Existing Home Sales Look Just Right

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The National Association of Realtors (NAR) came out with their estimate of  existing home sales number today, showing a slowdown sales numbers for July.  The release states  that “total existing-home sales…fell 3.2 percent to a seasonally adjusted annual rate of 5.39 million in July from 5.57 million in June.

Existing-Home Sales Lost Steam in July 

http://www.realtor.org/news-releases/2016/08/existing-home-sales-lose-steam-in-july

Some may recall my Housing predictions article published in December 2015 in which I said:

“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”

https://loganmohtashami.com/tag/2016-housing-predictions/

For those numerically challenged this means the seasonally adjusted rate is smack dab in the middle if my predicted range. Total  existing home sales growth is still tracking higher so far this year. In the last few months year over year purchase application data growth has fallen from his 25% growth pace in the heat months from the 2nd week of January to the first week of May.

In 2015 we ended the year at 5.3 million existing homes sales so at first glance my prediction looks I was not expecting much growth for 2016 and perhaps negative growth year over year. However, the quality of the existing home buyer profiles look much better in 2016 than any period in this cycle.
In my December article I also predicted the following:

“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” 


Today’s report bears this out.

“All-cash sales were 21 percent of transactions in July, down from 22 percent in June, 23 percent a year ago and the lowest share since November 2009”

We don’t have a booming demand housing market and we won’t  have one until years 2020-2024. However, demand is growing slowly. This cycle is working off very low sales numbers.  Slow and steady is the appropriate call for this cycle. Cash buyers are falling as distress supply falls, so  the future of the housing market will have to be sustained by more mortgage demand, unlike previous years when existing home sales had soft growth in mortgage demand but higher levels of cash buyers. Mortgage demand this year, during the heat months, showed 25% year over year growth. This translates to  only a couple of hundred thousand more homes sold at best, compared to last year. Be mindful that even with the cycle highs in mortgage demand we are only back to 1998 levels with cash buyers at  11-15%   above their historical norms for 2016..
From Doug Short:
http://www.advisorperspectives.com/dshort/updates/Existing-Home-Sales

Home-Sales-Existing (1)

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

Solid New Home Sales Print

NEW HOME SALES AUGUST

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Back on April 23rd of this year I wrote this article headline: “Time For New Home Sales To Show Growth” 

https://loganmohtashami.com/2016/04/23/time-for-new-home-sales-to-show-growth/

Today’s new home sales print changes that prediction to history.

Sales of new single-fam houses in July 2016 were 654k (SAAR) up 12.4% (+/- 12.7%)* from June

New Home Sales

“Sales of new single-family houses in July 2016 were at a seasonally adjusted annual rate of 654,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.4 percent (±12.7%)* above the revised June rate of 582,000 and is 31.3 percent (±19.9%) above the July 2015 estimate of 498,000. The median sales price of new houses sold in July 2016 was $294,600; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000. This represents a supply of 4.3 months at the current sales rate.” 

Sales in the first two months of 2016 were negative compared to 2015, the sales comps were high to work with. However, from March to November we needed to show growth year over year to have sales growth in 2016 as the year over year comps were very manageable to beat.

So far, we have seen that growth and the revisions have not significantly changed those numbers .Sticky revisions (corrections that don’t substantially change the print numbers) are key with new home sales because, historically corrections can be substantial.  The median sales price leveling off and this  is the most bullish data line for housing.

In order to really see improvement in the housing market for this sector we would need to see growth past the 50 year moving average.  It remains the case that if we expect new home sales to show growth above 675K-775K total units, builders will need to offer smaller more affordable homes.

Wall Street Journal has an excellent chart on this

Reminder: We’re selling far fewer homes than in past housing cycles except at the high end

WALL STREET JOURNAL

This flatting out in new home sale median prices is bullish.  This chart below is the most bullish case for housing sales. We need to see more growth in the $200,000 to $399,999 price home level and any growth from the less than 200,000 homes will be a positive.

