patrick.net

no trolls on this one yet?

landtof says

no trolls on this one yet?

I am actually in the camp too that believes the Labor market is strong but actually we have a labor shortage as prime working age
unemployment rate is now at 4.2% We are missing 2.8 million prime working age work force people from the peak of the housing bubble and now we have
almost 6 million job openings.

We have a education and skill gap shortage of workers now

Logan Mohtashami says

Real simple, everyone's broke!

Some people make good money, good enough to easily buy with a mortgage

But in this cycle with a lack of first time home buyers

Demographics

A lot home buyer trapped still with not enough equity to sell and move up, it limits the mortgage purchase application capacity

Not to worry my friends. Good times always come around.

Strategist says

Not to worry my friends. Good times always come around.

This is true, when something adjusting to population is at an all time low during the later years of an economic cycle, the bar is very low, gives it upside when demographics for ownership get better years 2020-2024

Home builder stocks
For those who want to make real money.

Strategist says

Home builder stocks

For those who want to make real money.

I do have to say this, the last time adjusting to population sales were this low was back in the early 1980's and it was during the recession with north of double digit mortgage rates

So,it has forward looking potential demand curve

Yup
20 years from now MBA students will be writing reports about the greatest opportunity in the history of Wall Street
Buying home builder stocks. A no brainier even for the no brainers.

Strategist says

Buying home builder stocks. A no brainier even for the no brainers.

Be mindful of profit margins, some builders are better than others

True.
I just went for the etf
Actually, a major home builder that is not doing good might jump the most, because in a high demand scenario margins increase.

Strategist says

I just went for the etf

Good choice

Logan Mohtashami says

But in this cycle with a lack of first time home buyers

you are talking about a difference of around 3 to 5 million people - what's going to change in 7 years besides 3 to 5 million more people not applying for mortgages, especially if the economy stays on life support from the central banks and governments?

this could get worse, as more people compete for flat/falling wages - pushing those wages down even farther. wow, the government better approve 4-way marriages to cover your thesis.

unless a major restructuring takes places that allows real economic growth vice financial engineering (buybacks et al.) - YOU'RE FUCKED!

Logan Mohtashami says

This is true, when something adjusting to population is at an all time low during the later years of an economic cycle, the bar is very low, gives it upside when demographics for ownership get better years 2020-2024

Better demographics like 70 million boomers selling their mcmansions to move into a nursing home? Is that the better demographics we are talking about? Buy stock in assisted living operators.

Nope Bob

#1

For housing, why is the demand curve going to get better in years 2020-2024 from what we see now?

By years 2020-2024 we will have more dual income college educated Americans in the economic system than we have now.

Even if the buyer % is the same at 30% they will have simply more of them in the home buying age.

If you look at the demographic census heat map right here, we are very heavy ages 12-29 and the biggest age group actually is 21-25.

This is real time live Census heat map here |

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

#2

We have had the worst mortgage demand curve ever, It's very hard to get much worse that this. With the supply of more move up buyers and first time home buyers
Years 2020-2024 will be better than this, how can it not, these were the worst mortgage demand curve years ever

What is the X factor in all this. We are going to see a recession between the years 2016-2024, so the rate variable does come in play because ever housing cycle has had 2% lower rates in them. For this to happen which I believe can happen following the 34 year trend... rates get down to 2.25% and 1.25%

However, we have a stronger prime working age demographic profile where we have a lot more younger people in the system who consume more than people over the age of 53

bgamall4 says

So, there is no guarantee that these college grads will find the jobs they want, and high paying jobs are dying, Logan.

First time home buyers are running at a 30% clip now, so who are these people, young Americans buying homes today?

Even if we take the worst demand curve from them

The massive supply of this group would create a bigger buyer

My economic model for this group is simple

1. Rent
2. Date
3. Mate
4. Marry

3.5 - 6 years after marriage = home buying that is the constant in this cycle. So, I am taking a still worst case situation with this group that they stay even at the 30% trend, they will simply be more of them come years 2020-2024, counting those who are in the renting stage now too.

