patrick.net

tatupu70 says

OK--so the point of the demand analysis was to predict future prices. Correct?

That isn't the main factor for the health of a housing market.
Because in all my predictions I am showing YoY price again but I have to believe in a economic discipline that looks at variable factors model

This is the problem when all you care about is price.

Honestly you probably didn't think anything was wrong from 2003-2006 when prices where well beyond the MI2MP model

Be honest here, if I follow your singular housing economic thesis then you were a housing bull all the way through the housing bubble years

Correct?

Logan Mohtashami says

Be honest here, if I follow your singular housing economic thesis then you were a housing bull all the way through the housing bubble years

Correct?

Until right before the bubble popped. Which is really the point, isn't it.. Inventory predicted MUCH more accurately when prices would continue to rise and when they were set to fall.

If you wanted something to measure when we're in a bubble or away from fundamentals--look at price/rent ratios.

tatupu70 says

Until right before the bubble popped. Which is really the point, isn't it.. Inventory predicted MUCH more accurately when prices would continue to rise and when they were set to fall.

EXACTLY!!!!!!! My point :-)

Thank you for your honestly, most people wouldn't admit that

You see in my world the MI2MP model deviated in Mid 2003 and you were a bull all the way to 2006 right before the bubble crashed.

We are in 2 different worlds, I can never advocate the strength of economic sector which doesn't have it's natural demand buyer at or on par with historical trends.

So we are never going to agree on housing economics

However, thank you for your honesty, I total understand now where you're coming from.

Logan Mohtashami says

EXACTLY!!!!!!! My point :-)

Thank you for your honestly, most people wouldn't admit that

You see in my world the MI2MP model deviated in Mid 2003 and you were a bull all the way to 2006 right before the bubble crashed.

We are in 2 different worlds, I can never advocate the strength of economic sector which doesn't have it's natural demand buyer at or on par with historical trends.

So we are never going to agree on housing economics

However, thank you for your honesty, I total understand now where you're coming from.

No problem. In my world, I would be able to predict prices from 2003 - 2006 and from 2012 - 2015 while you wouldn't. And I would also be able to predict the housing collapse much more accurately than you.

I'm not sure what you think is better about your world?

tatupu70 says

I'm not sure what you think is better about your world?

Clap Clap Clap

My first thesis about you was right I just needed confirmation

See

You're that guy that told me in 2003-2006 that all that matters is price, that is the true health of the housing market
You're that guy that didn't care about sub prime loans, option arm loans 80/20 loans because all that matters is price
You're that guy that even today admits that internal net demand doesn't matter all that matters is price

We are in different worlds brother, there is nothing we have in common in how we look at the housing markets

That is what I have been trying to say, you're that guy back then from 2003-2006

Plus if you really did believe in price to rent ratio's you should have been raising red flag in Mid 2003

But you didn't because you're that guy

Math is Math... the rest is story telling

Logan Mohtashami says

You're that guy that told me in 2003-2006 that all that matters is price, that is the true health of the housing market

You're that guy that didn't care about sub prime loans, option arm loans 80/20 loans because all that matters is price

You're that guy that even today admits that internal net demand doesn't matter all that matters is price

We are in different worlds brother, there is nothing we have in common in how we look at the housing markets

That is what I have been trying to say, you're that guy back then from 2003-2006

Plus if you really did believe in price to rent ratio's you should have been raising red flag in Mid 2003

But you didn't because you're that guy

lol--you're way more concerned with "which guy I am" than actually understanding what I'm saying. It's too bad. If you had a slightly better attitude and more open mind, you might just learn something.

Of course I raised the flag in 2003. I lived in CA. and I rented because it was obvious housing prices were drastically overpriced. You are really clueless to what I am saying. Here's a tip for you--no matter how big you think you are--never stop questioning yourself and listening to others.

To say that the housing sector is "unhealthy" because the "demand is weak" doesn't accurately characterize the situation.

Instead you should say:
"Old people are bent on restricting new construction so they can extort insane sums of money from the richest young people in exchange for their shacks. The inventory is deliberately kept low by building much less than population growth would require. Politicians desperately want housing prices to be high, and want young people to pay through the nose, so banks balance sheets look ok. They cannot afford to build more houses and let prices align with wages and building costs, because it would reveal the financial system is rotten to the core."

