patrick.net

You have to make money for the builders

Profit Margin game is all in bigger homes, the builders aren't dumb, they know the net demand from first time home buyers aren't going to be there until years away..

Slow and Steady grind until demographics get better, then you can build cheaper homes

This has been no cycle for homes under 150K but a massive one for homes over 400K,

At the cost of total sales you still can make $$$

They're fine with this

Heraclitusstudent says

The only rational reason why builders are not building more is because they don't have the land/permits.

Logan Mohtashami says

You have to make money for the builders

Profit Margin game is all in bigger homes, the builders aren't dumb, they know the net demand from first time home buyers aren't going to be there until years away..

Slow and Steady grind until demographics get better, then you can build cheaper homes

This has been no cycle for homes under 150K but a massive one for homes over 400K,

Home can be built in the US for $300K. Anything above that should be profits. This means on a $800K apartment, as they sell in places, builders should be able to make $500K a piece. Don't give me that profit margin argument. It just doesn't add up.

The big home argument doesn't add up either. First if that's the case they should be building luxury homes like crazy right now. The price still going up means that they are NOT answering the demand for large homes, let alone smaller homes. Second you are defending the idea that a market should remains unaddressed in spite of the large margin because the margin isn't big enough. This is not how capitalism works. If companies can, they will fight and build whatever makes money, and they will build more to make more money. I don't see any logic in the "need to focus on luxury" argument. Or it only makes sense in the context of exogenous restrictions on the number of units that can be built.

The skyline of cities like SF should be covered with cranes at this moment. The fact that it is not is simply based on restrictions on permits/land.

40 year trend is your friend here and look they have a lot more supply now than any period during 1999-2005 when demand was booming.

So, why would you create more supply of something that even your high end income buyers are having issues buying

Logan Mohtashami says

40 year trend is your friend here and look they have a lot more supply now than any period during 1999-2005 when demand was booming.

So, why would you create more supply of something that even your high end income buyers are having issues buying

That's a ridiculous argument and we discussed this already. 5.6 months of supply is relative to the low sales. A better measure is the absolute number of houses for sales, and it is certainly not close to 2005.

The reverse causality is true: few units for sales means the only remaining participants are rich people. We essentially destroyed the housing market and made it into a luxury game by deliberately restricting it to rich people.

And the solution is obvious: add supply, lower the price, increase demand.

You have millions of millenials in CA that would absolutely buy a house for $300K. At $800K however, they'll live with their parents until they die.

It's absurd to believe things will get better just by waiting, or just because demographics will be better.
Right now it is getting worse every year, and the only way this gets fixed is through a MASSIVE building boom leading to lower prices.

Heraclitusstudent says

That's a ridiculous argument and we discussed this already. 5.6 months of supply is relative to the low sales

More inventory
Lower rates
Higher Nominal wages

..... #Demographics

I actually just recently talked about here

Because if you adjust the sales to demographics, which I admit there is only 4 other people in the world that I know that do this and nobody on Patrick believes in this thesis

Then the sales metric is still bad but not as bad as it looks

https://loganmohtashami.com/2016/05/22/demographics-housing-starts/

As always the Wall Street people who were pushing Nirvana in housing were all vested in the builder trade, they could care less about demographic economics

If youthful demographics made things better, Egypt and Bangladesh would be paradise; North Dakota and Norway would be hellholes.

thunderlips11 says

If youthful demographics made things better, Egypt and Bangladesh would be paradise.

Nice choice of countries

like I said, most people in the world aren't versed in demographic economics, even though the data is so obviously

Headline sensalism country

There is a group of us that are pilling up names of the new normal, secular stagnation, Great Depression Deflationary and going to make our point that these people just aren't versed in economics enough to know the difference

:-)

Logan Mohtashami says

Nice choice of countries

What, they don't exhibit large numbers of young people? Whereas Norway and North Dakota aren't heavily composed of old farts?

Ages 17-29 and ages 49-65 very heavy in this cycle and then take away exotic loan off the grid

Of course home sales and mortgage demand was going to be soft.

Come years 2020-2024 if this trend continues of soft sales, then and only take we can talk about peak affordability to rate of grow model theory.

But until then, it's kind of silly to talk about that,

thunderlips11 says

What, they don't exhibit large numbers of young people? Whereas Norway and North Dakota aren't heavily composed of old farts?

You're comparing countries that have low Per Capita Income to the United States of America, it's a silly thesis

New York has a 3 million plus bigger population than Denmark

Logan Mohtashami says

There is a group of us that are pilling up names of the new normal, secular stagnation, Great Depression Deflationary and going to make our point that these people just aren't versed in economics enough to know the difference

I find a lack of investment in basic science, inequality, lack of wages tracking with productivity gains, etc. to be better indicators. Nothing that reimposing Glass-Steagal, Tariffs, government-led subsidized affordable housing contracts, and AMT for Corporations can't fix.

Logan Mohtashami says

You're comparing countries that have low Per Capita Income to the United States of America, it's a silly thesis

Norway doesn't have a high per capita income?

Egypt and Bangladesh should be flooded with industries taking advantage of all that young, energetic labor!

thunderlips11 says

lack of wages tracking with productivity gains

I never understood why Liberals think wages would match productivity from 1970 when Globalization came and destroyed poverty and we created a massive service sector that gave everyone jobs as compared to a hard export economy that would have been a disaster for America

Working from a low population base into a mass expansion of working population

Chinese got the memo and are desperately trying to switch their economy,

thunderlips11 says

Norway doesn't have a high per capita income?

