3-11 Hanson….Why we could be back in a housing bubble right now

by Mark on March 11, 2014

Let me preface this note by saying “I am a raging bull over houses”. I love real estate. On any given Sunday you can find me and my family touring open resale houses or new builder communities. My grammar school-aged kids love it too; especially the free cookies and peering into the beautifully staged rooms and really believing that some lucky kid has every gadget or musical instrument ever made and with utter amazement on how clean he keeps his room. Of course, my wife and I fully propagate the lie by saying “did you two see how clean the Lennar boy and Pulte girl keep their rooms? Why can’t you do the same?”

I think it’s safe to say that America — especially the American media and Wall Street firms — has fallen in love with real estate again. But, this time around it’s not ‘all of America’ like the last time; when the most exotic mortgage loans known to mankind turned every ma and pa end-user homeowner into a raging speculator. One has to look no further than the generationally low level of purchase loan applications — with rates at generational lows — to realize something isn’t ‘normal’ about this housing market. Rather, controlling this housing market over the past three years has been a small, unorthodox slice of the population that “invests” in real estate using tractor-trailer trucks full of cash-money slopping around the financial system put into play specifically for this purpose. Over the past few years so much cash-money has been deployed into the housing sector by unorthodox parties, that in many regions ma and pa end-user hasn’t stood a chance to buy. Especially, if they need a mortgage loan, which of course presents numerous risks to the seller vs the all-cash buyer.

In part, this is why I believe we could be back in a house-price bubble right now and not even realize it. And also because everybody is looking at the wrong thing…house prices. Sound confusing? It’s not, really.

A brief history of the “mortgage-loan, house-price governor”.

1) In a normal housing market, in which at least 80% of all house purchases are done with “fully documented” mortgage loans, house prices are solidly rooted to contemporary “end-user fundamentals”. That is, the mortgage loan with it’s LTV, appraisal, DTI etc guidelines is the “house-price governor“.

Bottom line, when the majority of houses are purchased with mortgage loans it is virtually impossible for house prices to wildly detach from end-user fundamentals unless credit goes haywire like from 2003 to 2007. Sure, there have been exceptions to this over the decades. But, for the most part housing is a pretty simple asset class that for decades leading into the change of the millennium remained mostly in-check to fundamentals and a great inflation hedge.

Most will quickly conjure up one of the most pervasive, contemporary mortgage market ‘myths’  and say this is an unfair analysis because post-crash “mortgage lending is too restrictive”.  I say “compared to what?”  Those who really believe “mortgage lending is too tight” are the same who believe that “lack of supply” is responsible for home sales volume dumping over the past couple of quarters (while supply is rising sharply I might add)…it doesn’t occur to them that this may be a “demand problem”.  That is, maybe first-time buyer demand, for example, is at historically low levels because they simply can’t afford to buy houses at current price levels;  they really don’t qualify for the loans.  As such, I don’t think easing credit guidelines is the answer.  This demand problem/house-price stalemate was where the housing market found itself in 2002 and we know what happened next.  But, I am increasingly believing that the lessons learned post 2007 have been forgotten.

The mostly thoughtful mortgage laws enacted by the Government post the great mortgage-meltdown still leaves mortgages today — through the GSE’s and FHA — much easier, efficient, and automated than most periods in history.  Sure, non-GSE/FHA, bank portfolio lending (loans that the banks make to keep on the books) has suffered because of the lack of a robust securitization market and much tighter capital requirements. But, if a borrower has a down payment, documented income, and good credit — three things that always should be present when buying a house anyway — mortgage lending is back with a vengeance.  The refi-boom from the month rates plunged on Twist in 2011 through when rates rose in June 2013 speaks for itself.

