Logan Mohtashami

2016 New Home Sales: Best Of The Cycle

Today the US Census Bureau released the data on new home sales for the month of August 2016.http://go.usa.gov/3tUud As I predicted in my article of April 23, 2016 (“Time For New Home Sales To Show Growth”

Time For New Home Sales To Show Growth

, new home sales are showing strong growth, 20.6 percent above the August 2015 estimate of 505,000.

Year over year data line in my article back in April.

Updated year over year data now.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/09/a-few-comments-on-august-new-home-sales.html

The Census Bureau report states:
http://go.usa.gov/3tUud

“Sales of new single-family houses in August 2016 were at a seasonally adjusted annual rate of 609,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.6 percent below the revised July rate of 659,000, but is 20.6 percent above the August 2015 estimate of 505,000.

Despite the facts that US demographics do not support a strong demand thesis and new homes are very expensive, we are still seeing in 2016 the first year since the recession with solid growth in new home sales without a very low bar.

Recall that in 2013, the Taper impacted demand and higher mortgage rates soften post June data.

In 2014 we saw the biggest miss in new home sales in modern day history even though rates were low.

In 2015 new home sales grew roughly 15%, but since the bar was set so low in 2014, the actual numbers were still dismal. A correction in builder stocks started last June, gave a great entry point in Jan of 2016.

Now in 2016, we are seeing the first real growth in new home sales in this cycle. A big part of this growth is due to the fact that the median home sales price is falling. You may recall from my article on predictions for 2016, I stated that if median new home sales prices cool down or decline, we could see much higher new homes sales. That is exactly what is happening right now

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2016/09/26/august-new-home-sales-down-to-7-6-month-over-month-better-than-forecast

If new home sales to get to 675K -775K range it will be because more smaller homes are in the mix of sales. We saw growth of over 8% in sales from homes in 200K-300K range.
If we see higher mortgage rates of 4.25% – 4.50% , this could dampen sales, as happened previously.

From Doug Short:

https://www.advisorperspectives.com/dshort/updates/2016/09/26/august-new-home-sales-down-to-7-6-month-over-month-better-than-forecast

However, with all that said, 2016 is showing the best housing demand data we have seen in this cycle. As we can see below there was a good monthly supply of homes at the start of the year and even with today’s 4.6 monthly inventory print, inventory is sufficient for growth. In fact, inventory today is higher than it was from 1999-2005 when sales where booming due to better demographics and unqualified buyers getting exotic loans.

A must follow on twitter
@georgepearkes

The best aspect of today’s report?

Single highest print of sales in this cycle had a upward revision today!

Whistle!

I will be speaking at 2016 Americatalyst: Fast Forward,October 30 – November 1st in Austin, Texas.
My panel will be called WITHERING HEIGHTS: House and Rent Price Projections and will include these speakers.

HOSTED BY

TONI MOSS, CEO, AMERICATALYST LLC and EUROCATALYST BV

TIM SKEET, Senior Advisor, INTERNATIONAL CAPITAL MARKETS ASSOCIATION | ICMA

FEATURING

DOUG BENDT, SVP of Research and Product Development, RENTRANGE

MARK FLEMING, SVP and Chief Economist, FIRST AMERICAN FINANCIAL CORPORATION

LOGAN MOHTASHAMI, Senior Loan Manager, AMC LENDING GROUP

ALLAN WEISS, Founder and Chief Executive Officer, WEISS RESIDENTIAL RESEARCH

http://www.americatalyst.com/content/2016-americatalyst-fast-forward

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

Existing Home Sales Trends In Line

Today the National Association of Realtors (NAR), reported that monthly existing homes sales declined 0.9% , from 5.38 million in July to 5.33 million in August..

‏@NAR_Research

Existing-Home Sales Soften Further in August. http://bit.ly/2cqXqSA #NAREHS

For 2016, I predicted that existing home sales would be in a range of 5.13 to 5.43 million homes, with an increase in the percentage of mortgage buyers and a decrease in cash buyers.

2016 Housing & Economic Predictions

As I predicted, mortgage buyers are up and cash buyers are down in 2016. Because one sector of demand is falling (cash buyers), total growth is impeded. Mortgage buyers are not yet making up the difference for much stronger growth.

It is lack of mortgage demand, not low inventory or tight lending that is holding down housing sales. Purchase applications are at cycle highs but still only back to 1998 levels. Since 2010, I have been saying that this cycle will simply not have enough qualified home buyers, once you exclude cash buyers, to have a real recovery in demand., and this remains the case.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/09/mba-mortgage-applications-decrease-in.html

With that said, home sales look solid this year compared to earlier years. We have more mortgage buyers, falling cash buyers and first time home buyers are trending slightly higher. So, we see no negative trends in the data that matter.