This all falls back to an article I recently wrote about the builders love for building bigger and bigger homes since 1975.  More here

Why Building More Homes Won’t Help Housing Affordability 

Why Building More Homes Won’t Help Housing Affordability

From Doug Short
http://www.advisorperspectives.com/dshort/updates/New-Home-Sales

New Median Prices

Today’s report  is also a shot against  those who profess  that low inventory and tight lending are holding the market back.  If  there is an inventory crisis why are new and existing home sales at cycle highs?

Demographics are the most powerful force in economics and will lay to waste the myths of low inventory and tight lending. Affordability should have always been the main concern outside a soft demographic patch from 2008-2019.

In two years we will see if housing truly has legs because at that point we will not be comparing sales to historic low levels.   That will be the test to see if we can get growth post 675K-775K  total new home sales levels.

From Doug Short
http://www.advisorperspectives.com/dshort/updates/New-Home-Sales

NEW HOME SALES AUGUST

For now, as long as the median sale price doesn’t take off  like it did from 2012-2015, we could see this happen.

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

Mortgage Purchase Applications Data, 2016

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Recently I saw on T.V., a friend of mine talk about mortgage application data being weak from last week and that housing demand wasn’t strong. His analysis wasn’t exactly wrong but woefully incomplete. Because it lacked a historical perspective of the numbers, the analysis gave a bearish impression of the market that simply isn’t true. What is true is that for all the mega bearish American talk, total home sales in 2016 are going to be at cycle highs due to higher mortgage demand.

You may remember that my core thesis going back to 2010 is that: we simply don’t have enough qualified home-buyers in this cycle to have a real recovery once you exclude the cash buyers.   If we look at the purchase application data today, we see that picture has started to change.

From Calculated Risk
http://www.calculatedriskblog.com/2016/08/mba-mortgage-applications-decrease-in_17.html

MBAAug172016

In fact, we are at cycle highs in mortgage demand even with prices nominally back to the housing bubble peak. But let’s not get too excited about these numbers. We are only back to 1998 levels even with interest rates below 5% since early 2011 and rates below 4.125% since 2015.

In this cycle (2008-2019) we are hampered problems with affordability, demographics and the lack of “exotic” or fake loans that were in play during the bubble days.  But instead of recognizing these artificial boosters of the market, analysts are blaming tight lending and low inventory for the slow and steady  (instead of hyperbolic) rise in the housing market.

Mortgage purchase application data is frequently misinterpreted as well.  When looking at these numbers I recommend keeping these points in mind:

1st. Don’t put too much weight on the week to week numbers, especially around holidays.

2nd.  Only focus on the year over year numbers as they are the best way to track growth.

3rd.  (This is key) Only focus on the data from the 2nd week of January to the first week May.  After the first week of May volumes decline. I have seen too many people interpret the post spring and summer data as a housing is collapsing. Housing is seasonal so that is not the right way to look at the data.  In 2016 we are seeing 25% + year over year growth from Jan to May.

M peak number for existing home sales was at 5,430,000 because cash buyers are falling.  However, growth is growth and the housing market isn’t falling apart. So next time you see someone on T.V. put a lot weight on the week to week numbers, ignore it.  Follow the year over year numbers and only from the 2nd week of January to the first week of May.

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami

 

Homeownership Rates Fall Again!

H.O. RATES 62.9

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Home ownership in the US peaked in 2004 at 69.2%.  Since then we have seen a steady decline in ownership rates that began to flatten to the low 60s% around 2010.  Today in 2016 we have hit a cycle low of 62.9%

For years, I have said that the real home ownership rate (number of households that can afford the debt of a mortgage)  is between 62.2% – 62.7%.  Because the US census counts homeowners who are delinquent on their mortgage payments as owners, until they officially lose the home, this number is artificially inflated. US demographics for the current economic cycle heavily favors renting over owning. This is because we have huge numbers in the age range of 17-29 (living at home or renting ages) and in the range of 49-65 years.  The US will remain demographically challenged for home ownership until around 2019 when are youngsters will enter the home purchasing  years of 28-42 years of age.

