patrick.net

Think of rational of saying price is the only thing that matters for someone like me who follows all economic data.

That would imply all of you said 2003-2006 was legit, that price is the only thing that matters to housing economics, no need to concern yourself
on internal data reading, LEI, Claims, JOLTS, economic equilibrium

That one blew up

This cycle, low rates, 20% above historical cash buyers, worst mortgage demand curve adjusting to population ever

So, I can't work like that. I would be laughed at by economic community if I said the only thing that matters is price without looking at all the variables

It doesn't work that way, If you're all investors then you know exactly what I am talking about,

Logan Mohtashami says

So all the data chart I post didn't prove my core thesis that this housing cycle would have the worst demand curve from main street ever

Whistle

Nope-it actually doesn't. You assume that sales = demand. The implicit assumption, then, is that there is unlimited supply.

Fact--there is NOT unlimited supply. Supply has actually been low. Therefore your assumption is wrong and your conclusion is invalid.

tatupu70 says

Nope-it actually doesn't. You assume that sales = demand.

When I spoke at the UCLA Anderson Conference in 2013, what I showed them was this fact

That in the 21st century we have never had 6 months of supply unless we had a recession and of course that lead to an excess of distress homes.
The low inventory hangover actually isn't low inventory hand over. We have more supply since 2012-2015 than we did from 1999-2005

The demand curve is light but as long as supply is under 6 months national and there is no job loss recession to add distress homes into the market place
price have legs

Logan Mohtashami says

When I spoke at the UCLA Anderson Conference in 2013, what I showed them was this fact

That in the 21st century we have never had 6 months of supply unless we had a recession and of course that lead to an excess of distress homes.

The low inventory hangover actually isn't low inventory hand over. We have more supply since 2012-2015 than we did from 1999-2005

The demand curve is light but as long as supply is under 6 months national and there is no job loss recession to add distress homes into the market place

price have legs

None of this is a response to my point. Your assumption that sales = demand is wrong.

1996 to 2007 we had great demographics for home ownership

Ages 30-44 were good

But in 2007 Prime working age peaked and we are only slowing growing back that metric

So, what I tried to show through the census data line and it will come out in an article today

You're going to lack the supply do home buyers in this cycle for 2 reasons

1. Move up buyer is held back on debt
2. Demographics for first time home buyer will be lacking

http://www.census.gov/popclock/?intcmp=home_pop Census population chart

They were skeptical of this thesis and thought home sales should move near 6 million for EHS and 750K by 2014

That didn't happen

What the supply demand curve had or the pent up demand thesis .. it was for renting

7-10 million distress home buyers losing their home = renting
huge young population which still hasn't come on line yet...

They will be renting until years 2020-2024

tatupu70 says

None of this is a response to my point. Your assumption that sales = demand is wrong.

You didn't read the statement correctly , supply is more important for prices, especially when supply is conventional sales to distress

This is main reason why I don't believe we are going to get a housing crash in the next cycle in terms of prices because we won't have a massive amount of distress homes
coming on line when the next recession hits.

Net demand curve extra in this cycle was cash buyers, even if they all unloaded at the same time, they wouldn't be distress auction sales

Supply under 6 months, distress to conventional sales are the key for price and that is why all my price predictions were positive even with the weal demand curve in housing

Here is the one thing that economist and professors care about

All they care about is new home sales because of the multiplier impact on the economy, the higher value home prices and spending for us, wasn't going to be a big deal in this cycle because of the less extraction from cash out.

This is where Professor Sufi from University Of Chicago and I talked about at the economic conferences in 2013 and 2014

They just care about housing starts because of the economic impact

Here is a clip of the conference

https://www.youtube.com/embed/ns4bxXfqOow

Logan Mohtashami says

You didn't read the statement correctly , supply is more important for prices, especially when supply is conventional sales to distress

This is main reason why I don't believe we are going to get a housing crash in the next cycle in terms of prices because we won't have a massive amount of distress homes

coming on line when the next recession hits.

