Apr252016
Why aren’t homebuilders producing more homes?
Homebuilders won’t build what they can’t sell, and household formation isn’t so robust that builders must provide more to keep pace with demand.
Since 2012 the financial media chronicled the reflation of the old housing bubble but portrayed it falsely as a robust recovery based on strong fundamentals. Ordinarily, when prices rally in the market for any commodity, good, or service, the rally originates from resurgent demand that outstrips the available supply, and as a result, sellers and suppliers produce more to meet demand. Since 2012 when house prices bottomed, none of the usual signs of strong demand were present.
For example, consider that since the rally began, the housing market witnessed the following:
- 20-year lows in home ownership
- 6-year lows in home sales
- 30-year lows in first-time homebuyer participation
- 20-year lows in purchase mortgage originations
How do those facts equate to a strong rally based on fundamentals? Obviously, they don’t.
Given these unusual circumstances, it shouldn’t be surprising to find that new home construction less than 50% of normal.
And why is homebuilding so low despite an improving economy and several million more new jobs? Because despite the improvements, household formation less than 50% of normal, and apartment developers won’t create what they can’t rent, and homebuilders won’t build what they can’t sell.
Home Builders Are Not Very Busy
By Monetary Watch | April 20, 2016
… If the jobs market is truly booming then those beneficiaries who should be feeling the (permanent) income effects should be causing another boom in construction. Builders would be crazy not to engage in tremendous new volume if there was all this pent up demand and steady if not steadily higher prices.
Throughout the so-called recovery, every few months some real estate hawker proclaims the market brims with pent-up demand about to be unleashed, certain to cause a flurry of sales.
It never materializes.
Yet, housing remains stuck in the bottom of the historical ranges while apartment construction is seemingly just stuck.
U.S. housing starts fell more than expected in March and permits for future home construction hit a one-year low, suggesting some cooling in the housing market in line with signs of a sharp slowdown in economic growth in the first quarter…
Last month’s drop in groundbreaking pointed to a moderation in housing market activity and mirrors other data such as business spending, trade and retail sales that have suggested economic growth stalled in the first quarter.
Construction for single-family homes (is) nothing like what “should” be occurring if the economy were truly booming and there was a shortage of for-sale units. …
Modest remains the key word in all of it. A true pre-bubble “boom” in housing used to be 1.1mm to 1.2mm units, more than 50% above the current level. So where the recent trend might still be positive, there is no indication of an overall rush of economic good fortune from those with new jobs and no place to live. It … reflects upon the true state of national income and wages of what the true labor market is likely far apart from the unemployment rate.
Look at the chart of home construction above. Resale prices have increased 50% or more over the last four years in many markets, yet come construction is still languishing at levels historically associated with deep recessions. This clearly demonstrates that the increase in home prices was not caused by resurgent demand.
Since the home ownership rate continued to plunge while prices went up, perhaps the apartment builders were taking up all the slack?
As it turns out, no. They were not.
Instead, on the multi-family side, construction remains around 400k (SAAR). The level of new permits in March dropped sharply to just 324k, the lowest level since the summer of 2013. Even last year when overall construction indicated a relatively better pace it was still at the lower end of historical ranges. … In other words, 400k is not a healthy pace in a “normal” economy but especially one that is now supposed to be “booming” in labor markets and at the same time of a persistent housing shortage as new labor entrants seek to unwind prior cohabitation arrangements.
The homeownership rate crashed, rents skyrocketed, but apartment construction never really took off. Developers built more apartments in 1966 than they did in 2016.
… Instead, we find home construction in all segments that remains rather subdued on its own terms, and quite noticeably so in relation to the supposed acceleration of recovery and growth.
Despite what should be very favorable construction economics, construction instead continues to be positive but not significantly so. As with so many other accounts, it suggests an economy that never really took off where it “should” have and that it was only the huge crash and depression up to 2010 that accounts for even these small positives. More than five years after the crash and given population expansion (+14 million in the civilian non-institutional population since the start of 2011) there is no reason that housing construction should remain so tepid save actual economic circumstances.
So why is construction so much lower than the economic happy-talk suggests it should be?
Is it because the economy is not creating new jobs?
No. Although the recovery from the Great Recession hasn’t been spectacular, the economy created nearly 200,000 jobs a month for the last six years.
Is new home construction so low because new homes are not affordable? Logan Mohtashami believes this is the problem.
