Homeownership Rates Fall Again!

H.O. RATES 62.9


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:

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:

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

From Lance Roberts:

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




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



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:

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

From Doug Short:


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


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.


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:


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


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



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!


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

From Doug Short:


Instead of collapsing the dollar rallied.

From @MktOutperform

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:

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.
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:

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.

  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



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”


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?


Job openings per sector:

Yes this is manufacturing job openings!


Other sectors look the same too.

Logan Education

LOgan JOLTS Retail



Get my drift!

Total Job Openings

From Doug Short:


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.


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

From Calculated Risk:


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 .


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!


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.


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


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.



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!


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:


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:

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:



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


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 !


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



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:


From Doug Short:

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:


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).


From Doug Short:


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

1200x-1 (1)

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


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!


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


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

Logan 3

The negative yield matrix getting redder by the day…


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

Logan 5
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.

Housing Bubble 2016?





The most frequent question I have gotten in 2016,  (aside from the ubiquitous query if America  is going into a recession) is if U.S. home prices are in a bubble which will eventually lead to a major collapse.  The short answer is no.  One must be careful with the use of that frightening word “bubble”. Small ebbs and flows in pricing occur constantly and should not be confused with a true economic bubble formation.

The features of an economic bubble popping, include  a 35%-65%  minimum decline in prices over a very short duration. A nice historical example of an stock bubble that can be used for comparison is South Sea stock prices in the early 1700s.

Issac Newton:

“I can calculate the movement of stars, but not the madness of men.”

Also, a  true bubble is a disconnect from economic fundamentals that needs speculation to push prices higher.

Issac Newton’s investment in the South Sea underwent a massive spike due to speculation and  then collapsed in a very aggressive fashion.  Now that’s a bubble!

For U.S. housing economics, I recommend following this simple rule: If inventory breaks under 6 months and distress sales start to fall, then expect to see home price gains.

If we look to our own immediate history, we see that housing inventory blew up from 2006-2011 when a lot of distressed homes came into the market place.  In 2012 inventory finally broke down to under 6 months. This collapse in inventory will be yielding  price gains in housing for years to come.  Thus, since 2012, home prices have been rising.


 Having said that, although nominal prices have been strong, once you adjust to inflation, home prices have not reached the peak levels of housing bubble years.

From Doug Short:

Logan Article P 1

Unlike the housing bubble years, “when anyone with a pulse could get a mortgage”,  and, perhaps more significantly, anyone could cash out on their homes as well, in this cycle quality is more important that quantity.  This cycle has the best loan profiles I have seen in my 20 years in finance.  All the home owners in this cycle have the capacity to own the debt and the debt is very vanilla i.e. no exotic or stated income loans.  This is another reason why mortgage demand isn’t booming, we lend to capacity now.


From Calculated Risk:

Another important factor to keep in mind when assessing if bubble economics are in play is demographics!   We had good demographics for housing because prime age labor force growth from 1996-2007 was solid. However, the growth in the prime age labor force was not good enough to  sustain the massive speculation on housing and to have so many unqualified buyers become home owners. It was not organic demand but exotic loan structures that allowed anyone to buy, and drove up prices. This phase took place  during the years 2003-2006. That was the time when exotic loans allowed the housing market to continue upward at full speed.

With those types of loans no longer in existence, we have no excess speculation on debt in this cycle. Today, we have a lot Americans who own homes with equity and occasionally borrow against that equity within conservative parameters.  We also have had the highest percentage of cash buyers in this cycle that I can remember. Cash buyers comprise 25%-30% of the entire existing home market for years now.   Even in 2016, these cash buyers continue to make up 25% of the purchases, whereas in pre-recession years they would make up about 10%. This should shock no one considering the large number of distress homes that have been in the market.

Although  I can’t conceive of a rationale that would lead to a  35%-65% crash in home prices and I wouldn’t use the word bubble, that doesn’t mean that I don’t expect prices to never fall.  When  inventory breaks over 6 months, we will see a downturn, but  this is something that hasn’t happened in the 20 years, outside the housing bubble bust years.
It might take a U.S. recession to create 6 months annual inventory.

For more on this see:

Low Housing Inventory Lie Still Lives On

  When that happens then we will see price declines, but without a significant increase in the number of distressed home in the supply, prices won’t fall like they did in the housing bust years. Remember, we have a high number of cash buyers in this cycle, and cash purchases don’t foreclose.  Plus, the loans in this cycle are not high risk, as they were in the previous cycle–  and this is a good thing for America. Even the new bank statement loans that are now available, are of very high quality.  Today our typical home owner has a low fixed debt payment against rising wages with some equity built up. This is as pretty as it gets.

The downside to this pretty picture (every silver lining has a cloud after all),  is that housing inflation is real and here to stay. I don’t subscribe to the recurring thesis that housing is the cheapest it’s ever been.. The affordability index that is being used, is outdated. It  assumes that buyers have 20% down.  But our typical buyers do not have the ability to provide a 20% down payment and as housing prices climb this will become more and more difficult.  Additionally,  it’s harder for move up buyers to put 20% down as they would need conservatively  28% -33% equity to sell and pay transaction costs, to have a even a remote chance  of having 20% down for a bigger home. So the boom in prices from 1996 to 2016 does come with a negative. One item that doesn’t get talked about much, is that as  shelter costs grow, that leaves less disposable incomes for other consumption items.

From Dough Short:

Logan artilce 2

In every housing cycle since 1981,  mortgage rates have fallen 2% or more.   In this cycle the low range has been 3.25 to 4.25%   In order for a 2% fall in rates in the next cycle, we would need mortgage rates to be 1.25% – 2.25% .  This would likely mean the 10 year treasury yields would fall below zero.  Unlikely much?

