Existing Home Sales: The Good, The Bad & The Ugly

The Ugly


If you look at my Twitter post today, before the existing home sales came out, I predicted 5.35 million in existing home sales.  That is exactly what was achieved. However the expected number (NAR and others) was 5.25 million.
For the last two months, pending sales were positive. Also the purchase application numbers from 2 months ago showed growth. Therefore I expected 5.27 million in SAARs last month but we actually achieved only 5.05 in SAARs. Last months
number seemed off to me for those reasons

Irvine, CA



So what is the real story on this number

#1  The Good


NAR Quote: “All-cash sales were 24 percent of transactions in May for the third straight month and are down considerably from a year ago (32 percent).

Finally we have real evidence in 2015 that the cash buyer is falling as a percentage of the market with sales rising year over year. In a real recovery this would have happened years ago. However, in this cycle we didn’t have the right  Incomes, Liquid Assets or  Demographics  for this to happen.  The decrease in cash buyers should be talked about more as this indicates a return to a more normal market.

# 2 The Bad

NAR Quote: “The percent share of first-time buyers rose to 32% in May, up from 30% in April and matching the highest share since September 2012.”

Don’t believe the hype…. as Public Enemy once said.  Thirty two percent first time home buyer number is still trending at the worst levels ever recorded as a percentage of first time home buyers in the market place. Add to this fact that this is year 7 of the economic cycle with rates at 4%.

Potential first time home buyers need to Rent, Date, Mate, and Marry before they will be ready to buy.  3.5 to 6 years after marriage with dual incomes, college educated Americans having kids still works.

This model of mine still is in play. However, to get more buyers in this group with the demographic trends we have, we are looking at 2020-2024  time frame.

3. The Ugly
The Ugly

Now back to context of total existing home sales

From Doug Short

Home-Sales-Existing-Growth (5)

Not much going on here considering population growth of over 40 million since the year 2000 when
Interest rates were at 8%

So, 7 years into the economic cycle, rates below 5% since early 2011 and a high level of cash buyers has gotten us this
headline number of 2.3% SAARS growth and a negative -10.5% adjusted to population number.

So, the reality if you believe in math, facts and data,  this housing cycle on the demand side has been booming from the rich and those renting. When 2020-2024 time frame comes and after the next recession, the demand curve will look so much better due to demographics. However, 7 years into the cycle and all the hype of housing nirvana was really on the renting side of the equation not the ownership side of the equation from main street America.

Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988

Yellen Still Needs A Course In Residential Lending



Fed chairwomen Janet Yellen spoke today and as always she is so predictable.

Yellen: “Credit availability remains quite constrained for mortgages.” Those without pristine credit ratings find it quite difficult

Yellen: “housing “remains quite affordable”


From Political Calculations (Great Charts Here)



I made my case recently here that tight lending is a myth. However, for years now, math, facts and data don’t matter to the tight lending crew.


Homes are so affordable that Americans are renting in mass as a response to the Fed’s affordable thesis.
This is happening at the lowest rate curve on 10’s since 1941-1945 time frame

Don’t the let data change your mind Mrs. Yellen

homeowneret (2)

All Fed members should be mandated to take a residential lending course before they say lies to the American public.

My recent interview with bankers to explain in detail why the Fed and many others are spreading lies about tight lending standards.


Housing is about incomes, liquid assets, debt to income rations, and down payments not a fico score.

Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988

10 Year Yield Having A 2nd Taper Moment


One of my 2015 Housing Predictions was this:

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.


From Doug Short

We didn’t get to 1.60% like I thought we would, but 1.64% is close enough. Now, we are seeing a steady rise in yields from the lows put in by the bond market.

What does this mean for housing

1. Rate & Term refinances are dead outside a few streamline FHA loans.

2. Home purchases soon will see if they can handle the 2nd hand of housing inflation. However, we need to see yields in a range of 2.66% – 3.04% to get a good test on this.

On May 7th, 2013 I warned that the U.S. housing market should be worried about housing inflation.


The economic cycle is bit more mature now than it was back in 2013 when people were raving that housing was in Nirvana. However, if we break over 2.66% on 10 year yield we will see how well housing does. This will be the first real test for housing with the second hand of housing inflation in play.

