Home Builders, New Homes Sales And The Affordability Myth



What’s up with the Home Builders?

You may remember this statement 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”

XHB 29.75  quote today over $38 in 2015
TOL  27.08 quote today  over $42 in 2015
DHI  The new darling of Wall Street down after earnings 5%

And last June on CNBC, I tried to my best to present a cautious view on the Builders in terms value, when they were falling short of their sales expectations.

You will see my statement starting at time 2.21 on the video.


If you look all my new home sales, starts and permit predictions over the years, I have always said housing has legs. We had a 82% correction from peak to bottom in sales and starts and permits crashed as well.

This housing cycle is expanding from the lowest sales we will ever see in our lifetime.

From Doug Short


The same can be said about housing starts and permits.
From Doug Short 
Permits and Starts Logan Article

We can expect housing to have slow and steady growth for years from such a low. But that is not what we are hearing from those who have a vested interest in housing growth.  Instead we have seen sensational  headlinesand hype.

We all remember Ivy Zelman bold call on March 7, 2013 : “We’re In Nirvana for Housing.  XHB was trading at 29.06 on that day and today it still has a 29 handle.

Nirvana refund anyone?

Then in 2014 Ivy Zelman’s call was: “Nirvana around the Corner.”  

Shortly thereafter…existing home sales went negative, year over year, and new home sales missed sales expectation by 20%.

Haven’t made it to that corner yet I guess.

But our friend Ivy is not the only delusionally  optimistic housing pundit.  In  2015

“Downtown Josh Brown gave us this call:

“10 reasons the housing market could go ballistic this spring.”    Oops!

Despite this calls, XHB and a lot of builders have been hit hard as has the entire stock market.

Last summer, I raised the alarm bell once again that the housing story was  being over hyped. You may have seen some of my many stating that new home sales were decelerating in their rate of growth and revisions were coming in negative.

Here are two of them.
New Home Sales Need A Strong Total Report  August 19,.2015

New Home Sales Need A Strong Total Report

New Home Sales Miss Forecast Months Ago  October 26, 2015

New Home Sales Miss Was Forecast Months Ago

What happened?

The pundits, economists and analysts (Ivy Zelman, Janet Yellen and others) all say the same thing: Housing is so affordable.

But, if Housing is so affordable then why do we have this data line showing, with the lowest interest rate curve post WWII, we still have the worst demand for existing homes on record.  And new homes are much more expensive.


Clear picture below that the bigger home construction model from the builders this century, has created an affordability issue for new homes in this cycle.

From Political Calculations

1967 MI2


Keep in mind that the affordability index used by nearly everyone is terribly flawed. It assumes all Americans have 20% down, starting debt to income ratio of 25% and no credit card revolving debt. Does that seem to you to be a realistic expectation for our average American?   This is why we haven’t seen Nirvana in new homes.

New home sales numbers are coming out this week and I expect we ill end the year off with double digit growth —  but it will be the 3rd year new home sales missed their expectations.

I predicted 8%-12% growth in 2015 with upside if median sales priced cooled, because that would imply that there were more less expensive homes in the market place.

On the upside, the housing market  isn’t falling apart.  It’s still at recession levels so it’s not going to go lower. With 153 million plus working Americans out of 322 million total Americans, we are fighting hard to get  500K new home sales in year 7 of the economic cycle with 3.625% -4.125% rates. Yikes.  If you don’t have a boom you can’t really have a bust.

Housing has legs, but it’s slow and steady, No Nirvana or Ballistic Growth. Today is a much better entry point in the XHB and a lot builders than last year. XHB is back to 2013 levels as we speak today.

Discipline, discipline , and more discipline is needed from the housing community and a lot less hype.

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 


State Of The U.S. Housing Market 2016



Today I spoke with David Lyyken about the state of the housing market in America.

Some questions that we discussed were:

1. Where will mortgage rates go?
2. Will home prices in America rise again?
3. How will the Fed impact long term rates?
4. What should one make of the oil crash in America and how  will it impact oil states?
5. Where have all the first time buyers gone?
6.What is really causing the shortage of homes?   Hint: It is not an inventory problem.

