patrick.net

Call it Crazy says

Didn't you get the memo?

maybe... just maybe... I am not making promises here. However, I might be speaking to congress on this topic in the next 12 months. I have a meeting with a housing advocacy group which was recently at a hearing with the Senate on lending and housing.

What I wouldn't give to have just a few minutes against both parties on CSPAN

I would argue this is New Normal, same as Old Normal.

High levels of home ownership were a blip, due to misguided public policy and banker frauds.
The "Home Ownership Society" promulgated by Bush et al, so VERY loudly, just doesn't
make all that much sense. It's trying to force every segment of society into a 60's ideal
which doesn't fit with how we work and live now.

Call it Crazy says

Come on Logan, you've been here long enough. Who cares how many people own houses and that the ownership levels are back to the 1990's. That's NOT important to the economy!

The ONLY thing that matters is that prices and rents are UP!!!

We're in a Housing Recovery!! Didn't you get the memo?

In all seriousness, what does it matter what the homeownership rate is? Is it better for the economy at 69%? 67%?

tatupu70 says

In all seriousness, what does it matter what the homeownership rate is? Is it better for the economy at 69%? 67%?

In dealing with economist, professors and political types, these are there concerns

1. Home ownership rates = forced saved thesis so they want Americans to have the capacity to obtain some wealth in their lifetime

2. New home sales which still has legs to rise = Has more of an economic out put for growth than existing home sales so the concern is now that these low level sales
are coming when rates are 3.75% in year 7 of the economic cycle

It took a while but it finally has got the concern of those on tops since we are well below everyone's estimate in year 7 of the economic cycle

I have pointed out to them that they need to wait to 2020-2024 time frame before making a drastic decisions

maybe... just maybe... I am not making promises here. However, I might be speaking to congress on this topic in the next 12 months. I have a meeting with a housing advocacy group which was recently at a hearing with the Senate on lending and housing.

What I wouldn't give to have just a few minutes against both parties on CSPAN

--------------

What would you hope to accomplish?

errc says

What would you hope to accomplish?

The fact that tight lending has nothing to do with the weakness in housing and we shouldn't try to ease standards that are in place.

10 pages of things that I need to discuss but if you want a idea here is the testimony that recently happened

http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=398862#

Right will harp on too much government and the left not enough... somehow we need to find a workable middle

Logan Mohtashami says

somehow we need to find a workable middle

Better economy with more liveable wages, and more possibilities for jobs outside of NYC/SF/LA where houses are already too expensive for a mortgage buyer. Jeez, why does nobody in gov't get this?? Why is it always just "lower interest rates" and "looser standards".

Philistine says

Better economy with more liveable wages, and more possibilities for jobs outside of NYC/SF/LA where houses are already too expensive for a mortgage buyer. Jeez, why does nobody in gov't get this?? Why is it always just "lower interest rates" and "looser standards".

That will be the main point I will make. Refereeing back to this article a few weeks ago

"All housing analysts, I would surmise, would like to see a more robust housing market. Where we disagree is what should be done to encourage a healthy market. I believe we have a moral obligation as a society to reject attempts to engineer conditions that encourage people to put themselves in economic peril. We did that before, it was a disaster and we must learn from our past mistakes."

"I have to believe that those who are saying lending is too tight are either not aware of the actual requirements and have absolutely no lending experience or have some other agenda that is preventing them from acknowledging the obvious. Gotta wonder. Frankly, I also gotta wonder why we keep listening to them."

http://loganmohtashami.com/2015/04/09/tight-lending-and-other-urban-legends/

The fall of home ownership (from tight lending) is extremely bullish for the housing market

Philistine says

Why is it always just "lower interest rates" and "looser standards".

These solutions do not threaten home prices, which is not a coincidence because the vast majority of donors to political campaigns are homeowners, and homeowners outvote renters in elections by a substantial margin.

Today in Colorado, the state legislature killed a bill that would tighten the overly-permissive lawsuit opportunities for condo owners versus developers. It is said that there are two types of condo developments in CO: those who have been sued, and those who are about to be sued.