In my 2010 Housing Predictions for 2011  Article I outline the rationale for why we were going to be a renting nation for the next decade.

“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.”

Mortgage purchase application demand is only back to 1998 levels today.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/07/mba-mortgage-applications-decrease-in_27.html

MBAJuly272016 LOGAN 1

And  new home sales are only 0.2% above 1963 levels.  When adjusted to population, new home sales are down 41.8% from 1963 .

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/New-Home-Sales

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

From Lance Roberts:

The “New Housing Crisis” – Not Enough Rental Homes?

NATION OF RENTERS

Census:
http://www.census.gov/housing/hvs/files/currenthvspress.pdf

CodR3PuUkAIsyLo

If you follow the housing pundits, you know that many of them over the last several years kept trying to call the bottom of home ownership rates – but it kept going down. Every year they said it was the bottom. [Hi Mark Zandi, how you doin’?].  This is because they only had wishful thinking instead of a data-based rationale for their calls. But if one follows an actual data based methodology, as I do, then we can project that the US is just 0.02% away from hitting the percentage of home-ownership that I predicted to be the real rate back in 2010 (just saying).

The key take away is that we are now near the end of the decline in home-ownership. If the rate goes below my 62.2% then I will admit to having missed something– but the demographic and economic data suggest that home-ownership rates will not fall below 62.2% before our demographic profile switches to favor ownership over renting.

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987.

Why Building More Homes Won’t Help Housing Affordability

Home-Sales-New

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Certain old saws that fuel the predictions of economic pundits should periodically be tested to determine if they maintain their predictive accuracy.  Three such the old school rules that are heavily relied upon to predict and explain housing economics are the following:

1. When employment is high people buy homes
2. When interest rates are low people buy homes
3. When rent inflation is high people buy homes

Shelter is a product that millions of Americans will purchase each year, but what economic factors cause growth or decline in the purchase of this product? If high employment, low interest rates and high rent inflation, three factors that are present in today’s economy, stimulate the purchase of this product, then why has the level of growth in mortgage home sales this 8 year economic cycle disappointed many housing pundits and experts?

I give them (minor) credit that they no longer blame tight lending.  That completely unsupported thesis has finally succumbed to a slow and painful death.  The new “stalking horse”  that has replaced tight lending as the favorite unsupported thesis to explain the low sales numbers, is tight inventory.  According to the “experts” we simply don’t have enough homes to address the high demand.
In a previous article   “Low Housing Inventory Lie Still Lives On”

Low Housing Inventory Lie Still Lives On

I discuss and document with data, that existing home sales inventory ( annual months) was slightly higher in 2012-2016, the period of supposed low inventory, than in the period of 1999-2005, when housing sales were exploding.  In other words, if it is low inventory that is preventing growth in sales, why are sales lower in a time when inventory is higher than it was when sale were higher?

One of the problems with buying into the low inventory thesis is that what follows from this is the assumption that if builders build more homes, we should see purchases increase. And because supply has increased, home prices should be more affordable.

The obvious problem with this thesis is that builders are not building starter homes.  For the past four decades, in fact, builders are building bigger and bigger homes and flooding the market with higher prices homes for the wealthy. This will not do anything to make homes more affordable for the rest everyone else.

If you need proof of this, look behind you.  We already ran this experiment. Did the ramp-up in home building from 1994-2007, especially the massive over building from 2002-2006, make housing cheaper?

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/Housing-Starts

Housing-Starts (1)

Adjusting to inflation, home prices were more expensive during the housing bubble years, when new homes were flooding the market.  More new homes didn’t and do not create housing affordability.

It might be the case that if builders were to build starter-homes that could compete in price with existing homes, than overall home prices inflation can cool down.  But this is a fantasy scenario that has virtually no chance of happening.  Builders have universally determined that the starter-home market is not where the profits are.