Net demand curve extra in this cycle was cash buyers, even if they all unloaded at the same time, they wouldn't be distress auction sales

Supply under 6 months, distress to conventional sales are the key for price and that is why all my price predictions were positive even with the weal demand curve in housing

Actually, I read it and understood it. You don't understand my point. You use sales numbers as a proxy for demand. I'm telling you that's not correct. Try to stay focused on this point.

Logan Mohtashami says

You didn't read the statement correctly , supply is more important for prices, especially when supply is conventional sales to distress

That's the whole point. Thousands of words on demand, when anyone know it's a supply issue. You can't buy what's not for sale.

It's like someone buying a car and you talk about the extended warranty - completely useless information. when people talk about housing market, the default context is price movement. No one gives a crap about sales volume. Sales volume is a function of supplies. How do owners get bitched slapped when renters are puking?

tatupu70 says

Actually, I read it and understood it. You don't understand my point. You use sales numbers as a proxy for demand. I'm telling you that's not correct. Try to stay focused on this point.

SFace says

That's the whole point. Thousands of words on demand, when anyone know it's a supply issue. You can't buy what's not for sale.

It's like someone buying a car and you talk about the extended warranty - completely useless information. when people talk about housing market, the default context is price movement.

I gave a you a model for prices to work even with a demand curve being weak and you still try to fight against it, even though in theory you agree with it, and then in theory you agree with the demand curve being weak from main street but strong from the Rich.

You're just having a debate for the sake of having a debate, because you just agreed with the core thesis of supply and demand economics with housing in terms of price gains.

Logan Mohtashami says

I gave a you a model for prices to work even with a demand curve being weak and you still try to fight against it, even though in theory you agree with it, and then in theory you agree with the demand curve being weak from main street but strong from the Rich.

You're just having a debate for the sake of having a debate, because you just agreed with the core thesis of supply and demand economics with housing in terms of price gains.

Are you kidding me. I'm not fighting that model. I'm simply pointing out that your assumption that sales = demand is wrong. Try to stay on topic for a second. Do you understand that point?

tatupu70 says

Are you kidding me. I'm not fighting that model. I'm simply pointing out that your assumption that sales = demand is wrong. Try to stay on topic for a second. Do you understand that point?

You're right, I mean how can we say Demand is weak in this cycle, seriously, demand is so strong, it's crazy

Adjusting to population are the lowest on record post WWII and it's at the lowest rate curve post WWII

I must be silly, you're correct, sales don't equal demand

Logan Mohtashami says

You're right, I mean how can we say Demand is weak in this cycle, seriously, demand is so strong, it's crazy

lol--so you're arguing my point that you can't use sales as a proxy for demand because supply is constrained, by showing me graphs of sales volumes. You can't make this stuff up.

tatupu70 says

lol--so you're arguing my point that you can't use sales as a proxy for demand because supply is constrained, by showing me graphs of sales volumes. You can't make this stuff up.

Not at all, I am saying that your thesis that sales don't equal demand is fascinating. It's a interesting thesis that the final sale of a items doesn't mean their is demand for that item.

If that item adjusting to population is at the lowest level every recorded when the cost of debt is at it's lowest level ever recorded post WWII that for some reasons that doesn't mean their is a demand problem

I have heard some wild economic theory on the internet but sales not being used as a proxy for demand is the first

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

‘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 am trying to think do I know one person in the world that doesn't believe the sales demand curve from main street is weak.

Right now, I can actually believe, you really do think sales isn't a proxy for demand. I actually believe you when you say that

Logan Mohtashami says

Not at all, I am saying that your thesis that sales don't equal demand is fascinating. It's a interesting thesis that the final sale of a items doesn't mean their is demand for that item.

Logan Mohtashami says

have heard some wild economic theory on the internet put sales not being used as a proxy for demand is the first

Logan--as I've pointed out many times. Sales only works as a proxy for demand if there is significant excess supply. Do you think there is significant excess supply right now? I don't think you have a good grasp as to what the numbers you post really mean. It's unfortunate. You're almost like a robot--you are good at creating graphs, but you can't get a deep understanding of what they mean.