I hate developers, but the situation is ridiculous: condo development has simply ceased. One exception is a couple of guys who photograph every step of the construction process.

Trial-lawyer cash probably killed the current bill, but a desire to keep condo sales prices and rents high also helped. Renters get worked over worse in Colorado than M-to-F transsexuals in men's prison.

SFace says

The fall of home ownership (from tight lending) is extremely bullish for the housing market

It's not tight lending, trust me, if it was I would be first person protesting on this topic. Young Americans have a host of reasons why they aren't buying. Wait until 2020-2024 time frame when they're better suited with DTI barometers

9 Brief reasons

To rehash this old story – for those who somehow missed it, the reasons for this weakness revolve around a mixture of inter-related economic, social and political forces some of which include:

1. Delay in marriage (Dual incomes missing)
2. A lack of a strong paying full-time job with security.
3. Older Americans are unable to retire due to lack of savings – they replace younger workers, who have trouble finding jobs.
4. Having enough for a down payment plus closing cost with taxes impounded is a lot for young aspiring home buyers.
5. Renting isn’t considered a bad option anymore from young Americans.
6. Exotic loans that allow would be homeowners to obtain credit without collateral or income verification are removed from the market.
7. Financially strapped parents are unable to “gift” down payments for first home purchases by their children.
8. Student loan debt impacted household formation from rising and making it more expensive for first time home buyers to buy.
9. Despite the weak first time buyer market, home prices go up in many markets due to the lack of inventory, keeping home ownership even further out of reach.

http://loganmohtashami.com/2014/11/03/demand-from-first-time-home-buyers-hits-21st-century-low/

The Model is this

1. Rent
2. Date
3. Mate
4. Marry

and these to show case the view even more that it isn't tight lending

Would-be home purchasers are unable, to qualify for a mortgage due to the following factors:

• They lack adequate monthly income. A lot of the jobs created, post-recession, are low paying jobs that don’t provide adequate income to support a mortgage payment. More liberal lending standards will not correct this.

• They lack liquid assets. The down payment (even just 3% for some loans) and closing cost for a home purchase exceeds many American’s available liquid assets.

• There is no financial bubble. The formal definition of a financial bubble is an economic cycle characterized by a surge in asset prices above the fundamental value of the asset. The housing bubble created excess demand based on poor lending standards. When the bubble popped, that excess demand disappeared. Not all the demand was fake in that cycle, however. In fact a good portion of it was real. It would be a drastic mistake to attempt to manipulate lending standards in an effort to recreate that extra fake demand. If historically low interest rates cannot generate home ownership demand, then we need to accept that a percentage of our adult population is simply not in a financial position to take on mortgage debt.

• Demographics are not favorable in this cycle, but in time they will be. Household formation has been very soft. People are staying single or getting married older. This translates into lower housing ownership demand as most people will wait to marry before considering a home purchase. Fewer dual income households so fewer households that can afford a mortgage payment. These factors have driven strong demand in the rental market

Still think tight lending is preventing a housing recovery? A quick review of the requirements for some of mortgage loans available may surprise you.

No money for a down payment? Is zero down too tight?

VA (Veterans Administration) loans require no down payment, a minimum FICO score of 620 and allow up to 60% debt to income ratio. I don’t think anyone could call this tight.

Poor credit score? Is a FICO score of 560 too high? FHA (Federal Housing Authority) loans require a FICO score of 560 to 620. (Scores of 650 are considered “fair and below 600 are considered poor or high risk). Other requirements include at least 3.5% down, and a maximum debt to income ratio of 43%. In some cases they will accept up to 50% debt to income ratio.

High debt to income ratio? Is 50% debt to income ratio too stringent? GSE (Government Sponsored Enterprise) loans allow for 43% to up to 50% debt to income ratio in geographical areas where housing is particularly expensive. A minimum FICO score of 620 and a 3 % down payment is also required.

