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Logan Mohtashami says

Strategist says

Strategist

If you want to start a position in TOL or XHB you have my blessing today since TOL is at 32.70 you can stop loss 29.70 because below 30 has some more downside

No stop loss for me. It's a question of how much profit I want to make. If you like home builders, ITB is more appropriate, as XHB contains retailers like Bed Bath & Beyond.

Strategist says

ITB is more appropriate,

Well, if you wanted to buy TOL ever, yesterday was your day in the $32 area, not the $39-40 all the firms were touting, but the ITB is much better than the XHB even though the XHB gets more of the headline

Logan Mohtashami says

Strategist says

ITB is more appropriate,

Well, if you wanted to buy TOL ever, yesterday was your day in the $32 area, not the $39-40 all the firms were touting, but the ITB is much better than the XHB even though the XHB gets more of the headline

I have TOL. I'm fully invested right now. Overweighted in real estate and home builder stocks.
It's easy to predict these stocks will go up because we have a shortage. "When" will they go up is the hard part.

Strategist says

"When" will they go up is the hard part.

We have had this conversation for 3 years now. This is what I found interesting when I went to the UCLA Anderson Housing Conference in 2013. Everyone was using old model metrics to count for the builders expansion.

April 2013, All I heard for analyst in other conferences ( they are funny bunch too) is that because sales are low, strong demand will lead to higher profit margin sales price with rising volume. Fair enough

But It's 1/5/2016

Today TOL is where it was in 2012 ( What Happened)

This is why I have been trying to tell people to be cautious on TOL but it's a better buy at 2012 levels than it was last year when everyone was hyping the hell out if

All #QE did was create excess reserve, they couldn't lend it out.

QE was a horrible experiment, thankfully the Fed's recent paper said it didn't do much for the economy.

This was my main thesis against Bernanke poor #QE velocity thesis due to tight lending, that was a horrible economic thesis , back in 2013

http://loganmohtashami.com/2013/03/27/will-be-on-bloomberg-financial-talking-about-bernankes-myth-on-tight-lending-standards-the-real-housing-story/

Logan Mohtashami says

QE was a horrible experiment, thankfully the Fed's recent paper said it didn't do much for the economy.

I don't disagree, but all those cash reserves are only for banks that participated in the QE program. The point wasn't just to lend out reserves on that graph you posted, but to influence all other lenders to lower interest rates in alignment with the banks that participated in QE. So to be fair, we can't judge QE's effectiveness based solely on that graph, which is what makes it difficult to determine the success of the program.

hope says

to lower interest rates in alignment

When ever #QE ended yields went lower every-time, in fact it had the opposite effect on long term rates.

It was the biggest waste of time and $ ever, it had no velocity and yields even today are now where close to where it was when the last $10 Billion ended.

Also, on MBS securities, purchases, that had a mute impact too

We will never see such a waste as #QE, it did nothing, this is why American didn't crash when #QE ended in 2014 as many as predicted.
If something didn't cause a boom, it can't create a bust either .

The only saving grace is that the Federal Reserve finally got it that it was waste and we will never see #QE again in this cycle, because the velocity was dreadful. That at least is the one positive sign

Logan Mohtashami says

It was the biggest waste of time and $ ever, it had no velocity and yields even today are now where close to where it was when the last $10 Billion ended.

Also, on MBS securities, purchases, that had a mute impact too

We will never see such a waste as #QE, it did nothing, this is why American didn't crash when #QE ended in 2014 as many as predicted.

If something didn't cause a boom, it can't create a bust either .

Now you are getting your head right.

indigenous says

Now you are getting your head right.

Your name isn't Pat isn't by any chance? ;-)

Logan Mohtashami says

When ever #QE ended yields went lower every-time, in fact it had the opposite effect on long term rates.

I'm playing devil's advocate now. Was QE only meant to affect long term rates or mortgage rates? What about short term rates such as those applied in money market accounts or shorter-term loans? If the Fed could influence lower short term rates, that should (in theory) spark more short-term borrowing, less short-term investing (e.g., CDs) in order to chase higher yields such as those in the stock market or long term bonds, and more activity in the adjustable rate mortgage business. This is why long term yields are so low and why the stock market has seen all these investment dollars chasing it.

hope says

What about short term rates such as those applied in money market accounts or shorter-term loans

Short term rates are more driven Federal Funds rate

Rates and inflation have moved hand to hand since 1960

2 year and the dollar both rose much higher than long term rates which is in line to what has happened before in economic cycles
as the Dollar makes it's biggest % move before the first rate hike

Which is short is that we have milked the rate cow as much as we can, but we could have another cycle where 10's comes with a 0 handle to it

Which means mortgage rates with a 2% handle, even a 1 handle to it, just going with the 35 year trend

On another item, look how pesky the 5 year has held on this line,

Logan Mohtashami says

2 year and the dollar both rose much higher than long term rates

Look at the 2-year you posted in that graph. It drops significantly and continues to drop all throughout QE 1, 2 and 3. When QE3 stopped in late Oct 2014, the 2 year starts to rise again. Doesn't that insinuate that QE affected the 2-year?

hope says

Doesn't that insinuate that QE affected the 2-year?