Bigger homes mean bigger profits.  In 1975 the median size of a new home was 1,500 sqft.  By 2016, the median size of a new home had increased to over 2,500 sqft.  There has been a larger inventory of new homes in 2012-2016 than anytime from 1999-2005 but fewer yearly sales
@georgepearkes
new-home-sales-and-inventory

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/New-Home-Sales

Home-Sales-New

I think we can let go of the idea that if the builders build more homes, then somehow, homes overall will be more affordable.  It’s an idea that helps the builders sell stock but otherwise has no inherent value.

We have a permanent housing inflation problem that started four decades ago and will not be easily cured by dithering with the inventory of larger homes. Bigger homes for smaller families, for the sake of profit margin, has created this forever housing inflation issue.

We are almost running out of room to where using the thesis that lower rates will boost future housing demand. This housing cycle has had the lowest rate curve ever recorded post WWII for a long duration period.

30 years Mortgage rates

I don’t blame the builders for not building more.  I give them kudos for knowing that demand is too soft to push for more aggressive building.

Having said that, I believe that housing starts do have legs, because these numbers are coming up from the lowest levels ever recorded in U.S. history.

The additional factor to consider is the massive demographic bolus of younger Americans that will soon be coming of age to buy homes. They will choose between less expensive existing home available in all geographical areas or more expensive new homes clustered in a certain areas of a city.

To my friends in the housing analytics community, the affordability index that is commonly used assumes a 20% down payment and a starting debt to income ratio of 25%.  These numbers for this metric is outdated. The likelihood of a first time buyer or a move-up buyer of having 20% down, no revolving credit card debt and no auto debt is very low.

Mortgage rates could fall by as much as 2% in the next economic cycle, making the 30-year rate 1.25% – 2.25%. If this doesn’t happen then we will have broken a multiple decade streak of having 2% lower rates in each new housing cycle.  If it does happen we can expect another mini-boom of refinancing but how much it will help home purchasing is unclear.

It is unlikely that this demographic bolus of first time home buyers will be able to afford a new home.  I call this the “Tiffany Effect.” Just like most new couples cannot afford an engagement ring that comes in that distinctive blue box, only the very fortunate few will be able to afford a new home. The massive demographic push that will come in years 2020-2024, will increase housing demand but it won’t be as strong as some of my bullish friends in the housing community are betting on.

 

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987.

Interview: Why The American Recession Bears Failed

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The portion  of my interview starts around the 32:00 minute mark. The article below highlights some of the miserable recession calls of the past 8 years.

http://www.blogtalkradio.com/lykkenonlending/2016/07/18/7-18-16-why-were-the-us-recession-bears-wrong-wlogan-mohtashami-as-the-guest

When French writer, Jean-Baptiste Alphonse Karr quipped plus ça change, plus c’est la même chose,(the more things change the more they stay the same), in  1849, he could have been prophesying about the US housing market for the past six years, (okay that’s a stretch).  It’s a fact, though, that what I wrote six year ago:  “We simply don’t have enough qualified home buyers in America, once you excluded the cash buyers, to have a real housing recovery,”  remains true today.  Housing demand remains light in year 8 of the expansion.  Historical charts on mortgage demand, new home sales and monthly inventories, flesh out the story.

Mortgage demand is at the same level it was in 1998 when interest rates were 4% and higher.

Calculated Risk:
http://www.calculatedriskblog.com/2016/07/mba-mortgage-applications-increase-in.html

MBAJuly132016

New home sales in year 8 of this cycle, are at the same level as they were during the  recession of the 1980’s when mortgage interests rates were north of 14% .

From Doug Short
http://www.advisorperspectives.com/dshort/updates/New-Home-Sales

Home-Sales-New-population-adjusted

Today monthly inventories of homes on the market are higher than any period from 1999-2005, giving lie to the low inventory excuse for weak sales.

Low Housing Inventory Lie Still Lives On

@georgepearkes

new-home-sales-and-inventory

US demographics help to explain why we are stuck at 2% GDP growth and a soft housing market.   The US prime age labor force growth peaked in 2007 and is slowly growing again. But right now our population is on either end of the bell curve –too young and too old, to drive the economy.