The housing pundits have failed this country by lying that low inventory has kept national sales from growing .
The truth is that from 2012-2015, there has been more inventory than at any point in time from 1999-2005.  Low sales growth is due to demand, not supply.   Demand is low because buyers have insufficient incomes and assets – and this is due to demographics, debt and the Great Recession. So the next time someone in media tells you housing is held back due to inventory remember this chart :

More Inventory years 2012-2015 than any period from 1999-2005


Mortgage purchase applications have been the true walking dead this cycle, as I predicted back in 2010. 2014 was the worst year every recorded, once adjusted to population.  The rise in 2015, just makes 2015 the 2nd worst year ever recorded. All this has happened while mortgage rates have been below 5% since early 2011.

Interview below, starts at the 34 minute mark.


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 


Bloomberg Interview: 2016 Housing Predictions



A few key points going over my 2016 Housing Predictions in the interview

2016 Housing Prediction Article


Pending Home Sales: Pending home sale numbers have been soft lately.  This is not due to the new TRID regulations. TRID has only delayed sales.

From Doug Short:


Home Prices: Existing home prices still have room to move up because there is less than 6 month of inventory and no new distressed market have been created outside of oil states.

Housing Starts & Permits: Housing starts and permits also have room to move up, with rental construction still hot.  Single family home starts however, show no signs of over investments in this cycle.

– New Home Sales growth has been decelerating since mortgage rates moved from 3.625% to 4.125%. Builders profit margins could take a hit in 2016 if they cut prices to achieve more sales.   We should still get at least 4%-8% growth in new home sales with some upside if more lower priced homes sell.

-Existing Homes:  Existing home sales is the only housing metric  that could go negative, year over year.  This is because we are no longer comparing sales to a very low bar set the previous year.    Additionally, the number of cash buyers in the market is falling. We should see some months with less than 20% of sales done with cash. Housing affordability is also an issue, especially if rates rise to 4.5%. That said, I am expecting existing home sales to be between 5.13 – 5.43 million for 2016. Total existing home sales should end 2015 between 5.15 – 5.25 million, I was looking for 5.0 – 5.2 million for 2015. 

From Doug Short:

Home-Sales-Existing SOUG SHORT

With Kathleen Hays  on Bloomberg starting at the 4:20 mark.

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 

2016 Housing & Economic Predictions



Year in Review

In December of 2014, I made several predictions for the housing market in the coming year and I am both pleased and disappointed that most of what I predicted did in fact come true.


I am pleased to report, that as I predicted, all housing demand metrics grew year over year in 2015, mostly because the bar set in 2014 was very low. New home sales showed low double digit growth, (as I predicted), but did not meet the lofty sales expectations set by many of our housing forecasters. Existing homes attracted more mortgage buyers than in 2014 and purchase applications also grew from the lowest level in this economic cycle. 2014 was the worst year ever recorded for purchase applications when adjusted for population. Headline numbers were back to the mid 1990 levels. The growth in purchase applications that I predicted for 2015 wasn’t far fetched. Even though there was growth, we did not surpass the highs of 2013, which makes 2015 the second worst year ever recorded for purchase applications, once adjusted to population. But there were more mortgage buyers in 2015 than 2013 so the purchase application data did not capture all the mortgage buyers.

Multifamily  demand gave housing starts and permits legs in 2015, as rental properties continued to be a hot commodity. Mortgage rates and inflation stayed low, and the 10-year note yield got near my predicted low  level range of 1.60% with a 1.64% print that held. We saw slow and steady growth in housing overall in 2015, but 2016 brings with it some interesting changes – not the least of which is the end to the zero interest rate policy, and the introduction of TRID. With those changes in mind, I present seven predictions for the housing market in 2016.


1) Mortgage Rates and Bond Market

I predict mortgage rates will be in the range of 3.625% to 4.625% during the year. I anticipate the 10-year note will stick in the same channel as the past year with a yield range of 1.60% to 3.04%. Yes, that is 1 handle on the 10-year even with the Fed starting their rate hikes. I predict long term rates will remain low due to demographic deflation (more on this later), unless ECI wage inflation and CPI core inflation rise. In any event, I don’t expect the 10-year breaking above 3.04%. Long-term rates won’t rise in a meaningful way unless inflation picks up.

From  the St. Louis Fed:
2015 Mortgage Rates

St Lous Fed

2) Mortgage Purchase Applications

For housing to show growth in 2016, purchase applications need to show  year over year growth during the “heat” months,” from the second week of January to the first week of May. I predict 4% – 9% growth in purchase applications in 2o16.

