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DougMacG
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« Reply #500 on: October 28, 2014, 01:55:04 PM »

California Leads Housing Slowdown As Case-Shiller Home Prices Decline For 4 Months In A Row

Case-Shiller data for August confirmed once again that US housing is rapidly slowing down, when the Top 20 Composite Index (Seasonally Adjusted) posted another decline in August, its fourth in a row, declining by -0.15% and missing expectations of a modest 0.2% rebound (following last month's -0.5%) decline.

S&P's David Blitzer: "The deceleration in home prices continues... The Sun Belt region reported its worst annual returns since 2012, led by weakness in all three California cities -- Los Angeles, San Francisco and San Diego."

  - But who cares what the birth (and death) place of every housing bubble is doing, right?
http://www.zerohedge.com/news/2014-10-28/california-leads-housing-slowdown-case-shiller-home-prices-decline-4-months-row
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Crafty_Dog
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« Reply #501 on: November 19, 2014, 12:49:36 PM »



Housing Starts Declined 2.8% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/19/2014

Housing starts declined 2.8% in October to a 1.009 million annual rate, coming in below the consensus expected 1.025 million annual rate. Starts are up 7.8% versus a year ago.

The decline in starts in October was all due to a sharp 15.4% drop in multi-family units; single family starts rose 4.2%. In the past year, single-family starts are up 15.4% while multi-family starts are down 6.0%.

Starts in October declined in the Midwest, Northeast and West, but were up in the South.

New building permits rose 4.8% in October to a 1.080 million annual rate, coming in above the consensus expected 1.040 million. Compared to a year ago, permits for single-units are up 2.4% while permits for multi-family homes are down 0.5%.

Implications: Home building has been very volatile over the past few months but the underlying trend remains upward and we expect that to continue. The best news from today’s report was that building permits rose 4.8% in October, as single-family and multi-family permits rose 1.4% and 10% respectively. Permits now stand at the highest level since June 2008, signaling future gains in home building in the months to come. October’s drop of 2.8% for home building was all due to multi-family units, which were down 15.4% in October and have caused large swings in overall housing starts over the past few months. Single-family starts have been steadily rising over the past three months. So, the multi-family volatility over the past few months has masked slow underlying improvement in the housing sector. To smooth out the volatility we look at the 12-month moving average. This is now at the highest level since September 2008. The total number of homes under construction, (started, but not yet finished) increased 1.4% in October and are up 20.1% versus a year ago. No wonder residential construction jobs are up 131,000 in the past year. Although multi-family construction has slowed over the past few months, it has still taken the clear lead in the housing recovery. Single-family starts have been in a tight range for the past two years, while the trend in multi-family units has been up steeply. In the past year, 36% of all housing starts have been for multi-unit buildings, the most since the mid-1980s, when the last wave of Baby Boomers was leaving college. From a direct GDP perspective, the construction of multi-family homes adds less, per unit, to the economy than single-family homes. However, home building is still a positive for real GDP growth and we expect that trend to continue. Based on population growth and “scrappage,” housing starts will rise to about 1.5 million units per year over the next couple of years.
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ppulatie
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« Reply #502 on: December 28, 2014, 12:21:21 PM »

New home sales are so great per Wesbury and others .............this really shows the truth.

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PPulatie
Crafty_Dog
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« Reply #503 on: December 28, 2014, 01:06:22 PM »

Pat:

A question:  The previous peak is a bubble yes?  So, by what measuring stick should we evaluate how well things are doing?

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DougMacG
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« Reply #504 on: December 28, 2014, 03:54:34 PM »

Pat:
A question:  The previous peak is a bubble yes?  So, by what measuring stick should we evaluate how well things are doing?

450,000 today compares with an average of 700,000 over the last 50 years.  So if we grow 3 - 4% per year, we will back to where we were ... almost never.



http://static.seekingalpha.com/uploads/2008/5/29/newhomesales527_1.png
« Last Edit: December 28, 2014, 03:56:38 PM by DougMacG » Logged
Crafty_Dog
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« Reply #505 on: December 28, 2014, 05:21:03 PM »

So, for 30 plus years we were essentially flat and around '97, the time of the Clinton Gingrich cap gains tax rate cut we went onto a new trajectory, but at present we are above the lows of '66, '70, '75, and '82?  Yes?

