patrick.net

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

Prices nationally moved higher in 2012 as inventory collapsed that that year allowing for the first time in this cycle to get under 6 months..

Now 4 years on national price gains and even though we have higher inventory than 1999-2005... we don't have 6 months and no new distress inventory as part of the variable equation

As you can see we had a lot more mortgage demand from 1996-2007.... this cycle not so much,

But we have had the strongest demand from cash buyers ever on record, typically they're 10% ... this cycle 25%-30% this entire cycle and higher in the early stages due to big supply of distress homes in this cycle

OK--I give. It's very difficult to have a discussion with you Logan because you always go off on tangents.

Like I tell you that I don't think that sales, mortgage apps adequately represent demand. And you post chart after chart showing low sales and low apps. I don't care--I've already told you that I don't think they are necessarily a good representation of demand.

tatupu70 says

OK--I give. It's very difficult to have a discussion with you Logan because you always go off on tangents.

My wife would agree with you my lady

Thank you for the conversation and have a wonderful day

Logan Mohtashami says

My wife would agree with you my lady

By the way--I'm not a lady. No big deal as I'm not offended, but just fyi.

tatupu70 says

By the way--I'm not a lady. No big deal as I'm not offended, but just fyi.

My apologies

tatupu70 says

Like I tell you that I don't think that sales, mortgage apps adequately represent demand. And you post chart after chart showing low sales and low apps. I don't care--I've already told you that I don't think they are necessarily a good representation of demand.

Come back to the thread this morning to graph after graph after graph. (laughing) I share the above sentiment.

Logan, take your first two graphs in this recent section of the thread: "Raise the Roof" and "US Median New Home Sale Price vs Median Household Income". These two combined say that homes being built today (NEW) are bigger and more expensive than ever before.

You agree, correct?

And that leads to things like this ...
http://www.jaxdailyrecord.com/showstory.php?Story_id=547415

From the article ...
"On the supply side, the picture also is skewed.
In the recovery, homebuilding has lagged. Labor shortages and the high cost of developed lots sit at the top of builders’ issues.
Normally there are 5.5 existing home sales for every one new home sale. Today, it’s up to eight existing home sales for every one new home sale.
Also, the types of homes being built don’t correspond to where demand is being created, Duncan said.
New household formation is driving most of the growth in demand. But building has focused on homes at higher price points.
“If you look at construction of new homes by square footage — the average home built post-crisis is larger than it was pre-crisis,” Duncan said
The greatest growth in the last three years has been in homes with 3,000 square feet or more.
The problem also is appearing in multifamily markets.
“You see all Class A properties being built,” Duncan said. “Or people are upgrading Class B properties into Class A properties. Nobody’s constructing Class C properties.”."

Let me repeat one thing for you:
"In the recovery, homebuilding has lagged. Labor shortages and the high cost of developed lots sit at the top of builders’ issues."

The belief that there is an overabundance of homes, or weak demand, is false. This is simply why you see higher prices in the past few years, and less homes on the market.

http://www.bankerandtradesman.com/2016/04/us-existing-home-sales-surge-supply-improves/

"Housing is being supported by a buoyant labor market, which has resulted in an acceleration in household formation. Sales, however, remain constrained by a dearth of homes available for sale, which is limiting choices for buyers. The number of unsold homes on the market in March rose 5.9 percent from February to 1.98 million units. Supply was, however, down 1.5 percent from a year ago."

Logan Mohtashami says

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

Building the Bubble = buying frenzy. Homes wouldn't stay on the market long. Supply cannot keep up with demand. Builders trying to keep up with demand.

Bubble Pop = buying weakens, home prices crashing. Supply builds. Builders stop filing for new homes.

Post Bubble = builders begin to rebuild, cautiously, and housing DOESN'T lead us out of the recession. Home prices rebound to bubble levels, due to low supply and tight lending conditions. Low sales volumes seen across the nation and beginning to pick up steam. This represents the actual state of the market now.

Logan, if you really think there is not a supply problem, but a demand issue, what magical chart are you going to invest in and why?

Graybox says

Good decision, perfect actually.

Half of my holding left, but I know they're going to have to have a secondary soon, those purchases sold were between 0.62 - 0.77

Can't get greedy with spec plays but this has legs to $3

Rew says

In the recovery, homebuilding has lagged. Labor shortages and the high cost of developed lots sit at the top of builders’ issues

If you really believe labor shortage are the reason why Builders aren't building single family homes then why the boom in mutilfamily housing where the demand was heavy on that

Over investment thesis in one cycle and then an adjustment... but they're still pushing big homes

Which is right in line with new home sales

Duncan and I have talked 3 times over the years.

“Demand weakness [for home buying] has trumped credit tightness,” Duncan

Come on really, is that the game you want to run on me, I can bring out a lot more goodies if you like

:Housing is being supported by a buoyant labor market, which has resulted in an acceleration in household formation. Sales, however, remain constrained by a dearth of homes available for sale, which is limiting choices for buyers."

Dearth of homes... Shocking how more inventory in this cycle doesn't = the same demand in a strong Demographic cycle

Dearth of homes...

Dearth of homes thesis again

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

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

CCGI up 100% in just 4 days. 50% jump today.

The one area that has been strong in this cycle has been the demand from cash buyers, that has been a 25%-30% cash buyer metric this entire cycle, something that we have never seen with this long duration time frame. And if that metric went back to normal %, the demand would be actually below 5 million handle every month.

This with all the full time Jobs recovered and then some in this cycle

With 2% lower rates and higher nominal wages

But no velocity in growth

#Demographics
Too much debt over hang

It's like the big 4 in the U.S. Economy

Ren you do a good job running this web site :-)

Strategist says

CCGI up 100% in just 4 days. 50% jump today.

You're buying at the Yardhouse

Logan Mohtashami says

Strategist says

CCGI up 100% in just 4 days. 50% jump today.

You're buying at the Yardhouse

One of my favorite bars. Tilted Kilt is pretty good too.

Strategist says

One of my favorite bars.

Just pick a time

Logan Mohtashami says

Strategist says

One of my favorite bars.

Just pick a time

I would love to have a drink with you. I'm just maintaining net privacy.

Strategist says

I'm just maintaining net privacy.

I take it you're not a snap chat or Instagram person then! :-)