Young people spend! Older people don’t!

With that said, however, I am not joining the chorus of recession bears.  To put it bluntly, these guys are, and have been, just wrong.  There are many well-known names in this sorry club, too many to list. But just for fun, here are a few of my favorite bad calls:
1) Harry Dent predicts an economic collapse in 2013 ,2015 and 2016:

Dent 2013
Dent 2014

2) Peter Schiff predicts the dollar will fall and gold will go to $5000:

Peter Schiff has also called for a American collapse in 2016.  But gold never got to 5,000 and the dollar rose in 2014/2015 creating a commodity crash.  O0ps!

Schiff-BI-September-2009-600x351

What really happened since the bottom of the stock market in 2009, is that stocks are up 219.8%

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/Market-Snapshot

SPX-snapshot

Instead of collapsing the dollar rallied.

From @MktOutperform
DOLLAR COMOT

3) Mike “Mish” Shedlock in 2011 says the US is currently in a recession
Monday, August 29, 2011 2:54 AM

US In Recession Right Here, Right Now

I am amused by those who think a US recession will come within a year. Even more amusing are those who think a recession will not come at all.

“The US is in a recession now. I am not the only one who thinks so.”
Mish New 118

Mike looks like he is laughing here.  Maybe it was supposed to be a joke?

 

Let me  take this opportunity to remind Mike and the other recession callers that a true recession requires certain things to occur.  First, we need over investment that creates a supply and demand imbalance in the economy which in turn creates demand destruction leads to a recession. I am not talking about just two negative GDP prints either.  We also need a cycle where unemployment claims rise as companies lay off people to keep their stage budgets manageable.  When unemployment claims gets to a 323K, 4 week moving average with breath, then we can start talking about a U.S. recession.
But, unemployment claims have never broken come near this level, despite weakness from Europe, Japan, China, Brazil and many other countries since 2011. Even with the oil and commodity collapse, we never broke higher on unemployment.

From Dough Short:
http://www.advisorperspectives.com/dshort/updates/Weekly-Unemployment-Claims

weekly-unemployment-claims-since-2007 (1)

What we have instead is over 154 million working Americans, a 43 year low in unemployment claims and ECI wage inflation rising with all inflationary data ECI wage inflation tracker is running at 3.6% and 4.3% for job switchers.
4.3% JOB SWITCH
We will eventually see a recession in the US.  So if these doomsayers stick to their whining they will eventually be right.  Today however, they need to explain why retail sales are at cycle highs, home sales are at cycle highs with the highest mortgage demand and that over 100 million cars have been bought over the last 8 years.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/07/retail-sales-increased-06-in-june.html
RetailJune2016

Lastly, these doomsayers may say that recession is eminent because Americans have too much debt.  What they have failed to realize is that, typically, those of us who have the highest nominal debt, are also those with financial assets.  As you can see below, the  majority of all household debt are mortgages backed by homes. In this cycle, unlike the last one, buyers have the capacity to own the debt of a home, unless there is a job loss.
US TOTAL ASSETS TO DEBT

  Plus ça change, plus c’est la même chose.  Although the details may change, these doomsayers are still peddling the same malarkey since 2009.  I only ask that you look at the data and make up your own mind.

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. 

Robots Are Not Taking All The Jobs

JOLTS MANU

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While watching Bill Maher last night, I heard a common economic myth that I thought I should clear up.

“We Are Losing All The Jobs To Robots”

will-smith-as-del-spooner-in-i-robot-2004

So, lets take a look today at the data to see if this thesis makes any sense.

I have asked this question for many years. Where on this chart did we lose all the jobs to robots?

LOGAN JOBS

Job openings per sector:

Yes this is manufacturing job openings!

JOLTS MANU

Other sectors look the same too.

Logan Education

LOGAN JOLTS TRADE
LOgan JOLTS Retail

LOGAN JOLTS GOV

JOLTS CONSTRUCTIONS

Get my drift!
BO MAN JOLTS

Total Job Openings

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/JOLTS-and-the-Business-Cycle

JUNE JOLTS

One of the reasons  I had a 2%  handle with my GDP predictions  over the years is that prime age labor force growth peaked in 2007. Its only slowly growing again now, but we should have better demographics in the next decade.

