patrick.net

you are conflating. "demand" does not necessarily mean "mortgage application volume" or "sales volume"

housing - in its current channel - is in high demand, lower inventory, higher velocity of absorption, and rising in value. for those that can afford it, it is chugging along just fine. you know this, because the builders are playing the market at the luxury end.

it's just operating at a smaller scale but a higher value.

here's your flawed logic: ferrari sells less cars than toyota, so ferarri is weak and no one wants one.

landtof says

you are conflating. "demand" does not necessarily mean "mortgage application volume" or "sales volume"

The thesis is very simple here

"For years we have heard a thesis that low inventory and tight lending are stalling the U.S. housing market. In the six years I have written on housing economics, I have been battling these two myths. Instead the true villains of the housing market are not low inventory and tight lending but demographics, housing debt, lack of strong wages, lack of liquid assets and poor affordability"

I can't even count the amount of times I have heard this thesis

"Home sales are held back because nobody can find a home to buy"

"Low inventory is holding back sales"

On that context .... this is where the battle fields are drawn

Not everyone agrees with the weak home sales being a inventory problem and a tight lending problem

“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”

A lot this weakness at first was blamed on tight lending then pushed on low inventory.

Remember

Existing home sales have missed badly from projected home sales metrics

New Home Sales are having the worst demand curve on record

Why?

Why have housing demand numbers missed so bad... or as Warren Buffet said, I am shocked that home sales are this low but more surprised about car sales doing so well

landtof says

ferrari sells less cars than toyota, so ferarri is weak and no one wants one.

That's a horrible example, A Ferrari would never sell below a Toyota

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%.

The same thing with new home sales as with existing home sales, higher inventory ... a lot less demand this cycle

1999-2005 has a similar lower inventory but much higher sales volumes back then

Have to remember, I was the only person last year that came on CNBC and warned that the builders were over hyped for 2015 because their sales metrics were too high

24%-41% sales growth estimates at the start of the year... By March rate of sales were falling from a level that was peak 22% ... hence why we had that correction in the builders, Back to Back years 2014 and 2015 were new home sales missed by double digits

I was looking for 8%-12% growth with some upside if Median home prices cooled down and they did, that gave a little bit more demand, make shift sales model of price

https://loganmohtashami.com/2016/01/25/home-builders-new-homes-sales-and-the-affordability-myth/

Apologize for my naivete here Logan, but I'm trying to better understand the point you're trying to make here and in the article. Months of housing inventory are, as your included graphs show, low. With fewer months of housing inventory, we have low inventory. I'm not really sure how that's not a simple, direct relationship.

At least where I live - the bay area - the months of housing supply have been exceptionally low. While looking for homes, they were coming in at a complete trickle.

Are you making an argument about a particular segment of housing inventory? Smaller starter home inventory is obviously low here in the bay area. Is the argument that we have a glut of housing supply for larger more luxurious homes? If that's the case, I think that may be somewhat irrelevant as a lot of folks are looking for homes in that very (more affordable) segment.

If demand is low, it's definitely not something I observed in the bay area. The trickle of homes in my price range was regularly being bidded in by 3-6 people. That wasn't slowing down as we worked our way out of the winter months.

You've generally seemed like a fairly well spoken and intelligent individual on here, so I wanted to be sure I could wrap my head around what precisely you were arguing here, as it doesn't seem to even align with the graphs you provide in the article itself.

wut says

I'm not really sure how that's not a simple, direct relationship.

First, I am talking national data not a specific city or area, like all my articles they're based on national data.

2nd

It's not the thesis I use, it's the thesis that has been used for as the excuse to why are national home sales are low and missing their estimates and why is mortgage demand so low. That the main reason why home sales are low is because inventory is too low, "People can't buy homes because there isn't enough out there"

I know all the economist that track housing, we have all had discussion on this over the years on the topic and not all believe it's low inventory holding housing back, some believe like I do that Americans don't have the capacity to own the debt as some have thought hence why the numbers have missed for 3 years in a row

Examples:

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

‘I don’t think there is a housing shortage…It’s strictly a matter of low demand, said’ “NAHB Chief Economist Crowe

Mortgage Demand ( this has been my core thesis) Mortgage demand in this cycle won't be enough to be considered in a recovery

- Demographics weren't great for housing ownership
- De leveraging from a housing bubble, too much debt in the system
- Foreclosure and Short sale factor
- No More exotic loans in the system, no more fake demand

2014 adjusting to population the worse year every recorded since the data has been collected
2015 adjusting to population 2nd worse year every recorded since the data has been collected.