The reality of the situation is that mortgage lending isn’t as easy as from 2003 to 2007, which astoundingly is what everybody points to when saying “mortgage lending is too tight”. This is so radical to me, as they also point to bubble-years peak house prices as a benchmark to where prices should go.  How did we go from an unequivocal housing market bubble, to the worst crash in history, to using peak-bubble mortgage lending guidelines and house prices as benchmarks???

They fail to realize that if prices did return to peak 2007 levels then housing would be in a bubble again!  Then again maybe I am wrong…maybe everybody is so instinctively used to financial asset bubbles they fully expect another one to occur in housing and are simply vocalizing what is needed to create the next one.  Anyway, those looking/hoping/lobbying for a return to 2003 to 2007 mortgage lending will not only be disappointed, but if it somehow happened, would end up very sorry it did. Be careful what you wish for.

 

2) Enter 2003 to 2007, when the “mortgage-loan, house-price governor” was removed by the introduction and wide acceptance of exotic loans; in particular stated income, interest only, pay option arms, and HELOCs. Through the power of exotic lending, the ‘incremental buyer’ always earned $200k a year and had more-than-enough dollars in the bank when it came to qualifying for a loan to buy a house…credit went ‘haywire’. This allowed house prices to completely detach from fundamentals. Then, when the mortgage loan governor was strapped back on in 2008 — on the sudden loss of all the exotic loans over a short period of time — house prices quickly “reset to end-user fundamentals“. House prices quit plunging in 2009, as affordability using new-era 30-year fixed rate, fully-documented loans recoupled with real income and asset levels. This “bottom” should have set the stage for housing to once again be rooted to fundamentals / governed by contemporary mortgage lending guidelines. But, they couldn’t leave well enough alone.

 

3) Enter, the 2010 to 2013 “all-cash”, new-era “investor” era, which was almost identical to the 2003 to 2007 era in the effect it had on house prices . That is, during this period the incremental (the ‘majority’ in many markets) all-cash buyers work without a ‘house price governor‘, instead base their purchase and pricing decisions on individual, random, emotional, uneducated, or hopeful models or guesses. Some buy for appreciation, some for rental income, some to flip and some because they have to in order to get paid at their fund. In any case, without a mortgage loan governor the price they pay for a house is more often than not, subjective vs objective.

House prices being up 25%, 50%, or more in the past two years should have everybody sounding loud warning signals, as this is a tell-tale sign housing is being led around by the nose by something ‘other than’ end-user fundamentals. It’s not like employment or income gains in the past two years in the regions that experienced the greatest price gains — not coincidentally the same regions that were the ‘bubbliest’ in 2006; crashed the hardest in 2009; had the greatest institutional investor interest from 2011-13; and that were first to experience significant demand destruction beginning mid last year — grew at levels to support such gains. Rather, they simply assume this is the new-normal — in an era when anything in any financial market is possible — and point to the 2006 peak as proof housing is not overpriced yet.

In short, it’s very easy for an all-cash individual or institutional buyer to overpay for a house by 10%, 20% or even 30% in the heat of the deal, when competing against a dozen other all-cash buyers, and using flawed assumptions and return “models”. Overpaying for a house to this degree is impossible if mortgage loans and appraisals are required. As the bubble blows and prices become detached from reality there are always greater fools that can and will chase the market keeping it elevated for a period of time. But, outside of the all-cash cohort the number is finite unlike the 2003 to 2007 era when everybody could always overpay using exotic loans. Some will say “all-cash purchases for rental investment are rooted to fundamentals…that’s rents”. I say “hogwash”. I have seen many single family rental assumption models from some of the largest investors, and they are beyond rosy. I can easily change a few numbers in their Excel spreadsheet models and turn a 6% annual return into an 6% loss. Most all-cash, buy to rent or flip, flop, flap or frolic investor assumptions and models I have reviewed make the most bullish Wall Street sell side stock analysts look downright pessimistic.
Bottom line: It’s very easy for a demand cohort — as flush with easy liquidity as this era’s all-cash cohort — to push national house prices well above what the average end-user can pay. And that’s exactly what’s happened over the past two years and why in leading indicating regions, in which new-era investors flocked first, demand is plunging and supply surging. Just like in 2007.

