patrick.net

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.

Logan Mohtashami says

So, it's not that much of a drop off with this low of inventory to impact prices in a negative way for 2014.

Let's come to the point. When do you think next recession cycle is gonna hit?

bubblesitter says

Let's come to the point. When do you think next recession cycle is gonna hit?

If I had to put a time frame. Look for economic numbers to get weak 12-18 months after the first rate hike. So, late 2016 early 2017 time frame.

If long term rates blew up higher that's another story.

However, the 10 year note is in a long channel hear at 2.47% -3.04%
So a break under 2.47% would mean activity is getting worse. However, I expect GDP to be 2.3-2.9% for the rest of year making 2014 be a 2.4%-2.7% year.
I was looking for a 2.4% year this year which is actually bearish compared to other forecast

Logan Mohtashami says

ook for economic numbers to get weak 12-18 months after the first rate hike.

What if there is no rate hike?

bubblesitter says

What if there is no rate hike?

If there is no rate hike, that would imply the job market got very soft and inflation never broke 2% on the CPI level for them. That is probably unlikely. However, for this question lets say they don't hike rates.

You're looking a 1.2%-2.5% GDP for a long time and if inventory levels got to 9 months, then you can see some pricing power come down.

However, this is unlikely, I see QE ending this year. Always thought it would end in the 2nd quarter of 2014, so I was wrong there it will be near the end of the year which would imply a rate hike late 2015

Logan Mohtashami ‏@LoganMohtashami
#Fed #Yellen #CNBC Fed can't solve this problem

Logan Mohtashami says

Logan Mohtashami ‏@LoganMohtashami

#Fed #Yellen #CNBC Fed can't solve this problem

Nikolai Dmitriyevich Kondratiev never saw it as a problem......Gonna be a long Winter!/p>

http://m.financialsense.com/contributors/christopher-quigley/kondratieff-waves-and-the-greater-depression-of-2013-2020

Call it Crazy says

Wow, you're just a bundle of good news today....

I am only bounded by the economic data. On a bright note CPI inflation numbers should hit 2% by the end of the year due to rent inflation

Call it Crazy says

media is when referring to the wonderful "housing recovery"

I am working on getting CNBC for a housing Interview... I won't show any mercy!

March figures are due, although it does not matter much for folks on this forum but most buying/selling activity is dictated by biased media and realtors!

bubblesitter says

March figures are due, although it does not matter much for folks on this forum but most buying/selling activity is dictated by biased media and realtors!

In all fairness, of course it is manipulated. This is a tough society to work and live in. They real estate agents and employers are protecting their livelihood. Lying, cheating and manipulation is considered good business. If we justify corporations using slave labor simply because we believe lower prices for the corporation justify the participation, then why should we hold real estate agents and the media to higher standards?

We have no more standards. For a citizenship so fearful of anarchy, we sure seem to embrace moral chaos.

Bubblesitter, you have too many scruples. If you want to make it in this society you need to use, abuse and destroy.

Another item we have to calculate for this century is that
-Globalization
-technology
-debt
-demographics
Will likely lower growth capacity for the U.S. even the Federal Reserve with their bullish outlook for growth is trending in 2%-2.5% growth model for the U.S.
The western countries are just maturing where the eastern countries have the fast growth model.
Looking longer term we will have a society that is getting older, didn't save enough enough for retirement and will cost more to take care of and this is looking out 20-50 years and the age group of 35-50 are lacking the funds to retirement and we can forget about the 35 and under crowd as they are much conservative with their cash than previous generations with the LTI metrics they live by

Logan Mohtashami says

Call it Crazy says

media is when referring to the wonderful "housing recovery"

I am working on getting CNBC for a housing Interview... I won't show any mercy!

Make sure you let us know the date and time.

hrhjuliet says

Make sure you let us know the date and time.

Will do! On that note, this lovely chart and article for all to ponder this weekend. Happy Easter to those who celebrate it

http://streettalklive.com/analysis/daily-x-change.html?id=2175

Even the most bullish housing bull has cut E.H. sales so bad that it shows no growth to 2016 http://loganmohtashami.com/2014/04/11/miss-housing-nirvana-crys-uncle/ …

Logan Mohtashami says

Even the most bullish housing bull has cut E.H. sales so bad that it shows no growth to 2016 http://loganmohtashami.com/2014/04/11/miss-housing-nirvana-crys-uncle/ … pic.twitter.com/U9cB8TXaZJ

Exactly.

Logan Mohtashami says

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

That's why I don't understand all of this pound the table bearishness. What's the point of being bearish if you know that prices are going up?

toothfairy says

That's why I don't understand all of this pound the table bearishness. What's the point of being bearish if you know that prices are going up?

There is a difference between economic theory and economic cycles and prices rising

See in a good economy people make money, more money and spend more.

In a bad economy people borrower more than their income capacity lets them to and that is how consumption is fed.

