patrick.net

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.

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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?

Strategist says

I call it pent up demand, and home builders as the best stocks to buy.

What do you guys call it?

Shifting demographics. There is going to be a lots of people in apartments for a long time. Millenials are moving to the cities, boomers are downsizing.

Yep, buy lots of home builders stock.

Remember

Pent Up Demand Thesis itself has been used since 2010 and which transpired has been the weakest recovery post WWII ever at the lowest rate ever in American economics since 1941-1945

2013 "Housing is in Nirvana"

2014 "Nirvana is just around the corner

41 days later from Nirvana around the corner this happened

(Miss Housing Nirvana Cries Uncle)

http://loganmohtashami.com/2014/04/11/miss-housing-nirvana-crys-uncle/

Builders just out of population growth should be booming in starts years ago, not now, years ago

but adjust everything to population you got this demand curve

It's like we forgot that math,facts and data matter, that deviation from the norm was going to lead to Nirvana

bgamall4 says

So, how much toxic is allowable

As long as incomes are verified and liquid assets are verified with a down payment we should be fine. The Debt structure of the old have been outlawed in America and there are no whispers of people doing them.

This is why I am always fighting to not ease standards, the sickness of men will allow greed to take over leading to economic damage. That sickness and darkness must be fought at all times forever

Call it Crazy says

bgamall4 says

Strategist says

I call it pent up demand, and home builders as the best stocks to buy.



What do you guys call it?

If you can't afford a house, your demand can be pent up a long time.

See, once and a while, he makes sense!!

It's not one of those times.
According to this article 26% of listed homes in LA are affordable to millennials. 80% of listed homes are affordable to them in some parts of the country.
Logan, check it out thoroughly.

http://www.latimes.com/business/realestate/la-fi-young-home-buyers-face-tough-market-in-southern-california-20150429-story.html

Logan Mohtashami says

bgamall4 says

So, how much toxic is allowable

As long as incomes are verified and liquid assets are verified with a down payment we should be fine. The Debt structure of the old have been outlawed in America and there are no whispers of people doing them.

This is why I am always fighting to not ease standards, the sickness of men will allow greed to take over leading to economic damage. That sickness and darkness must be fought at all times forever

There is no such thing as toxic loans. Just toxic people who should never be given loans.

Strategist says

According to this article 26% of listed homes in LA are affordable to millennials.

Based on what?

20% down loan with a 740 fico score model
and a starting 25% DTI level

This has been the flaw in home affordability awlays

I don't know how else to explain this

We have even this year, year 7 of the economic cycle with 3.75% the worst demand ever recorded in American history from mortgage demand!

It's scary to me that some people are trying to even spin this in any positive light what so ever

Logan Mohtashami says

Builders just out of population growth should be booming in starts years ago, not now, years ago

but adjust everything to population you got this demand curve

Wow. We have never built this few homes in the last 50 years. The pent up demand is like pressure on a dam being built up by a rising ocean behind it. Eventually the dam will burst, and it won't be pretty. The leaks in the dam have already begun as can be seen with record high rents. Those who don't buy now will drown in the coming flood, because they will have no roof to climb on.

Strategist says

Those who don't buy now will drown in the coming flood, because they will have no roof to climb on.

This was never about should but always about could, the reason why Ivy Zelman the #1 housing analyst blew it in this cycle. Economic Vision of Math against Economic assumption thesis of Spin

Logan Mohtashami says

don't know how else to explain this

We have even this year, year 7 of the economic cycle with 3.75% the worst demand ever recorded in American history from mortgage demand!

It's scary to me that some people are trying to even spin this in any positive light what so ever

Well, for one, low interest rates aren't really a bullish sign for the economy. Having rates remaining this low in year 7 of the economic cycle shows that there are still big problems in the economy. There is low supply and low demand right now. Not sure that's better or worse than lots of people moving from one house to a different house.

tatupu70 says

Well, for one, low interest rates aren't really a bullish sign for the economy.

10 year was at 15.84 percent in 1981 and now today is 2.03%tatupu70 says

Having rates remaining this low in year 7 of the economic cycle shows that there are still big problems in the economy

This I agree with especially on the short term side of equation because the FED can't even move from Emergecny Interest Rate policy even when trail growth 4 quarter average is at 3% and we are at a 15 year low on claims. >>>>>> HOLY ^&*(^ storm.. those are the data lines I use when people talk smack on how good things are, it always brings a silence to the discussion

CPI is almost at the Fed's 2% level but that index is 42.2% all rent inflation without that it's soft

While it's growing, it's not strong enough to get more velocity in the economy and with rent inflation and PITI inflation rising strong in this cycle, it just makes consumption harder hence the soft expansion of credit

Change since 2005 in one unit homes
Owner-occupied: -1.97 million
Renter-occupied: +4.35 million

Logan Mohtashami says

Change since 2005 in one unit homes

Owner-occupied: -1.97 million

Renter-occupied: +4.35 million

We did go through the Great Recession, which would screw up a lot of trends. The number one factor to influence home purchases is employment rates.
Bottom line...we will fully recover and go higher, because we have always fully recovered and gone higher.

Strategist says

employment rates

12 millions job recovered - Check

Unemployment claims are at a 15 year low - Check

Unemployment rate near in theory ( full employment) - Check

Interest rates below 5% and the lowest rate curve for the longest period in our life time - Check

this was the result after 7 years

Forget about the peak of 2005, we don't want to use that, just look at the trail demand from 2010 -2015

The next recession/recovery will have a better demand profile but it just wasn't this cycle no matter how much was pushed to make housing work

We have a housing inflation on both fronts now

11 million American families can barely make rent. http://www.makeroomusa.org

Logan Mohtashami says

12 millions job recovered - Check

Unemployment claims are at a 15 year low - Check

Unemployment rate near in theory ( full employment) - Check

Interest rates below 5% and the lowest rate curve for the longest period in our life time - Check

this was the result after 7 years

Forget about the peak of 2005, we don't want to use that, just look at the trail demand from 2010 -2015

The next recession/recovery will have a better demand profile but it just wasn't this cycle no matter how much was pushed to make housing work

Good morning!
It is a pathetic recovery where a double dip is still possible. But then we were on the verge of a depression, which was evaded. :)

Strategist says

double dip is still possible

Double dip recessions are very rare in American economics, I do track many models to see if there is any chance and not much here

Strategist says

the verge of a depression,

In reality once we got the capital market working and started the De leveraging of a housing excess debt things started to recovery

Logan Mohtashami says

We have a housing inflation on both fronts now

11 million American families can barely make rent. http://www.makeroomusa.org

Population growth > new construction for the past 8 years, and continues today. It will take years to get back to equilibrium. My guess - there will be a shift towards trailer homes and sub standard housing in the next 10years. The affects of the 2008 housing crash will continue to echo for many years. :(