 

4) All-Cash buyer demand

This chart from Black Knight (formerly LPS) says it all…the all cash cohort — without a “mortgage-loan, house-price governor” — has been fully in control of the US housing market for a long time. It’s very easy for a demand cohort — as large as this era’s all-cash cohort — to push national house prices well above what the average end-user can pay.

Housing market history is littered with instances of investors and first-time buyers flooding into the housing market all at once on some sort of catalyst, only to leave all at once, over a very short period of time. In ‘this’ housing market, however, first-time buyers are not a presence. This in itself, should be a huge red flag to anybody analyzing this sector. But, if the all-cash buyer cohort has finally eaten it’s fill and it’s demand drops back to historical levels, there is not another demand cohort to pick up the ball and run with it. In other words, if the all-cash speculators leave — or even downshift a bit — I am worried that certain housing market regions all over the nation — particularly the ones that have experienced a parabola in house prices over the past two years — could have substantial house price downside ahead.

Why we are in a housing bubble1

 

5) House prices are more expensive today than in 2006 on a monthly payment basis using the popular loans of each era… a true apples to apples comparison

Those looking at “house prices” — especially relative to 2006 — for signs of a “bubble” are looking at the wrong thing. That’s because to the end-user, the monthly payment is generally more important than the price. As such, when comparing the ‘cost’ of houses today vs 2006 one has to normalize the data for a true apples to apples comparison.

On an absolute basis, investors have significantly lightened up their purchases in all of the leading indicating regions I track so closely. This paradigm shift from an “investor-driven market” to an “end-user driven market” is causing considerable consternation.

That’s because when all cash investors, without a “mortgage-loan, house-price governor”, hand the market off to the end-user cohort with a fully functioning mortgage-loan, house price governor a “demand void” can appear. Not necessarily because the demand isn’t there. Rather, because average house prices are too high for the average, fundamentally-driven end-user to afford. This is what’s happening now. And based on how expensive houses are today relative to 2006, this should prevent any further upside this spring and summer, especially with rates up 100bps from a year ago. In fact, we are seeing seasonal weakness in offer prices much further into the year than typical meaning house prices have a strong chance of going negative YoY in the summer.

The Bubble Data

The chart below compare the ‘cost to own‘ the average priced house today vs 2006 using the popular mortgage loan financing of each era. When normalizing the data in this manner — vs simply assuming everybody always used market rate 30-year fixed loans, which clearly wasn’t the case from 2003 to 2007 — one can see clearly just how expensive houses are today.

Bottom line, in the first ‘results’ column, house prices in 2013 were 11% lower than in 2006 yet the monthly payment was 35% higher and the monthly payment needed to qualify was 29% greater. Taken one step further, see the second “results’ column to the far right. That is, to buy the 2006 bubble priced house using today’s mortgage finance vs the popular loans of the 2006 era, the monthly payment is 54% higher and the monthly income needed to qualify 44% greater.

Every time I review these data after updating prices in our database each month, I am amazed. I ask myself, “if 2006 was a bubble then based on the data below if if costs more per month to buy today’s average house why isn’t the sector in a bubble again?”

Affordability Comps 2

 

In closing, I do think higher house prices are mostly always good. That’s of course unless the reason for the rise is “unfundamental”.

General consensus has once again returned to the overwhelming belief that “house prices always go up and 2007 to 2009 was a fluke”. That’s plain wrong and dangerous.

I am not calling for another house price crash even though I think that housing is back in a bubble based on the monthly payment comparisons between now and 2006. What I am saying is that housing runs a real risk of price downside if the new-era investors — that have largely supported the entire sector and run up house prices beyond the reach of the average end-user through cheap and easy liquidity over the past three years — take their balls and bats and go home.

