Why Mortgage Purchase Applications Are Near An All Time Low When Adjusted To Population

September Purchase app Long

Mortgage purchase applications have been a consistently low throughout this economic cycle even though mortgage rates have been below 5% since early 2011.

When adjusted to population growth, purchase applications are at the 2nd worst level ever recorded in American economic history.  The only time purchase applications to population has been lower was in 2014. We had a slightly lower  headline number in 2011 & 2012 but employment to population metric has grown as has population from those years.

From Professor Anthony Sanders

September Purchase app Long

To reiterate what I have been saying since 2010,  we don’t have enough qualified home buyers in America, once you excluded the cash buyer.

Home buyers, and thus mortgage purchase applicants tend to fall into specific categories.  We have fewer qualified applicants in each of these categories.

1.  The move-up buyer: This buyer has been plagued with housing bubble debt from the last cycle.   If you believe in the home affordability index, then a homeowner would need at least 28%-33% equity  in order to have 20% down and pay transaction costs. Because we have seen nominal gains in home prices back to 2006 levels, having adequate equity to move up is less of a road block then it has been in recent years.

  1. The first-time home buyer: There are a host of reasons why there are fewer first time home buyers filling out mortgage purchase applications.
    The country’s demographic are young and so favor renting.  This also means there are fewer dual income households and fewer children being born, a natural stimulus for home buying.  Americans are getting married and having children later and there are also buying their first home later.  Added to this is the lack of exotic loans which in the past created “fake demand” from first time home buyers.  Because there are more renters, rents are higher and rent inflation makes it harder to save for a down payment.  Because parents took a hit in the recent recession there are fewer parents able to “gift” a down payment.  Lastly, many of the “starter homes” are being purchased with cash by investments buyers so there are fewer available for the mortgage purchaser.

For both these groups economic capacity, not mortgage interest rates will determine their ability to buy.

Lorraine ‏@Woellert 

#Mortgage rates are below 4% for 9th-straight week, says @FreddieMac

Mortgage Rates

Demographics will be more favorable for housing  in years 2020-2024.   At that time we will  have more people of “buying age” and more college educated dual income households having or ready to have kids.

Recently, the missing mortgage buyers were replaced by a very strong number of, 20% above trend, cash buyers. We are starting to see  fewer of these cash buyer along with a modest upswing in mortgage buyers. We can expect another economic recession sometime between now and 2024, but even so,  the next decade has a better foundation for mortgage housing demand.  The number of new home sold came in at 552K today, so expectations of a gain  of 24% -41% for 2015 may need to be revised lower. The good note is that the trend of the last few months for revising the sales numbers down has been reversed.. However, unless we can get a solid 578K print in the last few months with no lower revisions, total sales estimates for 2015 will be a miss.

Bigger Picture for new homes

New home sales numbers are down 7%, and when adjusted to population  down 45% from 1963 levels. The only time since 1963 adjusted to population sales were this low was in the early 1980’s.

From Doug Short
Home-Sales-New-population-adjusted (3)

As you can see Mortgage Rates were a lot higher back then

fredgraph Mortgage Rates

Slow and steady is the right call for housing, until the real supply demand curve gets back into the economy.

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

The Fed Rate Hike And The Housing Impact

A trader on the floor of the New York Stock Exchange watches Federal reserve Chair Janet Yellen's news conference, Wednesday, March 18, 2015. The Federal Reserve is signaling that it's edging closer to raising interest rates from record lows in light of a strengthening job market. The Fed no longer says it will be "patient" in starting to raise its benchmark rate. (AP Photo/Richard Drew)


Just Go For It

Those halcyon days of the Emergency Interest Rate Policy, just like the waning days of summer, are finally coming to an end.  While you are packing away your white wingtips and croquet set, you may also want to think about the consequences of the first interest rate hike on the housing market.

You have probably heard on the financial networks that “interest rates are at all all-time low (true)  and “higher rates won’t matter when the economy is strong” (hummm).  You may remember back in 2013 when rates were rising and the same folks said an increase in rates would not matter because rates would still be so low.  If you were paying attention, you may also remember my article from May 2013 that warned how the second hand of inflation could impact housing demand.


While millions of homes were purchased in 2013/2014, sales numbers did not come close to expectations.  Adjusting to population, sales are low for existing homes, even with 15%-20% higher than normal cash buyers in this economic cycle.


New Homes sales have been soft and adjusting to population, are down 50% compared to 1963.

Home-Sales-New-population-adjusted (2)

In 2015 rates have ranged between 3.625%  and 4.125%, so we have not yet tested what higher rates of 4.125% to  4.5%, (as occurred during the peak of the Taper spike), would do to housing sales numbers.

