patrick.net

I get this is an investment site so I am trying my best to play along

Ticker Symbols that I have pushed here

HP
KBH
MASI
Now look at UNXL up again today another 11% today

almost up 90% since I brought it up to Strat :-)

Speaking of Horrible trade calls

Won't see $44 crude in my lifetime: Gartman

http://video.cnbc.com/gallery/?video=3000488586

Logan Mohtashami says

#1 Inventory nationally is higher 2012-2016 than 1999-2005

Logan Mohtashami says

#2 Inventory nationally is higher 2012-2016 than 1999-2005

http://www.zillow.com/research/local-market-reports/

https://research.stlouisfed.org/fred2/series/MSACSR

But it isn't nationally higher than in the 80s and it is really facing an affordability challenge (especially in California).

https://research.stlouisfed.org/fred2/series/COMPHAI

https://research.stlouisfed.org/fred2/series/MEHOINUSA672N

There are about 50 million more people in the US today, and housing stock didn't rise to meet that growth (since 99). Household income is down. CPI is up. I know California is not the representation of the country as a whole, but I think it is relatively meaningless to talk about the national housing stock as a primary indicator that just because there is more inventory magically things are better. One only needs to look at the headlines of today to realize ... we are back in the "priced out" territory again ...

http://www.prnewswire.com/news-releases/car-partners-with-uc-center-sacramento-to-address-states-housing-affordability-crisis-300253495.html

My home has gone up 26% in value in three years. That's obscene and that is due to high demand with low inventory. In my town they aren't building SFHs ... no no. They are building densely packed multi-residential units.

Rew says

Rew

Observation: I think you run this site... just a guess :-)

2nd the adjusting to population sales look a lot different than headline but with new home sales it looks because the demographic push came in 1980's

Based on last report

New single-family home sales are about 13% below the 1963 start of this data series. The population-adjusted version is 49.6% 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%.

This is last August's data run too

chart

Due to Demographics we had to build out a lot homes and economic growth was good in 1980's and 1990's due to a lot build out

Homes, they have a longer life span than humans, so it shouldn't have been surprise that starts and permits don't keep pace to previous decades

We had good housing demographics from 1996-2007 and starts from 1994-2006

But the builders aren't dumb, they're going to manage that supply after that epic build out...

In a few years, the supply will need to grow as demographics are massive for age 21-26 but... a lot homes out there already... hence the cautious build out

Logan Mohtashami says

Let me explain it this way, why are housing economist saying their is weak demand growth, doesn't really matter what you and I think, it's what the market place thinks

No, the marketplace thinks demand is stronger than supply. That's why prices are rising. Your "experts" aren't the marketplace.

Again you're misconstruing sales as the same as demand. That is obviously incorrect. Do you not see that?

tatupu70 says

Again you're misconstruing sales as the same as demand. That is obviously incorrect. Do you not see that?

That's your view of things, look at this way

If I believe in that thesis, I would have been a raging bull during the housing bubble years,

Because all that matters in Price... under that one single variable equation. I would have been writing non stop how great the housing bubble years were because all that matters is price.

That can't be an economic thesis.. that is one variable, even the head economist of the National Home Builders Association and S&P said it perfectly

“Weak home sales are ‘much more of an income problem than a credit problem,’ said David Blitzer of S&P Dow Jones Indices.

‘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

Because sales estimates are what these people run off...

Why can't the builder stocks break away .... what's holding them back???

If I took a Price only thesis variable

Median Sales price nominal and adjusting to inflation are above the 2006 peak for new homes

But sales are very low

A lot people based a lot sales growth numbers because rates were low, it didn't pan out...

So, using just price wouldn't be proper way of talking about the economics of sector or saying if it's strong or weak. Have to take all variables in that equation, even Warren Buffet himself was surprised how low new home sales have been and he is Go Pro USA...

Demographic economics matter and on the price side, as long as inventory stays below 6 months and no distress homes come to market you have pricing power

Logan Mohtashami says

Observation: I think you run this site... just a guess :-)

Huh, which site?