Where we had peak prime working age in 2007 and a fall out and starting to grow again now. The supply of more buying age Americans just gives more supply than what we had. This is why I am taking the worst case assumption model

indigenous says

Nope Bob

Nope bob what? Do you have a point? Where do you think all those disappearing baby boomers in your chart are going if not entering assisted living, then nursing homes and then dying? Perhaps they are moving overseas and renting out their still mortgaged at age 75 mcmansions? WTF are you talking about?

"Better demographics like 70 million boomers selling their mcmansions to move into a nursing home? Is that the better demographics we are talking about? Buy stock in assisted living operators."

Nope better demographics like the ones in the chart I posted. In the future the boomers are going to be less and less significant

Good read, thank you.

indigenous says

"Better demographics like 70 million boomers selling their mcmansions to move into a nursing home? Is that the better demographics we are talking about? Buy stock in assisted living operators."

Nope better demographics like the ones in the chart I posted. In the future the boomers are going to be less and less significant

Dead is certainly less significant. The point is who is going to buy millions of their hugely over inflated suburban houses? Gen X, they have houses by now if they are going to buy. Millenieals who paying off huge student lows with ever lower wages fighting for the few jobs that haven't been sent overseas? The ones who hate the suburbs that are moving back to the cities en masse.. That's your better demographic? I don't think so.
http://www.forbes.com/sites/marymeehan/2014/02/21/the-baby-boomer-housing-bust/

I can tell you guys this on the Mc Mansion home, this might be a extreme case

My parents had their home on the market to sell for 1,995,000 this year in Nellie Gail Ranch CA

They got no offers that they wanted to accept. So, of course I wanted to documented the entire event

#1 Their next door neighbors sold for

A. 2.5 million cash
B. 2.45 million cash

Both homes were less than 10 years old, so they had the perks of a new home. My parents home was of similar size and a bigger backyard.

However, the buyers of the homes were Russian and South American. I counted 11 Non English speaking Chinese looking at the homes and we couldn't even get a feel of what they thought of the home. It was kind of funny.

I found one American family buyer than was interested in the home, it was a job relocation family in Minnesota but that was a 2016 story line.

I'm friend with Bill Mcbride from Calculated Risk, we talk about the California market and he went on Bloomberg last Friday and talked about the increase of inventory higher price homes here in So Cal and it's coming on homes that are much older

Logan Mohtashami says

However, the buyers of the homes were Russian and South American. I counted 11 Non English speaking Chinese looking at the homes and we couldn't even get a feel of what they thought of the home. It was kind of funny.

I found one American family buyer than was interested in the home, it was a job relocation family in Minnesota but that was a 2016 story line.

That's just great for socal. What about all the millions and millions of 2-4k sq ft boomer suburban houses in the other 49 1/2 states. Which chinese millionaire buyers plan to scoop them up.

Bob:
"Dead is certainly less significant. The point is who is going to buy millions of their hugely over inflated suburban houses? Gen X, they have houses by now if they are going to buy. Millenieals who paying off huge student lows with ever lower wages fighting for the few jobs that haven't been sent overseas? The ones who hate the suburbs that are moving back to the cities en masse.. That's your better demographic? I don't think so.
http://www.forbes.com/sites/marymeehan/2014/02/21/the-baby-boomer-housing-bust/"

The 70 million additional souls in the US by 2035 is the overriding demographics. All those boomer homes will get absorbed. Except in the frost belt.

bob2356 says

Dead is certainly less significant. The point is who is going to buy millions of their hugely over inflated suburban houses? Gen X, they have houses by now if they are going to buy. Millenieals who paying off huge student lows with ever lower wages fighting for the few jobs that haven't been sent overseas? The ones who hate the suburbs that are moving back to the cities en masse.. That's your better demographic? I don't think so.

I think the the millennial buyers are going to form households outside of Calif. I.E. the Calif houses will be traded amongst boomers and cash buyers until they become irrelevant. The value of the houses will not keep up with inflation, as in the case of Logan's parents house.

The millennials will not move to cities once they start forming families as they will have the same needs as anyone else who has kids at that point.

The debt is mostly owed by graduate students who can most easily pay the debt off e.g. medical students.

