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Logan Mohtashami says

2015 will be interesting

Housing boom floating-rate mortgages face years of payment hikes

http://www.housingwire.com/articles/32205-housing-boom-floating-rate-mortgages-face-years-of-payment-hikes

Bubbabear says

Housing boom floating-rate mortgages face years of payment hikes

It's a housing inflation factor for sure, but won't create new supply in terms of distress sales or forced non distress sales.

These new amortized loans don't have big recast rates. The inflation factor will rise once short term rates those, so more of a housing inflation issue come 2016-2017 after the Fed raised rates a few times

Logan Mohtashami says

It's a housing inflation factor for sure, but won't create new supply in terms of distress sales or forced non distress sales.

The payment increases will be driven by changes in interest rates, expiration of interest-only periods and loan modification rate resets. And those payment increases will lead to higher default rates, " Fitch said in its report."

Bubbabear says

loan modification rate resets.

A portion of loan modifications are at risk for default in my book.

One of the biggest mistakes they made with loan mods was making them interest only. I saw a lot Loan mod recast in 2014 and they acted ok, nothing to big on the default part.

Traditional mortgages for the most part the rate recast with be more of an amortization payment hit that rate at this point

1st and 2nd lien recast in 2015, now that can be an issue, because there are some funky loans still out there with that model, but It's small in comparison with the total market place of loans out there

Those loans to me have the biggest risk if they are high DTI buyers with no equity. I just can't find any good data on this group

Logan Mohtashami says

2015, now that can be an issue

Wouldn't a 2015 recession make every thing an issue

http://investmentwatchblog.com/on-the-last-trading-day-before-santa-claus-comes-down-the-chimney-the-us-yield-curve-30y-5y-collapsed-to-108-basis-points-the-flattest-since-june-2008/

Bubbabear says

Wouldn't a 2015 recession make every thing an issue

The only way we can be in a recession in 2015 is if there is some major world event that throws all economies into a storm

Everything for 2015 looks good, late 2016 - 2017 the equation is different but 2015 with ZIRP in play and the 10 year still low.

Things are looking better all the time....

Bubbabear says

Things are looking better all the time....

Europe, Japan, China, Brazil and other places have issues

But the U.S. on a lot metrics are still showing growth

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This doesn't get enough economic talk

With rent inflation rising, it's been harder and harder for the young to save to a down payment and closing cost in a cycle where you do need a down payment barring a 100% gift

anonymous says

Is this something related to the elections?

Interest rate hikes with duration time frame

More a 2017 story, but if wage growth doesn't rise with rate hikes and a rise in the 10 year then that could be the inflection point pushing consumption toward a negative trend

Right now 4.7% 10 year with a Fed funds rate over 3% is recessionary but that is 2 years away really.

A 1994 spike in the 10 year could in theory happen, but the world is in such a deflation-airy cycle that It's hard for me to use 2015 and talk about 1994 again

Its hard for me not to see any rate hikes because 2015 has always been my wage inflation to get to at least 2.4 percent... I know still low... But with that and rent inflation still running at. 3 percent which is 41 percent of CPI. If there is no hikes in 2015 it would have to be based on that Europe, China, Japan, Russia and Brazil got worse in 2015 importing deflation here. Which would keep us in that 2 - 2.5 percent growth mode but if we are pushing 3 percent growth with 230K a month job print I see the Fed starting its rate hike. At least the Fed per their own language has been saying this is the model and they ended QE with their direction

anonymous says

So what do you see, if those interest rate hikes do not occur? Any thoughts on a deflation scenario?

It isn't great, but with GDP, employment, JOLTS data running past their usual metric points for a rate hike, it will be hard for them to not raise if the economic trend here in the U.S. is still moving forward.

One thing for sure is that low yield world deflation has created a lower level yield base cover for the economy.