On the other hand, bubbles can deflate while house prices remain flat if the underlying fundamentals improve rapidly…strong employment, income gains etc. But fundamentally-driven housing markets take a lot time to develop, especially after so many years of running on unfundamental stimulus. Perhaps our economy can “grow into” today’s house prices over the next few years. Perhaps not.

As we saw in 2007 nobody can predict what house prices will do and the general consensus is usually the wrong one. Be careful out there. Buy a house because you need shelter and buy what you can truly afford using a 30-year fixed mortgage. Don’t buy because everybody else is unless you can clearly afford it — both financially and psychologically — especially if next chapter for this housing market is a consolidation of the past few years of gains.

{ 18 comments… read them below or add one }

Renegade Mortgage Banker March 11, 2014 at 12:29 pm

Mark is right on!!!

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Russ Wetherill March 11, 2014 at 12:35 pm

Does your analysis take into account the rise in incomes from 2006 to today? What about the drop in volumes and rates? 30yr rates are lower today than they were in 2006, and the drop in volume might account for the loss of all the affordability product buyers. From the perspective of a 20% down, 30yrFRM buyer, houses seem more affordable today than they were at the bubble peak. When you also adjust for a 30% increase in income from 2006 to 2014 (3.5% raises), and a drop in borrowing rates from a peak of 6.76% in July 2006, to 4.3% today (Freddie Mac), are we still in a worse buying position than 2006?

If a household made 100k in 2006, they could afford a 714k house assuming 20% down, 6.76% 30yrFRM, and 43% DTI. If that household now makes 1.3*100k = 130k, they can now afford a house at 1.128M, with 20% down, 4.30% 30yrFRM, and 43% DTI. There may not be as many of them out there as at the time of the bubble, but there doesn’t need to be since volumes have fallen. Unless sellers start tripping over each other trying to unload their albatrosses, I don’t see a price peak as much as a price plateau. Thinning volumes is the market working to transfer houses from the financially weak to the financially strong.

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Logan Mohtashami March 11, 2014 at 3:57 pm

2 things are very clear in this Housing Recovery ( Cough, Cough)

1. This is the first so called housing recovery where household median income growth didn’t rise in any strong fashion.

2. Housing inflation story is a complete 100% disconnect from the reality of this economic cycle

Finally, I believe I am getting we are getting through with our thesis with CNBC, Wall Street Journal and Bloomberg

Recently I worked with Bloomberg on an article on the lack of first time home buyers. Housing Inflation on both fronts have done a number on them

http://loganmohtashami.com/2014/03/05/first-time-home-buyer-whats-that/

Another item is the extreme soft nature of Mortgage Purchase applications and the charts don’t lie. We have very bad number year over year, down well more than double digits. Usually the end of March is very telling on how spring is going to be and even with the most likely rise we will see tomorrow and the next 2 weeks, the YOY will be negative. Mortgage Purchase applications simply running out of time

http://loganmohtashami.com/2014/02/20/mortgage-purchase-applications-running-out-of-time/

I employ all of you to chart of these 4 metrics in any chart form you like and you will see the truth of housing since 2009

- Median Incomes
- Mortgage Purchase applications
- Labor participation rates
- Fed balance sheet

I promise you that you will see the light then

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G-man March 11, 2014 at 4:24 pm

Russ- Real estate broker?

Not sure how a 100g/year family gets a 30% raise considering labor participation rates is at 30 year lows, and fulltime jobs are at 2005 levels while the working age population grew 7.5%. Real income has declined to 1990 levels, , and household formation is non-existent. This is reflected in new mortgage apps at 20 year lows as disposable income has the biggest drop since 1974 in January

So, yes, you can certainly point at some metrics and say why not, sadly, reality creeps in as people dont buy homes. Unless, you’re in Greenwich, CT or other high end super premium markets. But even there, with every bank layoff, brokers get more pocket listings every day.

