2015 Housing Prediction Interview With David Lykken

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Interview with David Lykken starting at the 33 minute mark, talking about 2015 housing predictions and what we saw in housing for 2014.

http://www.blogtalkradio.com/lykkenonlending/2014/12/29/special-broadcast-2015-housing-mortgage-forecast-with-logan-mohtashami

2015 Housing Prediction Article Here:

http://loganmohtashami.com/2014/12/22/2015-housing-predictions-the-bar-is-so-low-we-might-trip-on-it/

Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com

2015 Housing Predictions: The Bar Is So Low We Might Trip On It

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2014 was not a great year for the housing market. Higher inventories in many areas and low mortgage interest rates lead to lofty promises of booming mortgage purchase applications and “nirvana” for new home sales. Alas, to the dismay of our many mislead pundits, these promises remained unfulfilled like the aspirations of a democratic candidate during the midterm elections. Despite the fact that mortgage rates were low all year-long, existing home inventory was up and rents have been high and rising, we still experienced negative demand year over year, even with the number of cash buyers 20% above historical norms. Starts, permits and all sales were disappointing in 2014: Mortgage purchase applications were down every single week of the year (year over year) and for only a few weeks had less than double-digit negative prints. The number of first-time home buyers who closed a deal hit a 21st century low. Thus, another chapter in the housing saga ends with the hard boot of reality kicking us squarely in the assets.

What went wrong? Forgive me for repeating myself (for the past four years, I’ve been singing this same tired song) but my number one thesis for why the housing market is not living up the tearfully whispered fantasies of real estates agents, economists, housing analysts and other experts is that we simply don’t have enough qualified home buyers to have a true housing recovery in America.

You get my drift: The bar for housing is so low that some housing bulls might try the predictable tactic of bellowing about exponential growth portending a miraculous recovery when all that is occurring is a bump up from a pitifully low base. I take a more measured (or perhaps jaundiced) view of what the future holds.

1. For existing home sales – I predict we will see somewhere in the area of 5.0 million -5.20 total number of homes sold in 2015, with these caveats; cash buyers continue to make up to 30% of the market, and, buyers continue to migrate away from the purchase of new homes in favor of existing homes due to their better value for money and their dispersed geographical distribution. If cash buyers back out of the housing market, and new homes are able to attract the upper income buyers then there is a risk that we will once again experience negative existing home sales, year over year compared to the 5.10 million homes sold in 2013. My prediction, however, is that cash buyers will remain in the market, soaking up the increased inventory and new home sales will remain weak because builders will refuse to lower their prices to meet the current economic realities. This is an increase from the number of existing home sales in 2014 but like last year, we will need the wealthy and the cash buyers to continue to buy a big portion of the homes.

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.

3. For mortgage purchase applications- I predict some growth on purchase applications year over year, because we are at century lows. By the end of March to the first 5 months of the year we will see how much real mortgage demand we will have in 2015. I expect 5%-10% gains for the year. We have been hearing predictions of up to 5.5 million existing home sales. However, for that to be true you would need to see a 30% increase in mortgage purchase applications year over year, with no decline in the number of cash buyers. This is highly unlikely.

4. For the new home sector – I predict a replay of what we saw last year with a conservative estimate of 8% growth to an aggressive estimate of 12% growth. Other “expert soothsays” are predicting an over 25% increase in new homes sales in 2015, because demographics show a buildup in the need for homes. However, the Median Income to Median Home Prices (MI2MP) metric shows that new homes are more expensive than ever and therefore only an option for the wealthy buyer. If builders decided to provide some real incentives and discounts for their products, it is possible they could increase sales dramatically in 2015, capturing more of the “average buyers” – but the discounts and incentives would need to be significant before new homes could compete with the existing home market – and this would mean lower margins – a trade-off I don’t believe the builders are willing to make. Our experts made some epic misses in their prediction for new home sales, starts and permits in 2014. Hopefully their horrible performance provided a much-needed wake up call that debt to income capacity matters in an economic sector that is 90% dependent on mortgages.
For the multi-family new construction market, I predict rental demand will remain strong so starts, sales, permits and multi-family construction will rise but not as fast as many think.

5. For the rental market – I predict the trend to rent instead of buy will continue in 2015. Home prices are too high and even a 3% down payment is more that most Americans can afford at this point in the economic cycle. I’m enjoying the low gas prices as much as the next guy, but the extra $20 to $100 per month that is being saved at the pump is not nearly enough to improve the affordability of a home purchase. Our beloved, yet oh so often wrong housing experts are also predicting “the young” will come back into the housing market in 2015, leading to a significant uptick in first time home buyers. In order for this to happen however, we would need to see a corresponding uptick in the formation of dual income/dual assets households, but this hasn’t happened. The young will continue to make up less than 40% of mortgage buyers in 2015.
The 2.5 million home loans that are in some stage of delinquency are another factor to consider in the 2015 rental market. Some of those owners will lose their homes and have to rent – and those who foreclose are out of the purchase market and in the rental market for at least the several years it takes to repair their credit.

