patrick.net

Logan Mohtashami says

Older Americans are working longer than they would have normally done, if there ever was normal, taking some jobs and wage inflation away form younger prime working force Americans

Tru dat, also because older Americans were not introduced to the entitled mentality and were already trained as they once were minimum wage workers as well.

But that does not explain that 1/3 of the welfare in the US goes to Calif. I suspect that welfare is subsidizing the immigrant worker creating a false economy which has taken over almost all construction jobs.

I asked Bob Murphy about this and he referred me to this article:

The Calm Before the Storm

Robert Murphy

Since the fall of 2008, I have been among the economists, many from the Austrian tradition, warning the public about the disastrous policies enacted by the Federal Reserve in response to the financial crisis. The Fed was generating unprecedented increases in the monetary base, which is the quantity of dollars held by the public as currency and held as reserves by commercial banks. In late 2009, I made a public wager with economist David R. Henderson in which I predicted a 10 percent year-over-year increase in the Consumer Price Index by January 2013. I lost that bet. In general, warnings about price inflation seem to have been premature at best, totally wrong at worst.

It's true that consumer prices did not zoom up as I had predicted, but my objection to the Fed's post-crisis policies was never dependent on that specific forecast. Indeed, the distinctive feature of Austrian business cycle theory is that "easy money" causes the familiar boom-bust cycle by affecting relative prices. Regardless of the purchasing power of the dollar, the Fed's actions have definitely interfered with interest rates, hindering the communication of information about the condition of the credit markets. By postponing needed readjustments in the structure of production, the Fed's actions have allowed the problems apparent in the fall of 2008 to fester.

I am still confident that a day of price inflation reckoning looms and that the U.S. dollar's days as the world's reserve currency are numbered, though I have no way of gauging the duration of this calm before the storm. Still, my 2009 predictions about consumer price inflation were wrong, and it's useful to analyze why.

At the time, I thought the Fed's policies were simply going to kick the can down the road and exacerbate the underlying structural imbalances in the economy. The housing bubble had itself been fueled by the artificial monetary stimulus and rate cuts under previous Fed chair Alan Greenspan (in response to the dot-com crash and the 9/11 attacks), and Bernanke seemed to be drawing from the same failed playbook. We would simply replace one bubble with another: in this case, swapping a bubble in U.S. Treasuries (and the U.S. stock market) for the collapsing housing market.

That all still seems true. My crucial mistake back in 2009 was in predicting that other investors would come to agree with my assessment in a year or two. In other words, I thought they would look ahead, realize Bernanke had no exit strategy, and then short the dollar (and other dollar-denominated assets) to avoid holding the bag. More specifically, I thought that commercial banks would eventually realize they needed to get their excess reserves in higher-yielding assets.

Once the commercial banks started this process, the quantity of money in the broader sense (captured in aggregates such as M1 and M2, which include the public's checking account balances at the banks) would begin to reflect the enormous spike in the monetary base the Fed had directly engineered. Remember that in our fractional reserve banking system, when the Fed buys $1 billion (say) in assets and thereby adds $1 billion in new reserves to the system, if the commercial banks proceed to make new loans, then in the process they will create (say) an additional $9 billion in new money, broadly measured. In 2009 I thought more and more investors would begin to anticipate this process, anticipating that the money supply held by the public eventually would start to soar, so that large-scale price inflation would become a self-fulfilling prophecy.

But the U.S. economy has stayed in this holding pattern, where people expect low consumer price inflation and so commercial banks keep their excess reserves earning 25 basis points parked at the Fed rather than make new loans. Thus the process I described above has been thwarted; the quantity of money held by the public right now is much lower than it would be, if the banks decided they would rather make loans and earn a higher interest rate than the 25 basis points currently paid by the Fed.

I do not believe the Federal Reserve can gracefully exit from its current position. Fed officials eventually will be in an untenable position in which they must choose to either (a) crash the financial markets by selling off assets and letting interest rates rise sharply or (b) let the dollar fall quickly in value against consumer goods and services. But in the last six years, they have been granted a very generous grace period before having this hard choice foisted upon them.

According to Austrian business cycle theory, as developed by Ludwig von Mises and elaborated by Friedrich Hayek (who would later win the Nobel Prize partly for this work), interest rates serve a specific purpose in a market economy. Intuitively, the more society saves and is willing to defer immediate gratification, the more we want entrepreneurs to invest real resources in longer-term projects. When the central bank injects new money into the credit markets, this not only lowers the purchasing power of money (other things being equal) but artificially suppresses interest rates and renders long-term projects profitable that in reality should not be pursued.