Home Builders, New Homes Sales And The Affordability Myth
What’s up with the Home Builders?
You may remember this statement from my 2015 Housing Prediction Article:
“You get my drift: The bar for housing is so low that some housing bulls might try the predictable tactic of bellowing about exponential growth portending a miraculous recovery when all that is occurring is a bump up from a pitifully low base. I take a more measured (or perhaps jaundiced) view of what the future holds” …
What happened?
The pundits, economists and analysts (Ivy Zelman, Janet Yellen and others) all say the same thing: Housing is so affordable.
But, if Housing is so affordable then why do we have this data line showing, with the lowest interest rate curve post WWII, we still have the worst demand for existing homes on record. And new homes are much more expensive.
While this argument is compelling, the main reason new home prices are so far above trend for income is due to mortgage rates hovering near record lows — the stimulus used to reflate the bubble. When normalized for payments rather than gross income, housing is affordable, even new housing. Therefore, I don’t believe the real reason for low construction volume is affordability.
If people are finding new jobs, and if house are affordable, why isn’t new home construction going crazy to keep up with demand?
Because for a variety of reasons, people are not forming new households, so the demand for new construction simply isn’t there.
Is the first-time homebuyer awakening?
The Great Recession wasn’t kind to the Millennial generation. The biggest challenge was a lousy job market for recent college graduates. Finishing college with a degree, large amounts of student loan debt, and bleak job prospects forced many young adults to move back home with their parents or take on roommates in a multi-bedroom apartment.
You can see this in the above chart. There was a big fall in household formation in 2008. In 2005, household formation peaked at 1.9 million. By 2008, that number was just over 400 million. It was less than a quarter of its previous high three years earlier. To put these numbers in perspective, the average from 1990 to 2005 was about 1.3 million. It averaged around 627,000 after the peak. In 2015, household formations were about 900,000 and housing starts were about 1.1 million.
The bottom line is that people are not forming new households. If people don’t form new households, neither apartment developers or homebuilders possess customers; no customers means no construction.
The bigger question here is whether or not this is a new cultural phenomenon or the result of a recession hangover. There is plenty of evidence that suggests the barriers are economic (by force) and not psychological (by choice).
However, the generation that grew up during the Great Depression were frugal throughout their lifetimes. Perhaps the Millennials will be the same. The lack of household formation will likely improve as Millennials age, get married, and start families, but we may see more non-traditional lifestyle choices with people living at home or with roommates for a very long time.
Demand may be pent-up, but it may remain pent-up for a very long time.
[listing mls=”NP16075299″]
Answer: Builders do not build more homes because buyers are unable to get mortgages thanks to the socialist Democrats. They made it very difficult to get a home mortgage. So, if someone pays 3000 per month per rent, they are lot allowed to pay 3000 per month for a mortgage because the Democrats know better and made the mortgage rules just to do that. They are all forced to live in some monster apartment building instead of building equity into their own home.
In public, Democrats claim they are protecting the little guy from the big bad banks. Do you believe that? Nope. Democrats always hate high house prices so their mortgage rules are just price control. In a Democrat mind, any section 8 person deserves to live in anywhere, like Beverly Hills, so price controls are social justice. The mortgage rules are just socialism and they locked people in as renters. Smart.
Now, the idiots are pushing the equal pay law. More socialism. That will also backfire. Fortunately, Trump should be able to win the election. Clinton should be an easy target. Hopefully, the dumb sheep who have been brainwashed to vote Democrat will smell the socialism and repent.
So, requiring creditors actually ensure their borrowers have a job, income, and/or assets to prove they can make the real payment, not a fake one that only lasts a year or two, is socialism?
Mortgage applicants in a sense are in the same boat. The bank will take a risk on the mortgage applicant and hope they pay their mortgage every month.
A mortgage owner who does not make payments is an expense to the bank, and this expense gets passed to all mortgage applicants in the same boat.
Would you like to share your boat with NINJA applicants? If anything allowing NINJA mortgages is the “welfare”. NINJA applicants would be subsidized by hardworking honest applicants with higher rates from the banks.
Until you end TBTF and moral hazard, you need these measures to protect the taxpayers. Post-housing crisis, it was the taxpayers who subsidized the banks and NINJA loan-owners.
Strong reasoning, TL.
Why aren’t homebuilders producing more homes?
Simple!