‏@NAR_Research

1st-time buyers were 31% in August; Investors were 13%; All-cash sales were 22%; Distressed sales were 5%. #NAREHS

Purchase applications have shown a lower rate of growth in the last few weeks, compared to the rest of the year. We saw solid growth of 25% + year over year, in the heat months, (2nd week of Jan to the first week of May), but now the rate of growth has slowed. The missing gap (non-heat month) buyers are why existing home sales growth is limited this year.

All is all, we are experiencing a positive year for both new and existing home sales, even if existing home sales don’t hit 5,300,000 number of last year. The quality of the demand is better this year than last.Seasonality of these metrics is starting to take it tolls so time to think about good books and museum visits instead (or football if you are a meathead like I am.)

From Doug Short
http://www.advisorperspectives.com/dshort/updates/2016/09/22/existing-home-sales-eased-up-in-august

One final note: Lack of affordability is a natural inventory suppressant. There are no more fake,exotic debt loans to artificially boost housing affordability anymore. Everyone who gets a loan has to earn it. What no body wants to talk about is that if you use the outdated affordability metric, a seller would require at least 28%-33% equity in order to pay transaction costs and have 20% down to move up to a bigger home. That is a conservative view of the equity needed. Lack of equity is preventing many would-be move up buyers from putting their homes on the market and thus limiting the inventory of starter homes.

With that said, inventory levels are good enough for sales to grow if the demand is present. 2016 existing home sales are at cycle highs because demand is better than the previous years even with inventory levels lower!

From Calculated Risk:
http://www.calculatedriskblog.com/2016/09/existing-home-sales-increased-in-august.html

“Don’t Over Think This One”

Housing Starts Roof Being Tested

Today the Census Bureau released housing starts data and the numbers came in a little light of expectations at 1,142,000.

The report states:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,142,000. This is 5.8 percent (±9.7%)* below the revised July estimate of 1,212,000, but is 0.9 percent (±12.5%)* above the August 2015 rate of 1,132,000. Single-family housing starts in August were at a rate of 722,000; this is 6.0 percent (±8.2%)* below the revised July figure of 768,000. The August rate for units in buildings with five units or more was 403,000″

U.S. Census Bureau ‏@uscensusbureau

Housing starts in Aug were 1.142 m (SAAR), 5.8% (+/- 9.7%)* below July estimate. http://go.usa.gov/3uKjC

These numbers illustrate the theme of slow and steady growth in housing starts that I have been professing for many years. We are recovering from an over investment thesis that has stifled affordability but are now slowly pulling out of that muck. Those who expected us to return immediately to the 50 year average of 1.5 million starts were not taking into consideration the demographics changes nor the over investment thesis in housing in the last cycle. Due to these factors we haven’t been able to break above the 1.2 million level for some time.

As of now, we haven’t been able to break above the 1.2 million level for some time

‏@ForexLive

Housing starts settle back into the range.

Aside from the lackluster growth in total housing starts, we have not seen much growth in multifamily construction in 2016, up 0.3% year to date. In fact the rate of growth in that sector is slowing. This means that in order for the US to see stronger total housing starts in the near future, single family home growth needs to be a much bigger part of the total.
So far single family growth is running at 9.1% year to date

From Calculated Risk:
http://www.calculatedriskblog.com/2016/09/housing-starts-decreased-to-1142.html

Looking at a 6 month average, we see that the rate of growth is slowing, due to the cool down in multifamily expansion, which was previously running at a torrid pace.

From Doug Short:
http://www.advisorperspectives.com/dshort/updates/2016/09/20/new-residential-housing-starts-in-august-disappoint-expectations

Demographics in this cycle are more supportive of a renting profile, as opposed to purchasing, for the years 2008-2019. More on the demographic of this cycle can be read here:

Demographics & Housing Starts

Housing stocks are sluggish as well. In June of last year, I appeared on CNBC and said that the builder stocks were over–valued and that Toll Brothers, in particular didn’t provide much value trading above $37. Soon after that appearance, we saw a correction in the builder stocks, driving some pricing back down to 2013 levels. In January of this year, I reported that it was time to get back into the builder stocks as these were finally attractively priced. However, today, even with decent earnings in their recent report, Toll Brothers is still nowhere close to the highs of last year when I raised the caution flag.

