patrick.net

Logan Mohtashami says

So, I assume you would believed that we had a dearth of buyers that were ready to buy from 2009-2013 but have chosen not to buy for their own personal reasons?

It's not a dearth of buyers, right? How long are homes sitting on the market for?

Logan Mohtashami says

It will be interest to see the existing home sales in August and Sept because that will have the full impact of the rate spike. Already hearing that the report coming up next week will come in light.

I think we will see some initial market cool off in number of sales, but prices will hold/trend upward, and then when the "new norm" sets in for rates ... market activity will increase again (listing and buying).

The recent buying has been conventional 30y fixed or all cash. The Fed is also signaling it won't back away. This doesn't look like a market in trouble this just looks like a market without a lot 'on the shelf' (homes to sell).

We will see a little shockwave by the rate hike, but post that, then what? I think it is way too early to call the effect of the higher rates yet and anything seen these immediately following months cannot be called a trend ... yet.

Prices:
CA is up 18.6% in 5 years.
-- Santa Clara County : 24% gain.
-- Santa Cruz County : 7% gain.

This is a market constrained by inventory, not by buyers, and such markets have what type of price trend? New home building missed expected target (lower), signaling what? Continued low inventory. Rents back to high levels (1500+ for a 2 bedroom around me).

People can continue to scream : 'this can't continue', 'what recovery', 'it's only because of QE', 'pick a favorite' ... but in the end I read these as more whimpers and wishful thinking than what appears to be actually happening.

Logan, I do agree with the sentiment of your article. A sideline buyer likely doesn't get moved into a buying position because of rate movement. However, a current buyer may have a greater sense of urgency based on rate movement.

Sideline watchers are watching the rate movement and news still. Some will be discouraged and some will add it as another sign that now might be the right time for them.

The biggest determining factor to buy though, is where they see themselves at in life, and having a true desire to go buy a house. Rates are a small trailing factor in a much larger picture. Totally agree.

I attended 2 economic conferences in regards to housing both in Los Angeles this year

1. University of Chicago Booth: Where Profesor Sufi asked me to attend because we had a similar view on the capacity of the housing recovery and it's relationship to economy

Here was his work on it

http://faculty.chicagobooth.edu/amir.sufi/research/Sufi_bootheconomicoutlook_20130423.pdf

It was a good discussion we had.

The UCLA Anderson forecast as always was great. A lot speakers and a lot great material to take home

They were very upbeat on housing in CA and for housing in general. My disagreement with some in our discussions on that day was more in the tight lending standards holding buyers back.

I don't believe we have a tight lending standard issue. We have a problem with DTI and light liquid assets.

Here was my interview on Bloomberg Financial in which I argued Bernanke's thesis that QE velocity is poor because lending standards are too tight

http://loganmohtashami.com/2013/03/25/bernankes-lending-standards-delusional-rhetoric/

The concern I brought up with California was that housing inflation was blowing past income growth here in CA. Obvious for the top 10% DTI and liquid assets weren't going to be problem but for first time home buyers, it's going to be a struggle moving forward

CAR had medium prices YOY at 33%

Here is the latest on sales here in So Cal

http://www.dqnews.com/Articles/2013/News/California/Southern-CA/RRSCA130717.aspx

As long as the 30% Plus cash buying metric stays in place C.A. homes can continue once that metric goes down you need the mortgage buyer to step in. I know here in the O.C. you had this chart happening before rates spiked

ON ANOTHER NOTE: If you any of you guys want to take a look at the material from the UCLA Anderson Forecast email me at amclending@aol.com I can send it over. Lot's of good information

The concern I brought up with California was that housing inflation was blowing past income growth here in CA. Obvious for the top 10% DTI and liquid assets weren't going to be problem but for first time home buyers, it's going to be a struggle moving forward.

Well thats been the case since the early 1990s, yet somehow prices kept climbing and climbing while employee compensation stagnated.

Take 1996-2007 with a grain of salt because all you needed was a pulse and a social security number to buy a home. This cycle is obvious much different.

Primary Resident Buyers now who can obtain a mortgage has the DTI to own.. The low down payment option still out there so it's just a mater of DTI in the big sense.

The big difference is going forward, X out the cash buyer is that you will need to have the income to buy. First time home buyers are very soft this year, at the 29% level when historical norms are around 40-43%.

For me at least I can't even consider normalized rates until we get to the 6% level and the FED fund rate is at least 3-4% higher. So, it's going to be a juiced market until 2016-time frame because of the FED ... and even with that once mortgage rates get to that 5.875%-6.375% level with home prices rising like they are we should see impact on demand.

Once that cash buyer metric falls off, you need that first time home buyer to step in and with Student loan debt at 1 trillion and housing inflation ramping up, it's going to be a struggle at best.