Other common requirements for these loans are a history of the same line of work for the past 2 years, 4 weeks of consecutive pay stubs to verify income, most recent W2, and most recent 2 months bank statements.

Home loans are available and home loans are being made. Over 4 million purchase home loans were given to Americans in 2014 and thankfully those were largely to folks who have the financial capacity to own the debt the home ownership.

I agree with SFAce. The lower the percentage of Americans who own homes, the more bullish for long term housing market.

Do incomes and prices matter anymore?

Serious question

YesYNot says

I agree with SFAce. The lower the percentage of Americans who own homes, the more bullish for long term housing market.

I have been hearing that thesis for years... "Pent Up Demand Thesis" it was part of the Housing Is In Nirvana Thesis of 2013 which was now on record one of the worst academic calls in housing this century.

It was an economic assumption theory based on a model that worked in previous cycles not this one

To have 21st century low in mortgage demand in 2014 when
- American population rose by over 40 million
- Working Americans grew over 17 million

Then add the lowest rate curve post WWII

There are rules in the game of demand.

Thesis number since 2010 was simple, we simply won't have enough qualified home buyers to have a real recover

Now in 2015

H.O. rates are at historic lows

Mortgage demand is scrapping of a 21st century low set last year in year 6 of the economic cycle

If Cash buyers weren't 16% now above historic norms, 2015 housing demand would be at the Great Recessions Lows

..... Yes, I have heard for many years "Pent up Demand thesis" going back to 2010 as well.... Time has not be kind to those who believe in an economic assumption theory.

Come 2020-2024 things should be different but I do commend the housing heads for finally admitting what they should have years ago

“Weak home sales are ‘much more of an income problem than a credit problem,’ said David Blitzer of S&P Dow Jones Indices. #housing #NAR”

‘I don’t think there is a housing shortage…It’s strictly a matter of low demand, said’ “NAHB Chief Economist Crowe: #housing #NAR @NAHBhome”

This was real reason why housing demand was soft

https://www.o9O_FDLPdgA&t=10m35s

You can bend the mathematical curve for sure, but you can't break it

errc says

Do incomes and prices matter anymore?

Serious question

Yes, it always matter, this is main reason why housing demand from main street has been soft, but the rental demand for housing has been very strong, and household formation is finally taking off, yes they're renting but this is a plus for housing down the line

Looking at 1.5 million for Q1 2015, that's a legit rise even if the numbers might be volatile and not 100% accurate it's still a positive move. A reason why rental demand has 10 years in it

I guess people aren't all that keen on owning a "loan."

Logan Mohtashami says

What I wouldn't give to have just a few minutes against both parties on CSPAN

Yeah you and that one guy that still watches CSPAN.

CaptainShuddup says

Yeah you and that one guy that still watches CSPAN.

1 what!!!... that's way too high! it's who ever is in the room

Logan Mohtashami says

In dealing with economist, professors and political types, these are there concerns

1. Home ownership rates = forced saved thesis so they want Americans to have the capacity to obtain some wealth in their lifetime

2. New home sales which still has legs to rise = Has more of an economic out put for growth than existing home sales so the concern is now that these low level sales

are coming when rates are 3.75% in year 7 of the economic cycle

Call it Crazy says

Here's a few questions for you Tat: How much economic activity takes place every time a house is sold? How many different people earn some sort of income on each house transaction?

Let's see how well you do with the list!

The problem with both of your theories is that the homeownership rate doesn't mean more or fewer homes are sold. Witness the bubble crashing--there were a lot of homes sold, but they were sold to landlords that rented them to tenants. If you want to measure new home sales--look at new home sales. Home ownership rate is not a good proxy. Or look at household formation.

I see only one reason why higher home ownership is better for the economy--it should serve to reduce inequality, in general.

