patrick.net

toothfairy says

you should probably at least plot it on a log chart unless you're intentionally trying to distort things.

but you didn't answer my other question.

Logan Mohtashami says

why did the most bullish housing market analyst who just recently said on National Television that "Housing Nirvana" is around the corner just cut her numbers

So you're saying she was wrong before but now she's right? Sorry, I have no idea who Ivy Zelman is.

toothfairy says

you should probably at least plot it on a log chart unless you're intentionally trying to distort things.

Here is a shorter duration time frame to bring the scale down. Mind that I am a big believer that we shouldn't reference peak bubble economic numbers as a mean to reverting back to a normal cycle.

Just taking a log scale of the 10 year, we have done everything to make the actual cost of debt cheap, and effective tax rates haven't been any lower than what it is now for middle class

So why is carry cover demand hard for housing. soft For me at least we simply don't have enough qualified home buyers because
- Incomes are too low
-wage growth too low
-Liquid asset availability to light
-DTI and LTI metrics still too high

While the size of the economy is growing there has been a big price to pay as majority of the wealth gains are financial assets at the expense of incomes.
-Globalization
-Technology
-Debt
-Demographics
Have their hand to play in this party

Logan Mohtashami says

Here is a shorter duration time frame to bring the scale down

That doesn't help. You need a longer time frame and a log scale.

If you think incomes are too low I would look at *historical* price to rent ratios and see what people are currently paying in rent.

toothfairy says

If you think incomes are too low I would look at price to rent ratios and see what people are currently paying in rent.

I don't need that information to make the assumption that wages are low compared to productivity as Median incomes would be $93K and min wage would be $23.70 which both are far from.

Mind that I don't subscribe to the economy theory that wages need to keep pace with productivity. However, lets look at some data points there.

Plus, feel free to show any economic data chart point that you believe would be mindful in this conversation

There is a reason why in the 4th quarter of 2013 the saving rate collapsed and Americans re-leveraged back on debt again. Simply wage growth isn't strong enough. Also, majority of the jobs recovered have gone to people 50 and over and have been in the low wage service sector

I can't go through the onslaught of charts sorry bro. You're all over the place. Comparing a nominal house price index to real incomes. Log/linear reduced time scales.

you'll slip it by most people for sure.

toothfairy says

Log/linear reduced time scales.

you'll slip it by most people for sure.

If you believe I am slipping a fools theory on people, then I subjectively ask this question
Why are home sales going to be negative year over year in a year where inventory is up and interest rates are 4.5%

In mathematical theory if incomes are good enough with interest rates this low you should have booming demand, not only for housing but the economy should be running 3.5% plus trend with these low interest rates and ZIRP
Zero interest rate policy in year 6 of this economic cycle

See the flaw in a lot economic theory, which led Ivy Zelman to slash home sale numbers was that the economic housing bulls thought housing inflation could rise on both ( Rates and Prices) and demand will stay strong .

The flaw with that economic theory was that we never had the financial good to promote a strong primary resident home buyer market in the first place

In a normal market

90% Mortgage buyers
40% of that would be first time
10% Cash

Now, even in year 6

67-70% mortgage buyers
27-30% first time home buyers
30% plus cash buyers ( 35%) in the last month

If incomes are strong you wouldn't see these numbers which have been here since 2011 and mind that rates have been under 5% since early 2011

The simple economic truth was Americans don't make enough money or have enough liquid asset to own housing like they have had in the past. Every single economic data point shows this for years.

Finally, the biggest housing bull who stated " Housing Nirvana was around the corner" Just last Friday threw in the towel.

Math... it's priceless because it can't be spun unless you have some type of financial bubble to spin it

If Incomes were strong enough you wouldn't see this kind of year over year demand destruction in EHS

Mind that 30-35% are even cash buyers in 2014, so even the cash cushion couldn't keep sales even flat for 2014.

Mortgage purchase applications down 14% year over year 19% year over year on the 4 week moving average. If rates were at 8-10% that is one thing but 4.5% interest rates cause this much drama for home sales.