6. For home prices – I predict a modest increase of 1-4%. The low supply of homes on the market gives pricing power to sellers even with the soft demand. I expect inventory of available homes to reach a balance point of 6 months at some point in the year. Year over year price gains are cooling down and this is a good thing as the housing inflation in terms of price gains was simply too much for main street America.

7. The rich will still be a big part of the market place. The wealthy (cash buyers and those who make over 2.5-3 times median income) made up 45% of existing home purchases in the last several years. (For more on this and how hard it is for the middle class to own the debt of housing due to the massive price increases since 2012, see my Bloomberg interview at the BNY Mellon Stock Conference : http://wp.me/p1gHkh-oO ). I predict some decrease in cash purchases in 2015, but the wealthy will still be over-represented in terms of percentage of purchases in the coming year.

In general, I predict the economy will grow at least 2.5 -2.6% in 2015, an improvement over 2014 levels. Look for job creation numbers to be between 210K – 225K with some improvement in the wage growth. We have some positive economic indicators in the later part of 2014, such as increased industrial production, improved confidence in the small business survey, rising employment to population numbers and the best  monthly job creation numbers since 1999, which should set the stage for a healthy 2015 in terms of economic growth.

In a “normal housing market” we would expect to see 90% mortgage buyers (thus only 10% cash buyers) and first time home buyers would be 40% of monthly sales. Obviously we haven’t had a “normal” year in housing for nearly a decade and 2015 will not break this run of abnormality. So, although we will see an uptick in some housing indicators such as number of purchase applications and number of new home sales, this is largely due to the very low bar set in 2014.

 

 
Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com

Bloomberg Financial Interview at the BNY Mellon Conference: Housing Reality

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Podcast time 2:30 – 13:30

Thanks To Kathleen Hays, Vonnie Quinn & Bloomberg Financial for the invitation to the St. Regis hotel in Monarch Beach

Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com

Demand From First Time Home Buyers Hits 21st Century Low

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Before the 2014 spring selling season, I told housing media experts such as Diana Olick from CNBC and Kathleen Hays from Bloomberg Financial that 2014 had the fewest pre-approval requests (a prime indicator of first time home buyer interest) I had seen in my 15 years in the lending business. I reported on this apparent aberration in the marketplace in an article published back in March of this year:I worked with Bloomberg on a First Time Home buyer article back in March

“First Time Home Buyer, What’s That

http://wp.me/p1gHkh-mk

In May, I reiterated the observation of very weak first time home buyer activity in an interview with Bloomberg:

http://wp.me/p1gHkh-no

From the great Professor Anthony Sanders.

http://wp.me/p1rch2-9XQ

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To rehash this old story – for those who somehow missed it, the reasons for this weakness revolve around a mixture of inter-related economic, social and political forces some of which include:

1. Delay in marriage (Dual incomes missing)
2. A lack of a strong paying full-time job with security.
3. Older Americans are unable to retire due to lack of savings – they replace younger workers, who have trouble finding jobs.
4. Having enough for a down payment plus closing cost with taxes impounded is a lot for young aspiring home buyers.
5. Renting isn’t considered a bad option anymore from young Americans.
6. Exotic loans that allow would be homeowners to obtain credit without collateral or income verification are removed from the market.
7. Financially strapped parents are unable to “gift” down payments for first home purchases by their children.
8. Student loan debt impacted household formation from rising and making it more expensive for first time home buyers to buy.
9. Despite the weak first time buyer market, home prices go up in many markets due to the lack of inventory, keeping home ownership even further out of reach.

With all these factors in play, we simply don’t have enough qualified home buyers once you removed the cash buyers, to generate a housing recovery.

To quote an article I wrote in late 2012: A lot of things have changed in America because of our debt blow up, … maybe a generation will wait just a bit longer to buy a home.

“The Young and the Renting”

http://wp.me/p1gHkh-g0

Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com

Mortgage Purchase Applications Near 21st Century Lows As Q.E. Ends

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Lets be honest here.

Why are mortgage purchase applications near 21st century lows with rates  near 4% and homeownership rates at a 19 year low, a number which is artificially high because it includes  delinquent homeowners. There are still 3 million loans in delinquency which means we will have a lot more future renters coming on-line.

An overview of these metrics for the past 20 years illustrates the real story for housing:

– Real Median Income
– Employment to Population Ratio
– Average Wage Growth Year over Year
– Mortgage Purchase Applications
– U.S. Homeownership Rates

From Professor Anthony Sanders

http://wp.me/p1rch2-9Vx

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This economic cycle has seen great demand from cash buyers, renters and rental
construction. However, mortgage demand from main street has been sleepy.

http://wp.me/p1rch2-9VI

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We have lower rates in 2014, higher inventory and rising rents and still demand shows no growth.