None what so ever, It shows the total opposite.

Shorter term yields and the Dollar all move before any rate hike happens... the Fed Funds rate drove all short term rates down and since we are working from #ZIRP the move up in short term yields which has been happening

1 month
3 month
6 month
1 year
2 year
Have all worked in style with the rising Dollar

#QE did nothing but inflate inflation expectation at best... then when #QE ended 10 year dropped every time Q2 and on...

If they could put an idea into prison ... it would have been the thesis that #QE velocity would lead banks to lend out...

We will never see in our lifetime a wasted attempt for inflation that #QE

Forget PCE and Headline CPI, a good track is CPI core and it's been moving up this year, yet to only 2%, but still, it's a first step

PCE and CPI has been moving away from each other for decades.

In fact PCE inflation has been below 2% 50% of the time for 20 years now even when the Fed Funds rate was much higher

Logan Mohtashami says

Which means mortgage rates with a 2% handle, even a 1 handle to it, just going with the 35 year trend

the ARM is back, baby!

landtof says

Logan Mohtashami says

Which means mortgage rates with a 2% handle, even a 1 handle to it, just going with the 35 year trend

the ARM is back, baby!

This year will be bad for both the stock and housing market. Not a crash year, but frustrating for quite a few. The housing market may cling onto a bit longer but once the stock gains go, so will the neighborhood. Just about the right time to bring back a good lending frenzy ;)

mell says

Just about the right time to bring back a good lending frenzy ;)

The one good thing about this cycle, is that all the semi exotic loan structure are so out of the reach of most Americans that the debt leverage will be small on semi non capacity owning debt

For example one lender has a Interest Only loan but you need 20% down and need to qualify on a 20 year amortization payment to get the IO, which really means you can't qualify on the interest only payment for the loan.

Very little velocity on this loan so far, a "Rich Man's Loan"

Logan Mohtashami says

mell says

Just about the right time to bring back a good lending frenzy ;)

The one good thing about this cycle, is that all the semi exotic loan structure are so out of the reach of most Americans that the debt leverage will be small on semi non capacity owning debt

For example one lender has a Interest Only loan but you need 20% down and need to qualify on a 20 year amortization payment to get the IO, which really means you can't qualify on the interest only payment for the loan.

Very little velocity on this loan so far, a "Rich Man's Loan"

If they are truly rich man's loans. Even with the 20% skin in the game the idea stays the same - people expect housing to go up. If it goes down and so does their equity, they may not qualify for a future refi and rate adjustment may turn this loan so toxic that they have to (esp. if coupled with job loss or other unexpected financial calamities) or decide to walk away. Still better than 3.5% down as "strategic defaults" won't happen very often as long as they can afford to hang on (due to the 20% skin in the game).

mell says

If it goes down and so does their equity, they may not qualify for a future refi and rate

Most people in this country have a interest rate of 3.25%-4.25%, the refinance market for rate and term is dead unless you want to cash out or combine a first and 2nd loan.
mell says

so toxic that they have to or decide to walk away.

This never really happened in big numbers, people who could make their mortgage payment but decided to default anyone. I have only seen 2 cases like this out of 7-10 million loans that went delinquent.

In theory it sounded like more people would do this.

However, we are Americans! Almost all American who bought their home with negative equity, kept it and made the payments. They lived their lives, that's a proud thing about this cycle. Most Americans who could make the payment did

Those who lost their jobs or got a bad loan lost their home

Strategic defaults was a rare occurrence

Also to note, anyone who puts less than 5% down is already negative equity, assuming 6% transaction case.

One reason why late stage FHA lending have higher defaults in the recessions because with only 3.5% down they had the UFMIP to the loan balance.

So, FHA borrowers if they lose their job in the start of the recession and got their loans late in the cycle are a high risk borrower because of the net negative equity.

On a good point for this cycle, everyone for the most part if verified income, so the jobs loss because the main reason to lose your home

Those interest only loans could also be used to stay diversified. Maybe you're rich and already own significant equity and a significantly overheated area such as the bay area and just want another "vacation" home, a home for your affluenza kid or guests, or you aren't that rich but adventurous and want to stage a rental scheme - so you use the interest only loan to buy that other property instead of renting it because those low rates just make it so easy. This is another example where low rates can encourage risk or distort the market until it blows up (and rates suddenly dramatically change).

mell says

This is another example where low rates can encourage risk or distort the market until it blows up (and rates suddenly dramatically change).

