patrick.net

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

Forgot to mention the lower level of first time home buyers for 2014 . I worked with Bloomberg Financial and CNBC on discussion why the trend is lower this year

http://loganmohtashami.com/2014/03/05/first-time-home-buyer-whats-that/

A chart I believe in theory you like

A more defined one

Soft EHS sales again, no traction except in the million dollar home market