It doesn't help to say the market is not healthy, when it's deliberately kept this way to produce the desired high prices.

tatupu70 says

You are really clueless

If I am clueless and you just told me you use the price to rent model then why are you debating your own self saying you were a housing bull from 2003-2006

This is what we call economic slippage the story gets in a crossfire you forget what your original thesis.

Honestly do you think this works on someone like me? Do I give that impression that I am real estate agent

tatupu70 says

If you wanted something to measure when we're in a bubble or away from fundamentals--look at price/rent ratios.

So we are in a bubble now?

Logan, I have a question, if you are so smart why do you argue with idiots?

Heraclitusstudent says

tatupu70 says

If you wanted something to measure when we're in a bubble or away from fundamentals--look at price/rent ratios.

So we are in a bubble now?

I don't think price/rent ratios are that out of whack from most of the US. Maybe prices are too high in a few places.

Call it Crazy says

Want to tell me again H.S, who's the whiner??

[shrug] This was just stating facts.

indigenous says

Logan, I have a question, if you are so smart why do you argue with idiots?

You have to know what the other side thinks, it preps you always for any economic discussion

Causation
Correlation
Representation

Math, Facts, Data... the final number is what matters but there is a story behind those numbers ( Why) factor is really what separates economic analysis

Dealing with professors, economist, housing pundits and others. I have learned one thing that they all have in common. None of them have a financial lending background
so their model of affordability is outdated in relationship to this economic cycle. This has been the case for 12 years now and their frustration on why demand has been soft comes from this area of not understanding why Americans aren't buying homes like their model would have shown

Breakdown
MI2MP then add PITI inflation tagged to a DTI factor model, with a representation of LTI metrics against real median income. Once I have shown them this then it makes sense to them why demand is soft even with rates this low

That was the main confusion with the housing community and why they didn't account for the weakness in demand

Logan Mohtashami says

If I am clueless and you just told me you use the price to rent model then why are you debating your own self saying you were a housing bull from 2003-2006

This is what we call economic slippage the story gets in a crossfire you forget what your original thesis.

Honestly do you think this works on someone like me? Do I give that impression that I am real estate agent

Listen--this isn't that hard to understand. I said that inventory is the best predictor of future housing prices. And I think you agree with that statement.

As to a housing bull--my statement was that using inventory as a guide, one would have been a bull until inventory started rising then they would have turned bearish before the bubble popped. As someone who wanted to buy more long term--I wouldn't have been able nor wanted to time the market, so I sat it out. No slippage or difference from my original thesis.

See--this is my problem with you. You can't just state your point without trying to puff yourself up. If you would have simply said that you use other measures to try to gauge demand because supply can change quickly and you wanted a longer term gauge of the direction of housing prices, then you might have had a point. But, for some reason, you cannot do that. After all this, you have yet to give a simple explanation for why you look at sales volume. It's as if you are incapable of understanding and explaining your thought process.

tatupu70 says

See--this is my problem with you. You can't just state your point without trying to puff yourself up

2. Housing internals are weak
Second, those housing pundits tend not to consider the “internals” of the housing market. The internals tell the story for those who care to look.

In a normal cycle we would see the following:
90% mortgage buyers
40% of that first time home buyers
10% cash buyers

In this cycle, however we see the following:

67-70% mortgage buyers
27-30% first time home buyer
30% plus cash buyers for the past several years

The internals show weakness in demand, not strength. What if the number of cash buyers returned to a normal 10% level of the market place? 2014 has a high percentage of cash buyers but the volume of sales are going down. With a lower percentage of cash buyers expected in the future, the number of mortgage buyers will need to increase just to maintain the current level of sales.

"A key emphasis this year."

If cash buyers went back to their normal historic %, then both 2013 & 2014 existing home sales would be at the lowest level of this economic cycle.
We are talking about year 5 & 6 in this economic cycle not the first few years coming out of the recession. This troubling trend is why mortgage demand needs to grow to keep sales from falling more as total cash volumes continue to dwindle slowly.