"Down 42% year over year" includes the numbers from the bubble years, yes?
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DougMacG
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« Reply #506 on: December 28, 2014, 10:26:38 PM »

So, for 30 plus years we were essentially flat and around '97, the time of the Clinton Gingrich cap gains tax rate cut we went onto a new trajectory, but at present we are above the lows of '66, '70, '75, and '82?  Yes?

"Down 42% year over year" includes the numbers from the bubble years, yes?

The chart I posted shows new home sales only through 2008, an extreme year.  PP's chart overlaps this covering 2005 to the present.  Agreed that the comment 'down 42% year over year' mostly tells us the peak values were artificially high.  If you want to ignore the peaks of the bubble, what years should we ignore?  Not all the way back to 1997, IMHO.  It seems to me the excessive push of easy money began in the aftermath of 9/11/2001, not showing up until the recovery kicked in during 2003.  Nonetheless, even if you go all the way back to 1997, it looks like the average, historic, new home sales figure is still over 600k compared with 450k now.  Hardly a full recovery, we are still running short by about 33%.

It begs the question, is the Obama economy with workforce participation at a 40 year low and food stamp and disability participation at all time highs the new normal?

The answer to that is a matter of opinion or conjecture.  My view is that we could put the growth and greater participation back into this economy any time we choose that.  Home affordability varies artificially with CRAp, QE, and mortgage rates, etc., but otherwise is a pretty simple function of family income.  Under Obama, family income is not up.  The income and GDP growth has been largely concentrated in the top 1% of earners, equities investors and S&P 500 type companies. 
« Last Edit: December 28, 2014, 10:47:17 PM by DougMacG » Logged
Crafty_Dog
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« Reply #507 on: December 28, 2014, 11:08:49 PM »

Well, the cap gains tax rate cut ('97?) would seem to justify a secular change, but IIRC there was big concern over computers having a giant brain fart on 1/1/2000 and so the Fed pumped pre-emptively- to be followed by the 9/12/01 flood of money so perhaps '99 should be our SWAG baseline?

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ppulatie
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« Reply #508 on: January 08, 2015, 05:30:08 PM »

Just a few comments:

Where the housing pundits miss the boat is that they just look at charts and graphs and then make assumptions. There is no underlying analysis of the factors that contribute to the housing "recovery" nor analysis of factors that will affect it in the future.

1.   With DougMacG’s graph, notice that about 1991 the beginning of the upward trend. Coincidently, that is when Bush 41 began the idea of increasing homeownership from about 64% to 70% or more.  Clinton then followed that up with programs designed to get maximum ownership.

2.   1993 saw a huge push by the GSE’s to begin to control the mortgage market. Banks, especially after the S&L crisis were considered risker for loans than the GSE’s.

3.   1991 saw the first real successful MBS issuance since about 1985 with Ameriquest securitizing a $61m offering.  By 1993, other Wall Street firms and Mortgage Bankers began to approach the MBS market. The target loans were those that the GSE’s would not buy.

4.   1993 saw the creation of a “working group” to create the methodologies that would be needed for future lending. The Banks, Wall Street, GSE’s and Mortgage Banker Associations were the major part of the working group. In 1995, its findings were complete and led to the creation of MERS. 1996 saw the first loan registered under MERS.  The beginning of large scale securitizations was set in place.

5.   About 1993 and later began the loosening of Leverage Ratios for Wall Street firms.

6.   1998 saw the repeal of Glass Steagall and now commercial banks could now engage in Wall Street type actions.

7.   Mid 1990’s saw greater emphasis on the Community Reinvestment Act. DOJ and other regulatory actions to promote “Fair Lending”.

8.     With the 2000 Market Crash and then 9-11, the Fed actions to loosen credit which promoted greater housing sales.

9.     Jun 22, 30 year interest rates hit 4.25% for one day, and the following day the Fed announces that they will begin to increase rates again. Jul 2005 saw the market top in "sales activity" with values falling in many areas and in some areas, continuing to increase at about a 5% yearly increase until the summer of 2006, when things went "dead".

10.   Dec 2006, the first Mortgage Bankers begin to fail. "Say goodnight to housing and hello to foreclosures."

When you look at the combined history of what occurred to facilitate the Housing Boom, then it becomes readily evident that what the Fed and the government has done since has been a total failure.

