patrick.net

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

YesYNot says

63 and 69%

The real rate is 62.2% to 62.7% the government counts all delinquent home owners even those who are 4 years late on their mortgage as home owners. So the floor line 62,2% has to hold

YesYNot says

if you omit the bubble

Not all that demand was a bubble, demographics were good from 1996-2007 with a lot 30-44 buyers, I would say 12.5% -33% demand was fake due the housing bubble, the rest was legit demand

YesYNot says

Do you disagree that this would be a useful indicator?

As a MI2MP model it's all about incomes and assets to me. The problem in this cycle from top housing analyst is that they used old school economic models in housing and it was an epic fail on their demand trend calls. FInally after 7 years of the cycle they're getting the story.

So, incomes and assets ( Dual Income Factor Model) matter, rental demand has legs for 10 years due to demographics but a pick up on a dual income factor model needs to be seen years 2020-2024. Again variables in the economic equation out that far off

In regards to economic output, this cycle has been weak, but the rental demand has given a boost to multifamily expansion

Still for this year look for total sales to be 5.0 - 5.2 million ( If trail end demand August- December) can stay at part to trend now, maybe a 5.3 million print.
The YoY decline in cash buyers is a positive for housing but without it's growth you can see it impacted total sales number for EHS

Much different market place for new homes which should have double digit growth this year

To me, it seems that the big drivers are demographics, affordability, and sentiment.

I agree that the demographics will be better in 5 to 15 years since the 15-29 yr group has a big population. This is bullish for long term housing.

Affordability is a combination of price to income and interest rate. People pay by some combination of total price and monthly outlay based on interest. I would think that the monthly outlay is a much bigger influence. With a fixed monthly cost, it would be better for a buyer to buy in a high interest rate environment, but that is not an option. As far as predicting future prices, low interest rates are a negative, IMO. It leaves no room for financial engineering to artificially raise prices.

Sentiment describes whether people want to go the extra mile to own a house. When the sentiment is low, the homeowner percent of society will decrease, as more and more people decide to rent (last 7 years). IMO, when the homeowner percentage is getting towards the low portion of the range (now), then sentiment is likely to switch. So, the next 10 yrs or so are more likely to see sentiment working for housing along with the demographics, and there is more room for consumer demand to increase due to sentiment.

PITI * MI2MP model against real median income and liquid asset availability

Principal Interest Taxes and Insurance against a Median income to Median Price model not based on a 20% down factor loan

The Fed, economist, housing analyst, professors no one had this model to track housing capacity and thus the thesis of not having enough qualified home buyers has stayed true this entire cycle even when rates got to 3.25% as they all look at it as adjusting to population

The Fed just now

FOMC on housing. March 18: ‘recovery in the housing sector remains slow’ vs April 29: ‘recovery in the housing sector remained slow’ ‪#‎FOMC‬

There ever battle for that first rate hike after years of having emergency rate policy

You need better incomes and better assets, to have the capacity growth and the best way for that is a dual income factor model as PITI inflation is still rising

What do you expect when the 1% is hoarding all the money and goods they got from the tax benefit? It is time to stick it up their asses with massive tax. If they wanna get out of this country to dodge the tax, we should make sure they can't use any of our public system in this country including the highway etc.

bgamall4 says

Logan, Germany ownership rate is 42 percent. Germany is looked upon as the model for how to run a nation. Germany does not allow toxic loans to its citizens, although it does to PIIGS nations. That is why Greece is in trouble, bad loans from German banksters. But I digress. The PIIGS nations look at the Germans and say they are poor because the PIIGS nations' citizens have a much higher home ownership rate!

So, which model is better, Logan? Lots of home ownership and hurtful loans, or no toxic loans and low home ownership?

Lots of home ownership without the toxic loans is better. Germany having a 42% home ownership rate equates to 58% have landlords.
What do you think people want? Their own homes or landlords that get rich off the rents?

Logan Mohtashami says

I call it pent up demand, and home builders as the best stocks to buy.
What do you guys call it?