In order for me to feel comfortable with an increase in interest rates I would like to see the following economic indicators:

  • Reasonable growth in sales, year over year, for new and existing homes, with interest rates at 4.5% -5% during the spring months.
  • Double digit growth in purchase applications in 2016.
  • Fewer cash buyers and more mortgage buyers in the existing home market place.
    (Key here) – New home sales growth of  at least 10 – 14% in 2016 with higher rates as new home sales leads

    to higher construction growth.

Now there is no guarantee that rates get to 4.5% – 5% next year which would mean a 10 year of 3% – 3.5% . However, considering we are going into year 8 of the economic cycle and we have regained all the jobs lost in the private sector during the Great Recession, with interest rates under 5%, I think those benchmarks above shouldn’t be much to ask for, if there is a true housing market recovery. If we can’t hit those basic metrics, at this stage of the economic cycle, homes are not affordable enough for strong demand growth.

I expect the US to continue to  be a “renting nation”  until  the years 2020-2024, when demographics  will shift so that home purchasing will be more manageable for many households.  What I mean by that is that we have a very large number of 12-29 year olds and an especially big subset of 21-15 year olds. These “kids” will need to rent, date, marry, form dual income households and perhaps have or plan to have children before they will  ready to buy.
There is light at the end of the renting nation tunnel but it is still some years away.


I find the Census Population Clock  website provides good insight to what to expect in the years to come.


I don’t think that we, in the housing industry, will need to duck and cover when (yes, when), the Federal Reserve raises 0.25%.  Demographics have more of an effect on the housing market than a bump in short term rates.  When rates do rise these two areas will be interesting to watch:

1)    The ratio of cash  to mortgage buyers : Fewer cash buyer may mean less demand but it will be a sign of a healthier housing market if  we return to a ratio of 10%cash/90% mortgage buyers and still grow from these low adjusted to population sales level.

2)    Profit margins and median sales price for new homes: Lower profits mean builders are discounting prices to get more buyers or lower median sales price may mean builders are providing a better mix of homes instead of just the larger, luxury homes.  These indicators may not bode well for builders but would be good for the housing market in general.

Also, be mindful that every new housing cycle has had 2% lower mortgage interest rates and for this to happen in the next cycle we will need to see mortgage rates between 1.25% – 2.25%. I know it sounds crazy to say again, rates can go lower  in the next economic cycle. The 34 year trend still sticks when there is no inflation in the system.


August 10's

The bottom line  message is don’t get caught up in the scaremongering hype about an 0.25% interest rate rise.  The U.S. has the best domestic economy in the world for a mature country and things are only getting better! At some point we will have a recession and another recovery cycle, but the next decade looks a lot better than these past 7 years coming off the great recession.

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

New Home Sales Need A Strong Total Report



From  my 2015 Housing Prediction Article

“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”

If you listen to the marketplace this year, it seems like housing is booming again. New home sales are rising double digits and the Builder Index is smoking hot this year.

While we were due for growth in 2015, for context, recall the  title of my 2015 Housing Prediction Article:

2015 Housing Predictions: The Bar Is So Low We Might Trip On It:     This still holds true.

For new homes, I predicted 8% -12% growth with some upside capacity if median prices fell –which means either home builders discounted to the high end buyer or that the make up shift of sales had some smaller sized homes.

Since we are getting lower revisions, we can assume that the more aggressive sales estimates won’t happen this year.

As you can see from the charts below, the year over year numbers are still strong but only because 2014 was a major whiff– in year 6 of the economic with rates falling and inventory rising.

From Calculated Risk: A must follow

May Data Line & June Data Line with revisions



We heard estimates of 24% – 41% growth in new home sales demand for 2015.   In a “normal economy, this would be a good bet because last year was such a miss.

However, if we get another soft reading in the next report, with more lower revisions, then  expect more revisions lower for total new home sales for 2015.

Austin Kilgore Editor in Chief of @NatMortgageNews reports that Wells Fargo does expect to see a 550K total home sale level. Now, unless we get major positive revisions and strong 2nd half demand that sales number needs to revised lower


  On the other hand, tomorrow’s existing home sales report should beat expectations. In the present economy existing homes have at least two major advantages:

1. New Homes sales are 1/10th of all sales but are much more expensive in a 90% mortgage market place. So, price and rates combo matters.

2. Existing home sales which are 90% of the market place but have less economic output than new homes are not only cheaper compared to existing homes but have a geographic advantage than a new home. What I mean by that is that
new homes are clustered in an area of city where exiting inventory can be spread around the map.
This means for a mortgage buyer, there is more value  in a less expensive older home. I do believe this is the reason on the margins  why new home sales, even with it’s very low bar set in this economic cycle, has had trouble gaining traction.

Having said that I expect that we will see better growth in 2015 compared to last year, regardless of what happens in the next new home sales report. I predict 8%- 12% year over year growth and good shot to theupside if median prices fall.

In a nutshell, the market place is telling to us, that if we get a softer new home sales report, look for revisions to total new home sales, making it the 3rd year in a row that new home sales missed sales expectation. What we have to understand better is why is this happening in year 7 of the economic cycle with rates below 4.125% the entire year.

