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toothfairy says

Do you think houses were affordable maybe 2 years ago? What do you make of the fact that as soon as prices became affordable the cash started rolling in and drove back up the price?

2012 was the lowest housing inflation point we have seen in this cycle and we will probably see in a while

What was the action back in 2012

- Low % of mortgage buyers
- Low % of first time home buyers, but better than what is today.
- Strong cash buyers, 30% plus with higher volumes for the year

In the lowest housing inflation point, you had a better first time home buyer profile but mortgage buyer % was weak. Total sales rose but it was a the cash buy that was very strong

I remember seeing in 2012 that the first time home buyer was seeing stress. They were qualifying for these homes but with rates at 3.25%-3.75% it was tough to get them in. However, they did but said to myself if rates and prices rise this market will be hit

Now 2012, was a huge drop in inventory, I had been expecting 8% YOY drop not 20% which allowed inventory levels to break to low point which we saw in December 2012/ Jan 2013 . With that back drop, cash buyers and low rates, the inflation story took off

toothfairy says

Do you think houses were affordable maybe 2 years ago? What do you make of the fact that as soon as prices became affordable the cash started rolling in and drove back up the price?

When I see those 2012 buyers now and where prices and rates are at. I would say roughly 40% of the buyers in 2012 wouldn't qualify or wouldn't buy the home as the total payment for the same home would be too high

It's not just a DTI or down payment factor it's also a LTI factor as well

We have not gained back the jobs lost since 2008.

The labor participation rate is low today. There are 92 million people out of the workforce, and 9 million+ officially unemployed=100 million not getting a mortgage.

The meager job additions have not even kept up with the population growth. In relative terms therefore, there is worse employment today than in 2008.

People usually pay mortgages with wages.

Houses did OK in Texas because Texas hasn't lost as many jobs as other states. They have 1. agricultural production 2. oil and gas production 3. high tech innovation 4. govt. defense equipment 5. NASA in Houston 6. oil refining 7. chemical production.

Notice I mentioned "production" often to emphasize where wealth comes from: production or innovation .

clambo says

We have not gained back the jobs lost since 2008

I love demographics charts, out of all the economic charts I have this set is always the best

5 main points with LP rates

1. Private sector jobs have recovery the numbers lost from the great recession

while the government jobs still has a negative handle

A lot state and local jobs has been destroyed as the fake revenue from the housing bubble set a lot state of local governments for massive failure
"assumption revenue calculation gone bad"

So adjusting to population ... this is a tad old on purpose we need something like this

Now here is where I think we have a false sense of actual jobs. Without a financial bubble component in the economy we simply don't have enough demand for jobs with our population. In hence we have create jobs out thin air to keep people employed to keep pace

So what is all the fuss about Labor Participation rates I mean for 30 years we knew this is coming and LP rates are going to fall

4 Reasons why 2000 was the peak of LP rates but the Great recession sped things up

1. Demographics - Easy many baby boomers retiring and many still working because they can't retire and yes you can have both in a cycle

2. Rise of disability. If anyone has seen this chart you can see why some people are out of the workforce.

3. People going back to school. Matching the parabolic rise in student loan debt, many Americans went back to school due to the great recession

4. People left the work force

So what does this mean.. we are *(&^ing old

-since-2000-25-64-and-65plus.gif' width="600" height="437">

Another problem with demographics.

We will have an older workforce for decades to come as each decade will have less people be able to retire, thus working longer.

What we have seen this cycle as the charts above show that the old are taking in the jobs and the young are paying for it.

This covers the subject nicely:

http://globaleconomicanalysis.blogspot.com/2014/05/labor-force-employment-and-population.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

indigenous says

This covers the subject nicely:

Yes the old are here and going to stay around for decades to come, the curve doesn't turn until 2057. This why Medicare and S.S. payouts are going to explode for 40 years

Logan Mohtashami says

This why Medicare and S.S. payouts are going to explode for 40 years

I don't see how the math can work?

Question that arises is that since funny money from investors is leaving housing market, are there any chances that money will flow into economy and help boost the economy?

bubblesitter says

Question that arises is that since funny money from investors is leaving housing market, are there any chances that money will flow into economy and help boost the economy?

The link and what Logan indicates is that we do not have a real recovery.

What is required is that the market clear. Once this happens and it will happen one way or another real prices will then be established on what people can really afford.

The FED is going to do everything it can to keep the economy floating until somehow the QEs stimulate real growth. Since we are in the 7th year of this I submit that it is not going to happen. And that demographics will be the final nail in the coffin for the FED.

indigenous says

I don't see how the math can work?