It was written pretty clear in the article too, I could have added 2012 but it was year 2013 and 2014 that people started to raise their sales estimates and they missed badly
I mean ouch some as high as 30% sales miss in 2014

Logan Mohtashami says

Dealing with professors, economist, housing pundits and others. I have learned one thing that they all have in common. None of them have a financial lending background

so their model of affordability is outdated in relationship to this economic cycle. This has been the case for 12 years now and their frustration on why demand has been soft comes from this area of not understanding why Americans aren't buying homes like their model would have shown

Weak demand meets weak building. Things balance out. Where's the problem?
Overwhelmingly people care about prices more than anything else.

Politicians, banksters, retirees... they don't care if volume is drowned into the bathtub as long as prices are up.

Heraclitusstudent says

Weak demand meets weak building. Things balance out. Where's the problem?

Overwhelmingly people care about prices more than anything else.

If that was the case then why did sales drop in a year where pricing where increasing

Not to mention we did it 21st century.... Hold... let me repeat this again.... 21st century lows in 2014 for

Mortgage purchase applications
&
First time home buyers

So in 2013 where we saw massive price gains sales barely grew
In 2014 where we saw another year of price gains sales went negative

Not sure if that is a valid economic thesis with the last 2 years if all that matters is price

Logan Mohtashami says

If that was the case then why did sales drop in a year where pricing where increasing

What is your point? I said they don't care if sales drop as long as prices are up.

Logan Mohtashami says

Housing internals are weak

Second, those housing pundits tend not to consider the “internals” of the housing market. The internals tell the story for those who care to look.

In a normal cycle we would see the following:

90% mortgage buyers

40% of that first time home buyers

10% cash buyers

In this cycle, however we see the following:

67-70% mortgage buyers

27-30% first time home buyer

30% plus cash buyers for the past several years

The internals show weakness in demand, not strength. What if the number of cash buyers returned to a normal 10% level of the market place? 2014 has a high percentage of cash buyers but the volume of sales are going down. With a lower percentage of cash buyers expected in the future, the number of mortgage buyers will need to increase just to maintain the current level of sales.

I fail to see how a different spread of buyer types = weakness. Different doesn't equal weak. Maybe cash buyers are drowning out mortgage buyers. I just have a hard time with someone saying the housing market is weak after 3 years of very good gains, price/rent ratios in normal ranges, and low supply. By definition it's not weak.

If you want to say it's unsustainable, then you might have a point.

Heraclitusstudent says

What is your point? I said they don't care if sales drop as long as prices are up.

Seriously it's amazing that we have hit 21st century lows in demand metrics from main street America but the richest 1% have been buying more homes as a % of the market than anytime in recent history and some people find nothing wrong with that at all

You don't get charts like this if there isn't a demand problem

Call it Crazy says

Have you not been paying attention with all the charts and graphs he put up with all the different metrics he uses besides prices??

And the question I asked was why does he use those.

Call it Crazy says

Anyone reading this thread can see that's YOUR problem, since the ONLY thing you focus on is prices, and every other data point, fact or math goes completely over your head!

Well, obviously I focus on prices as do 99% of people in the world. But I can assure that nothing goes over my head.

Logan Mohtashami says

Seriously it's amazing that we have hit 21st century lows in demand metrics from main street America but the richest 1% have been buying more homes as a % of the market than anytime in recent history and some people find nothing wrong with that at all

If we've hit 21st century lows in demand--why are prices rising???? Doesn't that strike you as a contradictory statement??

tatupu70 says

If you want to say it's unsustainable, then you might have a point.

2013 & 2014 were supposed to be the best year homes net overall demand

2013 barely grew
2014 went negative

Even with higher inventory and lower rates plus 30% cash buyers in the system

Like I said, there is no way to cut around it, the price inflation we have seen since 2012 has brought the U.S housing to demand metrics that are at
21st century lows in terms of % buyers

Logan Mohtashami says

You don't get charts like this if there isn't a demand problem

Ok, there is a demand problem. Ah, but there is also a supply problem. As a result the entire housing market is restricted to its upscale part.
So it is a market in balance, more than it looks like.

I guess we shouldn't care so much about the market [taken purely as a market] and more about what it means socially when this happens.

tatupu70 says

If we've hit 21st century lows in demand--why are prices rising???? Doesn't that strike you as a contradictory statement??

I tried my best to make the point but like I said you're that guy that didn't care about the prices rising during the housing bubble and your own metrics that you quoted
even showed you that there was an issue in mid 2003

Not sure what else I can say. People like yourself only care about price and nothing else. That is not how I would look at it because the last time that metric was used

2003-2006 and it failed miserably and we are already seeing net negative demand trend.