Central banks CANNOT print economic growth.
Of course they can! They just haven’t tried hard enough… yet!
Unfortunately, they all believe they can print economic growth. Either that, or they believe they can print the next best thing: the illusion of growth that placates the masses.
@LoganMohtashami It a very bullish sign!
Sorry… you cannot have a conflict of interest and be considered an objective observer/credible analyst at the same time.
Way to deflect!
Way to deflect²
Touché!
I thought this astute observer’s name was an oxymoron.
Homebuilders are raking it in because it’s more expensive for you to buy a house
Housing supply has not kept up with demand, especially in the end of the market that’s within the affordable reach of many first-time homebuyers. This has triggered a surge in home prices that has worsened affordability.
This is not great news for many homebuyers, but it is for builders like PulteGroup, America’s fourth-largest homebuilder by market cap.
During the company’s first-quarter earnings call on Thursday, CEO Richard Dugas perfectly captured the biggest themes in the housing market right now.
He said:
We have communicated that 2016 would be an inflection year with increasing volume being delivered through a much more efficient homebuilding operation. The combination of rising unit volumes, increasing average sales prices and a more efficient homebuilding machine can translate into significant earnings growth. Add in the benefit of consistently returning funds to shareholders and you have a business that can return high returns for its investors over time.
As Bob will detail in a moment the business is beginning to turn in that direction with sign-ups increasing by 10% to almost 5,700 homes, closing volumes gaining 17% to almost 4,000 closings, average selling prices expanding by 9% to $353,000 and our backlog value climbing 31% to $3.4 billion. These metrics obviously resulted in strong the quarterly performance in the first quarter but equally important they position the company to deliver continued growth over the balance of 2016.
Evidently, market participants are NOT buy’n the “continued growth over the balance of 2016” part…
http://stockcharts.com/h-sc/ui?s=PHM&p=D&yr=0&mn=0&dy=4&id=p42967183834
Buy the rumor and sell the news.
Another contributing factor to the overall cost of building is the “fourth branch of government” — legislation. Thanks to local ordinances and federal and state environmental legislation, it takes anywhere between 9 months to 2 1/2 years to just get a project entitled in good old California. The process by which this is completed for a subdivisions costs several hundred thousand dollars or more. There are biological assessments, nesting bird analysis, archeological evaluations, traffic studies, noise studies, greenhouse gas assessments, and more, all done by paid professionals, paid for by the developer. And that is just to get permission to move forward with a project, not an actual building permit or required inspections. There are permits, inspections, and testing or combinations of each for soil compaction, utility connections, plumbing installation, concrete slab reinforcement, septic systems (which are drawn up and engineered), just to name a few. All of these items individually costs hundreds to thousands of dollars. Multiplied over say, 120 units of housing, you begin to get the picture of why the cost to build housing is rapidly increasing out of reach for so many. And by the way, the hourly wage for the guy pushing debris to the dumpster on the construction site all day just went up to $15.
None of those additional costs help, that’s for sure. Also, the only reason municipalities can extract such large fees is because prices are so high. If they allowed more supply to come to market, it would lower prices, and they wouldn’t be able to charge such high fees.
Is a recession coming next year?
Persistent global headwinds and developing domestic issues are going to land the U.S. in a 2017 recession. Get your mortgage house in order. You will weather through the turbulence just fine.
First, a quick explanation: A strong dollar and some very slow economies are driving down U.S. exports. Competing oil producing nations continue to drive down oil prices hoping for a similar result to the game of musical chairs. Finally, deflation is triggering negative interest rates in an attempt to stimulate particular economies.
On the domestic side, U.S. banks and Wall Street are experiencing shrinking revenue. Earlier this week the Wall Street Journal reported that Goldman Sachs had its worst revenue quarter in 12 years.
United Health Group, the largest U.S. health insurer, is bailing out of Obama care because of massive losses. So, if your monthly health insurance bill doesn’t look like a second house payment now, it’s going to real soon.
Kiss your disposable income goodbye.
“The economy is most likely going to continue to grow,” said Michael Fratantoni, Mortgage Bankers Association chief economist. That said, the mortgage bankers forecast a 25 to 30 percent chance of recession next year.
Irvine quietly cracks down on short-term rentals
The city synonymous with master planning and suburban order is a surprising hot spot for short-term vacation rentals, a trend that is creating overnight entrepreneurs and fueling neighborhood conflict.