( In fact the #1 at the UCLA economic conference going forward barring a recession of course was the Student loan debt problem) especially when everyone knows rates are heading higher

Also, starting next year is when CFPB, QM and QRM gets resolved and you will have DTI caps at 43%.

For now with the inventory low, interest rates low and cash buyers high, the uptrend in prices are in tact but we will pay for this rapid rise in the future

Here is a look at the 10 year note going back to 1790

Nationally depending who's number you want to look at we are running between 4-12% increase in home prices.

Here in CA on different metrics 16-33%.

California, clearly in Mini Bubble action price levels but inventory are dreadfully low here. A few months ago the NAR was complaining that inventory is too low and now Mother Cheerleader of them all YUN from the NAR said " Home Prices are moving too Fast" A disconnection from economic reality when incomes are growing at 1-3%

National numbers a bit different

"Based on recorded sales of non-distressed properties (existing and new homes) in the 100 largest metropolitan areas, the FNC 100-MSA composite index shows that May home prices rose from the previous month at a seasonally unadjusted rate of 0.5%. The two narrower indices (30-MSA and 10-MSA composites) recoded a 0.4% increase. On a year-over-year basis, home prices were up a modest 4.0% from a year ago."

http://www.fncrpi.com/press_releases.aspx?pr=67

robertoaribas says

Your claim that "a home isn't worth anything until you sell it" is a cop out from an idiot who doesn't want to face how wrong he's been.

What alternate reality blog are you reading?

You said: "I made 2 million dollars over the past 2 years with my houses." and I replied: "There is no 2 million dollar profit until you sell."

The homes may be worth what you imagine, but you haven't "made" any money until you sell them. Is that so hard to understand? Ask your economic professor friends, if you have any friends, if you can claim you made money on a home before actually selling it.

Try stepping away from the alcohol. You need all the brain cells you can get.

robertoaribas says

this may seem odd to you, but on every bank loan application I've ever filled out, they have asked what my homes are worth. I'm fairly certain they didn't want $0 on that line, since I wasn't selling them.

They also ask how much in mortgage debt you hold... and who has liens on the homes. Not your wealth here.. until the loans are paid off.

thomaswong.1986 says

They also ask how much in mortgage debt you hold... and who has liens on the homes. Not your wealth here.. until the loans are paid off.

Yes, and you subtract the worth of the home from the outstanding mortgage to get the wealth. It's pretty simple really.

With this trend we could see 7.5 months of on sale inventory in 2014

waiting_for_the_fall says

"reflect your dipshit notion."

"you are a raving moron."

"Idiots like you"

Must have really hit a nerve there sport. Even hinting that prices will drop makes you go rabid. Baiting you into one of your rants is far too easy.

I purchased 2 investment homes in 2011 that increased by more than 30% since I bought them. But I am smart enough to recognize a bubble and not expect my paper wealth to continue when prices correct as interest rates rise.

My investment homes are for retirement income, not used for bragging on a blog about how other people that didn't buy are losers.

Amen.

I really dislike it when he takes over a thread with all the angry, defensive name calling.

Logan Mohtashami says

With this trend we could see 7.5 months of on sale inventory in 2014

I don't see that trend. It looks like inventory (months) rose slightly, as usual, during the spring season. The YOY change in inventory is still negative. What trend are you looking at?

At the pace of the uptrend now, it looks like to me we can get 7.5 month of on sale inventory at some point in 2014

With these metrics looking better in 2014

- More construction from new homes (SFR)
- More homes coming from distressed ( we still have 4.5 million homes that are either in foreclosure or in delinquency)
- With home prices rising back to back years you will have a better equity seller profile in 2014 than 2013
- Also, can't actually give a number for this, "Investors" will add some more supply to the market place.

I didn't believe the inventory cycle would come back in a big enough fashion in 2013 to make a difference as we are still below 2012 levels. However, the economic profile for 2014 looks better than 2013 for more supply.

http://loganmohtashami.com/2013/02/27/housing-inventory-hangover-will-continue-in-2013/

not sure where you are getting your "employment" figures from, but they are wrong.

You can't just inverse the unemployment claims graph and declare that actual employment has gone up...

source : http://data.bls.gov/pdq/SurveyOutputServlet if you look at 07 - current you can see just how bad the employment situation really is...

then look at a graph of inflation adjusted income (down) and per capita housing (up) and the fundamentals still don't look great. what the market has going for it is squatters & neg equity owners which is forming a shortage of sellers, which will prop up prices... I expect an bubble (much smaller this time) but i am over simplifying things. the american psyche is a hard one to calculate.

