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Ironman says

Homebuilders’ Optimism Bodes Well for U.S. Economy

Confidence and sales gap is the biggest gap ever recorded since the data has been published today

Ironman says

So, what's the deal?? Are the home builders just trying to boost their stocks, or are they really this clueless??

Confidence to me = Higher Price because that is profit margin expansion

Sales are at a historic low which kind of makes that data line very funky

New single-family home sales are about 7% below the 1963 start of this data series. The population-adjusted version is 54% below the first 1963 sales and at a level similar to the lows we saw during the double-dip recession in the early 1980s, a time when 30-year mortgage rates peaked above 18%. Today’s 30-year rate is around 4%.

Prices have been flat this year and inventory is up to 5.8 months now, however, that's a lot $$$$ expansion on your net income report there

A lot of this is due to bigger homes being sold at a much higher level in this cycle

Ironman says

So, what's the deal?? Are the home builders just trying to boost their stocks, or are they really this clueless??

New home sales are counted when the contract is signed, not when they get to a closing, like existing homes, so deals falling apart don't factor in. Can these clown really not know what's in the pipeline for the current month?

Logan Mohtashami says

Confidence and sales gap is the biggest gap ever recorded since the data has been published today

You guys crack me up.
The actual sales reflect the past. The confidence level of home builders points to the future.

Strategist says

You guys crack me up.

The actual sales reflect the past. The confidence level of home builders points to the future.

Fallacy of logic, if that was the case where is the demand curve from 2011-2015,

Hence why TOL brothers stock is still stuck in early 2013 levels today on 10/26/2015

Not all builders are the same, 5.8 months of inventory now,

Question is what do they do next?

Confidence is at a 10 year high and sales levels are at where they would be at a recession?

bgamall4 says

Strategist says

You guys crack me up.


The actual sales reflect the past. The confidence level of home builders points to the future.

But it appears the confidence does not reflect reality. Unless they know something no one else knows.

Reality is knowing if you don't build enough homes to cater to a rising population, the shortage will get worse. If you don't build one home today, you will need to build 2 homes tomorrow.

Logan Mohtashami says

Confidence is at a 10 year high and sales levels are at where they would be at a recession?

When you build half the homes necessary for a rising population year after year, a housing recession is a reality.

Here is the problem I see... If the builders were really this confident they would be blowing out single family starts like crazy, yet almost all the real growth even with a low bar to work from is coming from multi family

5.8 months inventory is high enough to not blame low inventory any longer

We are talking about 500K sales trend in 2015 7 years into the cycle with 4 percent rates and rising inventory... As always I give the builders kudos for going multi family that is where the demand curve is until years 2020-2024 time frame

Ironman says

Strategist says

When you build half the homes necessary for a rising population year after year, a housing recession is a reality.

Logan Mohtashami says

5.8 months of inventory now,

That's basically a balanced level for inventory, according to the experts... Doesn't look like a lack of homes...

If the inventory was at a 1 month level, you might have a point...

Do not confuse inventory of homes measured in months, with not building enough homes year after year. We have a looming problem. It's just a matter of time before the damn bursts, which will show up in shockingly high home prices, and super high valuations for home builders. Americans will end up down sizing like never before, and the President to blame will be Obama.

Again if this was true they would be building single family homes like crazy and yet most of the growth in 2015 even with a low bar is all multi family , the builders refute your thesis with their own actions

Logan Mohtashami says

Again if this was true they would be building single family homes like crazy and yet most of the growth in 2015 even with a low bar is all multi family , the builders refute your thesis with their own actions

They don't build enough because those who want to buy can't get the loans. Our mortgage banking industry is not back to the pre bubble era.
In the meantime the shortage continues, showing up in higher rents.

Strategist says

Do not confuse inventory of homes measured in months, with not building enough homes year after year. We have a looming problem. It's just a matter of time before the damn bursts, which will show up in shockingly high home prices, and super high valuations for home builders. Americans will end up down sizing like never before, and the President to blame will be Obama.

Do not confuse home with single family house. Home is where you live, even if it is a cardboard box. There are plenty of places to live being built. They are called multi family and with the death of the middle class that is where most people are going to end up.

Strategist says

They don't build enough because those who want to buy can't get the loans.

As long as you believe this, you're terribly flawed in your economic thinking

All you need in America to buy a home

620 Min Fico
3% Down
43% Debt to Income ratio

The loans you want Americans to take are now banned from lending and criminal charges can be placed on you when you break away from CFPB guidelines if it is found that you mislead home buyers

Not happening

Let's be very mindful of this economic reality here in year 7 of the economic cycle

- Rates have been below 5% since early 2011,
- 3rd straight year that new home sales are missing their sales expectation, this also working the lowest year over year bar I have ever seen in my life
- adjusting to population we are 54% below where we were in 1963
- headline we are 7% below where we were in 1963
- even in year 7 of the economic cycle sales at a level where we would be in a recession, except we aren't in one

You need to be patient for the demand curve is get better, once it does, we won't be having this same conversations over and over again

The reality of this economic cycle, slow and steady working from the lowest bar we have seen ever, that is more in line with housing economic reality

Confidence reports are notorious for being unhooked from reality for consumers, I would of thunk builders would be more sophisticated. OTOH the ISM survey is accurate but they have POs staring in the face.

OTOH this time of year is always slow, so what is the big deal?

indigenous says

I would of thunk builders would be more sophisticated.

With the confidence index for the builders, the HMI, because sales started from a historical low, it's a funky data line, because it's more in line with an economic cycle rather than economic output for the builders.