The point of the article is to expose the flaw in thinking that the reason why we have low demand was due to a lack of inventory

Years 2012 -2016 we have always had more inventory than any period from 1999-2005

Not a lot people know this data, they just go off what people tell them on T.V.

Example: Inventory numbers

Existing Home Sales Numbers

With this data, it's hard press to make the thesis that the reason why home sale numbers are low or haven't met demand expectations are due to inventory. We had less inventory from 1999-2005 and more sales that from 2012-2016

This is for existing inventory

New home sales are even worse, in fact new home sales have missed badly on their sales estimates double digits 2013,2014 and 2015

Same story line..

Inventory numbers

New Home Sales Number

We have more inventory but a lot less sales

- More inventory
- 2% lower interest rates
- Higher Wages
- A long economic expansion cycle

but a lot less sales in homes...

Demographic economics matter, this cycle we are very young and very old, the middle have been impacted by the previous housing bubble burst. A lot of these sales estimates were really based on a notion that demographic economics don't matter. Come years 2020-2024 in that time frame we will have an massive uptick in supply of

College educated Americans having kids ages 28-42... We are massive now but ages 21-29 ( especially) ages 21-26 ... these aren't home buyers these are renters and people going to school

So, I disagree and others do as well that the soft sales numbers are due to low inventory, inventory is higher now than the bubble years but we just have a lot less sales...

Thank you for the detailed explanation Logan.

FortWayne says

Thank you for the detailed explanation Logan.

Best part about Pat.net that it's time stamped because my wife screams at me to go to bed and I tell her, I am writing a detail answer to a question dear :-)

On another note, Bill Mcbride ( Calculated Risk) and I are having fun with the U.S. Economy Is About To Crash article I wrote which tricked so many people... :-)

http://www.calculatedriskblog.com/2016/04/sunday-night-futures.html

DieBankOfAmericaPhukkingDie says

If anyone can afford to live indoors, the market is underpriced

Housing Inflation story is hot on rent and prices, but we are no where near bubble territory for existing homes, adjusting to inflation we are still 19% below the peak the housing bubble for existing homes.

Plus the home buyers in this cycle are the best I have ever seen in 20 years, no exotic debt in the system, limits the down turn once the next recession hits

Can't say that statement about new homes which are very big and expensive

Logan Mohtashami says

Housing Inflation story is hot on rent and prices, but we are no where near bubble territory for existing homes, adjusting to inflation we are still 19% below the peak the housing bubble for existing homes.

Plus the home buyers in this cycle are the best I have ever seen in 20 years, no exotic debt in the system, limits the down turn once the next recession hits

So what's your forecast on home prices in the next year and two? National and California.

Strategist says

So what's your forecast on home prices in the next year and two? National and California

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. I predict existing home price growth of 1-4% for 2016.

All my Housing Economic Predictions are here for 2016

https://loganmohtashami.com/2015/12/28/2016-housing-economic-predictions/

Logan Mohtashami says

I predict existing home price growth of 1-4% for 2016.

Strategist forecasts....
US home prices increase by 5% plus
California home prices increase by 10% plus

Strategist says

So what's your forecast on home prices in the next year and two? National and California.

Thesis with prices is still the same always, inventory over 6 months and a recession is the back drop for price declines nationally.

Nothing new here, in 2012 during that year that's what happened and

where inventory got under 6 months solidly. Inventory is the key if you're only a price metric person

2013
2014
2015
2016

Housing Prediction articles which I only write one a year at the start of the year all had price gains.

I get it that all you guys care about here is price, however, I don't have the luxury of only talking about that.

Housing Starts
Housing Permits
New Home Sales
Construction Jobs
Job openings for constructions jobs
Mortgage Purchase applications

HMI Index

When it's about economics, can't be held down to variable factor.

Like when I warned about the Builders in 2015 and then said in 2016 this is entry point for them because rate of sales are higher in 2016 than 2012/2013 that's based on a sales demand thesis

Plus did anyone take on my KB Homes call? around $10 bucks

Logan Mohtashami says

I get it that all you guys care about here is price

In the end that's all that matters. Home prices and stocks.

