Marc Hanson: "Houses Have Never Been More Expensive To Buyers Who Need A Mortgage"

Tyler Durden's picture

From Marc Hanson of M Hanson Advisors

Houses have NEVER BEEN MORE EXPENSIVE to end-user, mortgage-needing shelter buyers. The recent rate surge crushed what little affordability remained in US housing. It now it requires 45% more income to buy the average-priced house than just four years ago, as incomes have not kept pace it goes without saying.

The spike in rates has taken "UNAFFORDABILITY" to such extremes that prices, rates, and/or credit are now radically out of scope.

At these interest rate levels house prices are simply not sustainable even in the lower-end price bands, which were far more stable than the middle-to-higher end bands (have been under significant pressure since spring).

* * *

The Data (note, for simplicity my models assume best-case 20% down and A-grade credit, which is the "minority" of lower-to-middle end buyers).

1) The average $361k builder house requires nearly $65k in income assuming a 4.5% rate, 20% down, and A-grade credit. Problem is, 20% + A-credit are hard to come by. For buyers with less down or worse credit, far more than $65k is needed.

For the past 30-YEARS income required to buy the average priced house has remained relatively consistent, as mortgage rate credit manipulation made houses cheaper.

Bottom line: Reversion to the mean will occur through house price declines, credit easing, a mortgage rate plunge to the high 2%'s, or a combination of all three. However, because rates are still historically low and mortgage guidelines historically easy, the path of least resistance is lower house prices.


2) The average $274k builder house requires nearly $53k in income assuming a 4.5% rate, 20% down, and A-grade credit. Problem is, 20% + A-credit are hard to come by. For buyers with less down or worse credit, far more than $53k is needed.

For the past 30-YEARS income required to buy the average priced house has remained relatively consistent, as mortgage rate credit manipulation made houses cheaper.

Bottom line: Reversion to the mean will occur through house price declines, credit easing, a mortgage rate plunge to the high 2%s, or a combination of all three. However, because rates are still historically low and mortgage guidelines historically easy, the path of least resistance is lower house prices.


3) Bonus Chart ... Case-Shiller Coast-to-Coast Bubbles

Bottom line: IT'S NEVER DIFFERENT THIS TIME. Easy/cheap/deep credit & liquidity has found its way to real estate yet again. Bubbles are bubbles are bubbles. And as these core housing markets hit a wall they will take the rest of the nation with them; bubbles and busts don't happen in "isolation."

Case-Shiller's most Bubblicious Regions

  • Ask Yourself: If 2005-07 was the peak of the largest housing bubble in history with "affordability" never better vis a' vis exotic loans; easy availability of credit; unemployment in the 4%'s; the total workforce at record highs; and growing wages, then what do you call "now" with house prices at or above 2006 levels; high unaffordability; tighter credit; higher unemployment; a weak total workforce; and shrinking (at best) wages?
  • Logical Answer: Whatever you call it, it's a greater thing than the Bubble 1.0 peak.

The mind-numbing Case-Shiller regional charts below are presented without too much comment. The visual says it all.

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Bay of Pigs's picture

Everything is awesome?

jsgibson's picture

Everything's cool when you're slaves to the debt machine.

sun tzu's picture

No problem. NIRP with interest only loans. People will be paid to borrow and buy houses. The more you borrow, the more interest the banks will pay you. What could go wrong?

In Soviet Amerika, bank pays you mortgage interest.

rccalhoun's picture

NIRP is mandatory to keep this ponzi alive.  trump will be defending low rates any day now.

schrock's picture

Exactly. Trump is a liberal at his core. His economic policies when it comes to housing, commodities and money printing won't be much different than Obama's.

Paul Kersey's picture

I agree with Hanson. I'm sitting on a bunch of infill lots, and there is presently a house and lot inventory shortage in my area. At the same time, apartments are being seriously overbuilt here, and the big, long time land owners are finally letting go of their large tracts. So I'm dumping my lots next year before these large tracts get developed, and before the banks stop lending on more apartment projects. When the apartment building stops, there will be a gang of subcontractors with no jobs and no rent money. It can only go downhill for real estate prices from there.

In 1927, we had the great speculative Florida real estate bust. Two years later the stock market crashed, and the Great Depression was born. By the end of 2007, the subprime and liar loan real estate market crashed on a national level. In 2008, the stock market crashed, followed by the Great Recession. When this present real estate market crashes, a stock market crash will follow, and the Great Recession, which never ended for Main Street America, will deepen. Something wicked this way comes.

de3de8's picture

As they say location,location,location. In my neck of the woods govt employment keeps the trend line (income/house prices) on an upward trajectory. We currently pay as much a 400k for finished lot 1/4 acre in size!

Chris Dakota's picture
Chris Dakota (not verified) de3de8 Nov 26, 2016 8:33 AM

Every bubble lasts longer than people think it will.

Not over yet, they don't have the liar loans and Mexican gardeners buying million dollar homes...yet.

