Miss Housing Nirvana Cries Uncle

5 Comments
Logan Mohtashami, Benzinga Contributor

NickTimiraos from the Wall Street Journal

https://twitter.com/NickTimiraos

Nick Timiraos ‏@NickTimiraos
Zelman existing home sales forecasts: 2014 at 4.8M (vs earlier 5.4M); 2015 at at 4.9M (vs 5.7M); 2016 at 5.0M (vs 5.9M). 2013 was 5.09M.

Nick Timiraos ‏@NickTimiraos
Ivy Zelman slashes existing home sales forecast: now -5% for 2014, vs earlier +6% forecast. New home sales forecasts unchanged.

Today “Miss Housing is in Nirvana 2013”  and “Housing Nirvana is around the corner 2014” finally threw in the towel with existing home sales, revising them not only for this year but out to 2016.  Recently, I wrote an article stating that if mortgage purchase applications don’t make an epic rise in the month of March,  then revisions lower will have to be made for total sales). http://loganmohtashami.com/2014/02/20/mortgage-purchase-applications-running-out-of-time/

Money doesn’t grow on trees and home buyers don’t have 100% stated income financing anymore. The charts below from Professor Anthony Sanders shows that we simply don’t have the year over year demand to have growth for existing home sales from mortgage buyers. Cash buyer total volume isn’t strong either. This with rates at 4.5% and inventory rising

http://confoundedinterest.wordpress.com/2014/04/09/zombieland-us-mortgage-purchase-applications-down-14-year-over-year-refi-applications-down-5-from-previous-week/

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Does this mean housing in a collapse?  No, it just means that until we get wage growth and better jobs into the economy the housing market for existing home sales will be soft.  For new home sales it’s a different market place because it doesn’t really represent main street America. So that market will have growth in sales in 2014. However, that is more a by-product of coming off an 80% correction from the peak  in  new homes sales which  are only 1/10th of sales now.   Traditionally this  would be 1/6th  of the market.

Existing home sales are more representative of main street America, not including the 35%  of the market who were cash buyers last month.  Until we see growth in American wages and overall employment, the market will remain soft. Another aspect is that the first time home buyer and move up buyer has to deal with all this housing inflation we have seen since April of 2012. When prices and rates rise together it creates a dynamic duo of pain for buyers.

As Professor Sanders shows here in this chart which goes to my very first economic thesis about housing back in 2010, “We simply don’t have enough qualified home buyers, excluding cash buyers to have a strong primary resident housing market” If the cash buyers weren’t around in this cycle the weakness would be more evident but for now they’re 1/3rd of the market place

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

5 thoughts on “Miss Housing Nirvana Cries Uncle

  1. I don’t think we are going to get a significant growth in incomes. The last recovery from the recession in 2002 was a “jobless recovery”. Housing inflation from 2002-2009 masked the real economic status of the world.
    The growth in jobs always begins at the lower levels, restaurants, hotels, and other low wage jobs. When those low wage jobs increase their pay, that’s the definition of inflation and the Fed quickly puts on the breaks.
    The US has the highest wages in the world and since the would has been made smaller due to technological advances, our competitive edge is being over taken.
    Technology advances are aimed at reducing labor costs. The economics of scale also contributes to that trend.

    • Globalization & Technology has done a number on wages and manual labor in this country which to a degree is irreversible for some sectors of the economy. Then add debt and demographics and you have your four horseman of the American Century which will limit capacity growth… unless we can make something here in the U.S. where we have supply and pricing power against the world. At least we have energy production here because if that wasn’t around things would be worse

  2. Pingback: Why The Rest Of 2014 Will Be Rough For Housing

    • Texas holding well, but that state didn’t have the massive price swings like California did. You have good job market there. At this stage of the cycle you will need a job loss recession to have a crash in home prices because everyone who owns a home has the capacity to own it

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