‏@LoganMohtashami

Best call on CNBC last year … TOL was overvalued at 37 last year https://loganmohtashami.com/2016/01/25/home-builders-new-homes-sales-and-the-affordability-myth/ …

Having said that, be mindful that new home sales are having the best year in many, not just in terms of higher nominal sales, but also because the revisions are sticking in a positive way. However, the key is that new home sales are very low in historical context and very low considering we are in the 8th year expansion with rates under 5% since early 2011.

I’m excited to announce that I will be speaking at 2016 Americatalyst: Fast Forward,October 30 – November 1st in Austin, Texas.
My panel will be called WITHERING HEIGHTS: House and Rent Price Projections and will include these speakers.

HOSTED BY

TONI MOSS, CEO, AMERICATALYST LLC and EUROCATALYST BV

TIM SKEET, Senior Advisor, INTERNATIONAL CAPITAL MARKETS ASSOCIATION | ICMA

FEATURING

DOUG BENDT, SVP of Research and Product Development, RENTRANGE

MARK FLEMING, SVP and Chief Economist, FIRST AMERICAN FINANCIAL CORPORATION

LOGAN MOHTASHAMI, Senior Loan Manager, AMC LENDING GROUP

ALLAN WEISS, Founder and Chief Executive Officer, WEISS RESIDENTIAL RESEARCH

http://www.americatalyst.com/content/2016-americatalyst-fast-forward

Positive U.S. Wage & Poverty Data

Today the Census Bureau released data on income and poverty in American for the year 2015.

Income and Poverty in the United States: 2015

http://www.census.gov/content/dam/Census/library/publications/2016/demo/p60-256.pdf

A quick snap shot of the data shows all the numbers moving in the right direction.

U.S. real median income gained 5.2% in 2015. The only time we had a bigger jump in real median income was back in 1975 when the data showed a gain of 7.1%. This is the 2nd biggest jump in real median income since 1967.

The Census Bureau’s Gini index is an income based approach to measuring inequality and therefore does not include credit availability, or accumulated family wealth. It provides a measures the distribution of incomes on a scale of zero (everyone has the same income) to one (one person has all the income). Despite its limitation, the Gini Index shows that inequality has fallen for 2 years now in the U.S.

One of the most frequently told lies by the anti-American bears has been that everyone in the US is working part time jobs. In truth, full time employment hit an all time high in 2015.

The newly released data also shows that poverty is falling in the U.S.

Highest percentage growth in incomes, came from the lower end. ( Positive)

https://www.whitehouse.gov/blog/2016/09/13/income-poverty-and-health-insurance-united-states-2015

Not in the Census report but related to this, the Employment Cost Index, (ECI) a measure of inflation of wages, and employer-paid benefits, is running at 3.4% with 4.2% wage inflation for job switchers. More up to date data had been showing these wage gains. The census data tends to lag behind current data trends.

https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1

Even with these gains, we will need to see more inflation before the Federal Reserve will consider a rate hikes.

Fed Rate Hikes Need More Inflation

If core inflation gets to 2.5% and total ECI wage inflation gets to 4%, then I would be more inclined to believe the Fed will raise rates. For now, we are seeing a lot jaw boning by some Fed members, but no action.

5,900,000 Job Openings!

Today the JOLTS (Job Openings and Labor Turnover Summary) data was reported showing a whopping cycle high of 5,900,000 job openings. http://www.bls.gov/news.release/jolts.nr0.htm

You may also have heard growling from our economic bears saying that 94 million Americans are out of work. To them, I always ask this question: “Where on JOLTS chart does it show that we lost 94,000,000 people from the job market?” The answers I have received are more suited for a conversation between the Joker and Batman then in an economics discussion. In this cycle, prime age labor force growth peaked in 2007, then declined and its only slowing growing again. We are very young and very old in this cycle, unlike the 1980’s and 1990’s where demographics were much better. So although we may have a large number of Americans out of workforce, they are largely composed of the those too young to work, ( Ages 16-24) those who have since retired, those who are on disability , women who choose not to work for their kids and people attending college . The widening the gap between job openings and hires tells the story. We currently have more job openings then we can hire for.

From Calculated Risk:
http://www.calculatedriskblog.com/2016/09/bls-job-openings-increased-in-july-to.html

Here is another chart that shows how silly the thesis is that we have 94 million Americans out of work. There is nothing in this data that supports a job loss of that magnitude. Our current total population is running a tad over 324,000,000.

Critical thinking, people! Come on!

