patrick.net

Does that mean there will be the repeat of 2007 and 2008?

bubblesitter says

Does that mean there will be the repeat of 2007 and 2008?

1929 if anything.

But that's just my inner bear speaking.

New Renter says

bubblesitter says

Does that mean there will be the repeat of 2007 and 2008?

1929 if anything.

But that's just my inner bear speaking.

I don't believe we have a cycle like that now. The buyers of CA debt an national housing have the capacity to own the debt. So, most likely we are back to a normal cycle where a job loss recession would create distress sales.

Good reason not to become a first time house buyer.

Logan, do you have anything data about the organic move-up market? I realize that it's probably a bit harder to get data on this. My understanding is that it's pretty dormant overall.

One of the theories is that enough people are underwater, effectively underwater (i.e. transaction fees + low or no equity), or just don't have enough equity (i.e. don't have 20% to move-up) to do a lot of moving up. The move-up market is essential to creating inventory on the lower end, which is severely lacking at the moment (plenty of inventory on the high end, at least in the Bay Area).

FunTime says

Good reason not to become a first time house buyer.

or jump ship, if you have already have one.

keep in mind that percentage of first time home buyers is important

BUT if that lower percentage is of a smaller over all sale figure
it highlights that the total homes sold to first time home buyer is really low.

corntrollio says

Logan, do you have anything data about the organic move-up market? I realize that it's probably a bit harder to get data on this. My understanding is that it's pretty dormant overall.

One of the theories is that enough people are underwater, effectively underwater (i.e. transaction fees + low or no equity), or just don't have enough equity (i.e. don't have 20% to move-up) to do a lot of moving up. The move-up market is essential to creating inventory on the lower end, which is severely lacking at the moment (plenty of inventory on the high end, at least in the Bay Area).

I was just talking to CNBC on this issue because I can at least work of live data now since Spring is here

3 main points on the move up buyer

1. The rich and mega earners are fine. They have about capital to move up and payment cost not an issue for them. Social Media tech boom has made a lot younger people rich and with equity prices where there are at I am seeing more and more people sell their funds for down payment money

2. The standard middle class to lower class (250K) and under are seeing issues with the move up.

- They need 28-33% equity to have clean 20% loan and that is still difficult for many

- Loan limit are hitting some markets. Now they do offer 80/10/10 loans with fixed 30 year first and 2nd helocs to allow the $625,500 first to be assisted now. However, the payment levels are higher than what they want. Still they have enough incomes to buy if they choose to, but at least here in So Cal sales are looking to be down double digits with prices still rising

3. A lot people simply just don't have the reason to move. Unless you're having a new child what you have should work. So, the financial backdrop is one thing, but since inventory levels are so low and prices are rising, it has taken some people back because choice isn't there not to mention it's pricey here in

Now the CAR says 68% of the state of California is priced out of housing market. I am in the 82% camp due to the lack of 20% down payment borrowers which they use their model for.

This is obviously taken out the 1% crowd and cash buyers of cash

Logan Mohtashami says

A lot people simply just don't have the reason to move. Unless you're having a new child what you have should work.

That's true, but there are plenty of people who bought "starter homes" during the boom and now need something bigger because they did have a kid (or in some cases 2 or 3 kids).

Logan Mohtashami says

Social Media tech boom has made a lot younger people rich and with equity prices where there are at I am seeing more and more people sell their funds for down payment money

I've definitely seen some of this, although it's not a huge number of people overall. More often, it's bank of mom and dad helping out in addition to some amount of equity from the tech job.

Thanks for your input.

corntrollio says

That's true, but there are plenty of people who bought "starter homes" during the boom and now need something bigger because they did have a kid (or in some cases 2 or 3 kids).

If they have the incomes and the $$$ they will buy. However, California slowdown after the rates spike last year 2nd half of the year really gave everyone a heads up to the national market as for now it's 100% sure that Housing will have a negative year over year number.

If fact Ivy Zelman the biggest housing Bull in America cut her forecast so bad that is shows 0 growth from 2013 levels all the way to 2016.

Morgan Stanley cut their sales range by 1 million homes last week

http://loganmohtashami.com/2014/04/11/miss-housing-nirvana-crys-uncle/

Homeownership nationally falls to lowest since 1995

Sam Zell, chairman of apartment landlord Equity Residential, said yesterday that the rate will fall to as low AS LOW as 55 PERCENT because more Americans are choosing to rent as they postpone getting married and having children. As of 2010, about 54 percent of adults were married, down from 57 percent a decade earlier, according to Census Bureau data.

http://www.dallasnews.com/business/residential-real-estate/20140429-homeownership-nationally-falls-to-lowest-since-1995.ece

Call it Crazy says

Or are financially unable... If they refied their house in the last two years and have a rate in the 3's... If they move now they will pay a higher rate and also pay the higher prices...

