patrick.net

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.

Heraclitusstudent says

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.

A lot people leave the industry and not a lot replacement workers training to be construction workers,

Job openings are there for construction, wage pressures are there for constructions workers but you just don't have the supply of them

construction jobs have had their best 12 months job gains in this cycle, but they can't find more skilled labor at this stage

We have more job openings here in America today than many nations total working labor force

Maybe anecdotal, but those openings are not turning into job offers at a significant rate. Maybe that will be the next phase of the economy?

lostand confused says

Maybe anecdotal, but those openings are not turning into job offers at a significant rate. Maybe that will be the next phase of the economy?

Prime working age Americans are only starting to grow again, the labor pool will have more supply of them comes years 2020-2024, it's a demographic issue that really can't be solve without time

lostand confused says

Maybe anecdotal, but those openings are not turning into job offers at a significant rate. Maybe that will be the next phase of the economy?

It feels that we are as a nation searching for that next big job creating something, but we don't know what it is. Unemployment and underemployment is severe still these days. One post on craigslist for a few guys to put up dry wall gets me almost a 1000 emails, that tells me just how fucked up the economy really is still.

FortWayne says

t feels that we are as a nation searching for that next big job creating something, but we don't know what it is.

This is how the business cycle works. New jobs get created when the business cycle begins to rise again. By new jobs it is meant new types of jobs not more of the same types of jobs. As Milton Friedman said America was built on layoffs [from old types of jobs].

The problem is that the Fed did not allow the layoffs to occur so the money that would have gone to new types of industries has instead gone to speculation in the stock market and speculation in RE and government jobs and long-term disability.

So what we have is a pathology instead of a recovery due ONLY to the Fed and the Keynesian pathology.

Let me say again slower for you Wogster. AIG and probably a good portion of GE and a good portion of GM et.al. were bailed out. As well as the banks as well as buying mortgages at face value rather than marked to market, as well as ZIRP, as well as QE x 4, 99 weeks of unemployment, as well as permanent disability, etc, etc. Not to mention that government employees don't get laid off.

So these many trillions of dollars do not make it to the market place. So dead wood is not stripped from the economy. So capital seeking the best yield goes to the stock market and RE.

What does not happen is a recovery. What does happen is a kicked in the head anemic feeble stagnation that we have now, where NEW jobs are NOT created.

Ducky opined: 4. Somehow the fed has something to do with long term disability. Yeah I'm pretty much drawing a blank on this one. It's too crazy even for my universal translator.
Oh come on, we all know a lot of unemployed folks gave up looking for work and took refuge in Social Security Disability. A poor mans Keynesian stimulus, but we will need to pay for it during the good times (or at some time). Per the AP (via NBC): The 11 million people who receive Social Security disability face steep benefit cuts next year — unless Congress acts, the government said Wednesday. The trustees that oversee Social Security said the disability trust fund will run out of money in late 2016, right in the middle of a presidential campaign. That would trigger an automatic 19 percent cut in benefits.
The average monthly benefit is $1,017.
But I will say, this is much more about survival, as these ARE the folks hit by the layoffs.

indigenous says

This is how the business cycle works. New jobs get created when the business cycle begins to rise again. By new jobs it is meant new types of jobs not more of the same types of jobs. As Milton Friedman said America was built on layoffs [from old types of jobs].

The problem is that the Fed did not allow the layoffs to occur so the money that would have gone to new types of industries has instead gone to speculation in the stock market and speculation in RE and government jobs and long-term disability.

So what we have is a pathology instead of a recovery due ONLY to the Fed and the Keynesian pathology.

That's probably the best explanation I've seen to this so far.

FortWayne says

That's probably the best explanation I've seen to this so far

It is beyond stupid actually.

FortWayne says

The problem is that the Fed did not allow the layoffs to occur

source: tradingeconomics.com

Sure looks like we had layoffs to me.

FortWayne says

so the money that would have gone to new types of industries has instead gone to speculation in the stock market and speculation in RE and government jobs and long-term disability.

Sure seems like there is a lot of money ready to be invested. The problem is that there is no reason to invest in new capacity or products because 90% of the population have no money.

Logan Mohtashami says

Job openings are there for construction, wage pressures are there for constructions workers but you just don't have the supply of them

WTF when did non farm employment become construction only? So what if there are job openings in construction. There are only 6 million construction jobs in the whole country or less than 2% of the population. Expanding that by 20%, which is a pipe dream, only adds 1 million jobs out of 140 million. That's not driving the house buying market anywhere.

bob2356 says

There are only 6 million construction jobs in the whole country or less than 2% of the population.

The JOLTS report is nationally for all Americans

Construction quality labor has been the number one compliant last year even thought construction jobs itself has had it's been 12 month run in the cycle, the demand is rising for construction and they simply need more quality labor

Today in the Small Business Report Labor concerns has outstripped sales demand, which is what you would see in the economic cycle as this stage

Such a low bar for construction that growth is in the works which needs more labor, it's just not a huge booming cycle for construction due to the soft single family built outs

indigenous says

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.