Heraclitusstudent says

Ok, there is a demand problem. Ah, but there is also a supply problem

Supply was up in 2014, we had more demand in 2013 with less homes on the market and on par and higher rates

Logan Mohtashami says

tatupu70 says

If we've hit 21st century lows in demand--why are prices rising???? Doesn't that strike you as a contradictory statement??

I tried my best to make the point but like I said you're that guy that didn't care about the prices rising during the housing bubble and your own metrics that you quoted

even showed you that there was an issue in mid 2003

Not sure what else I can say. People like yourself only care about price and nothing else. That is not how I would look at it because the last time that metric was used

2003-2006 and it failed miserably and we are already seeing net negative demand trend.

So you have no answer then?

tatupu70 says

So you have no answer then?

for the 3th time

As long as inventory stays below 6 months and you trend sales growth ( this is possible still) because cash buyers have never been this high as a % of market place

They key is having both 6 months and lower inventory and trend sales growth, this is only possible if cash buyers are still 17%-22% above their historical norms because if it wasn't we would be below the lowest level of total home sales in this cycle

Which means actually 2012-2015 would have the lowest level of total sales in the Great Recession

Logan Mohtashami says

2013 & 2014 were supposed to be the best year homes net overall demand

See this what you're missing. Supply and demand in housing are related. A buyer is usually also a seller. So the net effect is zero.

What you really care about is net demand (intuitively think of demand - supply). Or new buyers - sellers that aren't buying.

If prices are rising, then net demand > 0. If prices are falling then net demand is less than zero

Logan Mohtashami says

for the 3th time

As long as inventory stays below 6 months and you trend sales growth ( this is possible still) because cash buyers have never been this high as a % of market place

They key is having both 6 months and lower inventory and trend sales growth, this is only possible if cash buyers are still 17%-22% above their historical norms because if it wasn't we would be below the lowest level of total home sales in this cycle

Which means actually 2012-2015 would have the lowest level of total sales in the Great Recession

But it's incorrect. Cash buyers are still demand. And sales volume doesn't equal demand.

tatupu70 says

See this what you're missing. Supply and demand in housing are related. A buyer is usually also a seller. So the net effect is zero.

What you really care about is net demand (intuitively think of demand - supply). Or new buyers - sellers that aren't buying.

If prices are rising, then net demand > 0. If prices are falling then net demand

Not if 45% of the buying is done by cash and 1%

That group doesn't really need to worry about the cost of shelter so much

Again this is also why we are seeing declines in YoY price gains since 2013 even with inventory below 6 months

Without the net carry over the price gains are becoming less and less each month

tatupu70 says

And sales volume doesn't equal demand.

This is truly been fun! Honestly

Surprise! Rent Control and Government Directed Middle+Working Class Housing Programs disappear, and, shock of shocks! Housing stock is overpriced and sales faltering.

Obviously we need more NINJA loans and Tax Cuts to help the Free Market!

Logan Mohtashami says

This is truly been fun! Honestly

Good--hopefully you'll be better equipped for your next interview.

Logan Mohtashami says

Supply was up in 2014,

Not really. Supply is at a pathetically low level. Moreover, not reflected in inventory for sale is how many housing units we have compared to the population we have.
People are doubling up, living in closets and garages. Where does that show in your numbers?
If we had an appropriate number of units, there would be a huge inventory or large vacancy rate for rentals.

Logan Mohtashami says

we had more demand in 2013 with less homes on the market and on par and higher rates

Yes. So?

tatupu70 says

Good--hopefully you'll be better equipped for your next interview.

It just confirms what I have always thought, people who only look a price don't look at internal demand drivers

2003-2006 = Exotic Loans
2012-2015 = High levels of cash buyers

Nothing new here

Logan Mohtashami says

Not if 45% of the buying is done by cash and 1%

That group doesn't really need to worry about the cost of shelter so much

Again this is also why we are seeing declines in YoY price gains since 2013 even with inventory below 6 months

Without the net carry over the price gains are becoming less and less each month

Logan, Logan, Logan. Surely you know the difference between rising prices and rising change in prices.

And if it's just the 1% buying, why are prices rising at all? Are there that many folks in the 1% bidding against each other?