It's in line with other confidence numbers

However, because this cycle even though it has median sales price appreciation neat a all time high, the economic output for starts and sales is still historically low.

Have to take the HMI with a grain of salt and context

Multi family units are long in the tooth as indicated by a flattening vacancy rate and architects billings for this sector are declining.

Single family units sales will be strengthening as family formation is strengthening.

What economic phase is the single family unit in?

indigenous says

What economic phase is the single family unit in?

Single family which is always bigger than multifamily even in this cycle has legs because it's so low right now. The builders are smart here, they're slowing moving this supply out because they always know the demand curve was weak. So, give them credit, they properly played this cycle well.

Permits and Starts adjusting to population is very low even today

Household formation 1,447k in 2015 Q3.

92% of the increase was renter households. 8% was owner-occupied.

New household formation is NOT because kids are moving out.

% 25-34 y.o. living w/ parents (CPS):
2014 Q3: 14.1%
2015 Q3: 14.4%

The guys I'm reading go by change and the rate of change and of course the direction of the change. 2016 will be slightly higher yet.

I think you stated the other day that % of kids living at home is actually lower than it has been in the past?

For what ever reason the people forming households is higher.

In a few years a lot of things that held housing back in terms of the demand curve being soft from mortgage buyers will change, just not yet.

Logan Mohtashami says

I think you stated the other day that % of kids living at home is actually lower than it has been in the past?

The young just need more time to become buyers in bigger terms, demographics are very heavy ages 21-25 ( Ages 12-29) massive

Maybe the higher household formation is by seniors, perhaps the article I'm reading is missing this point.

indigenous says

Maybe the higher household formation is by seniors, perhaps the article I'm reading is missing this point.

Yes, that is correct, higher household formation from older Americans is pushing household formation, not so much from the young yet.

Real nominal rate for home ownership was roughly 62.2% -62.7% to me, this accounts for all the delinquents and the fact that households from the young will rent into the end of the decade in bigger terms.

So, we are closer to the end of the decline than anything else

So the end of the cycle. Are builders looking 5 years ahead?

indigenous says

So the end of the cycle. Are builders looking 5 years ahead?

No and they shouldn't, price to pay for land and then construction ..... you need solid demand curve

I can tell you this about the builders which they won't ever admit to the financial media or public

Existing homes are just so much cheaper than new homes, so when more move up buyers come into play they will supply more first time home buyer crop. They know this, so slow and steady and keeping an eye out on profit margins.

In time they will build out more starting home crop, just not this cycle

Is that your chart or Stockman's? He is good at finding charts. And correctly identifies the real problem.

Logan Mohtashami says

Is that your chart or Stockman's?

Lee Alder's chart

This cycle for new homes with a 500K running average in year 7 has been boosted by higher price homes, only growth in the report came from homes 400K- 500K

We are at 63.7% today, with today's census numbers, the chuck of the decline is in for H.O. rates, downside is limited due to falling supply of distress delinquents loans in the system

Ironman says

So, where's the "shortage" and hidden need and demand to build MORE to fill the lack of houses. These charts come from a state that doesn't have a wealth issue, so what's the problem?

New Jersey is not representative of USA. They could be moving to Florida.

bob2356 says

Do not confuse home with single family house. Home is where you live, even if it is a cardboard box. There are plenty of places to live being built. They are called multi family and with the death of the middle class that is where most people are going to end up.

They are not building enough units compared to historical norms, but population is growing around 3 million every year.

Logan Mohtashami says

As long as you believe this, you're terribly flawed in your economic thinking

All you need in America to buy a home

620 Min Fico

3% Down

43% Debt to Income ratio

The loans you want Americans to take are now banned from lending and criminal charges can be placed on you when you break away from CFPB guidelines if it is found that you mislead home buyers

Not happening

The loans I want are loans that existed in 2000. Sub Prime, Option Arms, Stated Income, were only available with large down payments.
The loans we don't want are loans that became common in 2005. They were a disaster waiting to happen.
The loans we have today are pretty much government loans that have to fit in perfectly to strict guidelines.
We are clearly in a tight lending situation. Let's get back to the normal 2000 level.

Ironman says

That's what Strat doesn't get..

Meeting those guidelines is what is stopping people from buy, NOT a shortage of houses. If these people can't meet those low guidelines, it's either because of the jobs situation currently, or these people aren't responsible enough with their money and the way they pay their bills.

Bingo...Voila....You got it.
Ease up on the guidelines, Uncle Sam. The government overshot on their requirements. That is not responsible lending.

Strategist says

The loans I want are loans that existed in 2000. Sub Prime, Option Arms, Stated Income, were only available with large down payments.

The loans we don't want are loans that became common in 2005. They were a disaster waiting to happen.

The loans we have today are pretty much government loans that have to fit in perfectly to strict guidelines.

We are clearly in a tight lending situation. Let's get back to the normal 2000 level.

Here is the biggest problem with the tight lending group that are advocating liar loans and sub prime loans

The demand curve for these products in real terms are small.

We have bank statement loans here in CA, they require big down payment and the cash flow we use are people who net 20-30K a month

This is not the norm for the American home buyer

Sub prime stated income 100% loans with high recasting rate are never coming back period

Logan Mohtashami says

Here is the biggest problem with the tight lending group that are advocating liar loans and sub prime loans

The demand curve for these products in real terms are small.

You mean they represent a very small percent of total loans.
What percent did they represent in 2000? Most businesses in the country are small businesses, the owners of whom widely use option arms.

Logan Mohtashami says

Sub prime stated income 100% loans with high recasting rate are never coming back period

I agree. No one wants them anyway.