patrick.net

Best case for the next decade is that adjusting to population sales have never been more weak than any other time in Americans economic history, Prime Labor Force age group peaked in 2007 and is starting to grow again which means by 2020-2024 you will simply have more supply of college educated dual income housing people in the system.

The biggest mistake the demand curve bulls made in the last 7 years is that they assumed we had an extra 7.4 million buyers sitting somewhere ready to buy and after 7 years it's showed that demographic economics matter and that even the lowest interest rate curve post WWII and one of the longest economic expansion ever recorded still couldn't raise the population demand curve for home ownership but was a boom for rentals. Still have strong rental demand as Household Formation has been getting better but still very light on ages 25-34 ... that group is only starting to get out of their parents home. Years 2020-2024 are the real key years with housing demographic economics

Thanks. Good stuff.

Dude, you've been posting incomprehensible analysis on here for 5 years, proving the housing market wasn't recovering…

you spent years calling it a "fakecovery" Prices in my town went up 100%, in your town they went up over 50%. Anybody using your posts as guidance made the mistake of a lifetime!

Give it a rest, you are clearly clueless! nice suit though!

blastfrompast says

you spent years calling it a "fakecovery" Prices in my town went up 100%,

If you're looking for price inflation metrics this is what you should be looking for because since inventory went below 6 months that gives the market pricing power

6 months inventory
New distress homes coming to the market place

Inventory was lower from 1999-2005 than what we have now from 2012-2015

Since fresh new loan origination's have a loan delinquency, pricing power for better or worse is still in housing

Mind that we have never had 6 months inventory this century outside of the housing bubble burst

2006 6.5 months
2007 8.9 months
2008 10.4 months
2009 8.8 months
2010 9.4 months
2011 8.3 months

Bust
Growth in price cycle

2012 5.9 months
2013 4.9 months
2014 5.2 Months
2015 Inventory hasn't grown much in 2015

Remember a lot people have housing bubble debt still attached to their homes, so if you use the affordability index you would need to have at least 28%-33% equity in your home to sell and move up with 20% down

So even though sales are at the lowest levels from main street every recorded in U.S. economic history, prices has legs as long as

- Inventory stays below 6 months
- No Job loss recession creating new distress inventory

For under 6 months price declines, you really need a universal weak housing market most likely with higher rates

This is why I have always had price increases since the inventory break level came under 6 months which happened in the spring of 2012

Supply is key

Even with bad sales

Price inflation can still rise due to low supply

You can really see it the supply pricing power with Existing homes

When the next recession happens, I don't expect a housing bubble collapse since so much of the homes in this cycle have been bought with cash and 40%-50% of the homes have been bought by the Rich those making 3X median income

The one difference though between new homes and existing homes

New homes adjusted to inflation are above the peak of 2006 and that is more due to make shift data in sales, in short they are just selling more bigger homes than ever as we are just simply building bigger single family homes to sell

For existing homes, adjusting to inflation we are still 20% below the bubble peak

bgamall4 says

That is hard to say. You may have way more people doubling up, going back home with parents, etc.

For a massive crash in prices you need distress supply and the loan profile in this cycle has been the best I have ever seen. Not to mention 30%-40% were cash buyers, so instead of the debt on debt leverage on non capacity debt we saw in the last bubble and mega cash out refinance boom from 2004-2006 ... you saw cash buyer which eliminates the massive supply of distress homes.

Everyone who owns the debt of home can afford the payment, so it would take a job loss recession to create a distress market place. Not that home prices won't fall at some point but the level of downside is limited due to a lack of supply.

A lot people forget about the mega cash out refinance boom to lower end quality borrowers from 2004-2006.

There is a professor at the University of Chicago Booth named Amir Sufi who wrote the book "House of Debt" we have spoken at 2 housing conference together and the data line we like to show can be explained here in this video

It's primarily California data based also

https://www.youtube.com/embed/ns4bxXfqOow

bgamall4 says

If people are well qualified, you still need new buyers. If that part of the market freezes, then what?

The demographics for home-ownership is about 5 years away from being better, so you still have price inflation with the lowest demand curve ever recorded in American history.