Irvine, not any beach city or Disneyland’s hometown of Anaheim, has seen the biggest jump in Orange County in the number of homeowners offering to rent out their properties via online vacation-rental services, data show.
And the spike in alternative lodging in Irvine, the county’s third-biggest city, is prompting neighbor complaints and a quiet city crackdown that some view as nothing short of an unofficial ban on vacation rentals.
“I feel like I’ve been vilified by the city,” said Jorge Zamora, an Irvine property owner who is fighting an Irvine-issued citation over a short-term rental.
“I’m not a lawbreaker, or someone who is going to bend the rules. I’m a by-the-book guy.”
Some argue that renting out a home for a night or two isn’t in anybody’s rulebook. As the practice has become more common, homeowners across the county have asked cities to beef up enforcement, complaining about late-night parties, trashed streets and streams of strangers in their neighborhoods.
Statistics indicate it’s not a small issue in Irvine.
As of September, the city had 370 listings on Airbnb, up from about 10 listings two years earlier, according to Beyond Pricing, a company that tracks vacation-rental data. Earlier this month, there were 130 Irvine listings on VRBO and HomeAway, a more than fourfold increase from three years ago, company data show.
Irvine is pushing back. Citing rules about hotel taxes and zoning laws that ban hotels from residential neighborhoods, city code enforcement officials have issued written warnings to nearly 70 people offering their properties for rent online.
Most of those warnings were sent over the past 15 months, city figures show.
Another instance of Irvine NIMBY-ism.
California housing crisis: It’s way past a problem
The extreme cost of housing in urban and suburban California isn’t just another problem in a state with plenty of them. Instead, it needs to be seen as a crisis, one that creates misery across the Golden State, with many middle-class and low-income households routinely spending more than half their income on housing, making it impossible to save for retirement, help children with college bills and much more.
Consider the concept of home ownership, long considered part of the American dream. The Apartment List website recently released a survey of more than 30,000 renters. “Millennial” renters — those under 35 years of age — are staggered by the cost of homes in California. Among those surveyed in San Diego, 89 percent see home ownership as unrealistic. In Los Angeles, 83 percent share that view; in San Francisco, 81 percent.
The survey becomes even more grim upon a closer inspection. In years needed for millennials to save enough for a down payment, California cities — San Francisco, Sacramento, Los Angeles and San Diego — were the four worst in the nation.
This is not a problem that can be addressed with feel-good fig-leaf solutions — like funding affordable-housing programs that deliver relief, lottery-style, to tiny fractions of the hurting. Instead, it needs broad, basic, far-reaching solutions. This idea has yet to take hold in the state Capitol — or in San Diego City Hall. But in the region that is at the epicenter of California’s housing crisis — the Bay Area — it is finally having its moment.
The price of paradise is wrapped up in housing
How much will house hunters pay for paradise?
Every year since 2008, the pollsters at Gallup compile results from a series of surveys into their Gallup-Healthways Well-Being Index, which tracks how Americans think about their overall quality of life. Sort of a touchy-feely consumer confidence index.
The results are diced by various geographical segments and presented in both a broad aggregate benchmark as well as sliced by five subcategories tracking niche lifestyle feelings.
The just-released 2015 edition of the Well-Being Index – derived from interviews with 177,000 U.S. adults last year – had Hawaii on top, West Virginia at the bottom – and California ranked 10th, up from 12th the previous year.
Since a home purchase has a lot of emotion built into the house hunter’s logic, I wondered how metrics on the often intangible measurement of quality of life might explain real estate homebuying patterns.
I tossed the Well-Being Index rankings into my trusty spreadsheet – plus some state-by-state housing stats: Trulia’s median listing price for March and home-price appreciation rates, as measured by Federal Housing Finance Administration indexes from 2010 to 2015.
The 10 states with the highest Well-Being Index ranking had an average listing price of $422,921 in March vs. $191,313 for the 10 lowest-ranked states – a 121 percent gap between the perceived “best” American lifestyles and the worst.
And it’s a long-running trend: The 10 highest-rated states had an average 24 percent gain in home price since 2010 vs. a 12 percent gain for the 10 lowest-rated states.
Yes, you pay for quality of life.
Whenever someone visits from our east coast office they say two things: 1. How nice the weather is, and 2. That they wish they could afford to live here. My response is: yes, the weather is nice, and I wish I could afford to live here too!