:)

I believe that chart you're showing is this metric

Where the jobs chart above is correlated to the BLS numbers and total employment rising. So it's 2 entire different metrics
So it's taking the actual numbers of job created to show the rise since the bottom point of the cycle correlated to the chart

To your another point Alex

YOY disposable per-capita income is up 1.45% , if you adjust it for inflation, its only up 0.43%.

Why is "pent up demand", from buyers whose credit is screwed, a totally realistic and quantifiable number when.......

The concept that banks were holding back unmeasureable inventory(unmeasureable because no action was taken when the person listed on the mortgage stopped paying) was total made up fantasyland bs?

dodgerfanjohn says

The concept that banks were holding back unmeasureable inventory(unmeasureable because no action was taken when the person listed on the mortgage stopped paying) was total made up fantasyland bs?

Because it is 100% measurable. Delinquent mortgage statistics are freely available.

tatupu70 says

dodgerfanjohn says

The concept that banks were holding back unmeasureable inventory(unmeasureable because no action was taken when the person listed on the mortgage stopped paying) was total made up fantasyland bs?

Because it is 100% measurable. Delinquent mortgage statistics are freely available.

Not if the banks were not recognizing them. Cmon, theres been countless examples posted of homes that went 3-4 years from first missed payment to when they actually got listed on MLS.

robertoaribas says

because lots of people who lost homes to foreclosure or short sale actually want to buy. Many will again, when they can. In fact, just this week, one of my tenants declined to renue their lease, and opted to go month to month, because... guess what? it's been 3 years since their short sale and they think they can get qualified now.

This "shadow inventory is going to swamp the market" meme has been the go to for all of those unable to think or do research for years. In reality, the numbers are public: corelogic has their numbers for non performing loans; ditto the credit agencies, ditto the banks own required SEC filings. Some of us do research, others just quote bs that they wish would happen. Let's all wait and see who (continues) to be right?

I know more people whose credit is screwed up beyond the house falling off their report. IOW, people who walked away, short sold, etc are HIGHLY likely to have other credit issues as well.

The swamped thing...I wasn't really alluding to that. Clearly with rising prices, fewer homes will go into foreclosure simply because the owners are above water. I was more alluding to the fact that you claimed in the past that since the banks refused to recognize missed payments, those homes simply didn't exist as shadow inventory yet somehow now you can claim some quantifiable number of "boomerang buyers".

dodgerfanjohn says

Not if the banks were not recognizing them. Cmon, theres been countless examples posted of homes that went 3-4 years from first missed payment to when they actually got listed on MLS.

Those are still counted. They'll be 6+ month delinquent.

actual employment is a much better indicator , because as you pointed out it takes into account the growing population, it also excludes those over 65 , so it naturally adjusts to our aging population...

our population has grown ~11% from 01 to 2013
our housing has grown ~23% in the same time frame

Official government reported inflation (which social security and other benefits are tied to) has been very low as of late. 1% for a while..

actual inflation on the other hand :

http://www.forbes.com/sites/davidmarotta/2013/05/01/cpi-inflation-rate-calculator-experienced-vs-reported/

.. I'm not saying i'm disagreeing at all that there really are no side-line buyers waiting in the wings.

I'm just saying you are playing loose and fast with your graphs. you are playing the game to make stats say what ever you want.

I do think we are recovering, employees on payroll are slowing going up, wages are slowly going up, inflation is staying low, though the average worker is losing ground. the housing market has done a large correction. I do agree disposable income is improving, and will continue to improve, which is really the most important thing to a consumer based economy. but i think most of the improvements are from people downgrading their housing costs. squatting, short selling, foreclosures.

so i agree with a lot of what you are saying, i'm just taking issue with how you are saying some of it, and i'm reaching some of the same conclusions, perhaps, though because of a different look at things.

seems to be more people in this thread so eager to disagree with everyone else they can't even take time to read what's been written.

I believe in the context to the original discussion with that chart, it was showing that the 4 economic indicators were rising

However, if you add the mortgage purchase application chart, even with a down trend in rates the pick up has been soft

We really have no wage growth inflation push the CPI index to move higher. However, we do housing inflation for sure

2014 will be interesting to watch the Data kick in

In regard to jobs, we all know the story there. Declining participation rates since 2000 due to the Demographics, and a massive rise of people going back to school. A lot of jobs coming in are low paying jobs so even though the monthly job average number is better in 2013 than in 2011 and 2012 the incomes of those jobs will have a hard time catching up with the housing inflation we are seeing.

I see Robertos 80k shitshack that he said was worth 80k earlier this year is still worth 80k.....might have even said it was worth that much last year lol!

robertoaribas says

So, while it points out that the recovery is not strong, at least in employment yet, there are several factors making it not as bad as you think:

2. The population is aging. One would expect this percent to become lower slowly through the years, due to much longer life expectancy and the retirement of the baby boomers.