I have one exact situation like that now that I am using as my reference. They are buying up

17% equity on the refinance
24% equity on the sale of the home based on the closing price

Moving up to a bigger home with half % hit on rate and 2nd lien it's a increase from what they really wanted to keep the payment as but they are quailed for it and making the move

However, that to me is a pricing hit for a move up buyer when they are going above their comfort level even though they easily qualify for the loan.

Logan Mohtashami says

Now they do offer 80/10/10 loans with fixed 30 year first and 2nd helocs to allow the $625,500 first to be assisted now.

Does the jumbo market also allow loans with less than 20% down these days? I was talking to a friend the other day who said that he was getting 0.4-0.5% better rates on a jumbo than a conforming loan. As a result, his bank was encouraging him to take the jumbo while putting less money down and use the recasting feature 6 months later to use the rest of the down payment that he would have paid to get a conforming loan to lower his payments.

As an example, what they are suggesting is to put 20% down on a jumbo at 4.1% instead of 30% down on conforming at 4.5%. Then 6 months later, he can pay the other 10% and recast the jumbo so his payments are lower. I forget which bank.

corntrollio says

Does the jumbo market also allow loans with less than 20% down?

Let me give you an example of a deal I am working on now

$805,000 Purchase Price

$625,500 first lien Max Agency loan limit
$99,000 2nd lien
10% down payment $80,5000

They will do them but it's limited In fact out of 17 lenders only 1 does them like this now and another one is working on getting a loan like this

Logan Mohtashami says

They will do them but it's limited In fact out of 17 lenders only 1 does them like this now and another one is working on getting a loan like this

Interesting, that's 77.7/12.3/10. I've also heard that 85/15 is a common one while avoiding PMI, but maybe that's really 80/5/15, not sure.

corntrollio says

Interesting, that's 77.7/12.3/10. I've also heard that 85/15 is a common one while avoiding PMI.

78/90
No MI
but you have a 2nd in 10 year will become a PI payment

Call it Crazy says

Or are financially unable... If they refied their house in the last two years and have a rate in the 3's... If they move now they will pay a higher rate and also pay the higher prices...

It means, They are one financial shock(e.g. job loss, health reason etc.) away from foreclosure.

Logan Mohtashami says

Let me give you an example of a deal I am working on now

$805,000 Purchase Price

$625,500 first lien Max Agency loan limit

$99,000 2nd lien

10% down payment $80,5000

They will do them but it's limited In fact out of 17 lenders only 1 does them like this now and another one is working on getting a loan like this

Logan,

What's is the total income and debt in this case, if you don't mind sharing. Thanks.

bubblesitter says

Logan,

What's is the total income and debt in this case, if you don't mind sharing. Thanks.

Low 30's, with 12 months plus of reserves if need be

Logan Mohtashami says

Low 30's, with 12 months plus of reserves if need be

Thanks. Seems like, one more recession and the thing will go in foreclosure...and then new players will get into market. Market right now is heading into dangerous territories.

bubblesitter says

Thanks. Seems like, one more recession and the thing will go in foreclosure...and then new players will get into market. Market right now is heading into dangerous territories.

majority of all home purchases DTI levels are in the 30's and for the most part 94% of them were fine even with the Great Recession.

It was the crazy loans that set up the massive failure

So lets say we get a recession in 2017. It won't even be close to what happened in the housing bubble because the people who are buying these homes all the capacity to own the debt.

This makes this cycle clean, so you go back to a normal housing cycle once a recession happens. This will a lot less distress homes in the cycle.

We still are working off 3,000,000 distress loans still from that cycle.

So it will look a lot different, because unless you lose your job you can stay in the home and since their is equity build up from 2010 buyers until fold and no equity out market a lot "lets assume" distress buyers can sell their home rather than be in a 100% loan at peak which we saw in 2004-2006

This is why I don't like using the term Housing Bubble freely with cycle because we never had a real true demand you would see in a housing cycle.

Now the home prices rising 15%-45% in this cycle is a massive disconnect from economic reality and as it should has already impacted demand enough to show YOY growth to be negative

On another note even with the headline jobs number today the internals weren't that hot.. hence why the 10 year is at 2.60%

Of course not. How can you take any BLS stats seriously anyway?

Logan Mohtashami says

t won't even be close to what happened in the housing bubble because the people who are buying these homes all the capacity to own the debt.

Are you saying, prices have gone up for good? and there will not be any correction even if there is a recession?

bubblesitter says

Are you saying, prices have gone up for good? and there will not be any correction even if there is a recession?