Logan, your premise seems to be we historically built a ton of homes, and now 'magical powers' are purposefully 'controling' inventory. There is no great housing/building cartel. If builders could find a way to profitably build SFHs, in desired areas, they would do it. The truth is they cannot. There aren't a lot of buyers for the prices required.

Frankly, the description of this housing market was made many many years ago by posts on this site which was essentially: low inventory, high prices, low sales ... bumping along sideways. It's a boring and anemic market. Nothing has changed here.

This is nicley illustrated by the last graph you posted here ...

Notice after typical recessions how home starts lead out of the recession, and shoot up to peaks. Check out 2010. Not the same pattern. Builder cannot build at prices buyer can buy at, means low inventory, same price dynamics.

So, for the record, low inventory is exactly one factor in this market. It's not a myth.

Check out business insider today:
http://www.businessinsider.com/housing-market-has-more-buyers-than-sellers-2016-4?utm_source=feedburner&utm_medium=referral

... and ... building is weakening now ...
https://www.yahoo.com/news/u-housing-starts-plunge-building-permits-hit-one-123648624--business.html?ref=gs

tatupu70 says

No, the marketplace thinks demand is stronger than supply. That's why prices are rising. Your "experts" aren't the marketplace.

Exactly right.

"Nothing describes the current state of the housing market better than the phrase, ‘more buyers than sellers’. The current imbalance between supply and demand has placed upward pressure on prices, resulting in a 5.75% increase year-over-year as measured by the S&P/Case-Shiller 20-City composite. "

http://www.businessinsider.com/housing-market-has-more-buyers-than-sellers-2016-4?utm_source=feedburner&utm_medium=referral

Business Insider, Zillow, and my local market > slapdash chart-a-palooza of Logan

So, Logan, I am solidly in the "I think you are 180 degrees wrong" camp. :)

Rew says

Builder cannot build at prices buyer can buy at, means low inventory, same price dynamics.

Median square footage back in the year 2000 was 2,000 and now in 2016 it's over 2,500

That is why we have this chart

Adjusting to population 2014 was the worst demand year ever on record for purchase application
2nd was 2015 both of these happened with rates under 4.5% in years 6 and 7 of the economic cycle with higher inventory levels than in the previous cycle

2016 Has legit growth but working from a low level

New Home Sales is a 90% Mortgage market place, 500K sales with a working 154 Million Americans, that's not a strong number, headline recessionary still working from the start of the data pool

Then look at existing homes sales

Very soft Mortgage Demand to sales metric

This market place has been held up by a 15%-20% above historical trend cash buyer, in fact if you put a normal curve for cash buyers here your total existing home sales numbers is much higher that the Great Recession lows. However, with 5 million market places and 25%-30% cash buyers that's a lot sales, historically that level is at 10%

This cycle to last

Higher inventory, lower rates, higher nominal wages, but a lot less demand

Overlay the charts it's very clear

So the thesis that there isn't enough homes to buy when there are more homes to buy nationally today than any period from 1999-2005, kind of defies the logic of inventory to sales metrics....

Again... don't over think this one

2012-2016

Higher Inventory
lower rates
higher nominal wages

Vs

1995-2005

Lower inventory
higher rates
lower nominal wages

A lot less sales

2012-2016 than 1999-2005

This is the

Limf (x) =sky
X-A
thesis that you need to counter with

Lowe rates

Higher Inventory

And a lot less demand

Purchase applications

Again this why the head economist have been surprised on how soft the demand curve is

“Weak home sales are ‘much more of an income problem than a credit problem,’ said David Blitzer of S&P Dow Jones Indices.

‘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

Logan Mohtashami says

Again this why the head economist have been surprised on how soft the demand curve is

“Weak home sales are ‘much more of an income problem than a credit problem,’ said David Blitzer of S&P Dow Jones Indices.

