Here is the main theme I have endeavored to hammer home in my writing: we simply do not have enough qualified home buyers (excluding cash buyers) to absorb the true inventory of housing in this country. Even historically low-interest rates have not changed this truth. Mortgage purchase demand remains anemic in spite of record low rates.
However, a larger problem looms than the US Housing market. The US economy from 1996 until 2007 was driven by boom and bust cycles of inflated asset prices in both the stock market and real estate. Now that the economy does not have a third bubble, we must ask ourselves if the economy can generate enough growth to meet our long-term obligations. Our current deficit is proof that our economy cannot generate enough growth to meet our year to year budget obligations. Yet, the mother of all debt bombs awaits in our future unfunded liabilities well north of 50 Trillion dollars, which will bankrupt our country before 2050. This disaster can maybe be avoided if both parties work together to create a tax and entitlement reform plan which sets us on a fiscally responsible footing. If our country cannot grow at 3% now, even with trillions pumped into the economy, low taxes, low-interest over the last three years, when will and what will bring growth needed?
We are still a consumer economy and no closer yet in becoming an export power house. So we need to consume to get the growth. Americans’ (excluding the top 1% ) debt to income ratio will prevent enough consumer spending to generate the needed growth. Our after tax income can’t support this economy any longer, not to the point to cover our long-term obligations. This is a byproduct of not having wage growth in this country. Like a company with heavy debt and not enough income coming in, we have managed to move along because debt is cheap and we are great in punting problems down the field. However, we can’t rely on interest rates staying this low for the next 38 years. We need to act like adults and realize that if we want this great country to stay great, we need to make hard choices now before the market forces us to make even more difficult ones down the line.
Logan Mohtashami is a senior loan officer at his family owned mortgage company AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial columnist for Benzinga.com and contributor for BusinessInsider.com
Dear Logan, it would be interesting to see a trend chart showing Qualified Home Buyers vs Available Housing Inventory — in static and growth models.
Bal, that is an impossible chart to show because there are soo many factors in terms of somone being qualifed for a home loan and for how much of a house .
The reason I say this is because the home affordablilty chart say we are at all the highs. However, that was true in 2008 but now it’s even more obvious now. One thing is true for 2012, mortgage rates are lower by over 1% and yet purchase applications are down year over year. With rates this low we should be booming in home sales with mortgages, however, it’s been very weak this year and the last few years.
So this is why housing bulls who come on TV have always been wrong. They use old metrics that might have worked in the past when their was horrific lending standards and unrealistic economic growth.
Now, that isn’t the case. Mortgage rates as of today are at 3.375% and home sales new and existing are historicaly weak.
Much like the economy, we have low taxes, low interest rates and yet demand is still very weak even with all the Stimulus the government has put into the economy. The last retail numbers were very weak and that was with the backdrop of gas prices coming down.
So, the only thing you can say is that the after tax/expense incomes of Americans can’t support a 3% GDP economy or provide a very strong housing recovery.