It's not happening this cycle at least for housing. Mortgage demand is having it's worst cycle ever with the lowest rate curve post WWII

mell says

This is another example where low rates can encourage risk or distort the market until it blows up (and rates suddenly dramatically change).

It's actually another example of you not understanding economics. Low rates don't encourage risk. They encourage investment--as the required rate of return on investment is presumably lower making previously marginal projects feasible.

Risk reduces the expected return in the calculation whether interest rates are high or low.

Logan Mohtashami says

It's not happening this cycle at least for housing. Mortgage demand is having it's worst cycle ever with the lowest rate curve post WWII

Agreed it's not happening yet (not enough qualified buyers) and it would not happen if they keep the lending standards tight (who says they cannot water down the 20% down requirement again).

tatupu70 says

Low rates don't encourage risk.

Of course they do genius. Where have you been the the last 15 years?

who says they cannot water down the 20% down requirement again).

Since The Crisis started 2008

All you needed was 3.5% down to get a loan In fact with VA loans it's 0% and now it's 0% - 3.5% down is the bottom end, since GSE have a 3% down loan now
All you need is a 620 Fico Score

Standards aren't tight at all, people, debt , demographics are all in play

But low rates for years isn't creating any boom in housing

People who say lending is tight have no idea what they're talking about and almost 99% of them have 0 lending background, they can't even tell you the basic guidelines for loans

mell says

Of course they do genius. Where have you been the the last 15 years?

Understanding how and why things really happen. Where have you been?

You do recall the junk bond scandal, right? Interest rates were quite high in the early 80s. Didn't seem to stop risk taking and fraud, did it?

Logan Mohtashami says

People who say lending is tight have no idea what they're talking about and almost 99% of them have 0 lending background, they can't even tell you the basic guidelines for loans

they can speak, however, from direct experience with trying to obtain financing in high cost areas like parts of california where the median house price has exceeded the conforming loan limits. getting a big loan is still challenging.

landtof says

getting a big loan is still challenging.

Yes Super Agency Jumbo Loans over $625,500 is not as easy as agency conforming loans.

However, the median price in the U.S. is like 235K and for New Homes roughly 300K

Those homes make us a very small portion of the U.S. total market

But you can get loans up to 2 million but the down payment is much larger than any conforming loan

As a lender who sees many applications and writes mostly FHA, VA and conv loans; the vast majority of these buyers are paycheck to paycheck. They barely scrap together the down or it's a gift from family; and they are 1 layoff away from default. The second a recession hits and jobs start to evaporate, FC's will be on the rise.

Now, I don't know if that will cause prices to decrease as the banks/servicers have become quite good at limiting/controlling inventory. Should be interesting to see what happens this year.

As China sells stocks, won't they just take that money and plunk it into U.S. real estate, causing housing prices to go even higher?

There doesn't seem to be any end to Chinese money no matter how low their stock market goes.

exfatguy says

As China sells stocks, won't they just take that money and plunk it into U.S. real estate, causing housing prices to go even higher?

Chinese amount to 150K-200K homes a year here in the U.S. out of 5.7 million homes sold

In areas like Irvine CA and So Cal it has more of an impact. However, nationally, they're too small to matter much.

8% of the buyers in this cycle are from foreign countries

Strategist says

Strategist says

30.46 TOL

I am telling you, if you believe in your 200% return on the builders, Here is your buying opp for TOL ;-)

Logan Mohtashami says

Strategist says

Strategist says

30.46 TOL

I am telling you, if you believe in your 200% return on the builders, Here is your buying opp for TOL ;-)

Stocks react to all kinds of nonsense. Means nothing.
Hey, where's the number for the BK lawyer? By tomorrow I should be bankrupt. This time it's the Chinese and the NorthKoreans that are screwing up my life. :(

Strategist says

Stocks react to all kinds of nonsense. Means nothing.

Hey, where's the number for the BK lawyer? By tomorrow I should be bankrupt. This time it's the Chinese and the NorthKoreans that are screwing up my life. :(

What are you talking about.. I wasn't Bullish on TOL at 40 and now I am saying it's a better buy at 30! :-)

Unlike most wall street firms that had a token buy rating

Opportunity here to Buy TOL in a bear market pricing!

If you don't feel confident then put a stop loss now at 28.65 .... market gives everyone a shot to buy something they want at a discount

Logan Mohtashami says

If you don't feel confident then put a stop loss now at 28.65 .... market gives everyone a shot to buy something they want at a discount

Buy More Buy More Buy More.

Strategist says

Buy More Buy More Buy More.

The you agree buying TOL in a break market pricing makes sense if you're in the 200% over time camp?
:-)

I was looking into buying ibt or tol but how does interest rate effect housing buying/building. U think it will stay low for next 2 yrs till rate hike continues?
I know when rate goes down ppl buy more.