patrick.net

It is what it is

VA loans
0% down 620 Fico 60% DTI

FHA loans
3.5% down 560-620 fico 43% DTI

Conventional GSE

5% down 620 Fico 43%-50% DTI

Tight Lending thesis is starting to finally lose its luster
as more and more pundits are shown actually financial lending standards

Just like third world country, only rich can afford. Average Joe is a toast!

Rent inflation has been rising above wage growth for some time now. So, it's a housing inflation story to income capacity on both fronts now

^ now add healthcare cost into that picture along with CPI adjustment.

on a side, is the business you're in concerned for the future about these statistics - namely the low application index? a healthier picture would have 1st timers building the foundation of the pyramid, one would think. how long can the top portion stay elevated on its own? i suppose the answer would be: as long as the central banks continue pumping air into the system's lungs.

Logan Mohtashami says

It is what it is

VA loans

0% down 620 Fico 60% DTI

FHA loans

3.5% down 560-620 fico 43% DTI

Conventional GSE

5% down 620 Fico 43%-50% DTI

Tight Lending thesis is starting to finally lose its luster

as more and more pundits are shown actually financial lending standards

Aside from the VA loans, all others should require a 20% down payment.

Loan brokers and Realtor's. Buyer beware.

bgamall4 says

Nice. Not much hope for the average Joe to own a house. But maybe that is good since they are still inflated in value.

bubblesitter says

Just like third world country, only rich can afford. Average Joe is a toast!

65% own their homes. That's more than average. The other 35% used a rent vs buy calculator.

Strategist says

The other 35% used a rent vs buy calculator.

Or they don't live in the Bay Area.

I estimate 45% of all homes in this economic have been bought by the Rich.

Cash buyers + 2 1/2 + 3X Median income buyers

That 45% could be a conservative % as well.

In a normal housing market you would see these metrics

10% cash
90% mortgage
40% of that mortgage profile first time home buyers

This cycle for years now

30% -33% cash
67%-70% mortgages
27% -30% first time home buyers

You're missing bout 10% of first time home buyers
and 10% of move up buyer action from historic norms

This year Existing home sales should finish about 4.95 -5 million

Back in 2000 we had 5.2 million sales

Interest rates were at 8%
we had 4.3 million less Americans working

The one bullish factor that I have seen lately and the only reason I have been slightly bullish on EHS beats just on expectation sales is that I believe for months now that new home buyers are moving to Existing homes

This last month data was obviously a glitch but now the gap from New to old is roughly almost a 100K

E.H Median per NAR is 208,000K and this is the biggest gap ever I believe on record % wise.

New home sales market which has economic implications is only 1/10th of sales but normally will be at 1/6th is already hitting some sales pressure.

Estimate sales growth was 20%-25% this year and they should be grateful if final revision trends don't go negative. So, you should have a slight total sales beat Year over year but that wasn't supposed to happen since we are at very low levels of total sales and interest rates are at 4%

New home sale market is a 90% mortgage market place much different that existing home buyer profile

tatupu70 says

Strategist says

The other 35% used a rent vs buy calculator.

Or they don't live in the Bay Area.

99% of the country doesn't live in the bay area.

Logan Mohtashami says

In a normal housing market you would see these metrics

10% cash

90% mortgage

40% of that mortgage profile first time home buyers

This cycle for years now

30% -33% cash

67%-70% mortgages

27% -30% first time home buyers

One thing that I haven't seen mentioned here is the fact that the bubble basically pulled forward a great deal of first time buyers. So, it's natural that the that % is artificially low now because many of the folks that would have been first time buyers for the last 5 years bought prematurely during the bubble.