Logan Mohtashami says

‘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 this were the case, prices wouldn't be rising like they have been for the last few years.

Logan Mohtashami says

Right now, I can actually believe, you really do think sales isn't a proxy for demand. I actually believe you when you say that

It can be, under the right conditions. You just need to understand what those conditions are....

tatupu70 says

but you can't get a deep understanding of what they mean.

Under that economic thesis you would be implying that rental demand isn't strong either even though vacancies are at a cycle low

Because household formation being on the rental side doesn't mean rental is strong, because the sale of a rental contract doesn't = demand

What you're saying that there is no demand curve in housing, because sales don't equal demand, that the renting boom doesn't equal a renting boom either

I have never met any person who sales sales don't equal demand, for that my lady, thank you

tatupu70 says

It can be, under the right conditions. You just need to understand what those conditions are....

Under the housing bubble years because inventory never got past 5 months, that would mean you believe the demand curve was real then or not real

We have more inventory today nationally than we did in 1999-2005 but the demand from main street is much less for both new and existing homes

So demand even during the housing bubble years didn't mean sales = demand correct

This is great stuff,

So the second question, I get the most is why are car sales doing great but home sales aren't

In fact nobody has ever showed me metrics showing me home sales are great. They ask Logan, those car sales are smoking why not homes

Here is a question, does the sale of a car not equal demand either

DTI +LTI factor model for this that explains why car sales are booming and housing isn't

Again, sales don't equal demand
So are car sales doing bad in this cycle

tatupu70 says

Logan Mohtashami says

‘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 this were the case, prices wouldn't be rising like they have been for the last few years.

If we have not built enough homes in the last 8 years to accommodate 25 million more people, we must have a home shortage.
When we don't provide enough mortgage loans to deserving home buyers, we start cutting back on demand.
Demand still exceeded supply, which is why home prices have been going up. Those unlucky not to buy their own homes have been forced into the limited rental market, driving up rents there.
It's not complicated, and it's not changing any time soon. Expect more of the same in the next few years.

Strategist says

Strategist  

You have more inventory from 2012-2015 than 1999-2005 as avg annual months and you're missing 1.5 million mortgage buyers on avg. for 6 years and this is with 2% lower interest rates and if it wasn't for the 20% above trend cash buyers the total net sales of home would be roughly slightly higher today than the low in the great recession.

To say there is no demand curve problem for housing when rental demand has boomed is just ignoring the data, plain and simple. I don't expect this to change until years 2020-2024 when you get real demand for housing which means the double supply of first time home buyers and move up buyers together

Logan Mohtashami says

Strategist says

Strategist  

You have more inventory from 2012-2015 than 1999-2005 as avg annual months and you're missing 1.5 million mortgage buyers on avg. for 6 years and this is with 2% lower interest rates and if it wasn't for the 20% above trend cash buyers the total net sales of home would be roughly slightly higher today than the low in the great recession.

To say there is no demand curve problem for housing when rental demand has boomed is just ignoring the data, plain and simple. I don't expect this to change until years 2020-2024 when you get real demand for housing which means the double supply of first time home buyers and move up buyers together

OK, what you are saying is.......There is plenty of supply, as can be seen from the Months of inventory chart. The real issue is the lack of demand as can be seen from the mortgage purchase applications, inspite of lower rates.
1. You know home sales/transactions can go up 10 fold, or go down to a tenth, and the months supply does not have to change an inch. In my view the months of inventory is a snapshot in time that reflects the demand and supply at any given time. Being below the norm is simply an indication of prices more likely to firm.
2. The mortgage purchase applications in the face of lower rates indicates tight lending, with lenders refraining from promoting their products. No lender wants to bother taking applications from those unlikely to qualify.

Strategist says

OK, what you are saying is.......There is plenty of supply, as can be seen from the Months of inventory chart. The real issue is the lack of demand as can be seen from the mortgage purchase applications, inspite of lower rates.

