patrick.net

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.

Strategist says

What percent did they represent in 2000? Most businesses in the country are small businesses, the owners of whom widely use option arms.

We have less than 9 million self employed Americans, small business creation has been on a down trend. The highest estimate I have seen of actual self employed Americans is 14.6 million

Every self employed borrower that I have was able to get their loan, because they make money, this is a myth that millions of Americans are sitting with 20%-40% down payments and can't buy homes because they need to lie on their loan applications because they use the tax code to shelter away incomes to pay the least amount of taxes

Every chart we have has showed a trend lower

I have seen this same tactic being used by all tight lending people and then when the data is show, they realize how small this group is

Strategist says

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

You have to stop this BS argument.
Loans are not a barrier when middle class people want to buy a $250K house, which is close to the medium new house price in the US.
Loans become a barrier when half the houses in san Mateo county sell for more than a million...
... Which is the same as saying: loans are not the barrier, prices are a barrier. Period.

Strategist says

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

They don't build enough because land with permits is not there. Period.
All the rest is BS.

It's just a deliberate choice.
Too many people want to "preserve open space" blah blah... code for DO NOT BUILD. itself code for SCREW THE NEXT GENERATION.
Too many people profit from rising prices.

Logan Mohtashami says

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.

Move up buyers need to find a new home to buy before they sell the old one. If no one builds it, and/or it's priced so high that they can't make the jump, then they will stay put indefinitely. This is what is happening:
1 - new units built are below population growth
2 - housing become scarcer
3 - prices jump up, year after years, as people compete for the roofs.
4 - new entrants, first time buyers are priced out, can't afford even a modest unit. They stay with parents, or double up.
5 - move-up buyers do not find a house to move to that they can afford. Do no sell.
6 - inventory is low, turn around is low, sales low,
7 - builders should be able to make a killing, but constrained by land made available (and land prices) and permit processes.
8 - go to 1

This cycle from hell will continue until most workers are priced out and the CA economy runs into a wall.

Heraclitusstudent says

Move up buyers need to find a new home to buy before they sell the old one

Typically move up buyers buy existing homes not so much new homes, due to scale of homes out there.

New homes in real terms is a luxury item of sorts or anything almost new is considered luxury.

I saw this with my parents home this year when they tried to sell their 2,000,000 place but their home is old, but the 2 next door neighbors sold for 2.5 and 2.45 million with cash to Foreign buyers because those home were built less than 8 years ago so they have some of the bells and whistles of a new homes

New homes cost a pretty penny these days,

There is a test pilot of new home coming out in 2016 or 2017 it's a 120K home with no upgrades, I forgot which builder is going to test run this program to see if it will work, but the notion that affordable housing is a test pilot case speaks for itself

Until we get more affordable homes back in the new home market place, which should happen in a few more years, the upside to new homes, even though it's there because adjusting to population sales are very low, it's just limited.

Slow and Steady rise, 152 million working people and we are struggling to get to a 500K level with rates at 3.625% -4.125%

Wells Fargo probably or should lower their estimates of total home sales of 550K already, you would need to see 600K+ prints with no lower revisions in the last few months ( every month) to get to a total sales of 550K now, I caught on to this months ago as the lower revision trend was making total estimate to optimistic

wow - 630k new units for next year? what are you predicting?

landtof says

wow - 630k new units for next year? what are you predicting?

630K was a 2014 prediction 3 years ago, man have times changed by some of the housing analyst firms.

To a degree I understand why so many people including Ivy Zelman who said Housing Is In Nirvana. 2013 Call. She was considered the #1 Housing Analyst in America and as you can imagine we aren't on talking terms anymore as I was shooting down her Nirvana thesis from day one

“I think we're in nirvana for housing” says Ivy Zelman, CEO of Zelman Associates.

With that said, I really need to see how the last few months turn out for new homes, because new home sales have to stabilize now and need to stop having lower revisions with higher inventory levels

This year was looking for 8%-12% growth working from that 437K level with capacity for more sales if Median Prices fell or cooled down, we got that this year, Median sales prices stopped rising at it's high fast pace and this is more due to mix up in sales prices more than anything else.

That is how the year is going to end, but the 24%-41% sales growth that were predicted for 2015 just was too much.

I will have 2016 Prediction at the end of December, sales growth trend are still in place because adjusted to population sales are just simply too low now for new homes, the last time it was this low was the early 1980's while we were in a recession and rates where north of 10%

Here is a crazy data line set. Now New homes shouldn't get any worse than this last print, because this last print was simply very weak. Headline numbers tend to be volatile, it's revisions that are key. So, if new home sales can stabilize and not have anymore revisions lower then you can get to 500K+ total sales for the year. If do have lower headline and lower revisions then that would mean

2013
2014
2015

All later stage economic cycle years with rising inventory will be under 500K total sale limit. That would have seem to be impossible considering how low sales have been already.

However, to get under 500K total sales you would still need to have misses on the headline and lower revisions.

So far the pending home sales softness hasn't impacted the headline existing home sales numbers, even if sales come in weak for the last few report, we are still looking at

5.19 - 5.32 million in total sales with lower cash buyers and higher mortgage buyers.

Looking at next year to have cash buyer have some teenager prints for the monthly numbers which would be the first time we see that in the cycle.

Ironman says

What percentage of deals are you seeing blow up that don't make it to closing because of finance issues, inspections issues, legal issues, etc.?

What percentage of deals blow up when you get into the nitty gritty of the buyers personal finances and they have issues that they can't fix and end up not closing?

I don't see or hear much of that anymore. In some cases you issues with the 4506-T process on a loan, but for the most part outside a lower appraisal or Condo project not being approved I believe 95% goes through.

In a bout a month we will see if TRID impacts any deal from closing on time but that is more paperwork oriented then actual capacity, even though some lenders due have a clause to cancel the loan at closing and forced to start over again, I don't see that happening much.

Logan,
This is Patnet!
You need to cherry pick one small community that backs up your point & that will disprove all other arguments,$#!*&+?%>{~&.
ROFLMAO