‘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

If they are referring to today's market, they are dead wrong. Prices don't go up with soft demand.

Strategist says

If they are referring to today's market, they are dead wrong. Prices don't go up with soft demand.

Under your own thesis, you would be bearish on new homes correct?

We aren't anywhere near the 2014 high of average sales price

If you were bearish since you're price only people, I would counter your bearish view by saying it's a mix sale shift of prices, since this cycle is very heavy with higher price homes for the new home sales sector

Ignore the Fed comment, just look at the data

Why price only metrics isn't a valid thesis, this would have meant the Housing Bubble Years in peak were booming without knowing the underlying fundamentals

This cycle ... you have a disproportionate sales of higher priced homes in the mix, which makes the price number look high but shows why the sales levels are low historically

And inventory is creeping up on new homes, though the 6 month is subjective here with such a low level of sales

Get smaller homes in the mix that means you can get more sales

Hence why I said both in 2015 and 2016 if the median sales price is cool that will be a plus for sales....

2014 = the biggest new home sales miss ever recorded in U.S. history in an up cycle, 20%-30% sales miss on estimates in 2014

2015 low bar growth you still missed by double digits but median sales price cooled... it allowed more sales of lower priced homes into the mix notice the slight up tick in 2015

:-)

Logan Mohtashami says

Strategist says

If they are referring to today's market, they are dead wrong. Prices don't go up with soft demand.

Under your own thesis, you would be bearish on new homes correct?

Prices can be increasing while the median shows a decline at the same time. The mix of what types of properties sold determines the median.

Strategist says

The mix of what types of properties sold determines the median.

Exactly so the new sale price and median sales price or a Price only metric isn't the best way to look at everything.. more than meets the eye with housing economics.

But make no mistake, we have missed sales estimates 3 years in a row by double digits, hence why the builders haven't really done that well after the big initial move

Cheaper homes in the mix you get more sales

That's what happened in 2015... But even with that new home sales missed by 10%-15%

I would be cautious on using the 6 month + inventory for new homes, we are such low level of sales that we can take a bit higher than 6 months and still have growing sales and price

Speaking of sales tomorrow we should get a bounce on existing home sales, that Feb decline was more seasonal since Jan was strong, the front line data for sales for Existing homes are good this year and that shouldn't change for the rest of year. Looking at peak total existing home sales to come in at 5.43 Million with the only demand falling is cash buyers. so far this year it has been a bit higher than I thought at 25% and 26% ... I still think we might see a month or 2 under 20% .. but it should hold..

Heat months of mortgage demand is only from 2nd week Jan to first week May, we have growth every single week YoY, we are good for 2016 on existing home sales and in one of the rate time in this cycle my top end number is actually higher than the NAR ... they have 5.38 million sales last year ended at 5.30 Million

On another we are so about to break out to new highs on the S&P 500 as the dollar has gotten soft

Now you're stealing my carry-trade!

Logan Mohtashami says

That's your view of things, look at this way

If I believe in that thesis, I would have been a raging bull during the housing bubble years,

Because all that matters in Price... under that one single variable equation. I would have been writing non stop how great the housing bubble years were because all that matters is price.

That can't be an economic thesis.. that is one variable, even the head economist of the National Home Builders Association and S&P said it perfectly

“Weak home sales are ‘much more of an income problem than a credit problem,’ said David Blitzer of S&P Dow Jones Indices.

‘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

Because sales estimates are what these people run off...

Why can't the builder stocks break away .... what's holding them back???

If I took a Price only thesis variable

Median Sales price nominal and adjusting to inflation are above the 2006 peak for new homes

If you can't answer this simple question, your thesis is wrong and you really need to reevaluate it:

If the issue is weak demand, why is inventory low and falling, and why are prices rising?? Doesn't that seem opposite of what should happen under a weak demand environment?