LOL!
New York, Chicago, and San Francisco have horrendous weather and yet cost even more.
The U.S. Housing Market is at its Best Since 2006
Daily dose of realtor propaganda
Due to robust demand and abundant supply of homes for sale, the U.S. housing market is operating at its best since 2006. According to Realtor.com, now is the hottest season for buying a home.
The housing market’s rise can be attributed to a variety of factors. While the demand for homes has been good all year, it wasn’t until June that we saw an increase in supply. This increase occurred as sellers became more confident about housing prices. The recent increase in mortgage rates and the speculation that interest rates will rise later this year have also contributed to the current market.
The rise in first time home buyers is a major factor that’s driving demand. Many of these first time home buyers are Millennials who’ve been halted by the challenging conditions of the market. According to a survey of site visitors by Realtor.com, 65% of older Millennials (ages 25-34) reported they intend to buy a home within three months. This is a 12% rise from six months ago.
Job growth and increased consumer confidence can be credited for the increase in the demand for homes. It’s estimated that over 3 million jobs have been created in the past 12 months, with more than 1 million being created for older Millennials, the typical age range for buying a first home.
The rise in demand has also allowed homes to sell more quickly. Realtor.com reported the median age of inventory nationwide in May was 66 days, which is eight days faster than last year. The hottest markets are seeing inventory sell 18 to 45 days quicker.
Time For New Home Sales To Show Growth
In my article, 2016 Housing Predictions, this was my outlook for the new home sector:
“I am predicting growth of 4%-8%, the lowest growth estimates I have given in this cycle However, just like 2015, if we can get more lower priced homes in the market, new home sales growth can be much higher than 8%. When only 500K new homes are being sold in a market of over 153 million working Americans, it wouldn’t take much to move the needle”
2016 Housing & Economic Predictions
So far this year, both months of new home sales data have been negative when compared to those months in 2015.
https://loganmohtashami.files.wordpress.com/2016/04/nhs20152016feb.png?w=1042
You may hear from some analysts that it is unfair to compare months with those of 2015 that had over 500K sales of new homes. But, years ago, If I had mentioned that sales for year 2015 would be around 500K, in year 7 of the economy cycle, when rates are at historic lows of 4%, I would have been looked at as leper, and a stupid leper at that. If you recall, new home sales were supposed to be on the verge of the greatest Nirvana expansion ever. The irony of truth is thick.
In truth, the comps are high because demand has been soft in both 2015 and 2016. Those first 2 months of 2015 were the highs for the year all the way until December.
For the last three years, new home sales have missed their expectations. Last year, outlandish sales estimates by some analysts over hyped the market, so that a correction needed to happen in the builders index. Since then we’ve seen a steep 20%-30% decline in some builder stocks. New homes continue to have tough affordability metrics.They are much more expensive than existing homes
Now, the time has come for new home sales to show growth, year over year. The 2015 comps from now until December are low enough (especially the March numbers) to provide some positive year over year prints. Just like last year, if median home sales price doesn’t go up substantially, this means there are more lower priced homes in the mix, and these homes can compete with existing inventory.
Don’t believe those who say new home sales are being held back due to low inventory. Like existing homes, there is more inventory from 2012-2016 than any period from 1999-2005.
In a Big Hole for a Detroit House, but Happy
DETROIT — Many residents of high-cost areas entertain the dream, at least occasionally: Give up the rent or mortgage grind, liquidate assets and start over someplace cheaper, perhaps one that could use a few spirited new residents.
Amy Haimerl and her husband, Karl Kaebnick, fell hard for Detroit and thought they could make their own dream of financial freedom come true when they moved here in 2013. But this is what happened: They put more than $400,000 (including all of their retirement savings) into a 3,000-square-foot, 102-year-old home in the city’s West Village neighborhood that was most recently appraised at just $300,000.
They claim, however, to be 100 percent satisfied and genuinely happy. Which raises a question: Are they insane?
MORE
What is the motivation for people like this? Is it just to say they bought in Detroit before it was the cool thing to do? In order for a city to turn around, it requires new industries coming in, but aside from Quicken Loans there really isn’t much going on in Detroit these days. The “Turn Around” or “Renaissance” or whatever their calling it is more marketing hype than reality. It was only a few years ago that REO’s could be had for $500 and lenders were letting properties go to tax sale just to be rid of them.