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

From Doug Short
http://www.advisorperspectives.com/dshort/

Johnny Bo Jakobsen ‏@jbjakobsen

Ratio of US unemployed workers to job openings falls further below average level during 2006-2007 boom years #JOLTS

From Doug Short

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

Job openings are pretty much in every sector.

Construction
https://fred.stlouisfed.org/series/JTS2300JOR

Government
https://fred.stlouisfed.org/series/JTS9000JOL

The trend has stayed the same in all sectors for some time now, but today’s print of 5,900,000 shows that we have a real first world problem. We need labor!

Additionally, for the job jumper, we see wage inflation data as well .

We now have 155 million working Americans, a 43 year low in unemployment claims and job openings standing at 5,900,000.

#USA

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

United States Job Market Reality

LOGAN JOBS 13427808_10153837258788250_6142155587218849963_n

The Bureau of Labor Statistics (BLS) reported today that 151,000 jobs created were created in the last month and the unemployment rate stands at 4.9%. The revisions for July and June showed a total loss of just 1,000 jobs. http://www.bls.gov/ Payroll employment increases by 151,000 in August.

My 2016 economic prediction for employment was that there would be a decline in the monthly job creation numbers and GDP as the cycle matured.. So far that has been the right call for 2016.

A closer look at the data for the cycle shows why job growth should be slowing down. Fewer prime age workers at the end of this cycle means slower job growth. T long term job growth, once adjusted to demographics, look right on trend.

From Doug Short:
http://www.advisorperspectives.com/dshort/

LOGAN JOBS

Prime age labor force growth peaked in 2007 and then declined. Currently it is slowly growing again.

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

Better demographics are the one major advantage America has over a lot countries in the world.

DEMOGRAPHICS JOBS

In the current economic cycle, we have experienced the longest monthly job creation print ever in U.S. history, as shown in this graphic of the data.

‏@MktOutperform

71… As in 71 consecutive months of job growth, by far the longest streak in history. #payrolls

71 MONTHS

From Calculated Risk:
http://www.calculatedriskblog.com/2016/09/august-employment-report-151000-jobs-49.html
PayrollAug2016 (1)

Unemployment claims are very low in this cycle and historically.

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

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

Unemployment-IC-to-CLF

Job openings, on the other hand, hit a record high in 2016 with a 5,845,000 print and are currently standing at 5,600,000. Job openings are in every sector in the United States.

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

JOLTS-overview

In summary, the economic cycle is getting old and we are going into, possibly, the longest economic expansion on record. The one caveat is that employment cost is rising and if prices can’t be raised or revenue doesn’t grow, then the expansion may slow. I would mark this a key data line to look at moving forward into 2017-2019.

J ‏@jbjakobsen

US corporate profit margins under pressure: rise in unit labour costs outpace output prices

Unit Labor cost

We have been hearing from a number of economic amateurs in this cycle, calling for recessions every 3 weeks. These rookies have had the single worst 8 years of predicting the economy ever. When one bases economic forecasts on an ideology rather than data and research, this is what happens. Add to this the “Click-bait” writers who are looking for conspiracy nuts to like their articles, and we have a real mess of mixed messages in the media. Stick with the data miners.

With that said, for any economic cycle, you need to look for the clues that mother recession leaves because like all serial killers she wants to get caught. She will inevitably leave real evidence foretelling when the next recession will come. There was not such evidence for 2016, leaving the January recession callers embarrassed once again. To catch her next hit, look at claims, leading economic indicators, inflation, fed rate hikes, and the like. These are the factors that really matter, not forecasts based tired ideologies prophesied by those who should have removed themselves from public life long ago.

On a personal note, I will be speaking at the national economic conference, 2016: Americatalyst: Fast Forward in Austin taking place Oct 3o – Nov 1.

http://www.americatalyst.com/content/2016-americatalyst-fast-forward

I’m excited to be joining a lot big hitters to butt heads and share ideas. Check out the schedule and speakers. It should be an excellent conference.
So time to take this show on the road! Thank you all for your support over the years.

14184350_10154038640168250_2259048715240771976_n

Existing Home Sales Look Just Right

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

Solid New Home Sales Print

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.

‏@uscensusbureau

Sales of new single-fam houses in July 2016 were 654k (SAAR) up 12.4% (+/- 12.7%)* from June http://go.usa.gov/3tUud

“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

‏@NickTimiraos

Reminder: We’re selling far fewer homes than in past housing cycles except at the high end http://on.wsj.com/2c2MIT0

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

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

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

Mortgage Purchase Applications Data, 2016

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

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.

My 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.

Homeownership Rates Fall Again!

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

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

From Lance Roberts:

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

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

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.

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