Logan Mohtashami says

Why price only metrics isn't a valid thesis, this would have meant the Housing Bubble Years in peak were booming without knowing the underlying fundamentals

This cycle ... you have a disproportionate sales of higher priced homes in the mix, which makes the price number look high but shows why the sales levels are low historically

Price is the metric when deciding the supply/demand strength in a market. Weak demand doesn't generate price increases. And to your 2nd point, CS index is up as well so it's not just a mix issue.

tatupu70 says

If you can't answer this simple question, your thesis is wrong and you really need to reevaluate it:

In your mind, when purchase applications are at the lowest levels ever recorded in U.S. history at the lowest rate curve post WWII and sales estimates are missed 3 years in a row at the biggest clip we have seen ever in an up cycle. You believe demand is strong.

Bernanke poor QE velocity thesis was based on a metric that home sales were weak in his mind and even Janet Yellen expressed concerns that home sales haven't gain traction because she believed tight lending was holding sales back because under their metrics as well home sales have missed estimated badly

Head of S&P

“Weak home sales are ‘much more of an income problem than a credit problem,’ said David Blitzer of S&P Dow Jones Indices.

Head economist at the National Home Builders Association

‘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

I don't ever want to change your mind. You believe housing demand is strong even with these data charts

All the power to you my lady

Logan Mohtashami says

In your mind, when purchase applications are at the lowest levels ever recorded in U.S. history at the lowest rate curve post WWII and sales estimates are missed 3 years in a row at the biggest clip we have seen ever in an up cycle. You believe demand is strong.

Don't put words in my mouth. Just answer the simple question.

Don't quote supposed experts. Just answer the simple question.

How does weak demand cause price gains and low and decreasing inventory?

Do you believe that there are other factors that can cause low sales numbers?

Logan Mohtashami says

So, looking at this chart, is your theory that demand was much stronger in 2008 then?

tatupu70 says

Don't quote supposed experts

Yes the Federal Reserve, Warren Buffet, Head Economist Of the NAHB, S&P supposed experts, Head economist of Housing shops, yup supposed experts..
.

tatupu70 says

Do you believe that there are other factors that can cause low sales numbers?

The Housing In Nirvana thesis.... #1 Wall Street Analyst in Housing gave a Housing is in a stage of Nirvana with a 20% + sales metric every year since 2013

Then there was me.... who from her own competitors took a look at her economic booklet sheet on demand and thought it was a giant mis leading thesis on sales demand

1. Demographics are for renting not owning

2. No more fake demand in the system, people forget how many A paper loans were actually exotic debt
Not a lot housing people have lending background they assumed it was all sun prime

3. Lack of selling equity for move up buyers, preventing them to move up

All the sales estimates where too high from 2012-2016. At least in 2016 we don't have the crazy 24%-41% sales meteric like we did in 2015

Everyone learned their lesson after last year horrible sales estimate calls ... More than 70% are realistic now...

That was my thesis last year

Sales estimate calls were too high, the builders provide no value

The corrected 20-30% and that was the time you want to get into

:-)

Only one person brought up the sales are going to miss metric from the start of the year...

tatupu70 says

So, looking at this chart, is your theory that demand was much stronger in 2008 then?

Demographics for housing were good from 1996-2007

But in 2007 we peaked, when I mean demographics I mean prime age labor force growth

A lot bears make the mistake that all the demand form 1996-2007 was fake, no they're wrong prime age work force growth was good

Problem was in 2013 everyone had way to high sales estimate which meant that Mortgage demand needed to break higher ... close to the 300 line market based on their sales points

The Irony was that as soon as rates moved to 4.5% that drive higher in rates created a 18 month decline in purchase applications leading to 2014 which was the lowest level ever recorded in U.S. history adjusting to population

2015 ended up being the 2nd worst on record

We are slowly getting to the point to where demographics for housing will get better

Those who thought this cycle was going to be in Nirvana didn't have a good lending background or a demographic economic back ground. This was a renting cycle in terms of heat demand