Roberto, not as bad as he thinks? The charts and information provided thus far do not contain "all the details" that are needed to come to that conclusion. The worst part about the whole situation is the fact that (which is repeated on MANY financial sites not run by MSM) Most (not all) of the jobs lost since '06 have former employees returning to the workforce with MUCH lower compensation than they received pre-crash/recession.

To your second point, take a look at the chart Logan posted above. They're supposed to be retiring correct? Yet they are the two sections represented in that chart that have seen significant employment growth over the past 12.5 years........

It hasn't been pretty, however, in historical sense it really takes a country 9-12 years to fully recover from a financial depression.

robertoaribas says

Full time jobs are growing, just much more slowly, so it isn't like we are shedding full time jobs and turning them into part time jobs.

Actually that's exactly what's happening. Millions of people are being cut back to part time to keep employers from having to provide coverage under Obamacare. Other people are being hired to fill in the gaps.

Logan, see how you have been vindicated with the numbers released today.

A 1.2% drop in starts caused solely by interest rates rising.

I hope they double, triple, quadruple. Who needs social mobility.

Obviously a 300% increase in PMI is not screwing the middle class enough, force them to work two part time jobs, pay 29.99% mortgage rates and a 1000% PMI and be thankful you live in a 200 SQFT show box. As you can see it will be a felony to eat and sleep, panhandle on the streets.

http://thedailypr.com/miami-considers-jailing-homeless-people-for-eating-sleeping-in-public/

puhim says

Logan, see how you have been vindicated with the numbers released today.

A 1.2% drop in starts caused solely by interest rates rising.

That's a bit of speculation there. 1.2% is noise. Attributing a cause is a bit presumptuous.

tatupu70 says

puhim says

Logan, see how you have been vindicated with the numbers released today.

A 1.2% drop in starts caused solely by interest rates rising.

That's a bit of speculation there. 1.2% is noise. Attributing a cause is a bit presumptuous.

Really? I guess your not watching the markets. I can drill down a lot further with the economic data at my finger tips than most.

1.2% is not noise. It's also under the real figure. Way under.

You know what just keep believing that everything fine, nothing to see here.

Logan Mohtashami says

It hasn't been pretty, however, in historical sense it really takes a country 9-12 years to fully recover from a financial depression.

You need to take into consideration the "JAPAN SYNDROME"... Look we have all become Japan.

Japan will never recover and neither anyone adopting the same mental polices.

Only the death of the unemployed like the deaths during WW2 will create a recovery. . Perhaps that is their plan?

How's your rental property doing now?

To be honest, today's sales report wouldn't have the full impact of the rising rates.
A more realistic number to get the impact of rising rates is going to be the August and September reports.
All Pre Q's starting in mid June and July would have the rising rates in them, if the buyer could qualify. Some buyers were Pre Q'd in March April and May
In the short term the Mortgage Applications is only clear data we have. The refinance index has just be destroyed

However, also the purchase application have had a recent negative trend as well. I believe they were at at 14% increase YOY and now down to 5%. So, the next few months of data should be interesting

Japan... Ughhh... Can they ever get inflation before demographics just destroy them... Data is a bit old but you get the Drift

The size of their QE simply is just Godzilla QE

Hey Logan,
Don't think that us sideline buyers don't exist because we do, although we may be in small numbers. It is just that we are not going to throw good money after bad. I am quite willing to give the market up to 5 years to correct. Even though I could buy right now in the RBA I choose not to because interest rates are low and home prices are high. It is my understanding that you can always renegotiate the price of the money you borrow but the sellers will never renegotiate the price of your debt. Plus, the opportunity cost of buying right now is to high. If I the market doesn't correct in the next 5 years, I can still move and buy a home cash for the same amount I would use on my down payment.
Most sideline buyers can see the righting on the wall, home price in CA are to high and if they don't correct there are plenty of opportunity out there in other markets.

"On an annual basis, the Zillow Home Value Index (ZHVI) rose 5.8% from June 2012 levels"

http://www.zillowblog.com/research/2013/07/22/2013-spring-selling-season-was-hottest-since-2004-as-recovery-accelerates-widens/

FHFA reports prices up 7.3% increases from last years, back to Jan 2005 levels, just 11.2% below the 2007 peak

http://www.fhfa.gov/webfiles/25364/MonthlyHPIMay072313.pdf

At the peak of the markets in 2007 the 10 year was at 4.7%
At the peak of the markets in 2000 the 10 year was at 6.2%

Today we are at 2.52%

Who drew those trend lines on the GDP charts? They need some help...