So QE velocity was horrid in this economy cycle but that in itself would show that the economy and stock market wouldn't collapse at the end or QE. In theory you would have see market discounting this during the taper and the trend since 2013 was always buy the V dips anyone who went to cash would have had to make a decision to get back in or miss the ride from early 2013

Logan Mohtashami says

Its hard for me not to see any rate hikes because 2015 has always been my wage inflation to get to at least 2.4 percent... I know still low... But with that and rent inflation still running at. 3 percent which is 41 percent of CPI. If there is no hikes in 2015 it would have to be based on that Europe, China, Japan, Russia and Brazil got worse in 2015 importing deflation here. Which would keep us in that 2 - 2.5 percent growth mode but if we are pushing 3 percent growth with 230K a month job print I see the Fed starting its rate hike. At least the Fed per their own language has been saying this is the model and they ended QE with their direction

If we get a rate hike in 2015, it will be 25 basis points and done. When the market really gets scared now it only takes two weeks to go down 10% or a month to go down 20%.

tr6 says

If we get a rate hike in 2015, it will be 25 basis points and done. When the market really gets scared now it only takes two weeks to go down 10% or a month to go down 20%.

There is talk that maybe they even do .125% hikes in this cycle, which is very incremental

Logan, What's yiur predicting for prices in SF Bay Area ?

cloud15 says

Logan, What's yiur predicting for prices in SF Bay Area ?

Hopefully they would be flat or fall for the sake of the people their.

However, pricing power still looks good enough to eek out of a gain for 2015.

That market now
2014 Median 2013 Median
San Francisco County $1,050,000 $852,000 23.24%

% change from previous year

http://www.dqnews.com/charts/monthly-charts/ca-city-charts/zipcar.aspx

San Francisco is a very unique market due to high end $$$ and inventory levels that tie to the high end of an economic cycle

This is why I left the Bay Area years ago and will never move back. Only the uber rich or suckers would move there now.

debyne says

This is why I left the Bay Area years ago and will never move back. Only the uber rich or suckers would move there now.

California itself is a housing inflation nightmare.

My model shows that 82% of working population ( X out the Rich) Cash & 3X median income 189K are priced out housing

I go into California housing in my recent interview with Bloomberg Financial at he BNY Mellon Stock conference

http://loganmohtashami.com/2014/12/04/bloomberg-financial-interview-at-the-bny-mellon-conference-housing-reality/

Logan Mohtashami says

California itself is a housing inflation nightmare.

My model shows that 82% of working population ( X out the Rich) Cash & 3X median income 189K are priced out housing

Do you think prices in CA will eventually buckle and come back to reality?

debyne says

Do you think prices in CA will eventually buckle and come back to reality?

Main Street Reality, not likely

CA is 2 Tier state, broken into 6 it has the 3 richest and 3 poorest states in America.

This state has wealth and high incomes. However, that portion is small compared to the rest.

So, home prices dropping below enough to make sense for the majority is probably unlikely.

You have a lot people with cash both foreign and domestic that step in with CA homes. Then you have group of California residents who make money with every up turn in the cycle

CA has a rental inflation crisis which impacts more of it's citizens, over 50% of L.A. residents are living in multiple households

On the new home sale side of the equation which is only 1/11th of sales today. The MI2MP model deviated at the start of the century

debyne says

This is why I left the Bay Area years ago and will never move back. Only the uber rich or suckers would move there now.

The people who leave CA, from what I see, besides a job factor, it's been cost of shelter is much cheaper from the low end to high end of the market.

If you have a well high paying job 3X median income household then it's not a place to live with the weather and all. However, it's dam pricey on all fronts

Logan Mohtashami says

debyne says

This is why I left the Bay Area years ago and will never move back. Only the uber rich or suckers would move there now.

The people who leave CA, from what I see, besides a job factor, it's been cost of shelter is much cheaper from the low end to high end of the market.

If you have a well high paying job 3X median income household then it's not a place to live with the weather and all. However, it's dam pricey on all fronts

I'm actually now in San Diego, which is MUCH cheaper than the BA to live than people think. Before that, I was in Seattle and it was about the same COL as San Diego...San Diego would be cheaper than Seattle if not for CA state income taxes.

debyne says

CA state income taxes.