So, it's always a supply factor when you're talking about bubble type crashes and major distress inventory.

Look at what the inventory base looked like during the housing bubble crash

It's impossible to duplicate this with the buyer profile we have now. So we give up on housing demand for a normal type of housing debt curve, which gives you protection in the next cycle

bgamall4 says

However, if these people suddenly cannot make their payments in a mass layoff scenario, they will walk away just like last time.

This is why you need a job loss recession.... but...

Not only do you have equity protection in this cycle, you have a 30% -40% cash buyer profile which means less distress supply in the market place. Where in the last cycle you had massive debt on debt leverage for housing.

We don't even see the cash out cycle come back in a strong way, which is very healthy in my eye,

bgamall4 says

So, now real estate can only go up? David Lereah must have just been early? :)

Once Supply gets over 6 months, and we have a job loss recessions prices will fall, but it won't be a housing bubble crash like we saw in the last cycle :-)

Ironman says

Are we in trouble here?

Supply is still low enough to keep prices going, plus nationally more conventional sales than distress, I know New Jersey still has a big back log of distress homes because it's a juridical state, but unless demand just falls off a cliff with higher rates, supply is still good enough for prices to rise

Ironman says

Plus, there a still a TON of zombie houses just sitting empty year after year after year. There are a few in my neighborhood, I'm just waiting for them to finally be foreclosed and put on the market so I can buy them and flip them... but they just sit and rot...

New York, New Jersey and Florida are judicial states and have a huge back log, people living in their homes for 2-5 years for free

bgamall4 says

. So raising near rates won't push long rates up

I talked about that in the article, that we might not even see 3% - 3.5% 10's next year

Ironman says

I know many that have done exactly that, 4+ years mortgage and tax free!!

It was a plus if you lived in a Judicial state for that reason, paying no shelter cost for year frees up a lot $

As we can see with the housing start data, rental demand curve still has legs, but slow, slow steady rise

Logan Mohtashami says

Amir Sufi who wrote the book "House of Debt" we have spoken at 2 housing

IS it a good reading. What are the highlights?

ja says

IS it a good reading. What are the highlights?

Amir talks about how the risk to the economy in the last economic cycle was on those who took out the debt and a functioning debt relief system would have been useful.

Here is a video starts at 4:39 on his view

https://www.youtube.com/embed/M5JfpqxWDwU

He is a big fan of my work

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/ …

I for one am totally upset for the Fed not hiking rates

http://nationalmortgageprofessional.com/news/55772/fed%E2%80%99s-refusal-raise-rates-greeted-mixed-emotions

Logan Mohtashami says

I for one am totally upset for the Fed not hiking rates

i think a lot of folks wish they actually could raise them, and a lot folks who miss the days of decades past - because there's no going back. i wonder how long it will take people to realize that the economy is like "wile-y coyote" after over-shooting a turn and running off a cliff, when he's just suspended in mid air about to realize the plunge he's about to take.

Logan Mohtashami says

I for one am totally upset for the Fed not hiking rates

Logan I really find your comments invaluable to this site and I always look forward to your insights. Why are you upset about the Fed's decision to not raise rates when none of your indicators have been met?

Logan Mohtashami says

I for one am totally upset for the Fed not hiking rates

I wish they had. The bond markets have already factored them in, but in the equities there continues to be uncertainties.
Will they...Wont they. Will they...Wont they. Will they...Wont they.
If they raised the rates by a token, the stock market would have rallied, and bond rates would have actually dropped.

No other typeepitaph says

Fed's decision to not raise rates when none of your indicators have been met?

1. Claims are at a cycle high,
2. LEI is at the cycle high,
3. JOLTS data, Yellen favorite blew open to a cycle high at 5.8 Million

The Only thing that isn't on their metric is CPI Inflation which is 0.20% from the Fed Target

But YTD inflation rates look better than 2% even with the importing of deflation from the world weak economies

Running over 2.5% PPI & CPI mix

The average of 2Q's GDP deflator, median CPI and core CPI: 2.43%. https://research.stlouisfed.org/fred2/graph/?g=1LU7 …

Strategist says

I wish they had. The bond markets have already factored them in,

When I saw the 2's at 80 I thought that's it

landtof says

i think a lot of folks wish they actually could raise them, and a lot folks who miss the days of decades past - because there's no going back. i wonder how long it will take people to realize that the economy is like "wile-y coyote" after over-shooting a turn and running off a cliff, when he's just suspended in mid air about to realize the plunge he's about to take.

