patrick.net

Yep, but to see if there's a correlation you need to look at a time period when rates are rising to see if prices fall. Not to mention that prices fell significantly during as rates fell in the late 2000s. Doesn't look like a correlation to me.

tatupu70 says

lol--you're kidding, right? You do it again on the last post!

My lady... seriously... this tactic isn't working...

I am talking about main street America demand curve and how it's been a renting cycle and you're talking only about nominal prices and I just gave you
my thesis on what to do look for on prices and why it's increasing

Distress sales only come in recession my lady

Come on....let it go.... So many more people you can chat with that are better suited for you style of debate

On another level.. in the next recession I don't believe you're going to see a massive correction in prices because of the lack of speculation in this cycle on non capacity owning debt

My lady, still, I got nothing but love for you as always I do enjoy our chats

Call it Crazy says

The past 25 years isn't long enough for you to see a trend??

To see a trend, yes. To attribute causation, clearly not.

Call it Crazy says

You want to cherry pick a small segment where artificial and unreaslistic financiing took place which caused the bubble to pop as your argument?

Of course. I let the data speak for itself.

Call it Crazy says

Of course it doesn't, that would blow up your false narrative that you've spewed through out this thread.

You might as well say pork bellies are correlated to low interest rates or beef prices. Both have risen over the last 25 years too.

In order to show correlation, you must show it holds during both up and down periods.

tatupu70 says

In case you forgot, here's what I'm saying. If you look at historical data, there is no correlation between interest rates and nominal house prices. This is because incomes are the main driver in house prices, and income is strongly correlated (negatively) with interest rates. That relationship overrides the expected dependency between prices and interest rates. So, what doesn't make sense there?

tatupu70 says

Yep, but to see if there's a correlation you need to look at a time period when rates are rising to see if prices fall. Not to mention that prices fell significantly during as rates fell in the late 2000s. Doesn't look like a correlation to me.

Tatu does have a point with his second comment. When interest rates rose in the late 70's, it was due to inflation. Real Estate is a hedge against inflation. The "real" interest rates were not necessarily high, therefore real estate prices would move up.
If Tatu is stating home prices cannot increase with falling interest rates, that would be wrong, as both, interest and wages determine affordability of a home.

Strategist says

If Tatu is stating home prices cannot increase with falling interest rates, that would be wrong, as both, interest and wages determine affordability of a home.

I think I've been pretty clear with my statements. There is no correlation between interest rates and housing prices.

There is, however, a strong correlation between income and house prices.

tatupu70 says

Strategist says

If Tatu is stating home prices cannot increase with falling interest rates, that would be wrong, as both, interest and wages determine affordability of a home.

I think I've been pretty clear with my statements. There is no correlation between interest rates and housing prices.

There is, however, a strong correlation between income and house prices.

Question for you. If the 30 year fixed rate mortgage jumped to 12%, with no change in income or inflation, would real estate prices be negatively affected?

Strategist says

Question for you. If the 30 year fixed rate mortgage jumped to 12%, with no change in income or inflation, would real estate prices be negatively affected?

I would expect so. Empirical correlation doesn't worry about hypotheticals though--it's a simple calculation based on historical data.

Speaking of which quoted on USA Today today

"Renting the New American Dream"

http://www.usatoday.com/story/money/personalfinance/2015/06/14/credit-dotcom-renting-american-dream/71053284/

In regard to rates and inflation. All we have is pocket inflation and debt has to be serviced at lower rates because the demand curve is just dreadful for most of America in this cycle.

Even with the lowest interest rate curve since 1941-1945 you have the weakest demand from main street America.

But.. and this is the big but.. you have the strongest demand curve ever from wealthy Americans, wall street, foreign buyers, cash buyers, fund buyers, re mod buyers ever seen.

Speculation factor is very little here because there is no way for main street to speculate in big numbers and this is a very good thing for this country. We should proud as Americans to not allow garbage back into the system

Net worth which is highly top end heavy .. really the 1% is getting screwed by the 0.01%

#Globalization
#Technology
#Debt
#Demographics

The good part about America is that we do have a young workforce coming on-line soon and we have 2 solid decades plus of working force that will get better wage inflation that what we saw in this cycle... this is more a 2020-2024 story line

Year 7 of the cycle... 2-4 years left before the next recession .. so the next recovery cycle will look better as prime working age workforce is now growing

Strategist says

There is, however, a strong correlation between income and house prices.