Household formation is a big key for solid consumption. Young people need to buy stuff because they haven’t before, while older Americans tend to save more in their mid 50’s until death.  Ages 17-29 and ages 49-65 are very heavy in this cycle.

Census population map very useful.

http://www.census.gov/popclock/?intcmp=home_pop

We can see here prime age labor force growth peaked in 2007, unlike the 1980’s and 1990’s

From Calculated Risk:
http://www.calculatedriskblog.com/

DEMOLGRAPHICS

Another myth, we don’t make anything anymore. Yes, technology has displaced some workers in the manufacturing sector but we are still the 2nd biggest manufacturing country in the world .

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Have a wonderful Happy 4th of July weekend!

Just remember, when (They) say, we have lost all the jobs to robots, we have over 154 million working Americans, 81.5% full time working profile and highest job openings in the 21st century!

iapDeaE

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987.

BretExit & The U.S. Economy

<> on June 17, 2014 in Sao Paulo, Brazil.

 

 

It happened.

The UK voted to leave the EU and thus started the process of what could be the formal disintegration the European Union. http://www.bbc.com/news/politics/eu_referendum/results

Spain, Portugal, Italy have started to discuss their own referendums to exit the EU increasing the uncertainty of what will happen next.

This uncertainty sent the world markets into a tizzy driving investors into a flight to quality, conservative investment meaning exiting stocks and buying back into the bond market.

As a consequence, the U.S. dollar got stronger and  oil prices fell.   But the Pound and European Stocks too the brunt of the damage.

A “must-follow” on twitter:

British Pound ETF: all-time low today on by far the highest volume day in its history (1.8 million shares).

British Pound 1

Black Friday across Europe: Euro Stoxx 50 Index suffers its worst decline in history, down 8.6% on the day.

EURO CRASH

What does all the economic drama abroad mean for the U.S. economy now?

Actually, not much!
As I mentioned, we did see the dollar  get stronger and oil prices fall. However, we are still well above the lows in oil prices. Unless the dollar really takes off, don’t expect to much action in oil and gas prices.

I also don’t expect much action in the bond market and mortgage rates.

As I have previously discussed,  the 10 year note, the major determiner of mortgage rates, hasn’t been able to really break under 1.60% area on a closing basis for years now.  In fact, the only previous world financial drama that caused a break in this line in the sand,  was the Spanish default fear trade of 2012.  Due to the BritExit action of last Friday, the 10-year closed at 1.57%.

Note the lowest closing yeilds for the 10-year note during some previous financial upheavals:
2015 – closing yield 1.64% = China Drama
2016- closing yield 1.64% = Oil Crash
2016- closing yield 1.56% = Bret exit fears
2016- closing yield 1.57% = Bret Exit aftermath

I’ll be keeping a close watch on the 10-year closes next week. If the bond market gets a close below 1.56% with follow through, then we can start talking about cycle low mortgage rates. However, until then expect more of the same.

(Chart below doesn’t include the closing level of Friday which was 1.57%)
10 year yield Logan

 

We have seen mortgage rates this low many times during this cycle. In fact, because of this,  many home owners have already refinanced to low rates.  Those who could refinance (had sufficient equity, etc)  have already done so.

From Calculated Risk
http://www.calculatedriskblog.com/2016/06/mba-mortgage-rates-drop-refi-apps-jump.html

MBARefiJune222016

Of course, there will  always be some refinance market for those home owners  that are looking for cash out loans, to remove PMI (mortgage insurance fees) and to combine first and second mortgages — but these are a smaller subset of the refinance market.   Big moves in the refinance markets will needs more downside in mortgage rates then we have seen so far. We would need to see another .50% – 0.75%  downward move in rates in order to get another big boom in refinances like we saw in 2012.
For the purchase market,  purchase application demand has been soft in this cycle, regardless of where rates have been. Purchase application seasonality has already kicked in for 2016. We are seeing 25% growth  in purchase applications this year compared to  last year during the key heat months.  The heat map shows most of this activity occurred from the 2nd week of January to the first week of May, so the major activity is over now for the year.  Nevertheless, we saw good growth, year over year, but some perspective is needed; this growth only brought us back to 1998 levels. Due to U.S. demographics, we shouldn’t expect major growth in  housing until years 2020-2024.