This is why the red flag was waived last quarter when for the first time really in this cycle we had a collapse of the saving rate and debt was re leveraged

Now in bigger economic theory what does this mean.
I had growth a 2.4% this year which was better than last year

I see Q2, Q3, Q4 of 2014 being 2.4-2.9% growth

So the question is, once this ultra low rate environment goes away.
Talking a 10 year note at 4.5% -5.5% and fed fund rate 4% higher.
What will the economy look like.

Now if Americans are having the worst time we have ever seen in a rebound economic cycle getting mortgage. The question would be can American afford homes at a much higher cost?

This is why it was relatively easy back in May of 2013 to write and article stating that " Forward Demand carry over consumption" should be main concern for the housing market not the theory that Housing has just started a boom cycle of year over year http://loganmohtashami.com/2013/05/07/housing-mammoth-stuck-in-tar-has-bigger-problems-to-worry-about/growth

See it was housing inflation ( PRICES rising) and rates together which turned the entire market around. Hence why the Housing tone index started to go negative in May.

So while prices are rising due to a inventory crisis created by the housing bubble, it has gotten to a point to where 4.5% interest rates are simply to high in this economic to promote growth in existing home sales.

Now the stock market is a different discussion all together which I love having. However, for this thread we stick to housing metrics and the correlation with this economic cycle

With that said you really need a job loss recession to create a massive down turn in home prices on a national level because these Americans who have bought homes can live in them unless some type of economic event happened to where they can't make the payments and the house will go into a distress sale. I can't see that happening until we see the first line of economic indicators start to fail and a lot will be show with unemployment claims which have no recessionary numbers in them

A lot economic models to show recession forecast, not seeing any at all showing declining negative growth while ZIRP is in play and 10 year level so low

That's a lot of data.. It will take the time to go through it all.

I did notice on your blog that you were bearish in 2012, really bearish in 2011,
and now you're bearish now.

Here's you in 2011 attacking people for calling a bottom.
http://loganmohtashami.com/2011/02/09/a-message-to-cnbc-after-30-of-homes-underwater-report/

Is it possible something is wrong with your charts...or?

toothfairy says

Is it possible something is wrong with your charts...or?

I believe we are looking at 2 different items in terms of housing

I think the price metric is what you real value

For me it's more on an economic model

I find that price rising like this to be very bad where I believe you find that to be the strongest factor in this housing cycle. Which is fine, I had 2013 and 2014 prices rise due to inventory models. However, we just see cycles different which makes a market place
Income, job profile recovery, credit debt trends, these are items I chart out daily, where pricing rising 15%-45% since April of 2012 is bullish for those who value asset inflation but for model economics it's just a bad thing.

So in 2013 and 2014 the forecast was the same in terms of direction

Prices up
Sales up
Starts up
Permits up

But in 2014 Big * on sales because after May the entire housing complex went in a negative direction, even new home sales were hit to a degree and that market is tilted to the more wealthy. So for sales you need a massive amount of cash buyer to make up the different for mortgage buyers because mortgage buyers weren't coming into the light after the rate rise

So, in pure economic demand sense where I come from. 2014 will have negative sales YOY because the cash buyers didn't rise to the occasion the mortgage buyers are coming in much lighter. However, even with that home prices are rising still.

So, this becomes the question I would ask to you

How is possible Toothfairy that exisiting home sales come in negative for 2014 with interest rates at 4.5% and invetory up so far 7% and looking like 10-12% increase?

Your answer to this is really why we see the housing market different.

If the market had more of a normal buying % 85%-90% mortgage buyers then some of the weakness can be tolerated. However, we are so far from normal level of % buying activity that the internals of housing were always soft ... but until May of 2013 we never had housing inflation rise on both fronts... once it did the true market showed itself and this why we are heading to a negative year in sales.

And once again, the biggest housing bull in American just threw in her towel recently and has cut existing home sale forecast to 2016 showing 0 growth in home sales from the 2013 level

So the difference on how we look at this is really how you answer this question.

Why are home sales going to be negative year over year?

toothfairy says

That's a lot of data.

I believe housing activity model on what we look at is also different

Here is what I would consider bullish

New home sales and starts up YOY because that means more economic activity in terms of construction jobs which I see as bullish

Also, existing home sales demand showing growth even if that means home prices go down

So, lets say sales come in at 5.6 million which was the forecast by a lot people but if prices came down with it, that would be bullish in my eye

Now, it's looking like sales will come down between 4.7 -4.95 million and home prices are up 4-9% depending of which price index you follow.

That to me isn't bullish at all that just shows me the housing inflation story is hitting the demand cycle which already has 30-35% cash buyers in that equation ( even though) total cash buyer volume is dropping.

Logan Mohtashami says

How is possible Toothfairy that exisiting home sales come in negative for 2014 with interest rates at 4.5% and invetory up so far 7% and looking like 10-12% increase?

Economic models are complex and if you leave out any one little detail, the entire forecast can be wrong.

I'm looking at an economic model too. I don't have blind allegiance to the Fed or anything but I tend to believe them when they say that rates will be rising, unemployment falling, and the economy improving. So that is my baseline.

How we get there is anybody's guess.
You seem to be worried about real incomes. Real incomes can rise with higher nominal incomes (which you seem to think is impossible due to labor trends) or through lower price inflation (but not necessarily deflation) which should happen as interest rates rise.