Fed actions have not been about stimulating a recovery. It has been about keeping the banks afloat with QE, getting the toxic assets off the books of the banks and out of Investor hands.  Right now, 75% of all Private MBS have been retired or else foreclosed. What is left is probably mostly held by the Fed.

Much of the hot money used to provide investors the ability to buy foreclosures and at risk homes was a deliberate action to prop up values. The reason is that Negative Equity was a key determinate in foreclosures when it hit 120% LTV or greater. At 120%, stressed homeowners began to look at home ownership as a negative. Why be finally stressed if values would not recover for years? As the stresses mounted, a homeowner was more likely to default.

At 140%, default became much more likely for stressed homeowners. Additionally, 140 saw a new motivation for default to occur. Homeowners who could make the payments began to buy more desirable homes, paying less than what they owned on their "smaller" and "less desirable" home. After the purchase, they moved into the new home and let the old home go into default.

At 160%, wholesale strategic defaults occurred.

The Fed needed to prop up values, so they have lowered rates, engaged in QE and attempted many other things to prop up values by stimulating housing. It has not worked.

Now, the GSE's and FHA are going to 97% LTV and lowering credit requirements. They are also allowing  more down payment assistant programs. At 97% LTV, default rates are 15.96% from the 2002 to 2008 years. They know that defaults will increase, but at one banker told me, if 85% of the loans do not default, then they are ahead of the game. 15% is not a big deal if they have reserves for losses.  (BTW, 81% LTV is the "break even point" for foreclosures. Above 81% and lenders begin to lose money on foreclosure sales.

What happens when rates increase? Payments go up, so to offset the payments, home values will drop.  Oops, that means more Negative Equity which will lead to more defaults. Also, credit lines increase in payments, living expenses increase, and disposable income goes negative. More defaults follow.

Currently 4m loans are delinquent. 800k plus loans have been modified by HAMP and the payments are beginning to increase. (400k other HAMP have already re-defaulted.)  2.5m lines of credit are now "resetting" with higher payments. ARM loans will have payment increases again when interest rates increase. More delinquencies and foreclosures to follow.

How is the Fed going to counter this?

BTW, I am no longer involved with the people I had been working with to bring to market new Underwriting and Ability to Pay evaluations. What happened is that we were told by Mortgage Bankers and Banks that using my model, they would have to either decline loans, or else the sellers would have to accept less of a sales price to sell the home, or else the buyer would have to find cheaper homes to buy.  Additionally, they did not want to know the risk of default with borrowers because it increased their liability if borrowers defaulted under the new Dodd Frank.

The solution for my "partners" was to take the system and "hide" the risk. Risk evaluations would be done and the lender could turn them on or off as desired. However, our system would still record it.  At this point I left them. They are now marketing the system as they revised it, and apparently have a couple of trial clients.

What the idiots do not realize is that by hiding the risk and allowing it to be turned or off by the lender, for every loan that is funded and sold to the GSE's or FHA, or any other party, they and the lenders are now "engaging in a conspiracy to commit fraud". These fools never learn........

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PPulatie
Crafty_Dog
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« Reply #509 on: January 08, 2015, 06:05:53 PM »

Very interesting Pat.  Thank you.
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DougMacG
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« Reply #510 on: January 08, 2015, 07:23:24 PM »

Yes, great history and analysis!  What a meddled market!  The Fed is still propping things up with money and the government still has too many intervention programs.  As PP suggests, what happens to values when mortgage rates go up (and incomes are flat)?  It won't be pretty.  And the only reason rates aren't going up is because demand is so soft in the economy.  The policy makers have not allowed housing to correct (proven in pp's figures).  

The financial crisis is over, stop the emergency programs.  Cut back on these efforts to get people to buy a home without saving for the down payment.  3% down is not a commitment or security against value fluctuation.  Allow interest rates to right-size.  People need to save, not just borrow.  There is no balance to it.  Most of all, housing affordability is a function of income, not about houses.  We need to grow the economy and grow incomes if we want people to afford homes.
 
I agree with PP that they are "engaging in a conspiracy to commit fraud".  We still have too big to fail and live in a bailout world.  Values are still inflated. If knowing about risk causes them to lose out on a profit, then covering their eyes works just fine, from their point of view.  If they miscalculate, fail, and collapse, it won't be the first time.  It's not like they will lose their house.  They might not even lose their bonus. 
« Last Edit: January 08, 2015, 07:31:43 PM by DougMacG » Logged
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