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

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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

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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%  (

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:

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

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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

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

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

Interview With Joe Fairless On The Rental Demand In America

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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