Logan Mohtashami says

lan

Interesting. Even if growth is North of potential, it can still be weak. More growth would be needed to have a positive impact on employment.
No matter what, this recovery is the weakest recovery ever. Very disappointing.
As I said before....there is no strong recovery, without a strong recovery in housing.

Strategist says

Interesting. Even if growth is North of potential, it can still be weak

Logan Mohtashami ‏@LoganMohtashami
Something I agree with the ChickenHawk
#FED

http://www.wsj.com/articles/why-a-stronger-housing-sector-isnt-boosting-the-u-s-economy-that-much-1441646534
Why a Stronger Housing Sector Isn’t Boosting the U.S. Economy That Much

It took me 3 years with my charts but I finally got the WSJ to call uncle last year when they wrote this has been the worst Recovery post 1980

Logan Mohtashami says

It took me 3 years with my charts but I finally got the WSJ to call uncle last year when they wrote this has been the worst Recovery post 1980

The recovery is pathetic at best. I expected a much better economy by now.
I squarely put the blame on ultra tight mortgage lending. Housing is one of the largest sector of the economy, and we must get it moving. The longer it takes housing to recover, the greater will be the housing boom, and more chances of a bubble. OC median prices could easily jump 50% by 2020, to $1 million.

Strategist says

It took me 3 years with my charts but I finally got the WSJ to call uncle last year when they wrote this has been the worst Recovery post 1980

The recovery is pathetic at best. I expected a much better economy by now.

I squarely put the blame on ultra tight mortgage lending. Housing is one of the largest sector of the economy, and we must get it moving. The longer it takes housing to recover, the greater will be the housing boom, and more chances of a bubble. OC median prices could easily jump 50% by 2020, to $1 million.

As always, I have been posting these chart for 6 year

The mathematical demand curve for these price homes is little, even working off a 230K low base, 7 years into the economic cycle you're fighting to get 500K total K sales

Why would mortgage buyers over pay for a new home when there is a 80 - 100K gap in median prices

The people who were saying the demand curve would be strong are missing 8 million home buyers in this cycle now... where are they?

Renting

Diana Olick ‏@DianaOlick
#Mortgage lending standards easing according to new @FannieMae survey http://www.fanniemae.com/portal/research-and-analysis/mortgage-lender-survey.html …

They weren't tight in the first place and I am reading its' not tight anymore

Lord have mercy on their souls

Logan Mohtashami says

They weren't tight in the first place and I am reading its' not tight anymore

That is where we disagree.

Logan Mohtashami says

Lord have mercy on their souls

:)
That is where we disagree again. Atheists have no souls.

Strategist says

That is where we disagree again. Atheists have no souls.

You know my degree was in history and senior thesis on the crusades :-)

On another note, we are doing bank statement loans now for high net worth and high cash flow buyers

Logan Mohtashami says

On another note, we are doing bank statement loans now for high net worth and high cash flow buyers

Tell me more.

Strategist says

Logan Mohtashami says

On another note, we are doing bank statement loans now for high net worth and high cash flow buyers

Tell me more.

Tradersl@aol.com

epitaph says

Why are you upset about the Fed's decision to not raise rates when none of your indicators have been met?

LEI I was talking about

JOLTS

Claims

No time in American economic history post WWII we had these numbers on these 3 key reports and have rates at Zero when core inflation YTD is over 2% and the massive importing of deflation comes from one trick pony economies and those we a debasing currency

The best part is that the world is begging us not to raise rates, like a dog... pathetic
World economies have a demographic issue we don't have that problem here with our young work force coming on line in a few years

So I AM PISSED, their language was even worst

This is Yellen to me now

bgamall4 says

Bethany McLean