MBAJune222016

 

For the rest of the US economy, beware the doomsayers!

Remember all those Great Recession II advocates from January of this year? Granted, many of these people are vested in some trade and therefore say what ever is necessary to push it– but there are other economic ideologues who seem to love to portray America as a failed and desperate economy (you Gold Bugs & MMT crowd know who you are!)

On my facebook page where I post economic updated charts daily, I have had many battles over the years against the Perma Bear Crowd!

https://www.facebook.com/Logan.Mohtashami

In the last few years I have fought back against  these recession predictors and am sorry (not really!)  to say that their ability to forecast the economic status of the country is significantly  tainted by their own  political, economical, investment and ideology agenda.
The data, however, tells a different story:

1. LEI ( leading economic indicator)
She looks tired and has been hit by the strong dollar, but she isn’t recessionary at all.

 

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/Conference-Board-Leading-Economic-Index

CB-LEI

2. Unemployment Claims

 

Unemployment Claims  are no where near the 4 week moving average of  323K print-  which is my first red flag for a recession call.  If we unpack this a bit we see that the world has been in a slow down since 2011. We have had a commodity and oil crash and we have had multiple world economic  crises  since 2011.  But none of this  has resulted in an increase in unemployment claims other than  the Sandy Flood. All the doom and gloom predictions  we have heard from the  financial websites, twitter,  MMT, Gold Bugs and the Anti Fed crew,came to nothing, even with the world economic slow down. The dollar never collapsed and interest rates never got higher that 3.04 on the 10-year. There was no mass collapse of the U.S. economy due to the oil crash.

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/Weekly-Unemployment-Claims

weekly-unemployment-claims-since-2007 (1)

3. JOLTS  ( Job Openings & Labor Turnover Survey)

 

The JOLTS data shows that there are still almost 5.8 million job openings in many sectors of the U.S. economy.  When we look at the size of the prime age labor force,  we are missing roughly 2.8 million workers( Ages 25-54) compared to the size of the labor force during the peak of the housing bubble. The jobs are available,   but do we have the people with the right skills in right areas, to fill them?

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/JOLTS-and-the-Business-Cycle

JOLTS-overview

 

While I don’t expect the economic drama in the rest of the world  to send the U.S. economy  into a recession, the challenges are real so I don’t expect a booming cycle for us  either.   In my 2016 housing & economic prediction article from January I reduced my low end GDP outlook to a 1.9% and reduced my jobs out look to 190K jobs a month to account for these challenges.
2016 Housing & Economic Predictions

But, make no mistake: The U.S. economy is the best economy in the world.
We have:

– 154 Million working Americans

– 43 year low unemployment claims

– 5.8 million job openings

-An unemployment rate for college grads at a low 2.4%

– The average combined income of full time working couples  is over 110K


http://www.bls.gov/news.release/wkyeng.t01.htm

To all those  Perma Bears friends on facebook: “You bet against the wrong country and wrong people! This is America!!!

Germany and Japan are old. France recently declared a economic state of emergency. China is dealing with the issues of their state capitalism model and with demographic issues. Brazil has major domestic political drama, inflation and other economic issues.Who has the most stable economy during  all this recent world drama? America does !

world-economy-gdp-voroni-a7d4

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987.

Bloomberg Interview On Existing Home Sales

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Today we discussed about existing homes sales and the internal quality of the data.

Existing home sales hit  5.53 million today, up from a downward revised 5.43 million print in April .