In the Austrian view, therefore, consumer prices are not a reliable gauge of the "looseness" or "tightness" of monetary policy. Irving Fisher infamously thought the Fed in the 1920s had done a good job because the CPI had been tame, whereas Mises knew that a crash was brewing by the late 1920s.

Fearing an imminent spike in consumer prices because of the Fed's unprecedented actions since late 2008 turned out to be wrong-but if wrong in spirit or merely in timing, only time will tell.

Bernanke's policies were harmful regardless of the impact on the CPI. Pumping enormous amounts of money into the credit markets doesn't make us richer. It just distorts the coordinating function of interest rates. Remember, Greenspan did us no favors by pumping up the housing bubble. Whether or not a massive bout of price inflation breaks out, a crash in the real economy should still be expected.

Robert P. Murphy (rpm@consultingbyrpm.com) is senior economist at the Institute for Energy Research and the author of The Politically Incorrect Guide to Capitalism (Regnery).

Also Peter Schiff made an interesting comment in his article above Dr Murphy's

Broader consumer price inflation has been kept at bay because many of the newly printed dollars don't even hit our economy. Instead, foreign countries purchase them in an attempt to keep their own currencies from appreciating against the dollar. In the current environment, a weak currency is widely (and wrongly) seen as essential to economic growth. That's because a weak currency lowers the relative price of a particular country's manufactured goods on overseas markets. Nations hope those lower prices will lead to greater exports and more domestic jobs.

http://reason.com/archives/2014/11/30/whatever-happened-to-inflation/singlepage

I also asked him about the influence of demographics which he eschewed as a contributing factor but not the main thing that is going on. IMO the graph of money velocity correlates nicely to your housing graphs. Which indicates that is a good place to look for the real cause.

Logan--

Do you really believe that there isn't a lack of supply that is causing higher prices?

(before you answer, no need to tell me how smart you are or how much I hate numbers. Just assume for the sake of argument that I'm at least as well versed in economics as you--even if I'm not on Bloomberg.)

tatupu70 says

Logan--

Do you really believe that there isn't a lack of supply that is causing higher prices?

(before you answer, no need to tell me how smart you are or how much I hate numbers. Just assume for the sake of argument that I'm at least as well versed in economics as you--even if I'm not on Bloomberg.)

You literally do not have the foggiest idea on this, Logan is exactly right on this. The only question is as to why.

tatupu70 says

Logan--

Do you really believe that there isn't a lack of supply that is causing higher prices?

This is curious to me, I have talked about a lack of supply as a factor of price increases ( other side of the equation that demand is being driven 45% of it by the most wealthy domestic and foreign buyers) Main street America not having participated as much in this cycle due to a lack of wages and liquid assets

and it is why in my predictions in 2013, 2014 and 2015 said home prices will increases.
I am trying to understand the logic of creating a thesis where one man has to debate his own thesis. This is why I brought into the matter this

You have been in complete agreement with me for the last 3 years and yet even today you're asking me to debate my own self.
I am trying to understand why.

If it's for the sake of entertainment for yourself, then at least I can understand, that has some logic. However, you're not only asking me to debate myself but you're questioning your own self while you're at it. I am just curious

Since supply rose from 2013 to 2014 we have seen a cooling down in YoY % gains and that is very normal as demand isn't growing for existing homes but there is still enough demand from the Rich and low enough supply to keep prices going in 2015

Here is another factor on DTI cost economic demand thesis

Last year 2014 new home sales was predicted to grow by 20%-30% year over year in total sales
The number one housing analyst in America had 25% sales growth

My self I thought we could get 8% sales growth, and I thought home builders would cut prices to create this demand for 2014 but 8% growth

Well, even I got it wrong. Sales growth came in at 1.9% for new homes.

However, the real problem and this is why my work has gotten some attention is that
New home supply rose last year and rates went lower for a market place that is 90% mortgage dependent

This couldn't be explained by Wall Street Analyst or economist because it was

- 6th year of the economic cycle
- Using a 429K starting base ( 50 year average of sales is at 710K)
- Inventory went up
- Rates went down

However, I am trying to explain to people that new home buyers are looking at existing homes because they are cheaper

About June of last year I had noticed that the gap between new and old homes led some prime mortgage buyers to existing homes

( Older) homes which are cheaper and have a geographical advantage over new homes.

So sales on the margin I was a bit more bullish on because these new home buyers are prime mortgage buyers they can easily qualify for existing homes

July- October we saw that trend in the numbes

It's not much but it does explain why new home sales missed badly per estimates and why existing homes sale were only down -3% year over year

So many variable factor models that we have to look at each year but I knew for a fact that the 20% -30% sales growth estimates for 2014 were simply too high
for new home sales

For 2015 I am looking for 8% -12% sales growth for new homes ( always have to adjust sale number to working population and net pool buyers)

Estimates ranges between 26% -41% sales growth in 2015

If the first line data shows us demand is coming then I can be more bullish on sales growth. Builders are public companies so they have to manage profit expectations as well and higher prices due help them make their margins

So when we all see data lines like this, it makes sense to us why upper end price homes are doing well for new homes because that is the market place they are catering too.