The center is broken and if the best the Fed can do after injecting $4 trillion (with a T) into the market and buying every mortgage they can find, I can only say – Watch out below!

You’ve gotten used to price deflation in electronics, get used to it in housing.

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Russ Wetherill March 12, 2014 at 1:25 pm

Not a real estate agent. Not even close.

There are two markets for houses just as there are two markets for jobs. The unemployment rate for the college educated is less than 4%. Real median incomes are certainly stagnant, but why then have we seen price inflation in every other segment of the economy? Does a car or fast-food or rent cost the same as it did eight years ago? How can this be if incomes aren’t rising? Part of this is due to government subsidies (EBT), part is due to low-interest loans (cars and houses), and the rest is due to rising incomes.

Incomes have been rising for all wage earners since 2006, see the Bureau of Economic Analysis Pesonal Income and Expenditures Table 2.1, line 38, per capita income: 2006 = $33,591; 2013 = $39,423. This is a rise of 39.4/33.6 = 1.17 or 17%. Some got more than 17%, some got less. That is the reality. I’m not advocating whether this is fair, but merely pointing out the FACTS as I see them. Economists like to talk about real income growth, as opposed to actual income growth, to account for inflation. But they fail to observe that things cost more because people can afford to pay more. This is also true for houses.

From the latest Personal Income report of the Bureau of Economic Analysis:

2013 Personal Income and Outlays

Personal income increased 2.8 percent in 2013 (that is, from the 2012 annual level to the 2013 annual level), compared with an increase of 4.2 percent in 2012. DPI increased 1.9 percent, compared with an increase of 3.9 percent. PCE increased 3.1 percent, compared with an increase of 4.1 percent.

Any honest analysis must take into account falling interest rates and rising incomes. I’m not saying that incomes are going to continue to rise, or that rates are going to continue to fall, but shouldn’t we devote a little bit of discussion to the two most important factors for housing prices?

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G-man March 13, 2014 at 6:27 am

I’m not disputing your thesis, just pointing out that you need to consider your theory in a totality. Most home sales appear to fall into a bell curve pricewise, so we can then apply standard deviations to it. If you’re willing to agree that low end income demographic is a non-buyer and high end buyer will buy what they want due to higher disposable income (we can define house purchases for high end for most of the country as over $1.0mm, except for certain communities, like Greenwich CT where $2.0mm is a ‘starter home), we can address your BLS stats.

1. The labor force participation rate is at 30 year lows – so this demographic is clearly not able to rationally consider buying a house.
2. The college grad participation rate needs to be considered in two parts,
a. College grads come in many forms, from Ivy League to Community college. We have seen college grads pushing out high school grads in low end jobs as high school grads pushed out high school dropouts in the last recession, so basically this is the new normal for many college grads,
b. Student loans are not addressable in bankruptcy, so for many of those ‘grads’, between rent and loans, their income (or DTI) has limited borrowing ‘power’. Tuition loan totals are now bigger than credit card loans (on a national basis) and are focused in a tighter demographic, eg, those more likely to engage in household formation. In addition, many folks are now learning the tuition loans they co-signed for require their participation as their family member’s income isn’t what they hoped for, which cuts disposable income.
3. With mortgage apps and income levels at mid 1990s levels, tighter credit standards from lenders and house prices at 2003-2012 levels, its unlikely buyers will surge into the market.
4. The price inflation is a controversial metric. If I buy a car today that comes standard with gizmos that cost a lot three years ago, or hadn’t been thought of five years ago, how do you compare the prices? Its very hard, but I would say deflationary. As for food/gas/daily consumables, their prices have increased as they are more market driven yet don’t define people’s spending habits (as large scale purchases do).

But if we use your income levels, a married couple at those BLS incomes at an aggressive DTI of 65%, with no other debt or expenses, can afford how much of a home? And this is at very low mortgage rates.