Plus don't forget it takes at least 5 yrs to bottom out. I saw in 2010 people who bought on the way down


CheapBastard's picture

Houses and mortgages look very expensive to the 18% unemployed.

Chris Dakota's picture
Chris Dakota (not verified) CheapBastard Nov 26, 2016 8:52 AM

So do rents.

Some places owing is still cheaper than rent.

Stuck on Zero's picture

Wow. The only way to afford a house now is to work for the government.

rmopf2010's picture

Socialism at its best big government/welfare state and the slave private workers to feed that machine with never ending taxes until we pay more than we take home.

Now think about this paradox

If interest rates are low house prices go high

If interest rates are high house prices are low

In a low level interest rates Private workers once again are slaves of the banks


new game's picture

a very wise salt from real estate told me to look to europe to see where merica will be with housing.

he was/is correct. 20+ years real estate exp/broker has told me he is correct.

and never forget, ya buy a payment and get a home...

Okienomics's picture

Europe: that's a broad swath of real estate.  Conditions same from Athens to Zurich?  So.... what is happening in Europe?  

a Smudge by any other name's picture

I know a guy who looks at the same thing but his theory is "the money always has to go somewhere". He rotates through investing in NY, DC, Munich, Paris and London. Whichever one is undervalued relative to the others is what he's buying.

you enjoy myself's picture

Luckily, we have a near-term test of that coming up.  If the Fed goes ahead and raises a measely 25bp 3 weeks from now, I'd bet my life that he complains the Fed is conspiring against him. 

In a perverse way though, he's almost right.  When you have nothing but rate decreases (or holding steading) for eight straight years, despite surpassing every metric the "data dependent" Fed claims it relies upon, a raise right before you take office can certainly be made to stink.


ACP's picture

Hey  Mark, still on ZH? if so, please do some YouTube vids, I really liked the old ones from the markmti acct.

migra's picture

So when does it all go to shit? A year from now? Three months from now? I've been waiting to buy for years but the fucking prices just keep going up.

HedgeJunkie's picture

It went to shit eight years ago.

We're in the undeclared Great Depression 2.Ohfuck.  2008 won't be officially declared the start of GD 2.Ohfuck until history writers of 2048 sit down and do a review with clean, unredacted, government and federal reserve data.

Clinton lit the fuse, Bush fanned the flame, and Obama threw the bomb.  Trump gets to deal with the explosion (thank God it's not Hillary...we'd launch a new global war [most likely nuclear] under that cunt. Not to say we wouldn't with the Toupee in Chief, but he's an unknown, Hillary would have been a certainty). 

Good luck and God speed to Trump.  From my view we're all going to be eating shit sandwiches for the next twelve years.

new game's picture

never goes to shit entirely, because we will need to live somewhere. living under bridges may get moar crowded. rv villages, tent cities, and plain outright shanty town homesteaders will be the new merica blight created by the oligarch class of rentier result. trend of moar poor and income congregrating at top in place til bust up/down by lack of food to poorest. revolution is in the aire, ooooooooooooowwwwwww, that smell!!


Okienomics's picture

(RV villages)... Long CWH.  "The Profit" sees it coming!

Lost in translation's picture

I have an idea. No really, hear me out.

Ok so, let's say import oh, 20 or 30 million more Muslim immigrants and give them all loans underwritten by the taxpayer, and then...

Yen Cross's picture

  I'm sorry-- maybe it was an anomoly? That huge spike in equites futures ia probably just a toilet flushing

lasvegaspersona's picture

They announced they would stop reporting earnings...all is good.

ichan's picture

All those folks trying to park their money in US houses and stock market are going to be in for big surprise.

All the folks that lived within their means should do fine. All the rest, you're fuct too.

booboo's picture

Hanson is brilliant but he sports wood every time the name Abby Joseph Cohen is brought up in conversation.

Take a peak at this babe

skunzie's picture

A real stunner that one, for sure


HedgeJunkie's picture

That's what's called a pillow case bitch.

Throw a pillow case over her head flip her ass over, and go anal.  From behind, all women can look attractive in a certain light, setting and action.

wisehiney's picture

No way a stronger dollar and rising rates can hurt housing.

sun tzu's picture

Stronger USD means everything goes up except gold and silver. At least that's what's been happening the past few weeks.

HedgeJunkie's picture

"Stronger USD means everything goes up except gold and silver. "

And thank, fucking, God.  $900 Gold - $11 silver by end of year?

thecondor's picture

So should I wait one more year before I buy a house? Seriously. Should I? I was thinking of buying this summer.

wisehiney's picture

Stay put or rent for now.

Keep your eyes open for attractive homes.