Mortgage demand took a hit in 2014 when rates rose to 4.5% so I expect some softness if mortgage rates get to 4.5% in 2016. We never reached that mortgage rate level  in 2015 so the market wasn’t ever tested at 4.5%.

From Calculated Risk

MBADec232015 (1)
3) Existing Home Sales, Inventory and TRID 

The negative year over year growth in existing home sales of 2014 created a low bar to beat in 2015. If 2014 existing home sales had shown modest growth then year over year growth for 2015 would have been flat to negative.

In 2016 we have to be mindful of housing inflation and the impact of the oil crash and loss of mining jobs on some housing markets. Cash buyers leaving the housing market and the economic effects of the commodity crash could also negativity affect some housing markets. I believe we will see for the first time in this cycle, monthly prints of less than 20% cash buyers on some reports, which is still very high on a historical basis but a double digit decline from the 2010-2014 trend. However, if the market maintains around 20% cash buyers and mortgage buyers stay on trend, we should see some growth in 2016. With all these factors in mind, I predict total existing home sales to be between 5.13 -5.43 million in 2016.

Inventory didn’t grow in 2015, because owners had too much debt on the books to sell and move up.  If we work off the most common home affordability index, homeowners need to have at least 28%-33% equity, conservatively, to sell, pay transaction cost and move up. With another years of price gains under our belt, we should see a bit more inventory in 2016 compared to last year.

TRID rules are a result of the Consumer Financial Protection Bureau (CFPB), the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA). Last month’s existing home sales were heavily impacted by TRID, because sales were delayed and thus not counted in the monthly data. We will probably experience a few more months of delays due to TRID, but by May or June of 2016 this should no longer be an issue.

From Doug Short

4) New Home Sales 

I predicted 8%-12% growth in new home sales in 2015, with the caveat that we could see upside potential if median prices stabilized. Median prices for new homes have cooled due to a shift in sales to smaller, lower priced homes. Nevertheless, new home sales growth has been decelerating since rates moved from 3.625% to 4.125%. Those who estimated growth of 24%-41% growth didn’t even come close to being right in 2015. For 2016, I am predicting growth of 4%-8%, the lowest growth estimates I have given in this cycle. However, just like 2015, if we can get more lower priced homes in the market, new home sales growth can be much higher than 8%. When only 500K new homes are being sold in a market of  over 153 million working Americans, it wouldn’t take much to move the needle. If I was one of these agenda driven housing bulls, I would use these soft sales numbers as case for growth and likewise, if I was a housing bear, I would be mindful that new home sales are still very low.

From Doug Short  http://www.advisorperspectives.com/dshort/updates/New-Home-Sales
New single-family home sales are about 17% below the 1963 start of this data series. The population-adjusted version is 51.6% below the first 1963 sales and at a level similar to the lows we saw during the double-dip recession in the early 1980s, a time when 30-year mortgage rates peaked above 18%. Today’s 30-year rate is around 4%.

DECEMBER 2015 New Home Sales

5. Home Prices

Home prices still have the legs to run higher in 2016, like they did in 2015, because inventory is high enough nationally to provide choice but not so high to cause price declines. In fact, from 2012 -2015 the annual months of inventory were higher than at any point from 1999 – 2005.
We would need 6 months of inventory and a job loss recession creating a fresh wave of distressed sales, in order for any meaningful national downturn in prices to occur. Inventory is nowhere close to 6 months and only states dependent on oil and mining  are seeing recessionary type job losses. I predict existing home price growth of 1-4% for 2016.

From Calculated Risk


6. Housing Starts

I may sound like a broken record, as I have said the same thing about housing starts for years now. I expect a slow and steady rise in housing starts. Renting demand is booming and this gives legs to housing starts, off-setting a very soft trend upward for single-family home starts. The financial networks have been promoting the thesis of  pent of demand for years now. We did have massive pent up demand, but it was for rental housing not single-family homes. I predict the demand for ownership won’t improve significantly until the years 2020-2024. Until then, expect a slow and steady rise for starts and permits. We need the young to rent, hook up, date, find a steady relationship, pop the question, and have kids before we have any major boom in single-family home sales. Even in 2015, the number of 25-34 year old Americans living with their parents is rising.