The motivation is that West Village is pretty much Detroit’s version of Silverlake and actually a pretty nice place with beautiful architecture, lots of trees, and a really good collection of shops and restaurants.
The article doesn’t show a photo of the house, but at $400k it is probably an amazing, grand Victorian.
Putting their whole retirement savings into it is dumb… but West Village is great.
And really, Detroit is a big city. The $500 REO stuff is a red herring. It is like saying there is blight in Watts so buying in Brentwood is a bad investment.
I suspect they bought without thinking much about it. Once they had the property, they were committed to fixing it up no matter the cost, and it became a money pit. Perhaps they are happy, but they are also in denial about their foolish decisions.
On the U.S. economy, is the glass half full, or half empty?
The bulls discount any bad news, such as weak retail sales or sluggish housing data, as a result of weather, faulty seasonal adjustment or the timing of a floating holiday.
The bears’ case is a bit more persuasive. (For the purposes of this analysis, I do not include the doomsday-conspiracy-theorist-perma-bears, for whom every number is fabricated and every uptick in the stock market is the work of the Plunge Protection Team.)
In addition to slow GDP and productivity growth, capital spending has been among the weakest of any post-war expansion. Business startup activity, which usually tracks the business cycle, increased for the first time in 2015 after a five-year slide, according to the Kauffman Foundation. Solid job growth, rather than a sign of strength, is a reflection of lousy labor productivity. With hiring concentrated in the labor-intensive service sector, employers are, in effect, substituting labor for capital.
What’s more, with the rest world growing “too slow for too long,” according to the International Monetary Fund, even in the face of ultra-low or negative interest rates, the U.S. can’t count on international demand to prop up demand.
Even financial markets offer a basis for disagreement. The bulls point to the U.S. stock market, which is at or near all-time highs. The bears highlight the rollover in corporate profits, which peaked in the third quarter of 2014, according to the national income and products accounts, and suggests the business-cycle is past its prime. Similarly, low Treasury yields can be explained either by misplaced optimism that inflation will remain low (bulls) or by a weak economy’s low natural rate.
Cruz-Kasich Deal Means a Much Better Chance to Stop Trump
Here’s an overlooked fact about the Republican race: Right now, all of the polls are consistent with a finish of 1,237 or more pledged delegates for Donald Trump and an outright nomination victory, without a contested convention.
That’s because Mr. Trump leads by a comfortable margin in all of the polls in Indiana and California, which would give him the nomination when added to the delegates that everyone expects him to win.
That’s the context for the John Kasich-Ted Cruz deal that was announced on Sunday night. The agreement is straightforward: Mr. Kasich won’t compete in Indiana; Mr. Cruz won’t compete in New Mexico and Oregon.
When you consider the delegate rules of these states, it’s an arrangement that gives the non-Trump candidates a much better chance of denying Mr. Trump the nomination.
As I wrote recently, the whole Republican contest could come down to Indiana. The state has 57 pledged delegates, and it awards those delegates on a winner-take-all basis statewide and by congressional district. As a result, the difference between a narrow win and a loss is huge for Mr. Trump. If he wins statewide — even by a point — it will be fairly easy for him to reach 1,237 delegates with a victory in California, which on paper is probably an easier state for him than Indiana.
The most recent polls show Mr. Trump leading in Indiana with around 40 percent of the vote. That’s a number low enough for him to be vulnerable, but Mr. Kasich has been at 19 percent in an average of the same surveys — giving Mr. Cruz a very narrow path to victory.
This Cruz-Kasich “deal” is so cynical it almost makes me want to vote for Trump.
Yes. I don’t see how it works in their favor. It makes them look as desperate as they are, and it also looks like they are trying to game the system.
This assumes that Cruz or Kasich are second-choice candidates in the minds of the electorate, and not Trump. An Indiana voter can do one of four things:
1. still vote for Kasich
2. vote for Cruz
3. vote for Trump
4. not vote at all
Only number 2 helps Cruz, and I’m not even sure it’s all that likely. I would rank these in order of probability: 1, 4, 2, 3. In other words, Cruz may gain a few votes, but not all of Kasich’s sold-out supporters will have the stomach to pull the lever for Cruz.