Logan Mohtashami says

LOL. OK, but you are missing my point.
I think Tatupu does have a point.....you are using the wrong charts for the wrong reasons, resulting in wrong conclusions.
What about:
affordability index
unemployment rates
interest rates
new home construction
demographics
My 2 cents: If you use the above, you will see homes are affordable in most regions. Lack of new home construction is a ticking time bomb. Lending is too tight. If things don't change very quickly we are in for a reverse of 2008 in terms of home prices.

Demographics economics matter for the demand curve in housing, this is the main thing I talk about with economist.

Supply of buyers, Only 2 groups outside of cash buyers which have been very strong in this cycle

Move up and first time home buyers.

You never had the goods in the first place to have a strong demand curve housing.

Here I explain it here, you will understand what I mean about demand curve economics better

http://loganmohtashami.com/2015/09/24/why-mortgage-purchase-applications-are-near-an-all-time-low-when-adjusted-to-population/

What I tell bullish housing people is this

Adjusting to population new home sales have had only on other time post 1963 where sales were this low and that was in the early 1980's when rates were over 14%

That is how bad the demand curve is, I understand why people thought sales would be booming, if you used old economic model in this cycle, you were toast in terms of home sales from the start.

Logan Mohtashami says

What I tell bullish housing people is this

Adjusting to population new home sales have had only on other time post 1963 where sales were this low and that was in the early 1980's when rates were over 14%

That is how bad the demand curve is, I understand why people thought sales would be booming, if you used old economic model in this cycle, you were toast in terms of home sales from the start.

Based on this reasoning, home prices should have crashed further in 2011-2014. So why did they jump?

Strategist says

Based on this reasoning, home prices should have crashed further in 2011-2014. So why did they jump?

That's not a factor when inventory breaks under 6 months and distress sales fall, you got that in 2012, inventory collapsed in first 4 months of 2012 giving tons of capacity for home prices, well under 6 months in spring of 2012 and we have only had 1 month since then where inventory was at 6 months.

Also, without new distress homes coming to market putting pressure on prices why would prices fall in a under 6 month market place

Logan Mohtashami says

Strategist says

Based on this reasoning, home prices should have crashed further in 2011-2014. So why did they jump?

That's not a factor when inventory breaks under 6 months and distress sales fall, you got that in 2012, inventory collapsed in first 4 months of 2012 giving tons of capacity for home prices, well under 6 months in spring of 2012 and we have only had 1 month since then where inventory was at 6 months.

Caused by surging demand which was not supposed to exist in the first place.

Strategist says

Caused by surging demand which was not supposed to exist in the first place.

What surging demand from main street are you talking about?

Please show me on the data line

Not here

Not here

For sure even with supply higher that the bubble years, Not here either

If the demand curve was strong you wouldn't be complaining about Tight Lending

Look at where the demand curve was strong

Let me explain this as simple as possible

2015 adjusting to population is the 2nd lowest mortgage purchase application data line since the data has been kept

Under any economic theory when you have the 2nd worst data line ever, in year 7 of the economic cycle, there is no strong demand curve

Inventory levels are higher during the bubble years and yet demand is missing 1.5 million mortgage buyers for 6 years

In what world does that = strong demand curve

Logan Mohtashami says

Not here

Right here. 2011-2014

Strategist says

Right here. 2011-2014

Remember the thesis was we simply don't have enough mortgage buyers once you X out the cash buyers, always been the thesis,

2011-2014 over 4 million home sold to cash buyer, ( 20% extra historical buyer) net mortgage demand
Right here is near Great Recession Lows

It's like talking to GOLD bugs now who Inflation is real and gold is going to 5,000

This little mickey mouse act might work one someone who doesn't follow the data, but not me

Under your logic you were pushing the housing market as a real demand curve from 2003-2006

Except now we are missing 1.5 millon buyer for existing home and over 500K-800K in new home sales

You had 7.26 million Max SAARS print with 6% rates and now you can't even get to 4.5 million with a 90% mortgage market with rates under 5% since 2011

Come on, who do you think you're talking to here. a realtor

It's like you think population stop growing in the year 2000 that's not how economic work

The latest Print, you're going into year 8 of the economic cycle with rates below 5% since 2000 and even with the 25%-35% cash buyer metric, highest in the history of housing you're still..... STILL... -11.3% below the year 2000 when rates where at 8%

Strategist says

I think Tatupu does have a point.....you are using the wrong charts for the wrong reasons, resulting in wrong conclusions.