What are you babbling about? Millennials are fleeing suburbs they grew up in to live in cities. Suburbs that are already built. Suburbs that initially were built because the interstate highway system allowed people to flee the dirty, dangerous, crowded cities that existed in the 1960's then became a lifestyle of their own. Most big cities today are disneyland compared to the 1960's.

indigenous says

bob2356 says

No debt isn't mostly owed by graduate students.

I don't think so:

How much in loans for students without a graduate degree vs graduate students? Hint each year about 4 million people take student loans that never finish college, about 4 million people do get a degree every year. 3.5 million undergrad, 500k master, 18k medical school, 30k law school. Not that there is any possibility it would happen, but you do the math and get back to me what percentage of the student loans owed belongs to graduate students. Bigger hint, 8 million people with modest loans trumps 50k with jumbo loans. It's not the dreaded rate of change thing that you so can't get, but it's a ratio's thing which is probably just as scary.

indigenous says

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.

Really, that's interesting. You actually think 75 million people are going to be creating new jobs and new fields? That's really impressive. Insane, but impressive. I think the vast majority will have to get by with the current fields and jobs. Jobs that most of which are are either a commodity on the world market or subject to replacement by automation (or both) that will continue to face downward wage pressures.

How does a libertarian quote say in the first place? Say wanted public works projects for the unemployed. Too bad say wasn't around to explain how his law totally failed in the great depression. One thing you have to give libertarians credit for is if things don't work it's always because the market isn't free enough even though they can't define what free enough is.

Millenials haven't formed families yet.

If you have a better graph why don't you produce it, rather than depending on your blather?

" I think the vast majority will have to get by with the current fields and jobs. "

Like the farmers did?

Logan Mohtashami says

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

Sir,

With housing costs going up in select markets (IE Goleta) and rents going up, food going up, not sure if this corresponds to the reduction in inflation in this chart.

Are you sure the same pundits that told us that the CRA and private label subprime were fine are now not gaming us with false statistics?

It is beyond stupid actually."

You set the standard on stupid.

Entitlemented says

the reduction in inflation in this chart.

Rent Inflation in Orange and everything else is blue from the CPI index

PITI Housing Inflation is not something CPI accounts for

Entitlemented says

Are you sure the same pundits that told us that the CRA and private label subprime were fine are now not gaming us with false statistics?

Yep--I'm pretty sure it's just that idiots who believe in shadowstats and that the CRA was the cause of the housing bubble are still clueless.

indigenous says

Millenials haven't formed families yet.

If you have a better graph why don't you produce it, rather than depending on your blather?

" I think the vast majority will have to get by with the current fields and jobs. "

Like the farmers did?

So you believe we are at the start of the industrial revolution where the majority of the population either farmed a dozen acres by hand for a sustenance living or working as a peasant/share cropper? Sure right.

What graph did you produce showing 75 million millennials will be starting new fields? I missed it.

bob2356 says

Really, that's interesting. You actually think 75 million people are going to be creating new jobs and new fields?

bob2356 says

So you believe we are at the start of the industrial revolution where the majority of the population either farmed a dozen acres by hand for a sustenance living or working as a peasant/share cropper? Sure right.

No I'm saying that, I am saying that new technology creates new jobs and that farming jobs got replaced by factory jobs.

bob2356 says

What graph did you produce showing 75 million millennials will be starting new fields? I missed it.

It is the way the economy works. No graph required.

Where is your graph showing that student loans are owed mostly by other than graduate students.

indigenous says

Where is your graph showing that student loans are owed mostly by other than graduate students.

You said graduate students have most of the loans, you prove it. The way things work is I questioned your assertion so now you back it up with something. All you've posted so far is 1% of people a year have more than 100k in loans. That means absolutely nothing, even for the mathematically challenged.

indigenous says

bob2356 says

What graph did you produce showing 75 million millennials will be starting new fields? I missed it.

It is the way the economy works. No graph required.

There were 70 million baby boomers, what percentage started new fields? I'll be waiting for that one a long, long time.

bob2356 says

So you believe we are at the start of the industrial revolution where the majority of the population either farmed a dozen acres by hand for a sustenance living or working as a peasant/share cropper? Sure right.

What graph did you produce showing 75 million millennials will be starting new fields? I missed it.

All you have to do is look at the past and you will see occupations and jobs follow technology.
Unless you believe "Anything that can be invented, has been invented."

bob2356 says

There were 70 million baby boomers, what percentage started new fields? I'll be waiting for that one a long, long time.

Small Computers, Cell Phones, the internet, computerized equipment, lasers, 3d printers, Cad, the industry and the jobs. A large percentage.

indigenous says

bob2356 says

There were 70 million baby boomers, what percentage started new fields? I'll be waiting for that one a long, long time.

Small Computers, Cell Phones, the internet, computerized equipment, lasers, 3d printers, Cad, the industry and the jobs. A large percentage.

What is that large percentage? Anything to offer other than pulling it out of your anal orifice? What about old fields like manufacturing, construction, transportation, shipping, finance, retail, food service, farming, mineral/oil extraction, military, politics, law, medicine, warehousing, teaching, management, engineering (non it), child care, bookkeeping/accounting, entertainment, etc., etc., etc.. All of those together are somehow the small percentage of jobs baby boomers are doing? Got any data at all or is it like student loans, it's true because I believe it should be true.