patrick.net

The government may be corrupt, but they're not stupid. They have been smart enough to set up a system to where nothing they're involved with can crash.

When you need some extra money, just add a few extra zeroes to your bank balance. It's really that simple.

exfatguy says

few extra zeroes to your bank

http://www.businessinsider.com/jpmorgans-q2-complete-guide-to-markets-2014-4#jp-morgan-funds-q2-guide-to-the-markets-42

They can just "re-normalize" those numbers such that the 22% number goes back to 5%.

When you have a credit card with no limit and no penalty for never paying it back, you can charge forever.

Logan Mohtashami says

When I speak to economist this is what I say

Since April of 2012 home prices have gone up 15%-45% depending on where you live. Now in a good economy where incomes are rising and more people are working better pay jobs that would still be considered to be a high % increase

However, in this cycle, you have a lot jobs recovered low wage paying jobs, you have a parabolic chart on student loan debt, record amount of cash buyers, record low interest rates for a long period of time, and a housing bubble hangover on the inventory side rising prices way beyond the reality of this economic cycle.

"Blank Look or Blank Answers" their model is broken, they believe since demographic trends favorite housing that it assumes people will buy... well that didn't happen

Exactly.

The housing market is like beanie babies, in that everyone thinks they're rare and snaps them up at any price so as not to miss out on something that's sure to skyrocket in value as time goes on.

The only difference is that this time they're right.

Mandy Lifeboats says

Walking Dead! She's turned hardcore.

I had to use this against Joe from BusinessInsider because he always claims that unemployment claims and the stock market are a great correlation and today Claims got to it's best level in this cycle and the market tanked even with the dovish comments from the Fed yesterday. However, that is a different discussion than housing

Could it be something has changed that we have yet to understand?

hanera says

Could it be something has changed that we have yet to understand?

In regard to what?

In regards to increase in house prices. Could be sustainable. We just don't know the fundamental reasons.

hanera says

In regards to increase in house prices. Could be sustainable. We just don't know the fundamental reasons.

List of reasons why home prices are rising

- Economic cycle turned, jobs were being created and thus home buying cycle turned

- Interest rates got very below 5% since early 2011 and have stayed there

- Due to the fact that the FED has had ZIRP for so long and rates have been low for so low we have had a higher than normal cash buyer level in recent years 20-25% above normal trend. So that has helped the market in terms of demand

However, the biggest key is that inventory got so well below 6 months that the pricing power changes for the positive side and thus began the pricing cycle higher. Supply and demand, low inventory = prices are going to rise

but... 15%-45% is very unrealistic in 2 years where wage growth is running at 2% really. However, low inventory cash buyers and low rates will help demand and in a low inventory cycle give pricing power.

Plus we have to remember that we have millions of homes still delinquent and in distress more than twice as many as on sale inventory now. So with more conventional sales it just makes price cycle stronger even though there are millions of homes in trouble.

In certain states it takes 1000 days to foreclosure on a home.

Due to Demographics and the Great Recession Half the U.S. is getting some kind of government assistance

The Housing Nirvana Queen just cried Uncle this morning

Nick Timiraos @NickTimiraos
Zelman existing home sales forecasts: 2014 at 4.8M (vs earlier 5.4M); 2015 at at 4.9M (vs 5.7M); 2016 at 5.0M (vs 5.9M). 2013 was 5.09M.

Nick Timiraos @NickTimiraos
Ivy Zelman slashes existing home sales forecast: now -5% for 2014, vs earlier +6% forecast. New home sales forecasts unchanged.

Cancy Crush Four Horseman

we've gone from everybody being able to buy a house to nobody being able to buy a house to actually needing a job and a down payment to buy one.

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

oh shit, are we still trying to convince people to not buy? did I not get the memo?

You don't need to convince people not to buy. Some of us have enough sense to know a seller's market when we see one. I buy when it makes sense, not during a trendy and manipulated market. I don't take foolish risks because everyone else is doing it. Maybe that's why we are doing so well?

the smart buyers are waiting for the real crash. Not like those foolish risky people two years ago, but the REAL crash where the only things worth anything are Gold and ammo.

toothfairy says

oh shit, are we still trying to convince people to not buy? did I not get the memo?

The problem with that thesis is that this is what I do for a living so trying to persuade a national public to not buy wouldn't benefit me personally nor do I carry an economic narcism theory that any data point can change the eventual outcome of a single household to buy a home.

With that said. Housing is the cost of shelter to your own capacity to own the debt.

So is the question, 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 aggressively not for this year which is a -6% in sales compared to up 5% but all the way out to 2016

Zelman existing home sales forecasts:

2014 at 4.8M (vs earlier 5.4M);

2015 at at 4.9M (vs 5.7M);

2016 at 5.0M (vs 5.9M).

2013 was 5.09M.

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...