Yes!

anonymous says

retirement there is more I want to do than pay high prices at every turn.

retirement in California, that will be for the very wealthy, very expensive to retire here in the up coming decades

Logan, do you have any insight on the Las Vegas market?

Mandy Lifeboats says

Logan, do you have any insight on the Las Vegas market?

Off the top of my head if I remember right per the last report

Sales were down 8% year over year
Cash buyers falling from 43% to 32%
Inventory is up over 20%

Non distress sales were up year over year

Vegas had a big rise in inventory in 2014 but total sales fell and cash buyers not getting the deals they got before so they are falling

You would think that people here in Las Vegas would be worried given the info but my impression is that they feel bad times are behind them and there's only smooth sailing ahead.

Thank you.

Going forward as well, the past housing cycles rates have been lower for a lot housing cycles, almost impossible to have that trend unless the 10 year breaks under 1%

debyne says

San Diego, which is MUCH cheaper than the BA to live

not if you have kids, and wish to use public schools.

debyne says

CA state income taxes.

CA is home to roughly 1/3 of the entire country's welfare recipients.

Logan Mohtashami says

California itself is a housing inflation nightmare.

My model shows that 82% of working population ( X out the Rich) Cash & 3X median income 189K are priced out housing

we are over that threshold but have around $2250 per month in daycare costs. very nightmarish indeed! silver lining is that we will bring 100k cash and full income capacity to the housing market once we reach K-5 school age. just need to be patient for now.

landtof says

$2250 per month in daycare costs

This is why I always talk about LTI as well liability to Income doesn't get discussed much

landtof says

debyne says

San Diego, which is MUCH cheaper than the BA to live

not if you have kids, and wish to use public schools.

Not true. If you compare BA (not outskirts) and SD home prices in good school districts, BA prices are SIGNIFICANTLY higher. I've lived in both places with kids in schools, so I have first hand knowledge.

debyne says

Not true. If you compare BA (not outskirts) and SD home prices in good school districts, BA prices are SIGNIFICANTLY higher. I've lived in both places with kids in schools, so I have first hand knowledge.

there are only 2 good districts in the entire county - and only one near the coast. please don't tell me that 3bd houses well over $1M are MUCH cheaper than anything.

Re: Vegas...I join those who somewhat regret not buying in 2012. I was ready, willing and able but my LL wanted $50K (30%) over the average estimate at the time (he said it was what he owed - not likely.)

Now I've spent an additional 20K in rent (still in same place, much of my time taken up caring for elderly family member who is quite ill) and feel stupid as prices for house around me have sailed well past what he wanted. (Lately, they're falling.)

A good bit of my hesitation was the neighborhood being marginal; now it is looking even more sketchy than it was at that time. I also thought that prices would to continue to go down and that we might be able to buy in a better area :-p

landtof says

debyne says

Not true. If you compare BA (not outskirts) and SD home prices in good school districts, BA prices are SIGNIFICANTLY higher. I've lived in both places with kids in schools, so I have first hand knowledge.

there are only 2 good districts in the entire county - and only one near the coast. please don't tell me that 3bd houses well over $1M are MUCH cheaper than anything.

Which two? If you compare SD's Poway school district and Cupertino's school disctrict, housing prices within each are not even on the same planet.

that's like saying Foothill Ranch in OC is cheaper than Cupertino, so OC is MUCH cheaper to live than the SFBA. it's simply not true. try Irvine and Newport Beach to compare apples with apples.

if you go west of Poway Unified, you will find that RSF, Collins Ranch, Fairbanks Ranch, Carmel Valley, Del Mar, and Solana Beach are very comparable to SFBA house prices. and i forgot about Coronado, that ain't cheap either.

it does depend on geography and schools. Poway Unified is certainly one option if you are OK with inland geography and weather, and there are even pockets within that can be pricey.

i have lived in SD for almost 9 years and have yet to become OK with living anywhere but the coast. have accepted that it will take over $1M to ever afford a house here - and that sounds a whole lot like the SFBA, no?