patrick.net

Falling saving rate and credit car balance expansion isn't a great sign when median incomes have gone no where

This chart speaks for itself
Median Income
Mortgage Purchase Applications
Fed Balance sheet.

Debt to Income is still to high

Homes are inflated way past a safe price for the average home buyer. Even those of us that have absolutely no debt are out of the game. If a person was intelligent enough to go through college on scholarship, practical enough to buy a reliable used car while in college and never trade up, savvy enough to not buy on credit unless it could be immediately paid back, not suckered into a mortgage during the inflated price era and stoic enough to save by not spending on impulse purchases while living in a tiny low rent place, then chances are that person is not going to buy a home four times their yearly income. This is clearly a group not easily suckered. So, basically you can count the people who are not in debt out of this game too.

Without better incomes the debt instrument of a home can't be bought in the fashion the most aggressive housing bulls would like

The fools with money are going to run out. Then what? Prices are going to have to come off of their high. A recovery would mean the market goes down to a historical norm that follows inflation and incomes. At present, it is nowhere near that. A step in the right direction would be to stop calling million dollar homes starter homes and fixer-uppers, and stop calling risky inflated prices a recovery. I've actually seen listings for $900,000 listed by the agent as cozy little starter homes. We have a dysfunctional market that is akin to being on PCP or meth and we are calling it recovered? It's high, dysfunctional, delusional and risky. What the market needs is some sobering up, but as long as the dealers\real estate agents run the streets, and the drug lords/banks hold the power, there is no hope for a recovery unless the people JUST SAY NO! We don't have to play the game. We can opt out. No one is holding a gun to our heads to buy.

Re leveraging of debt impossible with this economic cycle

But what is a fair solution?

Let the damn thing collapse.

hrhjuliet says

But what is a fair solution?

There is nothing fair about economics, just the mathematical truth of it all.

Globalization
Technology
Debt
Demographics

All will limit capacity growth this century for the United States and without a financial bubble creating fake demand for fake good paying jobs then we show our nature as an economy that can grow only at 2-3% at best case

Call it Crazy says

Not unless Wells Fargo is successful with unloading it's new sub-prime mortgages on the FED and other lenders bring back NINJA's, ARMs and other exotic loans....

What ever it takes to keep the bubble inflated!!

That story is a bit over blow, Wells is just reducing fico score limits. Non QM loans will be made in this cycle, but the
2/28
3/27
SIVA
SS
100% loans
will never come back and be given to more unqualified home buyers
Those days are over.... Thankfully

Gentlemen all I can tell you that the financial media hasn't yet is that the reality of economics is hitting the housing market and if it wasn't for the 30% plus cash buyer in the market place then things will would much softer.

Kind of what I saw coming this year
My interview on Bloomberg Financial on 2014 Housing Predictions

http://loganmohtashami.com/2014/01/01/my-interview-with-bloomberg-financial-on-my-2014-housing-predictions/

We need to progress as a society, not digress. Murder rates are all just numbers, just mathematical truths, but it deals with humans, so naturally we want solutions, the goal is a better situation. I hear the it's just numbers battle cry often enough, it's not just numbers; the numerals are representations of things that effect safety, health, and emotions. I was a science major, and you quickly learn that the only time numbers are just abstract numerals are when you are learning math. Numbers are usually useless to us unless they address human needs, understanding or they create something useful. I learned many formulas, but they matter when applied, and hopefully they are applied for the health of the planet and the people living in it. How do we get our economy back to a stable situation that fosters a thriving middle class and economic mobility? Without answers or goals the statistics are as you say just simply the "mathematical truth of it all." Well, if the goal of economics isn't fairness, health, safety and sustainablity, than yes, its just mathematical truth and completely useless to us.

Logan Mohtashami says

Gentlemen all I can tell you that the financial media hasn't yet is that the reality of economics is hitting the housing market and if it wasn't for the 30% plus cash buyer in the market place then things will would much softer.

So once those all cash buyers have bought all they can what will happen to the housing market? The houses purchased all cash aren't coming back to the market unless prices go up even more OR any losses can be recovered in other ways.

That's a good chunk of the housing market tied up for a very long time.

Basically, I respect your numbers and your intelligent contributions, so therefore I am honestly interested in your opinion on solutions and what the long term outlook is. By the way, I am not a gentleman. ;-)

New Renter says

So once those all cash buyers have bought all they can what will happen to the housing market? The houses purchased all cash aren't coming back to the market unless prices go up even more OR any losses can be recovered in other ways.

That's a good chunk of the housing market tied up for a very long time.

Looking at the Data.

Historically, it's about 7-12% of the market place cash buyers
Right now for years now it's been above 30%

So, in reality you're looking at a 20% drop off if they go back to the historical norm and lets just give a bullish estimate that 5% mortgage buyers come back in their place ( I don't believe in that case) but for conversation lets just say that.. then you're looking at 15% decline in total sales for existing home sale numbers

New home sales are a different beast because it's 1/10th of the entire market place and it's tilted already to the wealthy buyers so my assumptions would be more for the existing home sale numbers.