Like most libbys you are trying to conflate to make your case. But is doesn't work that way...

bob2356 says

That's just great for socal. What about all the millions and millions of 2-4k sq ft boomer suburban houses in the other 49 1/2 states. Which chinese millionaire buyers plan to scoop them up.

Nothing to show that dual incomes can't absorb Suburban homes, MI2MP aren't bad for those areas.

Harry Dent and his crew has convinced people that we are on the verge of a 40%-67% collapse in prices due to demographics for housing.

Limf (X) = Sky
X-A

Model for inventory isn't a valid one for upper end homes in America.
The baseline assumption in that model for Dent is others is that they're saying renters ( lower educated Americans) are actually home buyers, which they're not.

The dual income factor model still stands in America.

Really the test comes in years 2020-2024..

If you can get a demand curve higher than what we have seen now. Then and only then you can talk about peak affordability only in terms of growth models

While I am a huge demographic guy myself, Dent uses it for promotional material

Prices falling needs 3 things really

1. Inventory over 6 months
2. New distress homes growing = Job loss recession timeline
3. Lack of inter cycle buying during the supply curve growing on inventory = Job loss recession period

It's just a tough model to forecast 40%-67% declines without those things and now we have the best home buying profile I have ever seen in my life, which limits the future supply capacity

Logan can you please share what are your thoughts on the current interest rate and it's direction?

FortWayne says

Logan can you please share what are your thoughts on the current interest rate and it's direction?

This was my prediction for 2015 on rates

2. For mortgage rates – I predict the 10 year note yield will be in a range of 1.60% – 3.04%, which means mortgage rates will be in the 3.50%-4.5% range. Even with stronger economic data from the U.S., other areas around the world such as Japan, Europe, Russia and even China are now experiencing economic slowdowns. My yield range prediction is based on recent history: In May of 2013, the 10 year note yield was 1.6% before it climbed to 3.04% over the next 18 months. If we see an upside break in the yield to over 3.04% this would be a bullish indicator for the economy, but it would also lead to increased mortgage rates. The bottom line is that I see no significant increase in mortgage rates from the 2014 peak which was roughly 4.5%. The short end of rates rising makes it very interesting for 2015 as the Fed dots are set to raise short terms rates in 2015.

What has happened so far this year, is that we tested the low that I thought we would test 1.60% with a 1.64% print when we had our mini taper up to 2.50% on 10's which was the 2nd biggest % move in this cycle and now we are in a decent channel from 2%- 2.50% for now.

We can a solid intrday break on weak Jobs Friday to 1.90% but it closed at 1.99% which means no clean break for the Algo models. So ranged bound on 10's for now

I believe the Fed will raise rates soon but to get a better feel on that you need to the 2 year note to have a 80 handle for the first rate hike.

The 34 year trend of lower rates still intact

Strategist says

The 70 million additional souls in the US by 2035 is the overriding demographics. All those boomer homes will get absorbed. Except in the frost belt.

and you got these numbers from where? Most projections are in the almost 40 million range by 2050 with 25 million being immigrants. So the 25 million new immigrants, who are mostly poor, are going to buy most of the 70 million boomers houses? I don't think so. http://www.pewsocialtrends.org/2012/12/14/census-bureau-lowers-u-s-growth-forecast-mainly-due-to-reduced-immigration-and-births/ Since many boomers have little or no retirement they are going to have no choice but to sell. Buyers always have a choice.
The boomers counting on pension plans from unions and corporations are going to get some really rude and unpleasant shocks. It's started already.

indigenous says

I think the the millennial buyers are going to form households outside of Calif. I.E. the Calif houses will be traded amongst boomers and cash buyers until they become irrelevant. The value of the houses will not keep up with inflation, as in the case of Logan's parents house.

The millennials will not move to cities once they start forming families as they will have the same needs as anyone else who has kids at that point.

The debt is mostly owed by graduate students who can most easily pay the debt off e.g. medical students.

Like most libbys you are trying to conflate to make your case. But is doesn't work that way...