For 2015

Everything that is on my 2015 Prediction shows YoY growth except there is a * on existing home sales which is still cash buyer dependent so it revolves around them

Even on mortgage purchase applications which I have been a bear since May of 2013 I predicted it would growth 5%-10% because we hit a 21st century low last year and employment to population metrics are growing with net over 4.5 million plus jobs created in the last 24 months.

So far this hasn't happened yet. Even though we don't see the negative 10% - 20% declines like we did last year.
We still haven't seen the growth. We have about 5 more weeks of this data to give us a first line expectation into sales year

This is the latest data

And what is causing the graphs I posted at post # 370?

indigenous says

And what is causing the graphs I posted at post # 370?

In 2013 after the Fed Mins. Bernanke posed a thesis that QE velocity was bad because lending standards were tight.

This notion that there was demand out there but the velocity was being held back .

Here we my rebuttal on Bloomberg to Bernanke in 2013

http://loganmohtashami.com/2013/03/27/will-be-on-bloomberg-financial-talking-about-bernankes-myth-on-tight-lending-standards-the-real-housing-story/

Fair enough but still does not show cause.

At least we aren't Japan ... yet

Valley of Economic Death next to the Fed Balance Sheet

I like that graph. I still think that velocity causes a dearth of investment and job growth. The people with access to money would rather speculate than invest which is why your graphs of home prices are up but the jobs are down.

indigenous says

The people with access to money would rather speculate than invest

capital goes where it's treated best, so instead of investing in manual labor or other investments it does go to places where $$ can be made.

One of the reasons why you saw a mass expansion in rental market $$$, that's where yields can be made.

You're not going to get it from cash, CD's, bonds or corporate bonds.

Rental yield is much better.

One of the reasons why cash buyers are starting to fall in volume is that the discount to cash for distress has been going down.

I think that indicates the cause of prices going up and the dearth of jobs.

Logan Mohtashami says

I am trying to explain to people that new home buyers are looking at existing homes because they are cheaper

Hi Logan - I know what you believe will happen to housing prices in 2015, but what about 2016 and beyond? I live in San Diego and support my wife and 2 kids, and I've never owned a home because of the dynamic nature of my previous job. Now I'm in a more stable position and plan to stay in San Diego for a long time while my kids grow up. Should I just keep renting until something apocalyptic happens (around 2016-2017) as suggested by others on this forum?

The other issue is that it seems to be cheaper to rent than buy here in San Diego...as is the case in most expensive areas. I'm disciplined enough to pocket the difference (renting vs buying), but I also want to own my home eventually. I'd love to know your thoughts.

Logan Mohtashami says

This is curious to me, I have talked about a lack of supply as a factor of price increases ( other side of the equation that demand is being driven 45% of it by the most wealthy domestic and foreign buyers) Main street America not having participated as much in this cycle due to a lack of wages and liquid assets

and it is why in my predictions in 2013, 2014 and 2015 said home prices will increases.

I am trying to understand the logic of creating a thesis where one man has to debate his own thesis. This is why I brought into the matter this

It is curious to me that you must spend 3 paragraphs when a simple yes or no will suffice. I have not asked you to debate anyone, I'm just trying to get you to answer a simple question which you seem incapable of, preferring rather to try to impress others with irrelevant graphs and data. Believe me there is no need.

If you agree that lack of supply is an issue, then why have you been arguing with Herc?

indigenous says

You literally do not have the foggiest idea on this, Logan is exactly right on this. The only question is as to why.

lol--I'm not surprised that you are impressed with Logan.

tatupu70 says

lol--I'm not surprised that you are impressed with Logan.

I'm not suprised that you are not not suprised...

Call it Crazy says

Tat, give me a reason for why prices have gone up while there is abundant supply? Your (and Hercs) narrative is that the supply is low (even though 5 months ISN'T low) and that is what has caused higher prices. How would you explain a 12.5% increase in prices in my county with a 9 to 10 month supply?

*

My guess would be because you are looking at median prices.

Call it Crazy says

And conversely, why are prices flat-lining in the county you just left when you had close to the balanced (6 month) level of inventory? 5 to 6 months of inventory is plenty to choose from...

Same reason.

tatupu70 says

If you agree that lack of supply is an issue, then why have you been arguing with Herc?