It's not going work, we have the accept the fact that we are going to be borrowing money for 40 straight. I run a lot budget numbers and because of demographics after year 2022 the light are out as by 2024-2027 all mandatory payouts will eat up government revenue even at a 3% GDP rate which means the rest is borrowed.

Logan Mohtashami says

after year 2022 the light are out as by 2024-2027

Not sure I understand correctly. 2022 is the beginning of Apocalypse or is it 2024? or is it something else?

Question now is will 2015 be a negative year in terms of sales from 2013 levels

bubblesitter says

Not sure I understand correctly. 2022 is the beginning of Apocalypse or is it 2024? or is it something else?

We will be borrowing money non stop, we have better debt profiles than Japan and England they have been broke much longer than us and they still borrower money at cheap rates.

Just for budget sense after 2022 the math makes it impossible have any yearly surplus so the debt on debt adds up from that point on

Logan Mohtashami says

It's not going work, we have the accept the fact that we are going to be borrowing money for 40 straight. I run a lot budget numbers and because of demographics after year 2022 the light are out as by 2024-2027 all mandatory payouts will eat up government revenue even at a 3% GDP rate which means the rest is borrowed.

From what I read it will be 2030. But I don't think borrowing is going to work as just the debt service is now at 300 billion if interest rates go up to historic norms that turns into a trillion right quick. At that point life as we know it changes. The FED is walking a fine line as if they keep the interest rates low run away inflation comes back.

One fear is that they will use war as a way out of this.

On the positive side the US is projected to have a population of 430 million people. This will improve the demographic numbers quite a bit.

When the apocalypse occurs the FED will be no longer be able to create inflation. At this point there will be a market clearing, so real growth can finally occur. Hopefully people will learn from this. And life will be better for all but the upper echelon.

Logan Mohtashami says

debt on debt adds up from that point on

What does that mean for middle class?

bubblesitter says

What does that mean for middle class?

Globalization
Technology
Debt
Demographics

All 4 will shrink the middle class and wage growth. A few sectors will do really well while the rest are struggling with a lack of wages

Logan Mohtashami says

A few sectors will do really well

Which begs the question?

indigenous says

Which begs the question?

-energy
-Medical
-finance ( some sectors)
- Pilots make good money actually
- Engineers

OK guys, that's is too much into future. I am keen on knowing when will the next recession hit? cuz until then there will be no increase in inventory. Another way to increase inventory is that, a shit load of high paying jobs hitting the market and people make huge gains, which is next to impossible and can be easily ruled out.

bubblesitter says

. I am keen on knowing when will the next recession hit?

From what I'm reading this year in the 2nd half, and again in 2017. The one this year is going to be mild and the one in 2017 will not be.

With the apocalypse coming in 2030.

Watch the bond prices especially the relation of 3mo to 10yr bonds

From SF Fed: Explaining the slowdown in existing home sales - http://www.frbsf.org/economic-research/publications/economic-letter/2014/may/existing-home-sales-slowdown/?utm_source=mailchimp&utm_medium=email&utm_campaign=economic-letter-2014-05-19 …

"Sales appear to be slowing even more in distressed markets, where real estate investors had bought up single-family homes to convert into rental properties following the housing bust. Evidence suggests that investors may be retreating from these markets as housing valuations rise."

bubblesitter says

housing valuations rise."

May 7, 2013
http://loganmohtashami.com/2013/05/07/housing-mammoth-stuck-in-tar-has-bigger-problems-to-worry-about/

Housing Mammoth Stuck in Tar Has Bigger Problems To Worry About

Logan Mohtashami, Benzinga Contributor
May 07, 2013 8:11 AM

A recent comment by the Chief economist of the NAR that housing is “stuck ” reflects his concern that the low inventory of homes for sale is holding sales and the housing recovery from gaining traction. But Mr. Yun is focusing on the near term problem facing housing, which is a shortage of on sale inventory, while failing to consider the real dangers lurking just beyond the present.
Perhaps Mr. Yun would do well to take a visit to La Brea Tar Pits, and there consider the plight of ancient Wooly Mammoths. Some of those were stuck in the mire too, but though the tar was a contributing cause, ultimately, what delivered their fatal blows? In some cases It took the Saber Tooth Tiger, and sometimes packs of Dire Wolves to do that, sometimes both at once.
So what of our housing market? Prices are on the upswing, in some markets demand outstrips supply to the point that multiple offers are not uncommon. If housing can “unstick“ itself with an increased inventory, then what could possibly go wrong? What are the saber tooth tiger, and dire wolves of housing?