At least I made some kind of case at all, you should try it some day. Millennials have moved and are moving to the cities in huge numbers already, they aren't going to be moving back out all that fast. Kids get raised in cities all the time. No debt isn't mostly owed by graduate students. That's just fiction. Offshoring jobs? Stagnant or falling wages? Bankrupt pension plans? Not factors? I don't think so.

bob2356 says

Millennials have moved and are moving to the cities in huge numbers already, they aren't going to be moving back out all that fast.

Primae facia that is not true otherwise suburbs would never had been built as cities are a far more efficient way to live.

bob2356 says

No debt isn't mostly owed by graduate students.

I don't think so:

bob2356 says

Offshoring jobs? Stagnant or falling wages? Bankrupt pension plans? Not factors?

Not with millenials. Remember Say's law dictates that these millennials are going to be creating new jobs and new fields. IF the government lets them.

Logan Mohtashami says

We have a education and skill gap shortage of workers now

What you mean is there is a shortage of workers requiring no training and willing to work for the 99 wage.
Looking at job openings is nice but unless companies start putting money where their "openings" mouth is, it doesn't say much.

Logan Mohtashami says

For housing, why is the demand curve going to get better in years 2020-2024 from what we see now?

Demographics are nice, but Bill Mcbride should focus on what people can actually pay.
Population and jobs may increase, but so are housing prices in California.
If people couldn't afford to buy so far, give one reason why will they be able to afford next year when prices are up an other 7% (or 4% for that matter).

You can say "they are moving to an age where people typically buy houses", but seriously, does it apply to millennials?

Heraclitusstudent says

What you mean is there is a shortage of workers requiring no training and willing to work for the 99 wage.

Looking at job openings is nice but unless companies start putting money where their "openings" mouth is, it doesn't say much.

You can't do much with people who haven't graduated high school
Hard to work with skilled jobs if you don't have trade show skills and no college education

Strategist says

Buying home builder stocks. A no brainier even for the no brainers.

Clearly builders should build more. The question is do they fall into 1 of these 2 cases:
- they continue to build a relatively insufficient number of houses (so prices continue upward), and target the high end, and sales will stay weak.
- they build enough houses that they have to lower the prices and build less upscale. This is not good for home builders margins.

Heraclitusstudent says

You can say "they are moving to an age where people typically buy houses", but seriously, does it apply to millennials?

Bill is more Bullish than I am

However, first time home buyers now are only 10% below their historical average

If we only stay the same in years 2020-2024 will have more home buyers, we already seen ages 30-39 leave CA to migrate to Sun Belt states.

When I talk about housing I am talking national not just California.

The thesis only stands with having more college educated dual income families that are having kids. A group that has been buying in this cycle.

MI2MP model changes a lot when you have a dual income factor with college educated Americans

I don't ever add

- High School Drop outs
- Non College educated Americans ( Even though some trade school or jobs such as welding pay well) to buy homes
- Drug users
- Criminal active Americans
- Those with Criminal backgrounds

This group is a renting group in my eye, I am all for free state college and federal back skill training programs for this group, however, they're aren't home buyers in my mind so I tend to discount them always in the home buying equation

Logan Mohtashami says

You can't do much with people who haven't graduated high school

Well... you could build houses. But... nah.... we wouldn't let them.

Heraclitusstudent says

Well... you could build houses. But... nah.... we wouldn't let them.

All for targeting skill training, especially for men, labor shortage is showing up in construction. That I think would be a very cost effective program but very hard to enact with politics involved.

Too expensive to build homes for the builders to make their profit margin levels, almost need a federal intervention on that front

Logan Mohtashami says

When I talk about housing I am talking national not just California.

National should be much better.
And with banks sitting on trillions in excess reserves, I suspect a mortgage lending boom would result in a panic in the bond market.

Logan Mohtashami says

expensive to build homes for the builders to make their profit margin levels

Really? I haven't looked at builders costs BUT:
- Wages don't go up,
- commodities are down,
- housing prices go through the roof,
... and builders can't train workers?

I call BS on this one. Especially when a large number of trained workers were fired in the past 10 years and weren't rehired.
Maybe it would require giving a slightly smaller bonuses to execs. Which would require federal intervention.