Because what he is implying is that (Someone) needs to build homes deviating from a 50 year avg of 1.5 million a year which just isn't going to happen. This again is the problem when you have someone who doesn't have housing experience state something that has to deviated from historical norms

debyne says

Hi Logan - I know what you believe will happen to housing prices in 2015, but what about 2016 and beyond? I live in San Diego and support my wife and 2 kids, and I've never owned a home because of the dynamic nature of my previous job. Now I'm in a more stable position and plan to stay in San Diego for a long time while my kids grow up. Should I just keep renting until something apocalyptic happens (around 2016-2017) as suggested by others on this forum?

I get this question a lot over the years.

#1 Housing is the cost of shelter to your own capacity to own the debt. There are so many variable factors into someone buying a home that I can never ever answer that question about when to buy for any individual that has to be a person own choice.

Total Mortgage Payment is what you should only concern yourself about because if you have fixed money for 30 years that is the one constant

#2 In terms of a major crash in prices

- You need a job loss recession for that to create new distress homes into the market place adding to to supply chain to bring down prices. What we saw in the housing bubble and crash most likely won't be repeating in our life time due to many variable factors. Also, the likely spike in interest rates and staying at a high level isn't likely until we see wage inflation pick up

#3 This should be something discussed on a phone 949-291-8293 because there are personal questions and answers that need to happen and items you don't want on the internet

Logan Mohtashami says

Because what he is implying is that (Someone) needs to build homes deviating from a 50 year avg of 1.5 million a year which just isn't going to happen. This again is the problem when you have someone who doesn't have housing experience state something that has to deviated from historical norms

Will you seriously stop with nonsense about not having housing experience? We're not exactly talking about the theory of relativity here. Anyone with half a brain can understand how the housing market works.

Again--you focus only on the extreme micro view of housing and get lost in the details. You acknowledge that prices are rising due to low inventory, but than follow it up by saying that it isn't going to happen? Herc isn't saying what is or isn't going to happen, he's saying what NEEDS to happen.

tatupu70 says

We're not exactly talking about the theory of relativity here. Anyone with half a brain can understand how the housing market works.

Good point, I see what the problem is now...

tatupu70 says

Will you seriously stop with nonsense about not having housing experience?

I am trying to give you guys some cover here, because what you're saying is that you want to deviate from not only American economic history but from actual private experience home builder history.

Both yourself and Herc are trying to deviate form the history of economics now. This shows a lack of housing experience which clearly is shown here so I am trying to give you two some cover

Causation
Correlation
Representation

50 year average of total housing 1.5 million

Economics is equilibrium to each cycle

Just look at when 2 million plus starts happens, there is a down draft right after going back to 1959. History of American economics and housing starts.

Again, math, facts and data. I know you don't like these charts but I am staying true to the history of economics and you're presenting a false narrative of some thesis that can't exist

If you had any private housing experience you would exactly know what I am talking about. Look at the last 2 million plus starts print and the collapse of what happened.

These people don't work for free? Housing isn't a cheap business either, there are many variables into building homes for each economic cycle.
They have business models and housing economic models as well.

I understand this might be a foreign concept because this isn't what you do for a living but look at the history of economics as a template

Logan Mohtashami says

I am trying to give you guys some cover here, because what you're saying is that you want to deviate from not only American economic history but from actual private experience home builder history.

Both yourself and Herc are trying to deviate form the history of economics now. This shows a lack of housing experience which clearly is shown here so I am trying to give you two some cover

Causation

Correlation

Representation

50 year average of total housing 1.5 million

OK great--50 year average is 1.5 million. Would you agree that household size has been shrinking over the last 50 years? Perhaps the number of housing starts needed now is not the same as 1960? And your own graph show housing starts well below 1.5MM for several years. I'm not sure what exactly your argument is at this point?

I love charts. I love data. I love facts. But I don't like it when you don't understand what the facts, data, and charts actually mean. You lack critical thinking skills.

tatupu70 says

I'm not sure what exactly your argument is at this point?

Right there..... you see....

You don't see the point. You believe in something that can't nor has it ever been proven to exist in the reality of American economics.
Even with the data line right there for you to see

Builders don't agree with you
Federal and State government doesn't agree with you

So the private and public sector don't agree with your thesis.

You believe they are wrong. Then write to the home builders, write to President Obama your state congressmen to expand some type of home building program and let me know what they say.

When all the data doesn't agree with you, just maybe your thesis has a flaw.

You two gentlemen seem like good men but what you're asking me to do is deviate form the laws of economics and mathematics which means creating an economic theory assumption that doesn't have any timeline of history of being true as the data has shown for years. This is something I can't do, I am sorry