Your first 2 countries, not Norway or Denmark, they found a oil boom and have a relative small population

Declining population means higher wages and cheaper rents for the young! Some things must get done, can't be substituted or automated as the supply of labor dwindles. The less people, even if the housing stock completely stops expanding, landlords will have to offer bigger space and/or cheaper rents to fight vacancies.

It's also fantastic for the planet, for education, people and esp. children become more important, etc.

In societies with too many young people, life becomes cheap, pollution gets worse, education sucks.

It's why neoliberals are desperately open border, even though all but the dimmest must feel the pushback. Can't let their landlord and low wage service donors feel the pinch!

Logan Mohtashami says

The higher end is entry level in California. LOL.

Strategist says

The higher end is entry level in California. LOL.

I see some 280K-400K In Riverside but under 150K for a new home not even in Garden Grove I would see that in 2016 pricing

Logan Mohtashami says

Your first 2 countries, not Norway or Denmark, they found a oil boom and have a relative small population

Sweden then. Or Iceland, which has nothing but fish and volcanoes. Or Luxemborg. Or Austria. Or Japan.

I'd much rather live in Japan than Egypt if I was 20 years old.

thunderlips11 says

neoliberals

It's been interesting see the left fight the left in economics this cycle

thunderlips11 says

Iceland

More people working at JC Penny and Costco than the entire population of Iceland, 330K people

thunderlips11 says

I'd much rather live in Japan than Egypt if I was 20 years old.

You're white, you should not want to live in a Middle Eastern Country

Also: a youth bulge creates inflation, which creates the temptation to strangle growth to kill the inflation.

See the 1970s, worldwide.

As always, can anyone point where we lost all the jobs to robots and globalization on this chart...

You can see why America has the best domestic economy in the world for a country it's size

Not bad for a country over 323 Million to have 43 year low in claims and 16 year high job openings total of 5.8 million

The old can't work forever, thankfully we have a massive young labor force coming on line!

Logan Mohtashami says

More people working at JC Penny and Costco than the entire population of Iceland, 330K people

So what? We're speaking of general trends. It's amazing Iceland can support 300,000+ people on pretty much fishing alone, hardly much tourism.

And Japan? Lots of people, 4 small islands.

thunderlips11 says

See the 1970s, worldwide.

thunderlips11 says

much fishing alone

I always call it a finishing village

But they tried their Hot Money Banking suck in

90 Billion Dollar of Hot money total GDP there is 14 Billion

Didn't the Head guy resign their recent after the Panama Papers...

Now the Pirates are coming politically

Arrrggggggghhhh

Yep, too many young people disproportionate to the rest of the population, all forming households at once and entering their prime consumer years, create inflationary pressure.

I think the proportionality is the issue. There are many millenials but just as many boomers. When the boomers were in their peak years, they overawed all other age groups.

thunderlips11 says

create inflationary pressure.

See my above post... there are about as many millenials and boomers - that wasn't the case in the 70s and early 80s when the boomers dominated the demographics, overarching all other age groups.

thunderlips11 says

70s and early 80s

We had great demographics in 1980's and 1990's prime age labor force growth was awesome then

Logan Mohtashami says

Then the sales metric is still bad but not as bad as it looks

https://loganmohtashami.com/2016/05/22/demographics-housing-starts/

This shit is managed. The solution to massive foreclosures threatening the financial sector was to restrict building. And it worked: they have their prices back. But doing so they painted themselves into an impossible corner: Many young people will be locked out FOREVER unless they allow enough construction to push prices down. This in turn would be very unsavory to many older people.

More 18-34 leaving with parents than with a partner:
http://www.bloomberg.com/news/articles/2016-05-24/more-young-adults-now-live-with-parents-than-partners

The only thing to expect from demographics is that young people take over the politics.

Young people need to smell the coffee and wake-up. Boomers too: millenials are never going to pay what zillow say your home is worth.

Logan Mohtashami says

We had great demographics in 1980's and 1990's prime age labor force growth was awesome then

Growth for some, not so much growth for others.

The Silents had it great: Scarce Labor.

Logan Mohtashami says

I never understood why Liberals think wages would match productivity from 1970 when Globalization came and destroyed poverty and we created a massive service sector that gave everyone jobs as compared to a hard export economy that would have been a disaster for America

Destroyed poverty? What are you smoking?
Globalization destroyed developer nations middle class and made some very rich, and that's about it.

thunderlips11 says

We had great demographics in 1980's and 1990's prime age labor force growth was awesome then

This is the big liberal chart I have seen for years and then I add this because that chart complete non sense
'

How could this if everyone is so broke and there is no middle class...

Heraclitusstudent says

Destroyed poverty? What are you smoking?

Come on

You guys can do better that this

Tell me how broke stupid and pathetic Americans

are again

Poor America...

Logan Mohtashami says

As frequently talked about here: a farmer doing subsistence farming "earned" nothing and was counted as poor, but a semi-slave in a shoe factory wearing diapers because no bathroom break earning $2/day isn't.
That's the exact opposite of reality.

Logan Mohtashami says

Poor America...

The standard of living after paying for housing, healthcare and education collapsed dramatically.
An other fine example of lying with charts.

Heraclitusstudent says

The standard of living after paying for housing, healthcare and education collapsed dramatically.

An other fine example of lying with charts.

If that was case you have a mass exodus of Americans