The best case against negative rates here in the U.S. is that our younger demographic growth will keep a lid on any major deflationary push downward.

However, as you can see in the chart below, trend is your friend!

From Doug Short



As housing prices grow and debt sizes gets bigger, lower mortgage rates are needed in order for  borrowers to afford the larger debt.

Remember, when rates hit 4.5% in 2013/2014, it created a 18 month negative trend in purchase application.   The year 2014, the 6th year into the economic expansion, had the lowest number of purchase applications ever, once adjusted to population.

While we are not in a housing bubble, the housing inflation story is real and is going to be very difficult to correct .

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


Demographics & Housing Starts


In 2013- 2014, early in this economic cycle, I  attended a few economic conferences to get a feel what other people were saying about the status of the housing market. At that time, everyone seemed to share the sense that housing starts were going back to their 50 year average of  1,500,000 per year, in short order.  Today, even though we are in year 8 of the economic cycle, this did not and has not happened. The “why”  is two-fold;  demographics  and the fact that we have built a lot homes over the last decade and these homes simply don’t disappear.


Logan A 1
A graph from Calculated Rick shows the boom in multifamily slowing down, thus making the single family residence construction a bigger part of starts going forward


StartsShortApr2016 (1)


Both charts show a slow steady rise from the lows in this cycle,  that are the lowest level post  WWII.
A longer look at starts and permits, separately, adjusting to population is depicted in this chart, again from Doug Short.


From Doug Short



Housing-Permits-population-adjusted (1)

Early in our economic expansion, in the 1980s and ’90s, we needed to build  a lot homes to accommodate the growth in our prime age  labor force.  This growth peaked in 2007. The prime age labor force is only now beginning to expand  again.

Calculated Risk:

From Calculated Risk
StartsApr2016 (1)


So what happens next?

Although a smaller segment of the market in terms of units sold,  the new home sale is more important to the economy than the sale of an existing home. New home sales mean construction jobs, housing starts, big ticket item purchases, and all the other purchases  that goes along with that..  Existing home sales, on the other hand are  commission exchanges and can boost purchases at Home depot and moving van activity.   New home sales, as we know,  haven’t reached the levels  that many housing analyst promised us early on.

From Doug Short
New Home Sales Logan 1


We have heard recently that builders can’t fill construction labor job  and that, due to regulations, it  cost too much to build smaller new homes.

While those things may be true, those factors are not responsible for the decreased construction. Builders know we are in a light demographic patch and this is significantly impacting the appetite for new home sales.
Demographically, the  US is over represented in the ages of 17-29 and  49-65.   Folks in these age ranges, typically do not buy new homes. This is why total mortgage demand for both new and existing homes combined has never breached over 5 million in the period between 2008-2016.   If we didn’t have the extra 15%-20% of cash buyers gobbling up the existing inventory, then housing sales would be running between 4 to 4.5 million in recent years. Bluntly, America still smells too much like teen spirit (and older people) for a housing nirvana.

Other factors, too are preventing sales from reaching the levels anticipated by the nirvana analysts.  For one, the lack of exotic loans is also taking a toll on sales

More here on this subject:

Home Builders, New Homes Sales And The Affordability Myth



Previously, a lot  of A paper  loans (at least they appeared to be, on the books)had exotic debt structures that helped to finance the higher priced homes.  Next, the size of the new homes offered for sale has changed.  In 1975 median size home was 1,500 sq. ft.  Today the median size for a new home is over 2,500 sq. ft. We have been increasing the size of new homes for decades and now  are waking up to the reality that there is a shortage of lower priced or entry-level new homes.

The builders knew that the demand for lower priced homes from first time home buyers would be soft, even if they didn’t want to say it in public.   So for the sake of profit margin they went big and sold big . We have to give them kudos for knowing where the real demand is.  And this is why it is unlikely builders will start providing smaller, less expensive home models.  Existing homes, which are cheaper and have  geographical advantages over  new tracts, will continue to provide the inventory for the first time home buyers going  into the next decade.  For now, we will need to wait for years 2020–2024  for our massive labor force to mature into home buying age before the demographics provide the appetite for new, entry-level homes.  Also we need to respect the fact that we have built many homes over the last decades and homes last longer than the humans that occupy them.


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

Job Openings and Labor Turnover Summary



Sometimes charts  can speak louder than words.

Job openings and labor turnover summary: 

From Calculated Risk:

JOLTSMar2016 (1)

Job Openings rise to their highest level since last July


Job Openings near record highs. Why you want to see the Fed hike rates again in 2016…

data point to continued US labor market improvem. Should ease any concern about sharp slowdown in job growth


If there is one thing I hope people can take away from my financial posts.

Prime Age Labor Force Growth Matters!

We peaked in 2007 and we are slowly growing this data line again.

A must read from Calculated Risk:
Demographics and GDP: 2% is the new 4%



‪#‎NFIB‬: US small companies have more unfilled job openings than any time since 2006.

Labor force growth matters! A big mistake by the Great American Recession II crowd from 2009-2016 was that they mistook a soft demographic patch to be something very sinister and created by the Fed Frankenstein.  When in reality, we had a weak prime age labor force growth cycle that started in 2007, right when the Great Recession hit.

Hence why some of us like the mock their economic calls from 2009-2016.

The U.S. Economy Is About To Crash!!!!

The U.S. Economy Is About To Crash

Does this move the Fed to hike soon? I still believe that we need to see more inflation for the Fed to hike, something I recently discussed here.

Fed Rate Hikes Need More Inflation

Fed Rate Hikes Need More Inflation

However, slow and steady has been the right call on most things economic related in this cycle.

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