Has not recovered to pre cycle recessions highs (variables in these equation)

New home prices

Nominal way over the pre bubble peak... adjusted to inflation we just past it last month

Existing home prices

This is what happens when you have 30% plus cash buyers in an economic cycle, 20% above historical norms and over 50% of all homes being bought by the reach.

I don't like to use the term bubble for home prices in this cycle, just major disconnection from main street America and this is why the demand curve has been the worst we have ever seen from main street but the strongest demand curve from wall street, rich, Foreign buyers, hedge funds... this even with the lowest rate curve on 10's since 1941-1945

In reality and in lending terms the size of the debt (PITI) inflation model... this is the missing algorithm PITI +DTI +LTI = (HC)

Inventory very key on home prices because the asset itself has capacity to grow in asset value ... like all debt instruments the subsidization factor for housing has been very helpful for growth in nominal price values as well.

So there are legs to grow as long as inventory stays below 6 months and there is a lack of distress sales in the market, both are here to stay this year and even next year as well

Call it Crazy says

The charts above dispute that....

No they don't. I don't know how much more simple I can make this for you.

Now, notice what housing prices did during high the inflation times of the mid/late seventies through 1982. Housing went up. A lot. Then it actually leveled off as interest rates were falling after 1982 before picking up again. Tell me how that is a correlation. Interest rates low--sometimes prices rise, sometimes they fall. Interest rates high, housing prices rise. Where exactly is the correlation there, again??

Strategist says

Here for you buddy starts at 2:21

TOL company was my point but tried to get the builders index there for you

http://video.cnbc.com/gallery/?video=3000388493

Logan Mohtashami says

Strategist says

Here for you buddy starts at 2:21

TOL company was my point but tried to get the builders index there for you

http://video.cnbc.com/gallery/?video=3000388493

Hey, that was pretty cool. Thanks.
I liked that guys answers. The 10 year yield shoots up, but the homebuilders go sideways. :) It's as if those ITB and XHB stocks are just waiting to get the expected higher interest rates out of the way before they too start moving up. Was stimulating. :)

Strategist says

Hey, that was pretty cool. Thanks

Lets say I was paid pusher for builders... the best thesis I would use is this

Adjusting to population growth sales are so historically low that the builders aren't pricing in the next waive of the housing buying cycle come 2020-2024 time frame. TOL brothers 2.5 soft trend is due to a lack of dual income buyers in the system

That's the best I can do... shifting the thesis from housing is nirvana to the normal trade cycle which makes the builders a good trading channel story until the front end demand curve shows up

Key with builders in all cycles, got to get in early... late recession cycle trail end demand curve will start to swing positive.

Here in the U.S. is March of 2009 when the data come through positive and then the jobs picked up positive in early 2010

Logan Mohtashami says

Key with builders in all cycles, got to get in early... late recession cycle trail end demand curve will start to swing positive.

Here in the U.S. is March of 2009 when the data come through positive and then the jobs picked up positive in early 2010

Home building cannot get any lower. There is only one direction for it to go, and that is up. That makes home builders and their corresponding ETF's the best and the safest investment ever.

Strategist says

That makes home builders and their corresponding ETF's the best and the safest investment ever.

Strategist says

There is only one direction for it to go, and that is up.

Did you see those permits number today... Holy rental cycle batman... wow

Logan Mohtashami says

I love this graph. A picture is worth a thousand words, but this graph is worth a thousand pictures.
Look how high housing starts went in 1972. Even the recession that followed due to the first oil crisis did not kill housing starts as it did in 2009.
Even during the 17.5% mortgage rates of 1981 housing starts were better. We need more homes. There aren't enough caves for everyone.
Gentlemen, we are about to embark on a massive building boom.

Call it Crazy says

Strategist says

Even during the 17.5% mortgage rates of 1981 housing starts were better. We need more homes.

No, we need more people who can afford and are able to BUY those homes...