The best deal in history will fall in your lap.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) thecondor Nov 25, 2016 11:29 PM

Winter is a good time to buy distressed property. Example: couple is getting divorced and has to sell according to the divorce decree and split the proceeds. (Make sure they actually have a divorce decree prior to engaging with such fuckwads, first). People die. People move. If you are young and have some energy, time, and are good with money you could probably find a place that wouldn't be that hard to fix up with new appliances, new flooring, some paint, and new counters. Not a big deal if you do that before you move in. It is a big deal if you try to remodel after you move in. Ask me how I know.

Buy the worst house in the best neighborhood you can afford and where you actually want to live. Worst house is relative. If you buy the most expensive, nicest house on the block good luck getting any equity out of that beast!

Lost in translation's picture

I'm no expert. Heck I'm not even 1/2 knowledgeable, but...

Yeah, I'd wait. Depends on where you're located, of course. I wouldn't start looking before the winter of 2017-2018, like HRH suggested, below V

I'm in SoCal, land of the credit card millionaires, skyrocketing crime, and depleting natural resources. I wouldnt buy here if prices fell by 2/3.

This dump has no future.

northern vigor's picture

I cannot predict the future but I can tell you about the past.

In 1980 things were bad. I could only find low paying jobs and mortgages were 19% interest. 

This drove the real estate prices down where I could afford to buy, even though the rates were atrocious. 

Soon interest rates came down, and my income went up.

I predict that if interest rates go up just 1%, prices will correct 10 or 20%. 

My point?...Young people can take advantage of bad times. It may be the only way a young guy can get ahead, by scavenging other people's problems. Be ready, keep your powder dry.

warpigs's picture

Rates on a conv 30 yr mortgage have already increased more than a 1/2 pt. Half way to your projection/prediction

Singelguy's picture

I would agree with that advice. Wait and see what Trump manages to get done. It will take about a year to see the impact of the policies he can get enacted. If the economy improves, interest rates will rise and prices will come down.

Okienomics's picture

Condor ("Should I wait before I buy a house?")....

Buy a house if your family wants one, it fits your job/lifestyle, you have a substantial down payment, and intend to live in it for a decade or more... OR buy an owner-carry with a minimal down payment and be prepared to walk away if the market tanks.  Market may fall, market may rise, but you only have so many years on this planet and YOU are the architect of your own life.  Lastly, it's pretty dangerous asking for investment advice on ZH, unless you want to be clear-eyed on the worst-case scenario.  ZH is a great go-to for the WCS.

Peak Bull's picture

Thecondor, I am assuming you are trying to maximize your investment. This depends on many factors such as location, type, quality, how long you plan on living there, and if your income is secure enough to survive the next recession.

In some towns in America, prices stay about the same.

Stan Smith's picture

As someone who's in the business, all of this is dead on.

The bubble will burst, however because there is some cautionary wind already built in, it wont look like the last one.    It's ripple effects could be just as damaging however.

The federal government should be fucking embarrassed by its behavior with all of this however.   They still have the gall to chide banksters for not handing out ENOUGH money.   Fuck those beltway leaches.

Again, ive been in the financial services and/or real estate my whole professional career.    It wont be 2008 again, but it'll smell like that.

Seasmoke's picture

And it will be much worse than 2008.

Stan Smith's picture

I actually dont know that it will.    At least as far as housing is concerned.     However, throw in all the other kinds of debt floating around that probably shouldnt be (student, consumer, auto, etc.)


You wont have the cliff dive for real estate alone -- which for a long while is what happened in 08 -- but you will have multiple bubbles popping all over because of it.


I'd hate to discourage home ownership,  but if I was living in my parents basement socking money away to move, id hold on a bit longer.

Creative_Destruct's picture

Ya, reinflating overinflated assets in perpetuity is a REAL sustainable plan. Just ask Pauley Krugman.There's NEVER enough money and spending.

One day this idiot neo-Kenesian perpetual consumer driven stimulation will be seen for the insanity it is.

Until then, find a comfortable corner in the padded sections of the asylum and wait things out.

And hope the lunatics don't take out the sane in the process of this shitshow collapsing.

schrock's picture

Clarify please. You aren't making any sense at all. Are you saying that there is a bubble but it won't deflate as hard this time?

skunzie's picture

I'm holding on for a debt jubilee!  Free everything for everyone, one time only though don't ya know? /sarc

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Nov 25, 2016 11:19 PM

I pray my mortgage doesn't go underwater before I move.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) Nov 25, 2016 11:23 PM

"2) The average $274k builder house requires nearly $53k in income assuming a 4.5% rate, 20% down, and A-grade credit. Problem is, 20% + A-credit are hard to come by. For buyers with less down or worse credit, far more than $53k is needed."

So buy a cheaper fucking house. No one said you had to buy a a brand new fucking house with every bell and whistle. Buy a house with good bones / structure that you can fix up yourself. It used to be called sweat equity. Buy in the best neighborhood you an afford. Take care of the place and don't live like a slob or a hoarder. Move up when you can afford it and if that is what you want.

schrock's picture

Over pay for something you can afford to over pay for. Brilliant!