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

FED And The First Rate Hike



Fed has a dual mandate
1. Control Inflation
2. Facilitate Employment
I like to  joke that they have a DUEL mandate; count the steps to 10, aim to kill and be first to shoot.
So, we are well below their unemployment metric which triggers a rate hike.

Via Doug Short


– In an interview with Bloomberg  I said they need to change their metric because unemployment is dropping too fast due to the Labor participation rate  and that wage growth won’t likely come until 2015 based on their data metric of ECI wage inflation metric.
CPI inflation is not  at a comfortable level for them but they don’t seem to mind this as much.

Via Doug Short

– Another view I’ve held for years is that they should raise their inflation metric 2.25%-2.50% on CPI.
In any case they haven’t. So in reality keep a close eye on 2’s — it’s itching to break out to an 80 handle.
It appears they are headed toward  their first-rate hike in years.

If you wanted to ask a provocative question ask people what do they believe they will achieve with rate hikes now. You will get some real interesting answers.

I am sticking to my model that 3% FED Funds and 4.7% on 10’s are recessionary rates with some duration after these levels. Those rate metrics would be the lowest rate curve to create a recession post WWII. The best way to counter this call is to get more dollars into labor’s pockets.

Long Term Perspective On Federal Funds Rate, 10 year Yield and Inflation

Via Doug Short


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

No Housing Nirvana In This Cycle

Home-Sales-New-population-adjusted (1)

In 2015 I expected  growth in all metrics measuring housing demand, which are:

– Purchase applications    5%-10% growth, rates range 3.5%-4.5%.
– New Home Sales              8%-12% growth, with bigger upside if median price falls.
– Existing Home Sales       5.0 – 5.2 million sales, cash buyer still stay at a high level.


My reasoning was rooted in the soft metrics all three displayed in 2014.  With such low numbers as comparison, the idea that we would see negative year over year demand seemed unlikely.  

Today new home sales numbers did miss the target number, although still showed double digit growth.  
However, as always context is key to a full understanding of what the numbers mean.

Adjusting to population new home sales are down – 46% compared to 
1963 levels. 

Also of great importance to note is that this weak demand curve is coming at the lowest interest rate
cycle we have seen post world war II.


Population Adjusted

2015 I was looking for 5%-10% total growth for purchase applications which we will easily get.

However, again, context is key!


Existing homes sales are showing growth as well,  and we are seeing less cash buyers and more mortgage buyers.   This is a key metric to watch and which I believe will indicate a return to a healthier purchase market. 

However, we are entering one of the longest economic expansions post World War II and this was all 
we have to show for it —  even with a very high historical cash buyer metric in 2015.


Existing Home Sales Growth

 When I began writing about housing economics in 2010, I had one core thesis:

“We simply don’t have enough qualified home buyers in America once you X-out the cash buyers to have a real recovery
in housing.” 

This is based on my own (Non-Basis) economic observation and work in the financial industry for almost 20 years. This thesis has held up better than most high valued housing pundits.   Math and numbers always win out at the end unless you have an artificial demand driver in play.  It is worth noting that in spite of  triple the usual percent of cash buyers in this cycle, the demand curve remained low.

Housing needs one group before the demand curve gets better, and that is college educated dual income households with children.   My prediction is that this group will not be buying houses in any meaningful numbers until 2020-2024.  

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

Renting Nation Still Has Legs

homeowneret (2)


Housing starts still have legs to run!

With household formation still rising and rental demand booming in year seven of this economic cycle, the softness of single family construction can be tolerated by the economy.


Core inflation is soft, but it’s being held up by rent inflation. More supply is needed in the rental market so kudos are due to builders for constructing multifamily rentals instead of single family residences. Some (#NAR) have been screaming for more single family residential construction but the demand for these bigger new homes isn’t as strong as these folks expected.

Core inflation without shelter costs is still very soft, (the blue line below), while rent inflation is booming (yellow line).

A must follow on twitter

Housing inflation versus everything else…

Core Inflation Housing Inflation

Context is key with this cycle and charts below are very telling.  Privately owned housing starts are creeping up from a great recession low.



Even with the strong rental demand, total housing starts have been slow. However, since we over built privately owned homes and under built homes to rent in the last cycle, we shouldn’t should be surprised by the low total starts.

The demand for home ownership will increase in years 2020-2024 due to the increase in dual income, college educated households starting families. However, until then, the most urgent issue is to find a way to cool down  housing inflation  in the rental market.
Presently,cash buyers, wealthy foreign buyers and strong income domestic buyers have been holding up housing demand. I don’t see any a change in this dynamic until years 2020-2024.
homeowneret (2)

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

2015 Housing & Economic Update Interview with David Lykken


We go over housing, U.S. economics, Greece and other economic subjects.


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

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.