They are these:
1. Housing Price Inflation without income growth: When prices of homes rise faster than incomes, buyers become priced out of the market. While home prices, year over year, are on the rise, average incomes are not keeping pace. This is not a good long-term trend. Cash buyers are currently 30% of the market, and cash buyers have no debt to income problems. These buyers are helping price some primary mortgage home buyers out of the market.

2. Demand light from first time buyers: Even with historically low-interest rates hovering in the 3.25- 3.75% range, we are hearing cries that mortgage lending is too tight, and that would be first time buyers are having trouble qualifying for a loan. Even in 2013, first time home buyers are running at a 30% level, lower than the historical norms of 40-43%. What happens when interest rates rise (as they inevitably will do) ? Unless we see good income growth, those that can’t qualify now will have a much harder time qualifying when mortgage rates are higher.

3. Mini-Bubble 2.0: The main reason home prices are rising at current pace is that on-sale inventory is so low. There continue to be problematic numbers of homes underwater, many Americans in the 90-99 LTV range, which means these homeowners will not be putting their homes into the for sale inventory. Further, there has been a big drop in home construction in the last 5 years. Though that number is getting better each year, we are not building homes fast enough to make a significant push into inventory. Finally, properties in distress take a long time to get to market and we have still have roughly 5 million homes that are either delinquent or in the foreclosure process. So long as these factors exist, then there remains the possibility that the few properties there are, are being inflated to unrealistic levels, and that mini bubble in prices will get bigger.
It would be wonderful if the good news being reported by many is actually good long-term news as well. But, in my view, the recent rise in home prices , without the corresponding increase in real incomes, and new home purchase mortgage applications being approved, then the truth seems to be more like the truth for our fateful Wooly Mammoth. Sometimes the initial problem becomes insignificant, though contributory, to the much worse problems to come.

clambo says

Houses did OK in Texas because Texas hasn't lost as many jobs as other states.

Nonsense -- housing did okay in Texas because it never went up that much during the boom. Last I checked, housing prices in Houston haven't recovered from the 80s bust, adjusted for inflation.

Sorry about your cat, Logan, 24 is pretty impressive.

Thanks, 24 for a cat is 113 years for humans. He always got me up at 4:00 for work. Now I have spend more time with my wife!!! ;-)

corntrollio says

Sorry about your cat, Logan, 24 is pretty impressive.

corntrollio says

Texas because it never went up that much during the boom.

Texas didn't have the boom and bust in prices yes and they had strict laws on cash out refinances there as well

Logan Mohtashami says

-energy

-Medical

-finance ( some sectors)

- Pilots make good money actually

- Engineers

How did you arrive at that list?

indigenous says

How did you arrive at that list?

Top 20 Highest Paying Careers

Oral and Maxillofacial Surgeons - $166,400

Physicians and Surgeons - $166,400

Orthodontists - $166,400

Chief Executives - $165,080

Dentists, All Other Specialists - $161,020

Dentists, General $141,040

Judges, Magistrate Judges, and Magistrates $119,270

Architectural and Engineering Managers - $119,260

Prosthodontists - $118,400

Podiatrists - $118,030

Natural Sciences Managers - $116,020

Computer and Information Systems Managers - $115,780

Petroleum Engineers - $114,080

Marketing Managers - $112,800

Lawyers - $112,760

Pharmacists - $111,570

Air Traffic Controllers - $108,040

Political Scientists - $107,420

Physicists - $106,370

Financial Managers - $103,910

corntrollio says

clambo says

Houses did OK in Texas because Texas hasn't lost as many jobs as other states.

Nonsense -- housing did okay in Texas because it never went up that much during the boom. Last I checked, housing prices in Houston haven't recovered from the 80s bust, adjusted for inflation.

Thomas Sowell talks quite a bit about the price of housing in Calif being higher because of gov't meddling. Rent control, regulations, cost of permits, etc

indigenous says

Thomas Sowell talks quite a bit about the price of housing in Calif being higher because of gov't meddling. Rent control, regulations, cost of permits, etc

Depends on where in California, but that's probably accurate. Prop 13 is a big one, and that saves people on property taxes, but probably serves to make property prices higher since no one wants to sell. There are also lots of artificial constraints on land use in many areas. There is plenty of land in CA, particularly in the Bay Area, but you aren't allowed to build on a lot of it.