Now, lets put mortgage rates to historical levels, say 6-7%, (which causes about a 10-15% house price drop for every 1% increase in mortgage rates), re-set HELOCs to the same rates or even create cash calls against underwater borrowers, and how does your analysis look? I’d argue its highly deflationary, with some real possibility of a major financial institution being fatally wounded. And many tens of thousands being pushed out of houses that will be sold at lower prices as banks look to re-coup losses to maintain some capital.

And there are lots of anecdotal stories, but heres a high end one – I know a couple in NYC late20s, very successful by any standard. Shes a doctor interning at a prestigious NY hospital, hes an Ivy League MBA, working at a Tier 1 firm. Between them they have over $400k in student loans and their only expenses are what they spend each month. To maintain their lifestyle, they think at 35 they can pay off their loans, and start saving to buy a home and have a family. Although their incomes will increase dramatically in the next 5-6 years, how many houses will they buy? One. How many cars? One. And that’s in five years and they say their friends are the same. So, if the young, well-paid, well-educated act this way, (with disposable income), I find it curious indeed to hear about housing’s recovery happening now.

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John G. March 11, 2014 at 4:43 pm

Makes great sense, Mark. Thanks for your analysis!

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Bob Meyer March 11, 2014 at 7:49 pm

What I see, with the derivative debt, quoted by the Bank of International Settlements being 1 quadrillion, and 144 Trillion Dollars, what does the world think will take place when that bubble blows? The Federal Reserve Bank and the U.S. Treasury have created 4 Trillion $s just to pay off the interest of the loans they took out to run the country.
No one wants to buy U.S. paper anymore, so they are buying their own debt. What does all this tell you going forward. Just look at the building inventory of cars over the last year. They cannot find buyers, which will cause more layoffs. How many chains stores have to dismiss more employees to get their spread sheets balanced?
This is not a pretty picture. Larry Burkett, in his book THE COMING ECONOMIC EARTHQUAKE could not predict what is taking place now.

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JB McMunn March 11, 2014 at 8:41 pm

According to FRED median household income has advanced about 2% since 2006 (MEHOINUSA646N) so what’s the point of discussing these hypothetical buyers who went from $100k to $130k? It’s rather unlikely that they exist in sufficient quantity to make a dent in the housing market.

Consider the demographics. Older people sell their houses. New families buy houses. These are young people, and that age group is experiencing a terrible employment environment at present. What income growth we’ve had has been skewed toward the high end of the age spectrum – the people who are NOT buying houses.

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Mdavid March 11, 2014 at 9:01 pm

Hi Mark.
Could you please elaborate this very frequent comment that is thrown every time by the housing bulls in regards to replacement costs?
Too many times I have heard that housing is not in a bubble or it has another 30-50% more upside just to be in pair with true replacement cost.

I’m confused.

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Scott March 12, 2014 at 9:02 am

Replacement cost is not entirely relevant…..If people can’t afford the McMansion even if it is selling below replacement cost, builders will build a smaller home they can afford…substitution effect at work..

If we have an oversupply of the wrong product, the replacement cost will not drive the secondary market……When fuel skyrocketed last decade, large SUVs plunged in value as consumers switched to alternatives…The replacement cost of a new SUV was not germane.

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Maria das Santos March 11, 2014 at 10:23 pm

Mr Hanson thank you for the analysis.Where California goes so does the rest of the world.May I ask,if HELOC was acceptable in 2006 what is to stop the government implementing an even more insane method of levitating housing for their friends in the banks who seem to own a lot of property,eg .as suggested by Fabian Calvo,a direct grant form government to those living in the most housing impoverished areas,surely this would back wash into the wealthier areas as we have seen here in the UK?

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Goldman March 12, 2014 at 4:17 am

Mark,
Is there any similarity between this housing market and the 1980s? I watched the MoneyPit with Tom Hanks from 1986. Similar themes of housing is expensive, hard to find, and rents in the city sky rocketing. In the early 80s you had sky high mortgage rates stall the economy and housing. As mortgage rates fell real estate began to take off and the market gets juiced by human psychology even as rates rose.