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

Bloomberg Business Housing Interview: New Home Sales , Housing Inflation & The Chinese Buyer


My segment starts at the 8:05 mark.
As always, I talk about how the housing year over year 2015 demand data has to be put into context.

From Doug Short

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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.

Housing Starts & Permit Reality In This Economic Cycle



Today’s strong housing start numbers sparked  the same rabid fascination from pundits, as a dog jumping into a pool after a tennis ball. We first hear that this is the strongest report we have had in the past few years then  the discussion degrades into that same sad song that tight lending is holding housing back.  The usual refrain of excuses for why housing “isn’t what it could be” is  given by people who don’t understand that main street America simply doesn’t have the income in this cycle to have a Nirvana-like recovery.

The responsible economist feels compelled to remind them how soft this recovery actually is.

Four new charts from Doug Short bring some perspective to the discussion.


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When one considers the epic crash in new home sales and starts that occurred after the housing bubble burst, you might assume that by now we would see more velocity to the upside in total activity.  But this does not account  for the fact that we simply won’t have enough quality home buyers at this point in the  economic cycle to have a real recovery. This  is true for new home sales as well,  which are typically sold to the more well-to-do buyer and make up only 1/10th of all home sales in this cycle, usually 1/6th. Some of those buyers are finding better value in existing homes.

The problem with the builders is simple. New homes are very expensive because they’re big.  The metric of Median Income to Median Price homes has deviated too much for main street to afford the debt of a new home (or any home in most cases) if we are looking for strong housing demand recovery.This is the reason why new home sales trend have been soft in a 90% mortgage marketplace that is tilted to the more wealthy buyer once you adjust it to population growth.

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Why would the first-time home buyer even look at a new home which is much more expensive than a existing home coming into the market. For a while builders had the advantage of low existing inventory but now more existing homes are cominginto the market, increasing the competition  for housing dollars.

With that said, year over year growth in new homes sales, starts and permits are expected because previous numbers were so soft in 2014. But don’t let growth  from historic lows blind you to the fact that, thus far, this has been the weakest housing recovery in American history. It’s all about incomes and assets, and the lack there of, not tight lending.

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

The Fall Of Homeownership In America



The census report released today shows a decline in the home ownership rate to a low of 63.7%  (https://www.census.gov/housing/hvs/files/qtr115/currenthvspress.pdf).

The notion that the lack of  demand for mortgages from main street America, (despite interest rates hovering  at 3.75%), is due to the lack of qualified home buyers, appears to be taking hold.  In my article on housing predictions from 2010, I wrote:

“The longer term consequences of an unstable residential real estate market may be more serious than just the destruction of individual wealth. The ideal of middle class home ownership may be at stake. The census bureau reported a 7% decline in national rental vacancy rates in 2010, along with an overall decline of 0.7% in home ownership rates compared to a year ago. There were fewer “organic” buyers, more renters and more investment buyers in the market in 2010 and I expect this trend to continue into 2011. Are we at the beginning of a sociological movement away from middle class home ownership and towards a cultural split between the investment property landlords and their renters both of whom may have less personal investment in neighborhood security, local schools and shared public facilities compared to primary homeowners.”

Now it is 2015, 7 years into the economic cycle.  Millions of jobs have been recovered and  interest rates have been below 5% since early 2011.

Even with strong rent inflation the demand for mortgages  from main street America, especially amongst first time home buyers, has never been this low. Demand is back to 2000 levels when rates were 8%.   If you remove the non historical average of cash buyers from the market, the demand for  existing homes  looks even worse.

From Professor Anthony Sanders:

From Doug Short

New home sales have also suffered (down  a whopping 80% plus from the high with marginal recovery since), primarily due to their high price tags.

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A host of reasons have been blamed for the poor demand including tight lending, low supply, winter, debt default, etc etc etc.   Now housing pundits seem to have finally come to the conclusion that weak demand is because people just don’t make enough money.

“Weak home sales are ‘much more of an income problem than a credit problem,’ said David Blitzer of S&P Dow Jones Indices. #housing #NAR

‘I don’t think there is a housing shortage…It’s strictly a matter of low demand, said’ “NAHB Chief Economist Crowe: #housing #NAR @NAHBhome”

See also my interview with Diana Olick from CNBC last year:  https://www.youtube.com/watch?v=o9O_FDLPdgA&t=10m35s

I hope all the economist, professors, financial media, housing analyst can now agree that housing demand is really about incomes and liquid assets and that more time is needed to have a “Housing Nirvana recovery” that some have predicted.