Report here from the NAR:

http://www.realtor.org/news-releases/2016/06/existing-home-sales-grow-18-percent-in-may-highest-pace-in-over-nine-years

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/Existing-Home-Sales
Home-Sales-Existing

The quality of the report is better, as I predicted in my 2016 Housing Prediction article.

2016 Housing & Economic Predictions

For 2016, we will see more mortgage buyers this year and less cash buyers. Cash buyers in today’s report is down to 22% of sales. For many years this has been above 30% of the existing home market. In a normal housing cycle it would be roughly 10% of total existing home sales. So the demand from cash buyers has been very strong in this cycle.

Mortgage demand is growing year over year!

However, we are only back to 1998 levels on mortgage demand, with mortgages rates 4% plus lower than then.

As always, I try to stress,  demographic economics matter for housing and in this cycle we were very young and very old. Ages 17-29 and ages 49-65 were massive  in this cycle. This is one factor on why housing demand hasn’t met a lot of the lofty expectations set early on in this economic cycle in terms of sales.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/06/mba-mortgage-rates-drop-refi-apps-jump.html

MBAJune222016

We also touched about the massive housing inflation we have seen in recent years. Depending on which data site you follow, real home prices are still 10%-20% below the peak of the housing bubble with no relief coming in 2016.

The median existing-home price for all housing types in May was $239,700, up 4.7% from May 2015 ($228,900).

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From Doug Short:
http://www.advisorperspectives.com/dshort/updates/House-Price-Index

House-Price-Index

Even with this price inflation, I don’t believe the U.S. housing market is in a bubble. I go into more details about that here

Housing Bubble 2016?

Bloomberg Interview: 

Starting at 4:56 into the Podcast with Kathleen Hays and Pimm Fox

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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 1987.

Global Yields Are Falling!

Logan Feature

LOGAN PIC

In my 2015 and 2016 housing and economic prediction articles I talked about the 10 year yield and the lower level of 1.60% being the crucial level.

Even with the Fed raising rates and talking about about raising rates further, it still didn’t change my core thesis on long term rates here in America.

2016 Housing & Economic Prediction Article: 

“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.”

2016 Housing & Economic Predictions

For weeks now on another financial website which I do weekly predictions on mortgage rates, which in real terms is a 10 year yield discussion, I talked  recently about this key tight channel that we are in between 1.70% – 1.90% for the U.S. 10 year.

Today, as global yields fall once again and negative rates are abound, we have broken that lower level of 1.70% on 10 year, with a  1.66% 10’s 10:09 am pricing 06/09/2016

The low point in closing yields recently, for the U.S. has been 1.64% in both 2015 and 2016 which just a touch off from my key level of 1.60%

The big difference is that global yields are falling once again even though core inflation and ECI wage inflation has been picking up here in America since 2015.

Bretexit is the key factor in the recent drama coming out of Europe. For the record I am looking for them to stay with a 57% Yes vote.

A look at bonds from  one of the “all must follows” on twitters:

US yield breakdown directly follows what’s happening in UK, Germany, w/ Gilt yield breakdown to new lows, Bunds 3bp!

GLOBAL YIELDS

Treasury yields breaking down globally- under 1.70 this morning while 30-year has cracked 2.50, following UK

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New all-time low today in UK 10-year yield: 1.22%

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The negative yield matrix getting redder by the day…

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New 52-week lows in 10-year yields today in most of Europe, South Korea, and Australia. The race to negative yields.

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So what now?

If the 10 year can close under 1.60% and get next-business trading day follow through action,  then look for us to go back to the 1.35% level on 10’s.

Be mindful this is more of a story on the world economics then U.S.  Low yields aren’t an issue for us or the housing market place.  Clarity on BretExit, yes vote, could send yields higher short term.

However, I have to respect trend here. The world global yields are taking the U.S. lower with it, so this  global fall in yields could break my key line of 1.60% that has held up so well.

Note: For today’s actions you need to see a close under 1.70% and next day follow up action to the downside on yields to get a clean break. Yield slippage on the outer bands on 10’s is very common. 

Logan Feature

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987.