Logan Mohtashami says

Plus did anyone take on my KB Homes call? around $10 bucks

How about you?

Strategist says

How about you?

No, position here in KB Homes, HP ,TWTR , Z, MASI , WTW Spec play is UNXL The rest are index invested. I always in every month, Never a time a leave the market of course long term portfolio is different than short term trading .

The only reason the builders got whacked last here was that the sales estimates were too high, the year ended out with 15% gains on sales, but people were looking and pricing for 24%-41% sales growth and super strong price gains... that didn't happened, doesn't mean the cycle is dead, it's how much you want to pay up for that sector

The same thing happened in 2014

Sales estimates were at 20%-33% and it ended up at 1.9%

Which made 2014 & 2015 both double digit misses on sales estimates

Where I and you can looked had 8%-12% range sales estimate

2016 looking for 4%-8% growth with up side if median prices stay cool

So far both sales report are negative year over year, so we need to start people the numbers in the next 4 months

The YoY comps are much easier as the rate sales decline last started in March of 2015 with the trend of negative revisions.

So, the key is to beat the YoY marks for the next 4 months, as long as that could happen, you can get some growth in sales this year. If we have negative prints YoY with sales revisions lower in the next 4 months, then even my 4%-8% growth call is in Jeopardy

Strategist says

US home prices increase by 5% plus

Remember, I don't see the lack of price gains in 2015 for the builders as a bad thing because it's part of the make up shift model, in fact it's a reason why I give the sales demand curve higher rates of sales because of the fact the builders were only pushing higher end homes early on

Strategist says

How about you?

Spec Play UNXL I said on April 10th up 25% today

Logan Mohtashami says

Strategist says

How about you?

UNXL up again 20% that makes it 50% since we talked ;-)

Logan Mohtashami says

UNXL up again 20% that makes it 50% since we talked ;-)

Not bad. Look into CCGI.

Strategist says

Not bad. Look into CCGI.

That looks like a missed opportunity 10 -15 cents upside, then again spec plays are always spec plays for a reason

Permits
single-family +14.3% YoY
multi-unit: -5.0% YoY

Today's number headline were a big miss.

However, the permits is where the story is at, multifamily boom in terms of YoY growth is slowing

Logan Mohtashami says

Today's number headline were a big miss.

Homebuilder stocks doing surprisingly well.

Strategist says

Homebuilder stocks doing surprisingly well.

As long as they can get 4%-8% sales growth they should be fine this year. 2016 doesn't have the 2015 profile were estimated sales growth was 24%-41%, they were doomed to fail from the start of the year

So that nasty correction brought everything back in line.

Even though new home sales are negative so far this year,

The comps get a lot easier until December

This is what I have told everyone media and economist

You can afford only one more miss Year over Year from now until December, after that we need to start beating the YoY marks because of the rate sales fell after Feb

As long as that happens then we can get YoY growth.

I am looking for 4%-8% growth with some upside if median home sales price cools like it did last year, = just meaning some lower priced homes get into the mix

Really need to see positive YoY growth in the next report March should be a YoY beat!

Vice Versa with Starts, low bar on the YoY numbers to beat... but that will soon change

Ironman says

What about Starts?:

US Housing Starts tumbled -8.8% in March (missing -1.1% expectations by the most since Feb 2015) as both single-family (-9.2%) and multi-family units (-7.9%) tumbled. The biggest drop was in The West (-16% overall with a 26.9% MoM plunge in single-family units). Worst still, Permits (forward-looking), plunged 7.7% (against expectations of 2% rise) - this is the 2nd biggest MoM crash since Jan 2011. As the Spring-selling season starts, the housing 'recovery' appears to be stalling.

Regionally, it was very mixed:

Permits in Northeast declined 17.9%, Midwest down 3.1%, South down 3.2%, West down 15.4%

Starts in Northeast rose 61.3%, Midwest down 25.4%, South down 8.4%, West down 15.7%

http://www.zerohedge.com/news/2016-04-19/march-housing-starts-permits-plunge-single-family-units-crash

Prices went down in San Francisco for the first time. For the bay area it all depends now on how tech will be doing.