Yes, it seems to me they are operating on the fallacy that Kasich’s supporters would go full-conservative and vote for Cruz over Trump. This reminds me of a couple months ago when they were saying that if only the “establishment” lane would coalesce around one candidate, they could defeat Trump. Well, Kasich has been the only establishment candidate still in the race for over a month now, but he hasn’t won any states outside of Ohio and Trump is still in a strong position to win it all.
“but we may see more non-traditional lifestyle choices with people living at home or with roommates for a very long time.”
… because deflation psychology has taken hold. Deflation psychology can be just as tenacious as inflation psychology.
“The extreme of any position will ultimately become it’s opposite.” — Epictetus
Interesting how difficult it is for central bankers to keep the economy on the middle path. The stagflation of the 1970s was supposed to be a repudiation of central banker’s attempts to micromanage the economy. However, they still tried, but with a different set of tools that lead us into the ditch on the other side of the road. The deflation ditch is deeper and it has been harder to extricate ourselves from it.
More than half of the homes in my neighborhood have a roommate, or multiple roommates. They’re parents and grandparents.
Vacant land in good locations are scarce = expensive plus the high cost of permit and construction make keeping a good profit margin difficult. Low rates is great but income haven’t rise fast enough to make it affordable for middle / upper middle class to buy new homes (due to global wage arbitrage). New family formation often not choosing to acquire a new nest (instead moving back to mum and dad). Builders reluctant to build affordable smaller homes (so loans stays below jumbo) making the product too expensive to buy equal low sale and low future construction (if homes are not selling). Small lot size which can be a turn off (due to builders maxing out land value) and sometimes expensive association fees and high property tax (make owning still feel like renting, renting the land and the community). Plus an uncertain future at this time tend to create some doubts especially many homebuilders was overstretched during the last bubble making them more cautious now. The list could go on but but these are conditions in the new normal or the signs of time.
You don’t need vacant land there is plenty of tear down housing all over Los Angeles. So many of the homes are just a bunch of dry rot and mold. Not to mention all of the abandoned factories.
Land, improved or vacant, is expensive…that’s one reason why old “tear down” houses are expensive – the value of the underlying land is high even if the improvements are at the end of their economic life. Our transportation infrastructure has not kept up with employment and population, so effectively more and more people have to fit into about the same amount of square miles. More demand for a commodity of limited supply (land) means higher prices. I don’t know what the ratio of for rent housing under construction in OC to for sale housing under construction, but I’ll bet its way more than 1:1.
Paging Irvine Renter:
This is an excellent essay on the ponzi scheme that is behind the current round of tech startup “unicorns”. It’s almost impossible to see how things don’t come crashing down after reading his take on things.
(Disclaimer: The article is pretty long, but detailed.)
WHY THE UNICORN FINANCING MARKET JUST BECAME DANGEROUS…FOR ALL INVOLVED
http://abovethecrowd.com/2016/04/21/on-the-road-to-recap/
Thanks for sharing. I saw that article recently. It is a very good explanation of how the system works.
It seems to me that the tech unicorn Ponzi scheme has all the classical signs except one: on rare occasions they don’t implode.
A true Ponzi scheme has absolutely no chance of success, and it’s purely a game of musical chairs with the greatest fools absorbing all of the losses. The unicorn financing Ponzi scheme works for about 1 in 10 of these companies that makes it. A 10% chance of success is better than a 0% chance of success, so investors play the game.
The early venture capital guys do best. They generally sell out enough of their original stake to get their money safely out, then they keep a “free” piece of the company just in case it’s one of the winners. If it’s not, they lose nothing. If it is, they make a fortune.
Just saw season 2 of Silicon Valley on HBO. Character that played the wacko billionaire said to the young tech CEO: “Yo why show revenue plan? Why show your company is making money? It [your company] will worth more if it was not turning a profit”
The holy grail of tech investing is really what’s good “on paper or in theory”. I.e. we’re not making money now, but we will be worth billions in a few years or we will be the next Amazon, FB, Google etc…Normally the one who’s trying to realize the plan/idea at the end is usually the sucker. But the [lottery] prospect of untold riches it just so hard to resist. Just as in lottery, the one making money is the one selling the ticket/dream, not the one buying.
I wonder about the “quality” of all those jobs being created. I wonder how many are Full Time and how many of them are not waiters/bartenders and other low pay “Walmart” type retail jobs.
That has been a problem throughout the recovery. Over the last few years I believe it’s gotten better, but it isn’t like the expansion in the 90s when the economy created large numbers of high-paying jobs.