Logan Mohtashami says

The problem with both of your theories is that the homeownership rate doesn't mean more or fewer homes are sold

“Weak home sales are ‘much more of an income problem than a credit problem,’ said David Blitzer of S&P Dow Jones Indices. #housing #NAR”

‘I don’t think there is a housing shortage…It’s strictly a matter of low demand, said’ “NAHB Chief Economist Crowe: #housing #NAR @NAHBhome”

tatupu70 says

The problem with both of your theories is that the homeownership rate doesn't mean more or fewer homes are sold

Post WWII at the lowest rate curve post WWII this is the weakest demand from main street ever recorded in modern day American economics. I am happy to see the economist at the National Home Builders Association and S&P are showing concern on these low levels of sales adjusting to population.

Once it comes from the top people, it's easier to flush down the economic reality.

As always if cash buyers weren't at a 20% above historical trend for years existing home sales would be at a great recession low even with rates below 5% since 2011.
I am pleased to see it's finally coming around to the heads of the housing community

tatupu70 says

The problem with both of your theories is that the homeownership rate doesn't mean more or fewer homes are sold

Now new home sales is the economic output factor model problem, this where economist have their biggest concern at

This is only 1/10th of demand this cycle, usually 1/6th demand in a normal market. New homes are getting bigger and more expensive why the lack of buying from the mid level never really happened in this cycle. That is why you had big misses on sales estimates

Even the Wall Street Journal which was the final media to cry uncle, has called this the weakest recovery ever and that took a lot for them to submit this idea out recently

If you're a young first time buyer or a move up buyer the value of old vs new has never been this wide

Logan Mohtashami says

errc says

What would you hope to accomplish?

The fact that tight lending has nothing to do with the weakness in housing and we shouldn't try to ease standards that are in place.

Oh God! There goes any hope for a recovery.

Call it Crazy says

Come on Logan, you've been here long enough. Who cares how many people own houses and that the ownership levels are back to the 1990's. That's NOT important to the economy!

The ONLY thing that matters is that prices and rents are UP!!!

We're in a Housing Recovery!! Didn't you get the memo?

Stop complaining. The US is the most housed nation in the world. You need to take a trip to Europe and and Japan to see the itsy bitsy homes they live in. All at an unaffordable and shocking monthly rent.

Logan Mohtashami says

Logan, don't you think your graph is deceptive?
The high to low on the home ownership is a difference of 7%, while the high to low on the rents is more than 100%.

Strategist says

Oh God! There goes any hope for a recovery.

I am much better talking than writing and posting charts! You will totally understand my point better

Logan Mohtashami says

New home sales which still has legs to rise = Has more of an economic out put for growth than existing home sales

I see you did your homework on Econ 101.

Logan Mohtashami says

so the concern is now that these low level sales

are coming when rates are 3.75% in year 7 of the economic cycle

I see you missed a few classes while taking Econ 101

Strategist says

difference of 7%,

considering the population factor in that % even 1% is a big move. So, not not at all when we just hit a 25 year low... which is still inflated because census counts delinquent homeowners as owners when we still have over 2.5 million homes in distress. I have always modeled this out at 62.2% -62.7%... that is more of a realistic number

Strategist says

are coming when rates are 3.75% in year 7 of the economic cycle

On the Irony, this is the main point that I have gotten across of my economist and professor friends, especially professor Sufi from Chicago Booth University

Amir Sufi @profsufi
Check out housing forecast by @LoganMohtashami -- he's been spot on in past, really understands housing market: http://loganmohtashami.com/2014/12/22/2015-housing-predictions-the-bar-is-so-low-we-might-trip-on-it/ …

You should check out his credentials and come back and let me know If I ditched some economics 101 class

I have many surprises coming up .... ;-)

Logan Mohtashami says

If Cash buyers weren't 16% now above historic norms, 2015 housing demand would be at the Great Recessions Lows

..... Yes, I have heard for many years "Pent up Demand thesis" going back to 2010 as well.... Time has not be kind to those who believe in an economic assumption theory.

