in demand, not strength. What if the number of cash buyers returned to a normal 10% level of the market place? 2014 has a high percentage of cash buyers but the volume of sales are going down. With a lower percentage of cash buyers expected in the future, the number of mortgage buyers will need to increase just to maintain the current level of sales.

Too many low paying jobs
Also consider that this economic cycle has had a very weak income jobs recovery profile. In layman’s terms this means that the majority of the jobs recovered have been low wage jobs going to people 50 and over. The Debt-to-Income (DTI) and Liability-To-Income (LTI) metrics for home buyers are still high even though interest rates are low because wages are low and savings have been exhausted — hence the very soft demand for mortgages. The affordability index used by most of the financial media and Wall Street firms are terribly flawed because they assume everyone in America can make a 20% down payment. These days only the rich can come up with a 20% down-payment. In my business I am also seeing signs of economic stress in the would-be move up buyers. Many homes may no longer be underwater but the amount of equity is still generally small so there are fewer dollars available for the next purchase.

From Professor Sanders
http://confoundedinterest.wordpress.com/2014/04/29/juggernaut-case-shiller-20-home-price-index-rose-12-9-yoy-in-feb-too-bad-incomes-arent-rising-that-fast/

cs042914

Home prices are too damn high!

The term “housing recovery” suggests that home prices are now “returning to normal”. In truth however, prices are rising beyond economic reality of most Americans. While home owners and housing pundits alike were glad to see the return of home values to nearly pre-recession levels in some areas, nary a thought was given to how to how this would impact demand. Prices were up 15%-45% in 2 years — the biggest 2 year expansion we have seen outside the bubble years. While we are seeing some price reductions, there really isn’t any meaningful way to get a price correction in the market until inventories increase or there is another a job loss recession. One of the best things that could happen to the housing market would be a major cooling of prices from the crazy pace we have been seeing in the past 2 years. Nevertheless, I expect home prices will continue to show growth for 2014.

5. New home sales only account for 10% of the market

For years I have been saying that housing starts and sales will rise in the new home sale sector because the 80% correction it had in this cycle. And while this is true, new homes are only 1/10th of all home sales and tend to be for the more wealthy buyer. Housing inflation for new homes sales is well over the peak of the 2006 bubble in terms of median income to median prices. Growth in that sector is being carried by the wealthy. For the less wealthy home buyer, builders are competing with traditional (resale) homes which often provide a much better value. Therefore significant growth in the new home sector will be limited.

In short the housing bulls didn’t have the sophistication to know why things were soft; In a “real” housing recovery housing demand would grow by demand from main street America and mortgage buyers not from cash buyers. Even with mortgage rates below 5% since early 2011, zero interest rate policy by the Fed, and cash buyers being 30-35% of the homes bought, we are still going to finish 2014 as a negative year over year in home sales.

So to all the housing bulls who still believe there is growth coming in 2014, I ask you what kind of Housing Nirvana are you smoking. This doesn’t mean a housing collapse but also doesn’t mean growth in the housing sector for main street America. The only growth left this year are in new home sales and that is being held up by the wealthy buyers, not first time home buyers. Once main street America gets paid, then you will see a real recovery in housing.

http://confoundedinterest.wordpress.com/2014/04/22/existing-home-sales-fell-0-2-all-cash-buyers-33-fhfa-home-prices-rise-0-6-in-feb/

ehsmar14

Now with this cycle in 2015... we need to see the how the market reacts because there is another factor working in play now

Household formation is rising, people are renting again, this is good, it's healthy

But... it needs just a little bit more time

1. Rent
2. Date
3. Mate
4. Marriage

3.5 -6 years after marriage = buy.. that is still looking good.

Dual income college educated Americans having kids... can still buy

We are just in phase 1 of that cycle.. why years 2020-2024 will look better.. best wage inflation for housing is 2 incomes ... beats 2.4% wage growth any century

and the best way to fight this

Why I strongly believe in not easing standards at all

http://loganmohtashami.com/2015/04/09/tight-lending-and-other-urban-legends/

My lord--you are definitely overly verbose.

Not sure why you chose to include the last 90% of your post. Your theory is that the small rise in interest rates had a large effect in 2013? Looking at your chart, I just see normal seasonality and a small decline from 2013 to 2014. Remembering that prices are still rising, however.

I've said this before, but I continue to remind you that sales are not always a good substitute for demand.

tatupu70 says

Remembering that prices are still rising, however.

I hear this back in 2003-2006

tatupu70 says

've said this before, but I continue to remind you that sales are not always a good substitute for demand.

I couldn't disagree with you more here

Adjusting to population the sales are dreadful but the demand curve for renting is booming

Math, Facts and Data matter, I can't live in a world or believe in something that the data doesn't justify it

In 2014 year 6 of the economic cycle

Even with higher rates, estimates by some were up to 5.7 million and 5.8 million existing home sales, everyone in America had growth

Which I totally understand curving the demand to adjust to population you should be around that level

However....
Only one person said demand curve will be negative year over year in 2014 if cash volumes falls because mortgage demand was weak after the taper spike...

What happened... first time ever in American economic history that existing home sales had a negative year over year print

#In an up cycle this late into the recovery

Even with inventory rising and in year 6 of the economic cycle sales came in at 4.9 million only 800K above the lows of the Great Recession even with 30% cash buyers (though total volume fell for cash buyers)

Number 1 Housing analyst in America Ivy Zelman April 2014

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.(Big miss on her new home sales) estimates were 25% sales growth came in at 1.9% biggest miss on sales ever

More details here

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