No Housing Nirvana In This Cycle

In 2015 I expected  growth in all metrics measuring housing demand, which are:

– Purchase applications    5%-10% growth, rates range 3.5%-4.5%.
– New Home Sales              8%-12% growth, with bigger upside if median price falls.
– Existing Home Sales       5.0 – 5.2 million sales, cash buyer still stay at a high level.

https://loganmohtashami.com/2014/12/22/2015-housing-predictions-the-bar-is-so-low-we-might-trip-on-it/

My reasoning was rooted in the soft metrics all three displayed in 2014.  With such low numbers as comparison, the idea that we would see negative year over year demand seemed unlikely.  

Today new home sales numbers did miss the target number, although still showed double digit growth.  
However, as always context is key to a full understanding of what the numbers mean.

Adjusting to population new home sales are down – 46% compared to 
1963 levels. 

Also of great importance to note is that this weak demand curve is coming at the lowest interest rate
cycle we have seen post world war II.

http://www.advisorperspectives.com/dshort/updates/New-Home-Sales.php

Population Adjusted

2015 I was looking for 5%-10% total growth for purchase applications which we will easily get.

However, again, context is key!

https://confoundedinterest.wordpress.com/2015/07/22/mortgage-applications-flat-purchase-applications-at-2013-levels/

Existing homes sales are showing growth as well,  and we are seeing less cash buyers and more mortgage buyers.   This is a key metric to watch and which I believe will indicate a return to a healthier purchase market. 

However, we are entering one of the longest economic expansions post World War II and this was all 
we have to show for it —  even with a very high historical cash buyer metric in 2015.

http://www.advisorperspectives.com/dshort/updates/Existing-Home-Sales.php

Existing Home Sales Growth

 When I began writing about housing economics in 2010, I had one core thesis:

“We simply don’t have enough qualified home buyers in America once you X-out the cash buyers to have a real recovery
in housing.” 

This is based on my own (Non-Basis) economic observation and work in the financial industry for almost 20 years. This thesis has held up better than most high valued housing pundits.   Math and numbers always win out at the end unless you have an artificial demand driver in play.  It is worth noting that in spite of  triple the usual percent of cash buyers in this cycle, the demand curve remained low.

Housing needs one group before the demand curve gets better, and that is college educated dual income households with children.   My prediction is that this group will not be buying houses in any meaningful numbers until 2020-2024.  

Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1988 and is in a partnership with ZeneHome.com 

4 thoughts

  1. hi Logan,

    I’m interested in your assertion here: “Housing needs one group before the demand curve gets better, and that is college educated dual income households with children. My prediction is that this group will not be buying houses in any meaningful numbers until 2020-2024.”

    Could you elaborate on how you came up with that view? If you could point me to some data sources or maybe a past article you wrote, that would be much appreciated.

    thanks!

    1. 5 Key points with this model

      1. Economic model for this

      Americans
      1. Rent
      2. Date
      3. Mate
      4. Marry

      3.5 -6 years after marriage they tend to buy. A big factor is kids

      2. Demographics were good from 1996-2007 and now they are starting to grow again

      Ages 17-29 are big in the U.S (especially ages 21-25)

      This group is going to take longer to buy homes in a cycle where incomes, jobs and liquid assets need to be verified

      3. 30% of the mortgage buyers are first time home buyers, this is only 10% below the historical average even with the weakest demand curve post WWII. So, dual income college educated Americans have the capacity to buy even here in So Cal to a degree.

      4. When 2020-2024 comes there will simply be more of these college educated dual income Americans in the system. So, even if the demand curve % stays the same, there will be simply more of them than now

      5. Other variable that we have consider in those years

      – When the next recession will come
      – Where will interest rates be
      – Do the builders build smaller start homes

  2. hi logan. I enjoy reading your posts. do you have any info (or know where I can find some) on the HUD rule to redraw neighborhoods? supposedly to accomodate low income housing into” good” neighborhoods.

    Date: Fri, 24 Jul 2015 15:59:11 +0000 To: patcrnich216@hotmail.com

Comments are closed.