From Jed Kolko ( a good follow on twitter)

25-34 Demographic
Like new home sales, starts and permits, adjusted to population, are very low. This low level puts limits to the downside. In areas where oil and mining heavily influence the economy such as Houston, Texas, we already see a noticeable decline in housing activity. Otherwise slow and steady is the name of the game for housing starts and permits.

From Doug Short :

7. U.S. Economics

The strong dollar and the collapse in oil and the mining sectors have taken a bite out of economic output in certain states, but auto sales and other personal consumption metrics have kept the US economy on a slow and steady growth path. I predicted 2.5% growth in 2015 with job gains around 210K a month. GDP growth is going to be slightly lower than I predicted, unless Q4 falters. YTD job gains are running at 209K per month with one more jobs number left to be revealed for the year.
Prognosticators, who have been calling for a recession due to the commodity crash, are missing the point. This is not a U.S. story but is a significant issue for other countries like China, Japan, Europe, Russia and Brazil who are suffering through both the commodity crash and the demographic trend of aging populations. I predict 1.9% to 2.3% growth in the U.S. for 2016. I predict job creation numbers to be down slightly to about 190 -205K/month. The JOLTS data (Job Opening Labor Turnover Survey) is now showing that we are entering into a phase of a tighter labor market. With the unemployment rate at 5% and 5.4 million job openings, we are seeing the first breath of a tight labor market.
On the other hand, prime age labor force is not growing fast enough to create a major boom in job creation numbers. The demographic group ages 21-25, is huge for the U.S., but they need a few more years before they impact the labor market in a significant fashion.

On Recession Watch? 

For our friends who constantly post “a recession is coming, a recession is coming” here are a few recession indicators to follow in 2016 to determine if a recession is, in fact, coming.

  1. The Fed has started to hike rates, and, typically, the Fed is well into the rate hike cycle before any recession.
  2. Unemployment claims would need to rise well above the 300K,  on a 4-week moving average, without a 1-time economic event as a reason, such as the Sandy storm/flood. As you can see below, even with the commodity crash and jobs lost due to it, we haven’t experienced an increase in claims.From Doug Short
    Also you would need to see more sectors with increased unemployment claims . Mining companies were negative in job creation number, and manufacturing jobs were barley positive – but these two sectors alone cannot bring the US economy into a recession.

3. If leading economic indicators (LEI)  trend  lower for 4-6 months, with rising unemployment claims, then we may have a recessionary trend forming.
From Doug Short

2016 brings a change in the FED Funds Rate. The FED has finally abandoned the zero interest rate policy raising rates to 0.25%.  I found it strange that those predicting recession would believe in a recession, crash and depression when the FED has never raised rates once and core inflation isn’t running wild. Now with a 0.25% rate hike, I expect we will be seeing more of the melodramatic 2nd Depression predictions in 2016. With no real over-investment thesis outside of oil, 2016 should not have a recession unless we have a major economic event, currently unforeseen.

In general, for housing in 2016, expect slow and steady growth. However, as I have maintained since 2010, we still do not have enough qualified home buyers to drive a real recovery in housing.

My thesis back in 2010 for my 2011 Housing Predictions

“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.”

In years 2020-2024 we should see  much stronger ownership demand for housing but until then, debt, demographics and debt to income ratios, will limit home ownership but continue to expand the demand for rental properties.

Note: I will be discussing my 2016 Housing and Economic Predictions on Bloomberg Radio with Kathleen Hays this Wednesday December 30th at 12:30 pm Pacific Time.

Interview can be found here


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 

TRID Impacted Existing Home Sales



The new TRID rules and forms took effect on October 3, 2015.  The TRID rules are a result of the the Consumer Financial Protection Bureau (CFPB) integrated the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA), and were put in place to add consumer protections to the mortgage lending process.  The best laid plans…

I am one not to shy from telling the truth about the housing demand from mortgage buyers being soft this cycle. However, the existing home sales miss we saw today was primarily due to TRID.

We saw the drama earlier in October in purchase applications. Many people wanted to get their applications signed before the October 3rd deadline, pushing demand up.


Then the week after the deadline we saw a decline in applications, and this was due to TRID.

As we can see in today’s report, TRID significantly  impacted  the timing of sales.

