“Mortgage applications to purchase a newly built home dropped dramatically in November, signaling a slowdown in sales for the nation’s builders. ‘There was less urgency in the last quarter,’ Ara Hovnanian, CEO of K Hovnanian Homes, told analysts. ‘Given the gains we’ve seen in 2014 in employment, we would have expected housing demand to be stronger then the low levels we are currently experiencing.’”
You can lead a horse to water…Every single homebuilder stock I look has insane levels of debt. The company in my latest report has 22x EBITDA to Cash Flow. I had to rub my eyes and re-calculate the numbers when I first looked at that ratio. This is a hallucinogenic level of debt at a time when the housing market is headed south. This company will hit the wall within two years and anyone short the stock will be able to cover close to zero.
But ALL of these companies have record or near-record levels of debt and inventory. Their debt/inventory as a whole is higher than it was at the housing bubble peak in 2005 – on unit volume sales that is less than one-third of the bubble peak volume. The seasonally
manipulated adjusted, annualized sales rate for home sales being fed to us by the industry organizations and the Government are fraudulent. Witness that fact that the Census Bureau imposed the 3rd largest seasonal adjustment on record to yesterday’s November retail sales report. It’s all a fabrication, like most of everything else in our system. Click to enlarge:
Shorting the homebuilders now is one of the easiest short-sell bets since the peak of the housing bubble or the internet bubble. The Fed is no longer buying mortgages and near-record low mortgage rates are not stimulating sales. My research reports are unique in their insight and detail, showing exactly why the reported GAAP numbers are misleading, if not outright fraudulent, and why these companies are in worse shape now than in 2005, the last time they crashed: Sell-Short The Homebuilders.