Yearly survey not the monthly sale data, between get these 2 mixed a lot

Data going back to 1984

This article

Before the 2014 spring selling season, I told housing media experts such as Diana Olick from CNBC and Kathleen Hays from Bloomberg Financial that 2014 had the fewest pre-approval requests (a prime indicator of first time home buyer interest) I had seen in my 15 years in the lending business. I reported on this apparent aberration in the marketplace in an article published back in March of this year:I worked with Bloomberg on a First Time Home buyer article back in March

“First Time Home Buyer, What’s That

http://wp.me/p1gHkh-mk

In May, I reiterated the observation of very weak first time home buyer activity in an interview with Bloomberg:

http://wp.me/p1gHkh-no

From the great Professor Anthony Sanders.

http://wp.me/p1rch2-9XQ

20141103_NAR

affordgap

To rehash this old story – for those who somehow missed it, the reasons for this weakness revolve around a mixture of inter-related economic, social and political forces some of which include:

1. Delay in marriage (Dual incomes missing)
2. A lack of a strong paying full-time job with security.
3. Older Americans are unable to retire due to lack of savings – they replace younger workers, who have trouble finding jobs.
4. Having enough for a down payment plus closing cost with taxes impounded is a lot for young aspiring home buyers.
5. Renting isn’t considered a bad option anymore from young Americans.
6. Exotic loans that allow would be homeowners to obtain credit without collateral or income verification are removed from the market.
7. Financially strapped parents are unable to “gift” down payments for first home purchases by their children.
8. Student loan debt impacted household formation from rising and making it more expensive for first time home buyers to buy.
9. Despite the weak first time buyer market, home prices go up in many markets due to the lack of inventory, keeping home ownership even further out of reach.

With all these factors in play, we simply don’t have enough qualified home buyers once you removed the cash buyers, to generate a housing recovery.

To quote an article I wrote in late 2012: A lot of things have changed in America because of our debt blow up, … maybe a generation will wait just a bit longer to buy a home.

“The Young and the Renting”

article here http://loganmohtashami.com/2014/11/03/demand-from-first-time-home-buyers-hits-21st-century-low/

Now I don't understand those charts at all, is there a short summary of what it means?

FortWayne says

Now I don't understand those charts at all, is there a short summary of what it means?

Thesis #1 I have said since day 1 was this

We simply don't have enough qualified home buyers in America ( Once you X out the cash buyers) to have a recovery in housing.

This has nothing to do with tight lending, tight lending is a myth. The income velocity of main street America is finally showing itself and even 4% rates is too high with the MI2MP model for housing both on new and existing homes

In short. It's very expensive to own the debt of a home for main street and that is why sales and starts haven't been booming and if it wasn't for the Rich buying homes in high % numbers things on paper would look worse.

However, for now the Rich are here with their cash and their 2.5-3 times median income to buy both foreign and domestic buyers

Thanks for the clarification Logan

FortWayne says

Thanks for the clarification Logan

Some housing pundits had 5.7 million in existing home sales and 25% sales growth in new homes sales in 2014

That would have meant a 15%-25% increase YoY on mortgage purchase applications every single week of the year in 2014

What happened was

Every single week this year has been negative YoY
Only 3 weeks were negative under single digits
Majority of the heavy months, where demand is the highest were negative between 10-20%

Epic fail in their thesis

http://loganmohtashami.com/2014/05/05/why-the-financial-media-and-housing-pundits-got-it-wrong/

Logan i feel that oc is so different from the rest of the country. Can you comment on what you are seeing in oc since you are located in irvine? It seems like everyone here has tons of money and everyone has an income of 300k plus.

Meccos says

Logan i feel that oc is so different from the rest of the country. Can you comment on what you are seeing in oc since you are located in irvine? It seems like everyone here has tons of money and everyone has an income of 300k plus.

Why Main Street America has been soft for years in terms of mortgage demand. No county in America has a 300K Median income

Loudan County in Virgina I believe is the highest at $117K if I remember right

Hidden Hills in CA is highest city with $250,000K Median income

back to Main Street here is your problem
#DTI & #LTI capacity

For 2014 I talked about the Southern California market directly in terms of what I say with buyers here in Irvine, Orange County & Southern California in this Bloomberg Interview

http://loganmohtashami.com/2014/05/16/bloomberg-financial-interview-on-health-of-the-housing-market-2014/

APOCALYPSEFUCKisShostikovitch says

If you can't afford to be bankrupted by a mortgage, you don't deserve to be bankrupted by rent.

Still trying to understand the loop. :)

Logan Mohtashami says

Hidden Hills in CA is highest city with $250,000K Median income

That's not far from us out here. 250k is highly underreported income for HH, it's all very expensive mansions with celebrities and occasional wall street crooks. If you don't live there you can't enter, it's gated and there is security.