NAR Report: http://www.realtor.org/news-releases/2015/12/existing-home-sales-suffer-setback-in-november-fall-to-slowest-pace-since-april-2014

From Doug Short:

Home-Sales-Existing SOUG SHORT

I expect sales to rebound to a degree next month, as delayed deals close. A lot economic noise due to TRID. But TRID will continue  to delay some sales until April of 2016. By then we should see a more fluent loan process and fewer delays.

TRID  will cause delays but it is not the reason  existing homes sales from mortgage buyers is still soft.   If not for the expansion of cash buyers in this cycle, headline numbers  for existing home sales would be worse.


Still even with this big miss in existing home sales today, we will see growth year over year as mortgage buyers grew in 2015.

For a more detail report on 2015 Existing Home Sales.

2015 Existing Home Sales Report Card:

Merry Christmas & Happy Holidays everyone!

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 Rate Hike, U.S. Economy & Housing Interview


Commonity Crash

Bloomberg Commodity index plunges to lowest since June 1999.

In discussion today, Fed rate hike, U.S  economics, demographic deflationary pressures around the world and the U.S. housing market.

Starting at the 35 minute mark.

From Doug Short:

August 10's

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: 2015 Report Card



The  Census  Bureau reported new home sales were 495,000, last month, a  slight miss from estimates. Headline numbers for new home sales are very volatile. In the last 4-6 months, especially, there were negative revisions and previous month’s  numbers were revised to 40,000 sales lower than the numbers originally booked.

Report : http://www.census.gov/construction/nrs/pdf/newressales.pdf


I made public my 2015 prediction for what new homes sales would be in 2015 in an article last December:

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.

All other housing analysts of which I am aware, gave growth estimates of 24%-41% for  2015 new home sales.  It was never clear to me where that much growth was going to come from. Even though interest rates were lower this year, that type sales growth from a sector that is 90% mortgage dependent, would need homes at lower price points to attract more buyers.

With the year nearly over, we can safely say that we will  never achieve  20%+ growth  in new home sales this year.  We  are now at 15.7% growth and even if we get another bad headline number, with negative revisions from the last 2 reports of the year, new home sale growth will still be in between 11%-15%.  The reality is that new homes sales have been soft and missed predictions for growth for  3 straight years in row, all after the Taper Tantrum spike in mortgage rates in mid 2013.


In my 2015 Housing Prediction article, I also wrote the following about the inflated predictions of other analysts.  

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.

The constant drum beat in the media of terms like “the housing market in strong” and words such as “ballistic” were used to talk about the year over year growth expected for 2015.  However, rarely was it mentioned  that we had a very low bar to work from.  Saying the housing market is on a slow and steady pace upward just isn’t sexy enough I suppose.

Data from Doug Short provides a perspective on just how soft  new home demand was in 2015:

“New single-family home sales are about 16% below the 1963 start of this data series. The population-adjusted version is 51% below the first 1963 sales and at a level similar to the lows we saw during the double-dip recession in the early 1980s, a time when 30-year mortgage rates peaked above 18%. Today’s 30-year rate is around 4″



In terms of the year over year growth, last year’s new home sales were 20%-30% lower than most estimates.  Even my more cautious 8%-12% sales growth prediction was too high.  Year over year growth in sales was roughly 2%.  We were destined to see some growth in 2015 as we were entering the 7th year of expansion in the economic cycle and were comparing to a low level of  437K from 2014.   2015 sales stated off hot but when rates moved from 3.625% to  4.125%, sales decelerated and since then revisions have come in negative.

From Calculated Risk:


The trend of revisions are key for understanding what to expect in new homes sales in the coming months.   Revisions have been negative in the last few months.   I discussed this trend this summer when I noticed only a few people were picking up on the decelerating growth. The chart above has had many negative revisions to it from previous months.



The chart below from Political Calculations shows that on a nominal basis, median new home prices are well above the peak of the housing bubble. If we adjusted to inflation, I believe it’s roughly 1% above the bubble peak.  Still, both metrics show massive housing inflation. This is partly due to larger homes being sold more often in this cycle making the median price explode higher.