Come 2020-2024 things should be different but I do commend the housing heads for finally admitting what they should have years ago

One thing that will be different is 10's of millions of baby boomers will be dead, downsizing, moving to assisted living, or moving in with their children. That's going to be a lot of houses coming on the market. Most in the exact wrong geographic location for the movement of young people and jobs back into the cities. It will be interesting.

That's going to be a lot of houses coming on the market. Most in the exact wrong geographic location for the movement of young people and jobs back into the cities. It will be interesting.

-----------

THATS BULLISH AS FUCK FOR HOUSING

Call it Crazy says

Strategist says

The high to low on the home ownership is a difference of 7%,

Don't look at it as just a percentage, how much has the population grown over the last two decades? How many more people are not participating as home owners but are stuck as renters?

Strategist says

while the high to low on the rents is more than 100%.

What's wrong with that picture?

OK....Most important, plotting asking nominal rents, and homeownership rates on the same graph is deceptive. You are comparing apples to oranges. Here's why:
The nominal asking rents can go up forever, because that number is highly correlated with inflation. The home ownership rate is more a result of lifestyle as some people choose never to be homeowners like in Europe, and can never go beyond 100%. How can you compare the two? A short term graph, maybe, but not a long term graph.
This will give us some insight into home ownership rates.
http://en.wikipedia.org/wiki/Homeownership_in_the_United_States

If you can't get housing demand to really grow years 2020-2024 then you have some long term issues. However, for now the dual income factor model still is in tact for the next economic cycle.

This cycle has been the cycle of renting

A very good thing in this cycle is that we are getting the excess toxic mortgage debt out of the system. Still over 2.5 million loans in delinquency but we have made progress from 2007

Call it Crazy says

The ONLY thing that matters is that prices and rents are UP!!!

The direction of prices was never the "only" thing that mattered. It was just the "most important" factor to say the people who were priced out and hoped to buy at or near the price bottom, including the sites founder who was sounded the horn of "crashing prices" well over a decade ago http://web.archive.org/web/20030804110639/http://patrick.net/housing/crash.html

In other words - price was only the most important factor to say 95-99% of the lurkers & posters who ever visited this site.

errc says

That's going to be a lot of houses coming on the market. Most in the exact wrong geographic location for the movement of young people and jobs back into the cities. It will be interesting.

-----------

THATS BULLISH AS FUCK FOR HOUSING

It's always a great time to buy a house, ask any realtor.

Logan Mohtashami says

YesYNot says

I agree with SFAce. The lower the percentage of Americans who own homes, the more bullish for long term housing market.

I have been hearing that thesis for years... "Pent Up Demand Thesis" it was part of the Housing Is In Nirvana Thesis of 2013 which was now on record one of the worst academic calls in housing this century.

Logan, by 'long term,' I'm thinking more like the next 10 years give or take. Five years ago, I the rate was 67%, and I would have said that was a sign that the next 10 years would not bring high returns, because the home-ownership rate was much higher than historic norms. I'm thinking this is like predicting the next 10-20 year stock performance using the current price to earnings ratios. When P/E ratios are 10, the next 10-20 years are likely to be good. When P/E ratios are 25, the next 10-20 years are likely to be poor. I'm thinking that the homeownership rate looks very stable between 63 and 69%. Maybe it is likely to hover around 63 to 66% if you omit the bubble. But, as when this ratio rises, it is due to more people buying for private use. It's hard to say the impact on total demand, as investors aren't included, but it seems that it is an indication of overall demand as well. Do you disagree that this would be a useful indicator?

With applications numbers today, which I was looking for 5%-10% total growth for the year, it has to be put into context in the Low Bar Housing theme

Keep an eye on that 10 year note yield at 2.07% a break over 2.25% with follow through will have legs higher

YesYNot says

I'm thinking more like the next 10 years give or take.

2020- 2024 you have better demographics for housing, it just becomes a income asset to debt liability cost then
but make no mistake this has to be done by first time home buyers in the next cycle, cash buyer volume is falling for 18 months now
6% drop YoY as a % of the market place which is a good thing in my mind