So the question is, why are home sales going to be negative year over year in an environment where 8 million plus jobs have been recaptured, interest rates are at 4.5% and inventory is up. All this with the cushion of 30-35% cash buyers in the market place as well.

Answer at least on my part is
- debt to income ratios too high
- liability to income too high
- liquid assets too light

A big deference between filling out a rental application and getting a mortgage.

here's a chart for you

toothfairy says

here's a chart for you

That chart is exactly my point! Thank you for that

There is no real growth in incomes. Doug and I see some things a like hence the chart you used is from Doug Short himself which I contribute to his blog. We both believe the poor wage growth in this country has kept things at bay from strong expansion

DTI & LTI metrics with cost really is the telling story.

Here's a further back chart of real median income/ you can see how it normally behaves after a recession. (not a long scale but I'm looking at the direction not the magnitude).

So you're right real income growth hasn't recovered yet.

That's basically the rest of the context for your chart that shows median incomes dropping off a cliff.

toothfairy says

That's basically the rest of the context for your chart that shows median incomes dropping off a cliff

This is exactly my point again. We work good as team here.
Adjusting it to inflation you can see why so many Americans have a problem with consumption.

You can see why Americans barring the top level income bracket are struggling so much. After tax/ inflation adjusted/expensive incomes isn't that strong and why household formation hasn't taken off like some demographic economic theorist have been calling for.

Now they will be leaving mommy and daddy's home, but they will be natural renters not buyers. Hence if you look the demographics pool age 20-34. This sector has legs and most likely will be renters.

The builders know this hence why the very strong expansion of multifamily units

So we have already gotten to the reflation of leveraged debt play with saving rates falling and we haven't gotten a recovery on real income growth.

This explains why certain parts of the U.S. have seen 10-25% YOY declines in home sales while inventory has gotten a lot larger.

Even the NAR the mother of all housing cheerleaders have said home prices rose too fast impacting demand.

However, the final nail in the coffin was when Ivy Zelman just brutally slashed home sale numbers all the way to 2016. Why?

It's not because interest rates are near 8-10% it's because
Housing has become less affordable to the masses to the point
Where YOY numbers are going to be negative.
In fact if you follow her trend not only we are going to have a negative year compared to 2013 this year but next year as well.
So, I am glad Ivy has finally gotten this because it's very telling when you have such drastic YOY demand hits when sale volumes are low with interest rates

It's a trend to where home prices don't correlate at all to incomes, meaning a nation of renters going forward paying their rent to Wall Street and China.

This means home prices are going to become unbounded.

Kim says

Logan, do you think some day housing price will go down again - I know it will not be like 2009-2011. Price is unrealistic now, not make sense at all compare with income.

You need inventory to go higher for prices to go down. 6 months is just a a balance market and we aren't there yet.

Also, we are back to a normal housing cycle ( In The Sense) to where prices will really be impacted to the down side on a job loss recession cycle. The people who are buying homes today all have the capacity to own the debt so they would need a economic event to force them to sell their home.

Also, we have more conventional sales now that distress so this gives prices more upside even though we still have 4 million homes in delinquency and foreclosure process combined.

The one item we are seeing in the market place is that some sellers are getting greedy with their selling prices and those homes just don't move but the ones who price it right is acting much better.

Kim says

Price is unrealistic now, not make sense at all compare with income.

All you see is Chindians @ the open houses nowadays. Cash flows at this moment. Not sure how long will that last. My assumption is, a surge in inventory is the only solution to put a brake on these cash only deals, but that surge can only happen if foreclosure machine starts running in full gear.

The units a few yards down from my place have already seen difficulty. I beleive there are 12. First sold immediately to Chindian family at full list...$499k. Then none so price reduction to $479k. One sold to white guy who I assume just got a real job as no trust fund baby is living there and dude also has a brand new Porsche. Maybe a doctor who finally got a full time job or something.

None have sold since and I've witnessed two people check out units walking away and shaking their heads.