From Political Calculations :


MI2MP 2015

The median new home sales price has been flat in 2015, and this could be a positive sign for 2016 sales for 1 major reason:

A flat median home sale price indicates that there were more lower end, smaller homes being sold in the mix in 2015, instead of more larger more expensive homes.  In order for new home sales numbers to grow, more lower end homes need to be offered and sold.  The builders got themselves in trouble by the mass production of bigger and bigger homes which were not affordable for most buyers.  In 2016 and beyond, builders will need to get more affordable units  into the market place.  I haven’t  been bullish on builders like  Toll Brothers  (TOL) for some time, compared to other builders, because they have limited their new home offerings to the very high end.  Note that their stock price hasn’t risen from early 2013 levels, something I mentioned on CNBC. At best,  Toll Brothers (TOL) is a under performing  stock and needs to catch up with other better performing builders such as Lennar (LEN)


It’s simple. In order to increase new home sales, builders need to provide a product that the majority of  the population in the market for a home, can afford. Existing homes, which provide the inventory that competes with new homes, are offered at a big discount, comparatively.

If I were to assign a classroom grade to the 2015  new home sales numbers,  it would get a slightly higher grade of 84%, compared to what I gave for existing home sales in my previous article, which with was (83%).

I was looking for 8%-12% sales growth with room for more growth if median home prices fell.  The median price was flat, which means more lower-end homes were in the sales mix, not that there were discounts on the higher end homes.

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 

Existing Home Sales: 2015 Report Card

Novemeber Home Sales


Today the National Association of Realtors (NAR) reported  on existing home sales.  Their number came in at 5.36 million, a slight miss on what they predicted.


The trend in existing home sales for 2015 has been a slow and steady rise from the low bar set in the previous year. Here is a look at existing home sales from in this cycle:


The dip in sales in 2014 set the stage for comparatively stronger sales in 2015. I predicted total home sales to be between 5.0 – 5.20 million this year.   The current trend  suggests sales could even be slightly higher than that,  between 5.18 – 5.34 million in total existing home sales.

In a larger context, the housing purchase demand hasn’t been very strong from mortgage buyers but it has been very strong from cash buyers.

From Professor Anthony Sanders  

Purchase applications in 2015  have had year over year gains, due (again) to the low bar set in 2014.   In fact, 2014 had the weakest total print on purchase applications in in 20 years.  2015, thus far, however,  has not exceeded the 2013 highs. We do have more mortgage buyers this year compared to 2013 —  which had a higher percentage of cash buyers.   Total existing home sales that year ended at 5.09 million.  A case can be made now that their is economic data slippage is in the purchase application data now, on a marginal basis only. We have more mortgage buyers this year than in 2013 but the data isn’t reflected in the purchase application data line.

When we put these numbers in context with this century, total home sales in this cycle have had the highest percentage of cash buyers, 15%-20% above historical norms.  Headline sales, adjusted to population, aren’t that strong compared to year 2000 when rates were at 8%, when we had  a lower working and headline population. If you discount the extra cash buyers in this cycle, it shows the soft demand curve for housing in this cycle from main street America.

From Doug Short:
Novemeber Home Sales

In summary in 2015 we observed the following:                                                    Grade: B  83%

  • Year over year growth, which isn’t say much but still growth.
  • More mortgage buyers, fewer cash buyers and growth in total sales.   This is the biggest net positive for housing in 2015.
  • Inventory is still low, most likely due to the lack of selling equity.  See:
  • Purchase applications consistently grew, year over year  10%-20%, in the weekly reports. However, 2015 will be the 2nd worst year on record when the numbers are adjusted to population.2016: Existing home sales and purchase applications in 2016 will be very interesting,  since the low bar factor has diminished.   The  expected Fed rate hikes don’t necessarily mean long term rates will go much higher from where they’re today.

    Have a wonderful Thanksgiving to all!


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 Miss Was Forecast Months Ago

October New Home Sales


Today, numbers for new home sales came in low at 468K.  The estimate was for a more healthy 549K. In August I had warned of a decelerating trend for new home sales because revisions were coming in lower and lower.  But this was ignored by a lot of housing pundits.

New Home Sales Need A Strong Report 


We are still tracking for year over year growth but this is primarily due to the very low sales in 2014.

From Calculated Risk

New Home Sales growth Bill Mcbride

To put these numbers in context, the last time new home sales numbers were this weak (adjusting to population) was back in the early 1980’s when the US was in a recession and mortgage rates were in the double digits.

From Doug Short

“New single-family home sales are about 7% below the 1963 start of this data series. The population-adjusted version is 54% below the first 1963 sales and at a level similar to the lows we saw during the double-dip recession in the early 1980s, a time when 30-year mortgage rates peaked above 18%. Today’s 30-year rate is around 4%.”
October New Home Sales

Despite all this data,  we still hear the same myriad of excuses for the low numbers: ie… lack of inventory, worker shortage, it’s too cold, it’s too hot, it’s football season.