However, a 20% drop off in cash buyers wouldn't be likely in a year, maybe 2 years from now with this level

hrhjuliet says

By the way, I am not a gentleman. ;-)

my apologies my lady.
In terms of economics, I recently gave an interview on the American economic cycle and it goes deep into my economic beliefs. Below is a link to the interview, it's about 20 mins

http://loganmohtashami.com/2014/02/03/my-interview-with-david-lykken-on-american-economics/

Your prediction for the housing market seems reasonable. Good insight. I will read your economic interview now. Thank you. :-)

Call it Crazy says

You're saying "softer"... Do you mean in total sales or in prices??

In your article you wrote, you predict higher prices this year. (Is that nationwide or just CA??)

If the economic conditions are heading south, and less buyers are showing up, and cash investors might slow down,how do we get to higher prices??

1. Softer sales, I wish home prices would go down because it's a total disconnect from the economic realities here in the U.S.
However, inventory levels are so low that prices have the advantage to go higher in this low inventory cycle.
There is going to be enough cash buyers and mortgage buyer to keep the prices higher. Until we get 6 months of on sale inventory then the market is in a low inventory cycle. It's also based nationally. If any market had a the potential for prices declines it's the new home sale market place where prices have ramped up higher that the peak of the bubble

2. In regard to the economic cycle this years. I wasn't one that believed we could grow at 3% this year because carry over consumption numbers didn't look great. However, an economy growing at 2-2.5% with 150-200K jobs a month will be enough to keep prices rising because inventory again is too low.

I call home prices rising the housing bubble hangover impact, in a sense the housing bubble is still with us creating this low inventory cycle and created a rise in prices once again that doesn't warrant merit

I wrote about this last year in February = Housing Inventory Hangover Will Continue In 2013

http://loganmohtashami.com/2013/02/27/housing-inventory-hangover-will-continue-in-2013/

Logan,

I always enjoy reading your posts. If you believe the cash buyers will decrease in two years, do you think this is when prices to will start to fall or do you feel prices will begin to fall before then? If prices did fall, how much do you expect prices to fall, in what period of time and under what conditions specifically in Orange County.

Seeing how we there are few buyers and we have seen prices flatten out in orange county over the past half a year under very tight inventory, would you expect even changes in inventory to cause any price fluctuations?

Thanks and appreciate your opinions.

Miike says

Seeing how we there are few buyers and we have seen prices flatten out in orange county over the past half a year under very tight inventory, would you expect even changes in inventory to cause any price fluctuations?

I was hoping Orange County prices would decline going into the Selling season but the model to model matches that I saw that were selling lower in late 2013 are now coming back to par to what I saw in early 2013.

Inventory is so low here and I use Orange County CA as the best place to show the massive disconnect in home prices to reality.

I almost chocked looking at a similar model of my home going to $550,000 now on listing. 2012 my home could have gone for $400 -$425K and I was thinking it will stay around 500K like it did in 2013 but a similar model is going for $555K, I can't explain enough to you how crazy that it for a 2 bedroom condo 1330 Sq feet in Irvine CA

Now in terms of a real drop in home prices you would need a job loss recession going from this point. The tight inventory and low 10 year yield with ZIRP Zero Interest Rate policy in play just keeps the rise of financial assets going

This is what the Fed wanted and it got it's stock market and home price increase.

It will be very interesting to see what happens this selling season. If Mortgage purchase applications come in weak again this week I will have enough date to write another article about apps.

However, in regard to price declines, until we get a job loss recession prices can stay here and go higher, some areas will see some declines but I do understand what you're asking about.. it must be frustrating to see the market go higher and not believe it's worth it.. I hear ya on that

anonymous says

Do you two know each other?

I am bad with names better with faces. The economic conferences I attended last year was the UCLA Anderson Forecast conference and the University of Chicago Booth Housing Conference in Los Angeles. I don't believe he was attending those. The other conferences I went to were more on the Commercial outlook for housing.

There has been many people that use what I call the 4 Horsemen of the American Economic Cycle ... G.T.D.D. in short for Globalization, Technology, Debt and Demographics. I post daily economic charts on my facebook page and over 10,000 charts that will lead to the conclusion that after 1968 a lot things of changed for American Economics and I am big demographic guy.. Malthus was right, but he needed an global economic environment for his thesis to have more merit

If anyone of you are interested, here is my facebook page it's all about economic charts all day and historical photos at night

https://www.facebook.com/Logan.Mohtashami

dodgerfanjohn says

Let the damn thing collapse.

What can I do to help?

Homebuilders haven't built many homes recently (chart)

http://smaulgld.com/why-the-housing-recovery-is-a-farce-illustrated-by-two-charts/

and maybe they are building too many:

http://smaulgld.com/increase-in-new-home-starts-and-new-home-permits-a-false-signal/

Time is running out... reflation of debt needs income growth... we aren't seeing it and median incomes are about 40K away where they should be. I don't believe we can make up the gap

Logan Mohtashami says

Time is running out... reflation of debt needs income growth... we aren't seeing it and median incomes are about 40K away where they should be. I don't believe we can make up the gap

It's a sign of recovery!

smaulgld says

It's a sign of recovery!