Shiller and Case did a research paper that capture the behavior of folks at that time:http://www.nber.org/papers/w2748

Perhaps I’m just trying to justify sitting on the sidelines and I missed my shot to own at low prices?

Regards.

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PBForsberg March 12, 2014 at 5:04 am

Fantastic Article Mark –
Thanks – that should get some of them thinking.
I have been tracking the residential RE market in Florida. We have had a robust recovery, but upwards of 71% of all transactions have been Cash purchases. One would say, (And many do) that without leverage you cannot have a bubble. However, if you “dig” into the market as I have, you see over 70% of all cash sales are from foreign buyers. (I did the research and have the data to prove it)
This means Americans are not buying, and those that do are using leverage. Most of the foreign buyers are Canadians and South Americans. The Canadian market is way – way – way over inflated and it is simply a matter of time before their bubble bursts. When it does, there will be massive amounts of “Must-Sell” properties on the market because they will need the cash to save their primary homes.

I personally do not deal in residential any longer as I have switched to Commercial Income Properties.
Mainly neighborhood shopping centers, office complexes and Multifamily properties.

After the last correction, I became obsessed with tracking history and trends. I have some data dating back to the early 1960′s and I want to share something I feel of great importance.

EVERY SINGLE TIME we have had a recession or correction, it has begun when Commercial Real Estate Sale prices are less than 2 points of the current interest lending rate. ie: Cap rates on multifamily properties drop to 7% and the bank lending rate is 5.25%. It is called the “spread.”

Currently, the lending rate is in the 5.25% – 6.5% depending on circumstances.

Multifamily properties are selling in the 5.5% – 7.5% Cap range. Meaning there is NO SPREAD in the market.
Some would say it is the Hedge funds and REITS looking for a return, and they are correct. However … as soon as they can find a better return they will dump the properties at a higher Cap rate driving down prices.

If history is an indicator to the future, the past 2 years may just turn out to be what Wall Street calls the “Dead-Cat-Bounce.”

Like you, I am in the trenches every day and “see” with my own eyes what is happening. Before making a move, we compare historical data to current and make a “go/ no-go” decision based on data.

After being taken to the woodshed in 2006-2010, I wrote this on a piece of paper and posted it on yhe wall in front of my desk ….
“Spreadsheets Don’t Lie ….. Emotions and People Do”

Thanks for the article – great job.

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rj chicago March 12, 2014 at 1:19 pm

@PBForsberg:
Any comment on folks from the EU purchasing RE in FL in droves.
My wife and I were in Naples, FL last year this time and I spoke with a realtor there – he had signs out in English, French, Russian (eeek!) and German – asked why – his reply: They are coming from the EU because purchase power for housing here in the US is far greater than there.
I agree – when the tide shifts – look out – these folks will pull the plug in a heartbeat – house purchasers in cash are fickle people.

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G-man March 12, 2014 at 7:34 am

Keep in mind that hedge funds have ZERO cost of funds, get depreciation benefits and their ‘income’ can be taxed differently than historical investors’ tax rates. So, your spread , while valid for many, may not be how hedge funds view it.

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swflorida April 27, 2014 at 10:03 am

mark , are you now a contributor to stockman’s contra corner ? I see your posts there but not on your own blog

anyways here is the latest from the MH series via the contra corner .

http://davidstockmanscontracorner.com/5k-suits-riding-john-deere-lawnmowers-back-to-wall-street-phoenix-housing-demand-collapses/

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BS May 7, 2014 at 9:20 am

Have to say, I Love this blog in theory but where I live in SoCal
houses are going WAY over asking multiple offers and people are doing while dropping all contingencies.
This has happened to me several times including as recently as this week.

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