What you don’t often hear is the real reason –  there is a lack of demand because new home are very expensive  and new home purchases are primarily (90%)from the mortgage market.   Existing home sales, on the other hand, are a mix of cash ( Cash 25% equating to 1,000,000 + homes) this is 15% above historical norms for cash buyers on exiting homes.

Median new home prices in 2015 have been relatively stable, but are still, slightly above the housing bubble peak, when adjusting to inflation. On a nominal basis they’re well above the peak of 2006. The high prices are primarily due the fact that home builders are offering larger, more luxurious homes, rather than building for the first time home buyer.

From Political Calculations


We can expect and uptick in home sales simply due to the fact that current numbers are so damn low. In a few years, the demographic economics in the US will improve for housing and we can expect to see much better sales activity. For now, however it will continue to be slow and steady growth instead of Housing Nirvana.

Final fact, if anyone dares to tell you that sales were low due to a lack of inventory!

“The seasonally adjusted estimate of new houses for sale at the end of September was 225,000. This represents a supply of 5.8 months at the current sales rate”

6 months is considered a balance market place, this came from census with the new home sales report today which is below.

From Census 

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 

Housing Debt Still Haunts Some Move Up Buyers



One of the key drivers to a healthy  housing market is the ability of move up buyers to sell their homes and use their equity to move to bigger homes. Likewise, a healthy housing market should have sufficient demand to accommodate the downsizing buyers as well.  The move-up buyers are especially important however, because they typically provide homes  to the market that are appropriate for first time buyers.

We saw home prices sky rocket during the bubble years.  Currently, home prices again, are up significantly, but not back to bubble year highs when adjusted to inflation.   The debt leverage nature of the long run up in home prices during the housing bubble years to the crash, meant that many homeowners didn’t build up equity.  Even today this is the case for some homeowners who still have some of the housing bubble debt on their books.  The lack of selling equity  means would-be move-up buyers are stuck in their homes—unable to use equity in their existing home for a financially sensible down payment on the next one.

From Calculated Risk


When we look at the existing home sales report, we see year over year growth in sales demand from a very low bar set in the previous year, but inventory remains low. I suggest one of the reasons for this lack of inventory is the direct result of would be buyers being stuck in their existing home, due to lack of  selling equity.

In fact, outside of the years of the housing bust, we haven’t had an average of 6 months on-sale inventory anytime this century. The NAR report this year shows that  2015 was no better than 2014, even in year 7 of the economic cycle with healthy price gains since the spring of 2012. Having 6 months of inventory this century has been a challenge for the housing market as shown below.



  If we use the U.S. affordability index, the traditional move up buyer, needs to  have 28%-33%  equity  in order to have the ability to sell their home, pay the transaction costs  and still have money left over for a 20. down payment.  .

In my business here in Southern California,  what I have seen this year is that some move up home buyers have been able to make down payments of 20% and more making the total debt payment less. Last year all the move up buyers that I saw were making down down payments of 5% -10%, so I have seen the positive effects of higher price gains in this regard.

For some home buyers they still need higher prices to have selling equity. Further to this,  sellers are less likely to accept lower prices for their homes because they have set price points that they need to make in order get the equity to move up.  This is the reason we see some homes staying on the market for months without going down on price, then withdrawing from sale all together. The owners simply cannot afford to move unless they achieve a certain amount of profit on the sale that will allow them to purchase another property.

It will be interesting to see in 2016, how much inventory there will be.  We will need the inventory from move up buyers if the want the number of mortgage buyer to grow.  I believe the number of cash buyer in the market will fall again in 2016 as it did in 2015.    We may even see some months  when  cash buyers make up less than 20%  of the market.  This would be a first in this cycle.

Lastly, don’t expect TRID (TILA-RESPA Integrated Disclosure rule implementation) to impact purchase applications (either up or down) for the last part of 2015. This new regulations, like all new regulation will have some growing pains  but should not affect buyers or sellers.  We had a two week massive distortion in the purchase application data due to TRID both up and down. In a week or maybe two, that distortion due to TRID should be played out.

From Professor Anthony Sanders 
TRID year over 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