There might be many other communities where reported income is nowhere near reality.

Very few cities in America that have median income of over 200K and no county has that amount either

median income only matters (partially) for the median homes. prime property (like hidden hills) are about wealth.

SFace says

median income only matters (partially) for the median homes. prime property (like hidden hills) are about wealth.

That is why my model of 82% population in CA excludes the rich 3X median income over 180K and cash buyer out of the equation.

CAR has 70% priced out in CA median income to median home prices.

However, their model is outdated as it believes that every American has 20% Down has a 740 Fico score and a starting #DTI of 25%

Not valid in this economic cycle.

New home market which is only 1/10th of sales but has more of an economic impact has gone will once again

Back during bubble days, people could hide out in the rental. Starting in 2011, even that became impossible.

dublin hillz says

Back during bubble days, people could hide out in the rental. Starting in 2011, even that became impossible.

rental demand has been strong in this cycle for sure even with rent inflation rising above wage growth

jvolstad says

Aside from the VA loans, all others should require a 20% down payment.

The U.S. government loves housing too much to regulate any 20% mandate as they know it would reduce sales by over 30%

Hence the MID and capital gain treatment housing gets.

Housing is a very subsidized market place with low down payment, low fico , high debt to income loans from the U.S. government and favorable tax advantage

http://www.cnbc.com/id/102254636

"You're looking at the first time I can ever remember in the last 33 years where you had interest rates fall all year long in a up cycle, and mortgage purchase applications have had a negative year-over-year print every single week," noted Logan Mohtashami, a loan officer with AMC Lending Group in Irvine, CA."

To add to that

Let's be honest here about housing, forget the spin and economic narcissism that we have seen from some people for 15 years now on housing

Fact

2014 Numbers

- Inventory was higher
- Rates lower all year long
- Rents have been rising this entire cycle
- GDP print has been 3.5% and more 4 out of the last 5 quarters
- Monthly Jobs avg 240K a month best since 1999

Economic Reality

- YoY sales are negative

- 45% of all homes are bought by the Rich, cash + 2 1/2 + 3X median Income ( $132,500 - $159,000)

- Back in 2000 Existing home sales was 5.2 million with 8% rates and 4.3 million less people working we will below that this year

- The recovery in housing has come from both rental demand and rental construction both are booming in this cycle

- First time home buyers are at the lowest % this century with 4% rates

- Mortgage purchase applications are at the lowest % this century with 4% rates

Logan--

What point are you trying to make here? First time buyers are low because a good chunk of them bought prematurely during the bubble. Their demand was pulled ahead.

Sales are lower because people aren't "moving up". Is that a bad thing?

Inventory may be slightly higher, but prices are still rising so it's not a buyers market...

What am I missing?

tatupu70 says

What point are you trying to make here? First time buyers are low because a good chunk of them bought prematurely during the bubble. Their demand was pulled ahead.

You have tons of people who in theory could buy based on the workforce demographics but they can't because they simply don't make enough money

tatupu70 says

Sales are lower because people aren't "moving up". Is that a bad thing?

A lot housing bulls had 5.5 -5.7 million homes sold. That would imply a 14%-21% increase YoY on mortgage applications. I never believed in that thesis so they have to know why they were wrong and as always it goes back to income and assets

tatupu70 says

Inventory may be slightly higher, but prices are still rising so it's not a buyers market...

Inventory is up year over year but demand is negative this shows that it's not pure net demand rising prices its the fact that we are in a low inventory cycle due to the housing debt bubble and because of the overhang of all those homes that haven't come to market yet or being held back... it has caused home prices to inflate higher than what main street America can afford

My work is always more about economic cycle trend in relationship to housing. The why factor more important than the nominal factor being showed

Here is CA

My model still shows 82% of working population priced out of the market place once you X out the Rich ( 3X median income 189K)

APOCALYPSEFUCKisShostikovitch says

If you can't afford to be bankrupted by a mortgage, you don't deserve to be bankrupted by rent.

Exactly. Completely agree.

Even rents are way too high. Part of it is due to rising property taxes but they are other factors to like zoning and such which creates a shortage of rentals and drives the prices higher.