Exactly right.

Sales volume doesn't equal demand.

If water costs 1000 dollars a drop, demand is still inelastic and high, but sales of water on the market will be low. "Housing" demand is extremely high, but available NEW SFH on market are anemic, existing SFHs are small as well, and prices have climbed significantly. People are renting and getting into multi-residental units.

Go tell any of the new mega condo complex owners, that were built in the past two years here in the South Bay, that "housing demand" is low. They will smile smile smile.

Rew says

Exactly right.

Sales volume doesn't equal demand.

If water costs 1000 dollars a drop, demand is still inelastic and high, but sales of water on the market will be low. "Housing" demand is extremely high, but available NEW SFH on market are anemic, existing SFHs are small as well, and prices have climbed significantly. People are renting and getting into multi-residental units.

Go tell any of the new mega condo complex owners, that

Maybe this is the case, here, this site doesn't really talk about national data lines. Maybe that is the problem

All I can say is that if you believe in the purity of math, facts and data, which clearly I can see a lot people rather that about economic assumption theories

List them this way because I don't think math, facts and data matter

#1

We have more inventory today than we did during the housing bubble years and yet we have been missing 1.5 million mortgage buyers for 6 years now with a 2% lower rate curve

#2

Adjusting to population we have never had a lower demand curve on purchase applications to go ahead with that data line. In fact 2014/2015 are the worst ever

#3

More supply and a lot less demand with lower rates for a longer period of time, now means the demand curve is strong for some reason which I find fascianating

#4

The only time adjusted to population sales were this low ever since the data was kept, was in the early 1980's when we had over 14% rates, no time ever recorded in American economic history when the demand curve was this low

So, when someone says the demand curve from main street America is strong, I say show me the data, because we have now 3 data line points to show this cycle was the worst demand curve every recorded post WWII at the lowest interest rate curve post WWII from main street America

Huge demand from cash buyers, Huge Rental Demand in this cycle, but from main street America under any economic theory or baseline assumption you can't say the demand curve was strong

Cash buyer have had a 20% above historical trend for 5 out of 6 years now down to 15% above historical trend, no other time we have seen cash buyers being this strong for this long ever

That amounts to a million home buyers a year extra from cash, I am not even counting the normal 10% in that equation either

Logan Mohtashami says

So, when someone says the demand curve from main street America is strong, I say show me the data, because we have now 3 data line points to show this cycle was the worst demand curve every recorded post WWII at the lowest interest rate curve post WWII from main street America

Huge demand from cash buyers, Huge Rental Demand in this cycle, but from main street America under any economic theory or baseline assumption you can't say the demand curve was strong

OK, lets agree to disagree on housing demand.
What are your expectations for housing in the next 3 years?

Strategist says

OK, lets agree to disagree on housing demand.

What are your expectations for housing in the next 3 years?

What metrics are you talking about, also looking 3 years out going into year 8 of the economic when the Fed is about to do the rate hike which I support because the U.S. economy doesn't need emergency rates is questionable

What I tell housing bulls to push in terms of demand is that adjusted to population sales have never been lower, because of that you have legs for new home sales and starts.

Question because what does housing look like in a recession when adjusted to population sales are this low.

This will be the real debate, because we have a lot of people who are saying we are going to have the Great Recession 2 and home prices are going to decline big time which I don't agree with because in a few years the mass supply of home buying American will be there where in this cycle due to many variable reasons they weren't