As we look toward the future we do see some positive signs.  Net housing demand should be better  in the 2020-2024 time frame because there will be more dual income households. Other factors come into play, however,  such as timing of economic cycles, rates and world events.   We should see also increased demand from our young working force as they become more settled in life, married and ready to buy.

Tight Lending was a myth and it’s slowly dying away. The rise of new home ownership will result from wage growth  and increased liquid assets, not from  financial engineering.

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

Interview With David Lykken: Slaying The Tight Lending Myth



Trying to prevent the sickness of a financial engineered housing recovery.

My segment starts around the 40 minute mark


“All truths are easy to understand once they are discovered; the point is to discover them.”
Galileo Galilei


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

Tight Lending And Other Urban Legends



As many of my readers may be aware, my mantra since 2010 has been that “We simply don’t have enough qualified home buyers in American, once you take away the cash buyers, to have a real economic recovery in housing “. While some may be tired of this refrain, there remain a number of highly respected housing “gurus” who continue to profess that it is unfairly tight lending standards, not the lack of qualified buyers that are suppressing a housing recovery. The difference is not academic.

Would-be home purchasers are unable, to qualify for a mortgage due to the following factors:

They lack adequate monthly income. A lot of the jobs created, post-recession, are low paying jobs that don’t provide adequate income to support a mortgage payment. More liberal lending standards will not correct this.

They lack liquid assets. The down payment (even just 3% for some loans) and closing cost for a home purchase exceeds many American’s available liquid assets.

There is no financial bubble. The formal definition of a financial bubble is an economic cycle characterized by a surge in asset prices above the fundamental value of the asset. The housing bubble created excess demand based on poor lending standards. When the bubble popped, that excess demand disappeared. Not all the demand was fake in that cycle, however. In fact a good portion of it was real. It would be a drastic mistake to attempt to manipulate lending standards in an effort to recreate that extra fake demand. If historically low interest rates cannot generate home ownership demand, then we need to accept that a percentage of our adult population is simply not in a financial position to take on mortgage debt.

Demographics are not favorable in this cycle, but in time they will be. Household formation has been very soft. People are staying single or getting married older. This translates into lower housing ownership demand as most people will wait to marry before considering a home purchase. Fewer dual income households so fewer households that can afford a mortgage payment. These factors have driven strong demand in the rental market

Still think tight lending  is preventing a housing recovery? A quick review of the requirements for some of mortgage loans available may surprise you.

No money for a down payment? Is zero down too tight?

VA (Veterans Administration) loans require no down payment, a minimum FICO score of 620 and allow up to 60% debt to income ratio. I don’t think anyone could call this tight.

Poor credit score? Is a FICO score of 560 too high? FHA (Federal Housing Authority) loans require a FICO score of 560 to 620. (Scores of 650 are considered “fair and below 600 are considered poor or high risk). Other requirements include at least 3.5% down, and a maximum debt to income ratio of 43%. In some cases they will accept up to 50% debt to income ratio.

High debt to income ratio? Is 50% debt to income ratio too stringent? GSE (Government Sponsored Enterprise) loans allow for 43% to up to 50% debt to income ratio in geographical areas where housing is particularly expensive. A minimum FICO score of 620 and a 3 % down payment is also required.

Other common requirements for these loans are a history of the same line of work for the past 2 years, 4 weeks of consecutive pay stubs to verify income, most recent W2, and most recent 2 months bank statements.

Home loans are available and home loans are being made. Over 4 million purchase home loans were given to Americans in 2014 and thankfully those were largely to folks who have the financial capacity to own the debt the home ownership.

One of my 2015 housing predictions was that we would see 5%-10% total growth in mortgage purchase applications due to the low bar set last year.

This is the most recent data line from Professors Antony Sanders supports this predictions


We are now seeing above 5% total growth, year over year, for 2015 mortgage purchase applications.

As you can see below, mortgage purchase applications are still well below the pre-housing bubble years.


For 2015, I predicted year over year growth in all housing metrics, demand is improving. Having said that, even if cash buyers continue to make up a larger than “normal” percentage of home buyers, total existing home sales will still be soft – so we have a ways to go to get back to a normal healthy market.