Ironman says

What about Starts?:

Starts are showing YoY growth, but as you can see it's a low bar to beat on that YoY print

Like everything else in housing slow and steady

The question on starts going forward.... this is the point I have tried to make, at some point the Multi family boom can't continue and how much can single family starts carry the load at that point

That to me is the real question going down the line :-)

2 Charts I am showing people today

Can't break out of here

Inventory for new homes is higher 1999-2005

In short the low inventory holding demand thesis is getting massively gutted up this year and their is no where to hide anymore :-)

I will be at the UCLA Anderson Housing Conference, this is main thesis I am throwing up there and have a meeting with the economist of the CAR as well on this

Logan Mohtashami says

In short the low inventory holding demand thesis is getting massively gutted up this year and their is no where to hide anymore :-)

I will be at the UCLA Anderson Housing Conference, this is main thesis I am throwing up there and have a meeting with the economist of the CAR as well on this

dude, you are a retarded jackass in a suit. if mommy and daddy didn't keep you on the payroll in the family mortgage business, you'd be working retail.

in my own zip, there is exactly 1.25 months inventory, which is extremely low. Ditto a great many cities US wide, and hence, why home prices have been going up for the past 5 years, all the while you keep posting that it isn't happening. Get psychological help!

you aren't going to debate the FED chair.
you aren't an invitee to an economics summit, because you have little understanding of economics.
you aren't throwing "a thesis up there"

youareworthless says

dude, you are a retarded jackass in a suit. if mommy and daddy

Roberto, Roberto, Roberto

I do love seeing your post, it brings nothing but a smile on my face :-)

Fallacy of Logic is always deep with the extremes, the rage, the anger, I get it, I understand your hate and it still brings a smile to my face

Allow me to retort

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

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

#3 Inventory nationally is higher in 2012-2016 than any period from 1999-2005

I understand why you hate me Roberto, I do, and I am so sorry that I have created that for you!

Hopefully, one day you can forgive me :-)

Logan--

As I've posted here multiple times, your problem is that you assume sales = demand. Either you purposely ignore or don't understand the implicit assumption underlying that belief. Further, 4 months of supply at lower sales means many fewer actual homes for sale than 4 months for sale at high sales volumes.

I still fail to see how a demand problem could lead to a strong 6 year bull market on prices.

youareworthless says

why home prices have been going up for the past 5 years, all the while you keep posting that it isn't happening. Get psychological help!

On another note, back to the fallacy of Logic thesis

2013
2014
2015
2016
Housing Predictions all have price gains in it.

You're creating a false narrative thesis with me because you don't like me personally, which is 100% fine

However, what you're saying is that you don't like my inventory under 6 months thesis leading to price gains because I said it, not you....

That's when you know it's rage, anger,

By all means copy and paste all the yearly predictions articles from 2013, 2014, 2015 and 2016 and you will see what I am saying is right.

Inventory broke under 6 months in 2012, down 20% year over and after that every single yearly housing prediction article had price gains

Again, a false narrative thesis for the sake of ranting out of personal disapproval.

tatupu70 says

I still fail to see how a demand problem could lead to a strong 6 year bull market on prices.

A false narrative thesis again

Every Housing Prediction article while inventory was under 6 months had price gains in it

Nothing has changed from that

Logan Mohtashami says

A false narrative thesis again

Ever Housing Prediction article while inventory was under 6 months had price gains in it

Nothing has changed from that

Nope-- how do you reconcile a demand problem not causing rising inventories?

In economics we have talk more that just price, price is a investors game, I get that, but I can't hide behind a fake on a website and make false economic theories and just use price.

New Home Sales have missed sales expectations for 3 years in a row... the question is why?

“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

Sales estimates in this cycle were way to high, that is what we have to deal with, that's difference between price is all that matters and economics

tatupu70 says

Nope-- how do you reconcile a demand problem not causing rising inventories?

You hide behind a fake name while others can't

“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

What you're saying is that you disagree with the weak demand thesis that many have talked about, even Warren Buffet

This works on website where you can't show your name... but it doesn't work on there

Logan Mohtashami says

In economics we have talk more that just price, price is a investors game, I get that, but I can't hide behind a fake on a website and make false economic theories and just use price.

New Home Sales have missed sales expectations for 3 years in a row... the question is why?

“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

Sales estimates in this cycle were way to high, that is what we have to deal with, that's difference between price is all that matters and economics

Thanks. How about you actually address the question, however. How does lack of demand cause prices to rise? Or cause inventory to shrink? In Economics, how do you talk about that?