Answer to your question: bad year?
1 year does not make a new trend.

toothfairy says

Answer to your question: bad year?

1 year does not make a new trend.

The question was how is it possible to have a negative year over year number in home sales for 2014 when interest rates are at 4.5% with higher inventory levels.

If you believe in any economic model there has to be an explanation to this.

Now my interview on Bloomberg Financial for 2014 Housing Prediction gave my take http://loganmohtashami.com/2014/01/01/my-interview-with-bloomberg-financial-on-my-2014-housing-predictions/

and I give countless reason why demand is soft ... even going back to my Prediction of it in May of 2013

So if you believe in an economic model, then you have to at least have a theory of why home sales are going to be negative year over year even with low rates, ZIRP in play. The answer you give me on

"WHY"

is the most crucial part of the demand equation. See there is a million different ways to look at economics. However, there has to be a single method or discipline to show your economic model

I am by nature and
DTI
LTI
Liquid asset
Job recovered model profile
Interest rates
Inventory levels
% of cash buyers

For housing at least. Once we get into economics itself it scale gets larger and that is a discussion for another time

Many items I look at to seek my outlook on housing, so giving the answer

"why" comes down to my own economic theory

However, I know you have a theory on why home sales are going to be negative, I just want to hear what it is because we all learn from other people and the only information we can get is one given to us. I can't speculate on your thesis on why home sales are negative

I agree with you that the fundamentals in housing are still not healthy. But I wouldn't expect them to be with ZIRP and QE still in play.

Housing is cyclical so I'm looking at it from the perspective of where we are in the economic cycle. I don't see housing becoming decoupled from that.

Also housing (and the stock market) historically have led the economic recovery so it could be a little bit ahead of itself in terms of where the economy is at.
But that's a pretty fine level of granularity to try to time the market with.. Maybe for housing stocks but not the price of a home.
The overall trend is still up.

Logan Mohtashami says

The question was how is it possible to have a negative year over year number in home sales for 2014 when interest rates are at 4.5% with higher inventory levels.

Seems to make sense to me. Rates went up faster than incomes so sales are down. Inventory is up because fewer people are underwater, I guess?

toothfairy says

I agree with you that the fundamentals in housing are still not healthy. But I wouldn't expect them to be with ZIRP and QE still in play.

and why is ZIRP in play still, QE is ending by the end of the year. So that means the Fed believes the economy can get off it.

See, here is a simple model for me

If home prices are back to mid 2004 levels and median incomes aren't there is a simple example why home sales are going to be negative

Then we can go into the fact that 30-35% of the market is cash 20-25% above normal trends.

Interest rates have been below 5% since 2011 but now in year 6 of the cycle that is simply too high to promote growth in housing in 2014.

I can root the problems with the economy back to the massive population growth that started in 1920's

to break down my core it goes like this

Globalization
Technology
Debt
Demographics

All will lead to less capacity growth and very poor income growth for the masses while certain sectors and people generate most of the wealth. I say this being 100% a conservative Republican too.

That in a economy based by debt, there is limits to it if incomes can't grow, wage growth is soft, base salaries are light.

It's different for someone who has a fracking job, tech job, medical job. Income profile is good there. They have the ability to have a down payment and income to buy. It's just the masses don't have the capacity like they had in the past.

If mortgage buyers were 85-90% of the market place like they usually are I would have a different thesis. However, for years now they have been below 70% which 34 million people plus added to the U.S. population since 2000

On that note sir, I am off to Los Angeles, so I can't reply until tomorrow. However, a good conversation! Have a great weekend

What I'm saying is that the Fed is running the show here. If higher rates impact demand then rates will come down again until they "achieve their objective".

Fed transparency these days is overkill. Listen to the Janet Yellen speech if you haven't yet.

Yellen:
"While the housing market still has far to go, it seems to have turned a corner. "

http://www.marketwatch.com/story/text-of-janet-yellens-speech-2014-04-16?link=MW_latest_news

toothfairy says

Yellen:

"While the housing market still has far to go, it seems to have turned a corner. "

Honestly, The federal reserve forecast on a lot things I take with a grain of salt because none of them predicted the slowdown in housing because the metrics they use for affordability are very flawed and if they truly did their homework the one item they would bring up is that housing appears to be a market held up by 2 items

1. The rather high historical levels of cash buyers which has been here for years.

Higher end home market by wealthy income buyers

They should show concern on Mortgage purchases by first time home buyers are trending in a negative fashion with interest rates to low.

If you ever get a chance I would recommend watching this documentary called Money for Nothing. It is a historic loom at the Federal Reserve and financial bubbles. The best part is that many federal reserve member such as Janet Yellen get interviewed

Trailer http://moneyfornothingthemovie.org/trailer/

website http://moneyfornothingthemovie.org/

http://streettalklive.com/analysis/daily-x-change.html?id=2174

Some discussion on the purchase market from the Wall Street Journal and as always I am counter to their thesis on a tight lending standards

http://houseofdebt.org/2014/04/19/is-subprime-mortgage-credit-back.html