What happens if there's still minimal inventory, but absolutely zero buyers at current prices?

dodgerfanjohn says

What happens if there's still minimal inventory, but absolutely zero buyers at current prices?

With such a shortage of listings, there will always be an impateint buyer who wants a home at any price.

Inventory nationally up 7%, bottom of the cycle was Jan 2013

This speak volumes, on the capacity to own, in year 6 of this cycle. Simply put, we don't have the economic firepower to promote a strong housing recovery where primary resident buyers are back to even normal % metrics.

First recovery since WWII where household median real income hasn't recovery. So, it should surprise people why sales are negative this year and forecast are being slashed

dodgerfanjohn says

What happens if there's still minimal inventory, but absolutely zero buyers at current prices?

You get 0 sales. Wait for it...

Certain markets, Phoenix, Las Vegas, Sacramento, Southern California are seeing 10-25% decline in YOY sales number with inventory up

Welcome back duckman. Let's get a grip on Phoenix. One of Roberto's last acts was to call a "lull" in the Phoenix market. He saw the inventory build, which still looks to be going strong. Median/ sq.ft. will bet interesting to look at in a month (ever the optimist, you resorted to list prices).

Jesus! Where in the hell did you go, this place was falling apart.
Stalin and Dan got in a fist fight, Jojo found religion, and Home Boy went home.

Ouch!

Whats up with the sinusoidal noise in the apparel line? Is that spring/fall buying frenzies?

New Renter says

Whats up with the sinusoidal noise in the apparel line? Is that spring/fall buying frenzies?

That line is all about deflation since 2000 but seasonal factors make noise to your point

DataQuick on SoCal: March Home Sales down 14% Year-over-year, Conventional (Equity) Sales increase

http://www.dqnews.com/Articles/2014/News/California/Southern-CA/RRSCA140415.aspx

hanhvu02 says

so, no way to buy the house in SCal now. Extremly expensive.

should wait in next couple years, right Logan ?

I thought they were bloody expensive in 2009-11. Apparantly there were enough people with cash who thought differently and still do.

hanhvu02 says

so, no way to buy the house in SCal now. Extremly expensive.

should wait in next couple years, right Logan ?

That's always a personal choice. Housing is the cost of shelter to your own capacity to own the debt. So you're buying a payment PITI not just a home. The variable factors in that equation can only be answered by one self and their own economics.

Logan Mohtashami says

hanhvu02 says

so, no way to buy the house in SCal now. Extremly expensive.

should wait in next couple years, right Logan ?

That's always a personal choice. Housing is the cost of shelter to your own capacity to own the debt. So you're buying a payment PITI not just a home. The variable factors in that equation can only be answered by one self and their own economics.

Yes, but he is asking your opinion as to whether prices will be lower then versus now. Put another way, assuming he can afford that 500K house now, should he take the plunge, or wait in the hopes it drops down to 485K...475K... etc?

So what do you think? Do you think all this pound the table bearishness on sales, inventory, demographics, the crappy economy, etc, etc, will move the needle when it comes to the number one factor for your average joe homebuyer here which is nominal prices?

hanhvu02 says

so, no way to buy the house in SCal now. Extremly expensive.

should wait in next couple years, right Logan ?

Unless you win a lotto. I am waiting to win one. :)

New Renter says

I thought they were bloody expensive in 2009-11. Apparantly there were enough people with cash who thought differently and still do.

Tell me about it. I am simply amazed by people coming up with money to acquire the prized properties. They sell fast like donuts, but the low end/shitty ones are taking more time to sell.

CDon says

So what do you think? Do you think all this pound the table bearishness on sales, inventory, demographics, the crappy economy, etc, etc, will move the needle when it comes to the number one factor for your average joe homebuyer here which is nominal prices?

If inventory stays this low, with high levels of cash buyers and low rates. It won't move the needle in terms of prices

If someone is looking for a 25-30% price decline to prices to get in, most likely you need to see a job loss recession at this point because the Americans who bought homes in this cycle have the capacity to own the debt in scale.