People could afford 17.5% mortgage rates, but not 4%?
If they can't afford to buy, they will rent from a landlord who can afford to buy. Either way, that home MUST be built.

Strategist says

People could afford 17.5% mortgage rates, but not 4%?

Forget the nominal rate as the variable factor model, that has led to nothing but disaster sale estimates and the biggest misses on sales estimates we have seen in long time

PITI + DTI +LTI = (HC)

There is no

limf (x) =sky
x-a

Model

debt size grows the capacity to handle that gets challenged

Causation
Correlation
Representation

3 (X)

1.

2

Low rates, #ZIRP tax credit, 3% down mortgages on and on ... starts

Finally number 3

Horrid net demand from new homes which are tilted to the wealthy buyer

Even with an extreme high cash buyer profile and lowest rate curve post WWII

Housing is a process

The net demand curve looks a lot better but in years 2020-2024

Dual income college educated Americans having kids

That's a powerful economic force

It's year 7 now, economic cycles have a 7-10 year time frame .... so even if this becomes the longest expansion ever 11 years, that means you got 3 years left
before the profit margin cycle starts to curve the other way

This is why it's been a rental recovery and not a housing owning one

The purity of numbers is that they can't lie, they're as truthful to the equation as can be

Call it Crazy says

chart of the volume of Existing home sales in the early 1980's?

https://research.stlouisfed.org/fred2/graph/?id=EXSFHSUSM495S,

Goes from 1989

Call it Crazy says

I saw that one, but I haven't been able to find a volume chart from earlier then that.

That's it for EHS, purchase apps go back to 1989 this is the best trend level I can give you

Logan Mohtashami says

Call it Crazy says

I saw that one, but I haven't been able to find a volume chart from earlier then that.

That's it for EHS, purchase apps go back to 1989 this is the best trend level I can give you

http://www.tradingeconomics.com/united-states/existing-home-sales

Strategist says

http://www.tradingeconomics.com/united-states/existing-home-sales

All the way back to 1968.

Yes but on my charts I only have to 1989 that is Fred graphs Most charts really start from early 1990 that is why it's hard to find them on the net... All show the same tend line big deviation starting from 1996-2007 ..., then demographics and reality struck right with the Great Recession... It's why I always use 2020--2024 time frame for better demand curve for housing when adjusting to population .... This was always the big opps from economist because they use and outdated Economical model to forecast sales and starts .... Hopefully they have learned from this

Even some of my outrageous housing nirvana friends said holy $&/: on the permit numbers today

A better chart is to use sales adjusting to population ... Because it shows how each cycle since 1981 has had 2 percent lower rate curve to boost housing and in real terms that didn't happen in this cycle as the mortgage demand curve has been dreadful for 7 years ... But in terms of home prices rising ... The cycle still has legs because inventory is low, distress sales are low and there is no job loss recession in site

Logan Mohtashami says

Yes but on my charts I only have to 1989 that is Fred graphs Most charts really start from early 1990 that is why it's hard to find them on the net... All show the same tend line big deviation starting from 1996-2007 ..., then demographics and reality struck right with the Great Recession... It's why I always use 2020--2024 time frame for better demand curve for housing when adjusting to population .... This was always the big opps from economist because they use and outdated Economical model to forecast sales and starts .... Hopefully they have learned from this

Just keep it simple. If home building is too low year after year, you know it's only a matter of time before they start building more than normal just to catch up. If you are seeing demographics showing increased demand between 2020 to 2024, we can safely assume a big jump in home building in the next few years, followed by a sustained demand all the way till 2024.
There could be a slowdown sometime before 2024, but the overall trend will clearly be up.

Census is known to be off by 17 percent on sales and starts that's why trail end demand is a better metric ... Talking about 3 - 6 month average

That depends on when the recession starts and stops .... I totally expect the next recovery cycle to look better ... But it's not just cycle .... Once the builders bud starter gone crop you know things are better... Trust me they have people like me that run models in this ... They are catering to their demand curve because they need to make money

Logan Mohtashami says

They are catering to their demand curve because they need to make money

Which they should. No point making anything no one wants to buy. When the demand for entry level homes start expanding, builders that cater to that market will outperform the rest.