That is slowly changing... it now moves into a the affordability factor

That's another question all together

But even this year, My peak existing home sales is higher than the NAR but new home sales I am at 4%-8% growth with some upside if median home price cools, only a few people left who are high double digits sales growth

So far demand for new home has been negative year over year

But we should get some growth year over year in the next 4 months, if not, then I was wrong with my growth metrics of 4%-8%

Strategist says

Strategist says

UNXL is up again another Double Digits

That's 100% plus return, taking some off the table here :-) at 2.19

Can't say I didn't give some stocks now anymore

Logan Mohtashami says

Strategist says

Strategist says

UNXL is up again another Double Digits

That's 100% plus return, taking some off the table here :-) at 2.19

Good decision, perfect actually.

@Logan--

You've posted a lot of words and pictures, but AFAICT, never once even attempted to answer how low demand can cause price increases and falling inventory.

It's really more a big picture Economics question for you. Doesn't have to be housing, could be any market. How could low demand cause low sales, but cause price increases and falling supply.

tatupu70 says

cause price increases and falling inventory.

I thought I have made that point very clear over the years

but here you again for 2016

5. Home Prices

Home prices still have the legs to run higher in 2016, like they did in 2015, because inventory is high enough nationally to provide choice but not so high to cause price declines. In fact, from 2012 -2015 the annual months of inventory were higher than at any point from 1999 – 2005.
We would need 6 months of inventory and a job loss recession creating a fresh wave of distressed sales, in order for any meaningful national downturn in prices to occur. Inventory is nowhere close to 6 months and only states dependent on oil and mining are seeing recessionary type job losses.

Selling equity is something that doesn't get enough attention. If you work off affordability metrics that means you would need at least 28%-33% equity on the conservative thesis to have enough equity to sell and move up and then have a 20% down payment to buy a home.

The Price gaps higher form 1996 to now has created that model to be more and more difficult, so you have people who can't really move up keeping a lid on inventory below that 6 months level

Only had that happen from 2006-2011, which means a housing bust or recession thesis has been the only way to get inventory over 6 months in America in the last 20 years since the big price gains from 1996 or the demographic push from then as well

A lot of the inventory is going to be higher leading to more demand crowd of 2015 was surprised that inventory didn't grow and not much is happening this year either

Logan Mohtashami says

I thought I have made that point very clear over the years

but here you again for 2016

5. Home Prices

Home prices still have the legs to run higher in 2016, like they did in 2015, because inventory is high enough nationally to provide choice but not so high to cause price declines. In fact, from 2012 -2015 the annual months of inventory were higher than at any point from 1999 – 2005.

We would need 6 months of inventory and a job loss recession creating a fresh wave of distressed sales, in order for any meaningful national downturn in prices to occur. Inventory is nowhere close to 6 months and only states dependent on oil and mining are seeing recessionary type job losses.

No--you say two very different things. Low demand causes low sales. Low inventory causes price gains.

How do you reconcile those two seemingly opposite statements. If we've had low demand for several years now, why hasn't supply been rising?

Today's EHS report, still have a 25% level cash buyer, but first time home buyers are at 30% still near historical lows, demographics for this will get better but cash buyers aren't going to be 25% plus of the market forever, as the distress supply falls down they should be less and less of the market place, meaning mortgage buyers are going to have to go back to their 90% of the market level.

tatupu70 says

why hasn't supply been rising?

Logan Mohtashami says

Selling equity

and no new distress sales, or a recession to create it

Logan Mohtashami says

and no new distress sales, or a recession to create it

So, we're getting large price gains under a low demand market because there are no distressed sales? That's your theory?

tatupu70 says

So, we're getting large price gains under a low demand market because there are no distressed sales? That's your theory?

The only way to get to 6 months for existing homes in a annual amount .. meaning the entire year

Basically a recession to create distress home supply, we don't have the capacity to allow non distress housing inventory to grow to get high enough, sales gets hit but keeps prices from falling

Again, in the last 20 years, we have never had 6 months annual inventory outside the housing bubble crash and recession