Still think lending is too tight?  Advocates of the “tight lending’ theory lack a financial lending background. We can clearly see that main street America needs to make more money to have the capacity to own the debt of a home. We don’t need to ease lending standards, Americans need a raise.

As QE is over today we can  also take joy that those crazy home loans are deep in the economic grave as well.  That’s a good thing.  Residential lending is based on debt-to-income ratios and availability of liquid assets — which means now people have to make money in order to get a loan! Disability payouts and food stamp are on the rise in this country and we are looking for a housing recovery from main street? Tsk Tsk.

The “saving grace” for housing in this cycle  is that we have  the rich, both foreign and domestic, buying homes with cash.  If  the rich weren’t buy homes with cash at 20% above historical norms, then sales would be down -13% to -17% year over year.

When asked to give an opinion as to why Warren Buffet is terribly confused by the low housing demand when rates are so low; my answer:  It’s not rocket science, it’s simply math.
My Q&A with Mutualfunds.com

http://mutualfunds.com/q-and-a-and-interviews/interview-with-logan-mohtashami/

Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com

Collapse of the 10 Year Note Yield and What it Means to You

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Logan Mohtashami, Benzinga Contributor

With the violent drop of the 10 year note yield in the past two days, from 2.28%  to 1.95% , we can expect changes in the mortgage rates offered by the major banks as well. Wall Street “analysts” who predicted the 10 year yield of 3.5% and 4% for the 10 year note in 2014 should hang their heads in shame as making the worst 10 year note calls on record.

 

On Main Street, where the rest of us live, we see refinance rates as low as 3.875% for the most qualified home owners and 4% seeking a no cost loan.

 

Unfortunately, I don’t expect these lower rates to have much of an effect on housing demand. Despite rising inventory and lower rates (typical drivers of housing demand) year over year demand in 2014 has been negative.  The current low rates will not change that because it is not mortgage rates that are keeping buyers out of the market.  Our fellow Americans simply don’t make enough money to own the debt of a home, and until incomes go up or housing prices dramatically decline, that hard truth will continue to suppress housing demand.

 

Right now, people who bought their homes in late 2013 and early 2014  may be good candidates to refinance their mortgages. Having said that, refinance activity is down 72% from the peak in May of 2013 because many  already have lower rates and this recent move down won’t mean much to them.  Therefore, people who can take advantage of these lower rates will only be a small pool of home owners. For those with the sufficient equity to eliminate their private mortgage insurance due to recent home prices gains, could benefit by refinancing.  Others may benefit by combining their first and second loans into one at a new loan as well. For the rest of us, however, we should not expect lower rates to boost housing and/or the economy as a whole. We simply don’t have enough qualified home buyers in America!

Chart from Professor Anthony Sanders
http://confoundedinterest.wordpress.com/2014/09/17/got-rent-homebuilder-confidence-rises-to-9-year-high-despite-stagnant-wages-and-declining-labor-force-participation/

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Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com

Economic Denial From Builders: The Sequel

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Logan Mohtashami, Benzinga Contributor

On this date last year I shared a chart with CNBC’s Diana Olick, which indicated how far removed home builders were from economic reality. Titled appropriately “Economic Denial From Home Builders” the chart and article can be read here:

http://loganmohtashami.com/2013/09/17/economic-denial-from-home-builders/

Now, one year later, the builders have raised confidence to yet a higher and ever more disconnected from reality level, by reporting confidence levels equal to the number recorded back in November of 2005 . At that time, numbers of total starts were quite high compared to today’s numbers. Also, it is notable that November 2005 was in the middle of the housing bubble being formed

Below a chart, from Diana Olick on CNBC, illustrates the current disconnect. As can be seen, we are witnessing the summer sequel of economic denial by home builders.

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An irony to this is that 2014 has been the most disappointing year from new home sales and starts that I can remember since I began tracking housing data. A year which sales growth was expected to rise 20% or more, and starts expected to show growth in single family starts too, is puttering to a point at which we are questions if sales and single family starts are even going to be positive year over year. As for starts, those are led by multifamily expansion, which has been booming in this cycle for good reasons, but not reasons which bode well for single family housing.

One reason for these trends, I believe is that new home buyers are more interested in the fresh existing inventory crop that is coming back to the market, than buying a new home. Why would this be?

Existing inventory provides two advantages to a buyer

1. Much cheaper

2. Geographical advantage in any given city

At the beginning of the year, my conservative outlook was for 8% sales growth year over year due to the  “low bar we had to beat” factor and that the new home buyers are coming from more affluent class of Americans. But now, even 8% is looking doubtful

As always housing is soft because we have a DTI ( Debt to Income) and LTI (Liabitly to Income) problem. Another great chart from Professor Antony Sanders

http://confoundedinterest.wordpress.com/2014/09/17/got-rent-homebuilder-confidence-rises-to-9-year-high-despite-stagnant-wages-and-declining-labor-force-participation/

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Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial contributor for Benzinga.com