I did express our concerns about this so called recovery in housing to her last year

She listens to Kolko who believed in the recovery and millennial household formation. I am glad you set her straight!

smaulgld says

She listens to Kolko who believed in the recovery and millennial household formation. I am glad you set her straight!

I believe Mark Hanson gives her a lot information to balance out Jed's view. In time I will have my T.V. shot on CNBC and hopefully I will have a housing bull to debate so we can outline the point by point cast that this recovery doesn't look like a recovery at this stage of the cycle

Inman News stopped publishing my stuff when I sent this in:

http://smaulgld.com/the-false-housing-recovery-of-2013-and-how-it-unraveled/

of course they didn't like this either

http://smaulgld.com/why-the-housing-recovery-is-a-farce-illustrated-by-two-charts/

smaulgld says

Inman News

SMH

SMH?

Inman new

S =Shaking
M= My
H= head

I don't believe I have read anything from that site

lol

APOCALYPSEFUCKisShostikovitch says

even brain damaged

Consequences of an unstable market.

2011 Housing Predictions

The longer term consequences of an unstable residential real estate market may be more serious than just the destruction of individual wealth. The ideal of middle class home ownership may be at stake. The census bureau reported a 7% decline in national rental vacancy rates in 2010, along with an overall decline 0.7% in home ownership rates compared to a year ago. There were fewer “organic” buyers, more renters and more investment buyers in the market in 2010 and I expect this trend to continue into 2011. Are we at the beginning of a sociological movement away from middle class homeownership and towards a cultural split between the investment property landlords and their renters both of whom may have less personal investment in neighborhood security, local schools and shared public facilities compared to primary homeowners?

Read more: http://www.businessinsider.com/the-future-aint-what-it-used-to-be-predictions-for-the-2011-real-estate-market-2010-12#ixzz2tjEQrJXA

anonymous says

Logan - I asked about the four factors you cited in an earlier reply to another reader, due to the uncanny similarity between what you said and what Professor Gordon said.

I found his paper, yes, we do sound a like in many ways. I took a look at his economic charts as well

We are all paying the price for the expansion of human population that started in 1920's.

-Too many people around the world and not enough jobs for them

-Technology advances while make us more productive has destroyed a portion of manual labor and will do so in the future

- Demographics, by 2024-2027 all government revenue will not be able to cover mandatory payouts and that trend will get worse

- Globalization has been damming for wage growth among other things.

I gave an interview just on this economic thesis a few weeks ago

http://loganmohtashami.com/2014/02/03/my-interview-with-david-lykken-on-american-economics

APOCALYPSEFUCKisShostikovitch says

guy pulling out his citations

I have something that might be up your alley

This was my interview on Bloomberg Financial last year when they asked me to counter the thesis that Ben Bernanke made that his QE velocity was poor because of tight lending standards.... and my thesis was that.. there is no tight lending in America, we simply don't make enough money as
DTI is too high
LTI is too high
& liquid assets are too light

http://loganmohtashami.com/2013/03/27/will-be-on-bloomberg-financial-talking-about-bernankes-myth-on-tight-lending-standards-the-real-housing-story/

"Home builder confidence" Are you referring to that which makes someone build a neighborhood of houses RIGHT NEXT TO EACH OTHER on a square quarter mile, in the middle of the desert with miles of nothing but tumbleweeds around and 90 miles commute to Los Angeles? Yeah, that kind of confidence needed to be lost.

Logan Mohtashami says

I post daily economic charts on my facebook page

Logan,

I follow you on twitter and facebook. I see your charts all the time but to be honest, I do not understand many of them. If you wouldnt mind explaining some of your more complicated charts, I would really appreciate it. Eventually over time I figure I will learn enough where I will not need an explanation. I know for you and many others here, these charts are obvious... but for someone like me with limited knowledge in this subject, it would help a lot..

THanks again and id love to see you contribute more to this website as well as oc housing...

Logan,

In another housing blog, someone wrote about the increasing service costs and the costs of deferred maintenance being a reason lenders may begin to foreclose on more homes. What are your thoughts on this?

Miike says

Logan,

In another housing blog, someone wrote about the increasing service costs and the costs of deferred maintenance being a reason lenders may begin to foreclose on more homes. What are your thoughts on this?

In regard to foreclosures and timeline. There is a big difference between judicial states and non judicial states. Some states take up to 3 years to foreclosure a home and some non judicial states just take a few months. A lot things changed after the robo signing settlement and the California Homeowners acts in regard to timing of foreclosures. In terms of increasing cost, everything cost more to make sure the T's are crossed and i's are dotted.

I definitely think this thread has the most reasonable and useful information on the subject.