No, there is big difference gap between a traditional down turn in prices and a massive distress sales down turn.

So when prices fall it's not going to be led by a massive distress market unless we get a job loss recession and with this cycle on capacity paying debt.. you don't have a cycle where the loan itself creates the default even if 2 people are working

It goes to a more traditional down turn when you have higher inventory and job loss recession.

You won't have the crazy loan factor, very high default rate cycle like we did in the housing bubble.

Logan--You are saying a recession, and a mild one at that, in 2017. There is another current thread (look for a duck) with the concept that 2017 (+/-) is the economic end game and that there will be a huge crash, worse than 1929. How do you explain the difference in possible outcome? Where is the flaw in the catastrophe argument?

Indiana Jones says

Where is the flaw in the catastrophe argument?

To have a 1929 crash event you would need systemic risk. Which with this cycle means the 10 year note going to 6.5%-.9.5% and ZIRP policy Fed funds rate 4-5%. Also, you need that kind of action around the world

The reason the economy isn't booming is because there is no fake created demand bubble creating massive amounts of fake jobs. So, for this discipline you're risk is demand destruction.

Also we are talking about 17% unemployment rate net real GDP -30% at one point I believe 1930 was like negative 8.5% if I remember right
Domestic growth was around 100 Billion in 1929 then 90 billion in 1930 and 75 billion in 1931 then in the mid 50's 1932 to 1933

My numbers could be off by a little not exact just off the top of head

Maybe some guys are smartening up even if they're not making megabucks.

1. marrying in CA is a bad economic decision (for guys)
2. if the guy is married, she will insist on buying somewhere.

1929 was a situation where banks took depositors money and used high margin to buy stocks which is a credit fueled asset bubble.

The bubble popped and the banks lost their money and the depositors money with it.

Margin rates are now regulated (lower) and banks can't lose depositors money, bank deposits now are insured by FDIC.

Bubble stocks exist but the popping of netflix or amazon etc. won't cause a depression.

Agree. Good chart, Logan. We are due for a recession between now and 2017. 2017 will be at the bottom and starting back up, like in 1982: Morning Again in America, perhaps right after much gnashing of teeth.

clambo says

Margin rates are now regulated (lower) and banks can't lose depositors money, bank deposits now are insured by FDIC.

Replace banks with government now. All risks are now socialized. That will prevent the repeat of great depression but will make America a third world country. Think of drastic reduction in all the services that government provides.

bubblesitter says

Replace banks with government now

90% of all residential loans go through the government already and I believe 41% of student loans as well. The government lending is already here, private sector loan growth has been awful in this cycle

NAR: 60% first-time buyers made down payments of 6% or less in March, down from 74% in 2009 http://economistsoutlook.blogs.realtor.org/2014/05/01/60-percent-of-first-time-buyers-put-down-6-or-less/#sf2793485 …

You are missing these key facts:

1. The article is old and citing even older data. There have been massive wage increases since then in response to critics.

2. housing, food and clothing are provided by the factory in those facilities; as is healthcare and commute transportation (walking from the factory dorm). The pay is essentially net savings that the worker can have.

3. Overtime is what the workers want, and is the norm. Why? Just like young Americans working in Alaska and in North Dakota oil fields, they go there to earn money for a stint, then go home in another part of the country to enjoy the fruit of their labor.

BTW, recessions take place not because consumers don't have enough income, but because too much of that income is taken up by debt service.

Bank failures and collapse of the money supply from a credit fueled asset bubble (stocks) popping led to the depression.

25,000 banks in 29 became fewer than 15,000 in 33.

Depositors lost their savings in failed banks.

The banking collapse led to a collapse in the money supply.

These things were on Bernake's mind recently, he was afraid of a repeat of this situation.

FDIC promise on 250K and FASB 157 was big when things were ugly, working in finance at that type was a truly epic experience

And people wonder why new home sales took a hit once rates rose. This sector has left the first time home behind

toothfairy says

.I guess you could say there's a bond market bubble? That may be something to look at.

At this point lets see if the bond market can break above 3.04%. That 2.47% -3.04% has been staying put.

I look for 2.4%-2.9% growth for Q2 Q3 Q4 but 2017 is really about if we get 35 plus wage inflation which will bring CPI over 2.5% since rent inflation itself will get to 2% soon.

So for a crash to happen at 2017 that means the 14 million plus jobs that we created since the bottom at 2009 couldn't sustain higher yields on the short and long end.

So for me a crash would require a massive and I mean a massive rise in yields

I just can't see that happening in 2017. As always follow the monthly data point they will give you the truth