All housing analysts, I would surmise, would like to see a more robust housing market. Where we disagree is what should be done to encourage a healthy market. I believe we have a moral obligation as a society to reject attempts to engineer conditions that encourage people to put themselves in economic peril. We did that before, it was a disaster and we must learn from our past mistakes.

I have to believe that those who are saying lending is too tight are either not aware of the actual requirements and have absolutely no lending experience or have some other agenda that is preventing them from acknowledging the obvious. Gotta wonder. Frankly, I also gotta wonder why we keep listening to them.

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

Will Spring Home Sales Fall Flat?


Mortgage Purchase Applications

Last year (2014) we had double-digit declines in mortgage purchase applications year over year, even with falling interest rates .  So far this year, as we are in month three, demand has been flat, year over year, to slightly higher, but it is not meeting my expectations of 5-10% growth, which would still be quite modest since we are comparing it to a 21st century low set in 2014. Interest rates are lower this year as the 10 year yield got near to my predicted 1.60% level with a 1.64% print in 2015.  The low rates however, haven’t created increased mortgage demand.

Mortgage Purchase Applications and Mortgage Rates Declines Since 2007 (credit  Professor Anthony Sanders)


Today’s mortgage purchase applications number showed 3% year over year growth, which is a start.  But better than 3% growth is  needed to  improve the market from the 21st century low set in 2014. There are still a few more months in the spring selling season to make up for our slow start in 2015 but by June the season will be over and mortgage purchase applications will start their traditional seasonal decline in volume.

Existing Home Sales

Existing home sales, so far this year, are showing year over year growth but since last year sales were so soft, this is not necessarily evidence of a healthy market in this sector. Cash buyers are under 30% for the first two months of this year, whereas in January and February  of 2014 they were 33% and 35% percent of the market, respectively.  Cash buyers have been holding up the housing market with their “over-participation”. Now that we are seeing fewer cash buyers  mortgage buyers will need to pick up the slack in order to have growth in this segment.  I predict a slight year over year gain for total existing home sales as long as cash buyers stay in the market with their current participation rate. We have just started the spring selling season so we will need to see a strong uptick in the Seasonally Annual Adjusted Rate of Sales (SAARS)  in order to achieve over 5.4 million peak sale for the year.

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First Time Home Buyers

We’ve heard a lot of hype about first time home buyers making a comeback in 2015 to pick up this slack and drive overall growth in the market.  But the painful truth is that first time buyers  are  still below 30%  of the market (last year they were 29% of the market) whereas in a healthy market we would expect them to make up about 40% of the market. Household formation numbers are improving which is the first step in the social cascade that leads to home purchase. Rent , date, mate, marry, 3.5 – 6 years after marriage home purchase, is the social sequence we need to improve this segment.
Our biggest age group in America is the 23 -25 demographic.  They will need some time to mature into  first time purchasers.

New Home Sales

After a huge miss in sale expectations in 2014, new home sales are showing growth in the first two month of the year.  The numbers reported are confounded with large margins of error but do show upward momentum. I expect total growth of 8%-12%, year over year, for this sector, but keep in mind this makes up only about 10% of total home sales.  Builders could potentially generate more sales if they were willing to incentivize the middle-income buyer instead of focusing only on the wealthy buyer. We saw some growth in 150K -$299K price range, but a large percentage of sales still, are in the over $400K range.



So what can we look for in the Spring of 2015 for housing?  Mortgage purchase applications are flat to slighter higher, existing home sales look to be  slightly higher for the total year number.  New home sales are showing  double-digit growth but are still tilted toward the upper income home level and make up only a small part of the overall market.

These metrics are no surprise to me because my core thesis since 2010 has been that we don’t have enough qualified home buyers in America (once you remove the wealthy cash buyers) to drive a normal healthy market.

Added proof of this is that the Federal Reserve’s emergency interest rate policy of zero percent is still in place seven years into this economic cycle. The 10 year note is below 2%, a low which hasn’t been seen since 1941-1945..  These facts demonstrate that the Fed does not believe we have fully recovered no matter what they verbalize to the market place. In fact mortgage rates have been below 5% since early 2011 and so has the zero interest rate policy  but this has not driven strong mortgage  demand from Main Street.


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

Interview With Joe Fairless On The Rental Demand In America


Starting at 1:50

Prime takeaway, demographics equal rental demand for years to come



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