That would be the sure way on getting distressed sales back to the market places ( Outside the 4 millions home that are still in distress from the housing bubble)

Good question though!

hanhvu02 says

what do you guys think ?

See that question has to really be answer from you.
You're buying a payment, so you need to do the cost analysis of living in a condo or buying another home.
- What are you doing with the Condo?
- Is the total PITI payments ok with you for this new home
- How does your retirement schedule look like

A lot variable financial questions with this with your age

New Renter says

I thought they were bloody expensive in 2009-11. Apparantly there were enough people with cash who thought differently and still do.

That was what I thought, too. Seems like I was wrong on one level and right on another. Maybe they weren't expensive relative to the market, just too expensive for what I wanted to pay for a house. I am not 100% about where that leaves me now.

bg says

just too expensive for what I wanted to pay for a house.

really need to calibrate this to what rents are going to do.

I had my eye on this house:

http://www.zillow.com/homedetails/2117-W-San-Jose-Ave-Fresno-CA-93711/18707515_zpid/

when it hit the market in 2009. I thought $375,000 was a bit high, but with this:

http://research.stlouisfed.org/fred2/graph/?g=xr8

from Uncle Bennie, a 3.5% interest rate on a $300,000 principal is a $600/mo cost of money (net tax deduction), and that goes to $0 as the principal is repaid.

This is a place I'd happily rent for $2000, so there you are.

Firing up my rent-vs-buy spreadsheet, it says this has an average TCO of ~$900/mo over the next 30 years. A steal at $375,000, kudos to the guy who picked it up as the world was ending 1Q09.

It's really one of the nicest houses in Fresno. I know, I know, but I even like it more than my bud in Santa Cruz's $1.X million place. Good (almost prime) location, awesome 0.4 acre culdesac lot, pretty sweet architecture.

New Renter says

hanhvu02 says

so, no way to buy the house in SCal now. Extremly expensive.

should wait in next couple years, right Logan ?

I thought they were bloody expensive in 2009-11. Apparantly there were enough people with cash who thought differently and still do.

I'm not sure what you guys were looking at. I was doing extensive research in 2009, and the data clearly revealed that home prices were cheapest ever to own compared to rent. Also, the data indicated that monthly mortgage payments relative to income was at historical low when you factored in the low interest rates. The housing market capitulated in late 2008 when Lehman Brothers collapsed. The writing was on the wall that it was an opportunity once in a lifetime. Of course, some argued against the market. 5 years later and they are still arguing and blaming others for their missing the boat.

On the bright side, some individuals capitalized on this opportunity and made a fortune. Some became multi-millionaires in a few short years and never have to work ever again. How does it feel to kiss that W-2 job good bye forever? Wake up when you want. Go to bed when you want. Buy whatever you want and don't have to worry about the price tag. Everyday is a Saturday or a Sunday or any day you want it to be. It's unfortunate to see some people on Patnet still believe they are smarter than the market.

THE MARKET IS NEVER WRONG. DON'T ARGUE WITH IT OR YOU WILL GET MURDERED.

Apps soft down -18% on a 4 week moving average from last year and housing starts and permits soft as well.

Logan Mohtashami says

Apps soft down -18% on a 4 week moving average from last year and housing starts and permits soft as well.

That means buying activity is down across the board, whether you are looking for first time buyers, move up buyers, or investors. Prices will still hold though. I like your conclusion about prices going down only in case of a jobless recession cuz I don't see interest rates jacking up to 5%+ in near future.

bubblesitter says

That means buying activity is down across the board, whether you are looking for first time buyers, move up buyers, or investors. Prices will still hold though. I like your conclusion about prices going down only in case of a jobless recession cuz I don't see interest rates jacking up to 5%+ in near future.

There is your inventory problem, because it's keeping pricing power.
Now even though there isn't any growth in housing we are still looking at 4.8-5 million homes being sold this year. So, it's not that much of a drop off with this low of inventory to impact prices in a negative way for 2014.