Housing Starts: Biggest Plunge In Four Years

Will the price of lumber be the tell-tale that they can’t hide?  Or do you want to believe the “it was the bad weather in New York, man” narrative?   Housing starts ripped lower in February, down 17% from January.  They were 14.4% lower than consensus estimate.   Here’s the data link:  Housing Starts.

Let’s think about that for moment:   housing starts missed Wall Street’s brain trust consensus estimate by 14.4%.   IF the weather was expected to play a factor in housing starts, wouldn’t Wall Street have revised its estimates for February lower to reflect that?  After all, every analyst has had nearly 3 weeks since the end of February to revise down their estimates knowing there was some snow in New York during February…

Single family starts dropped 17% and apartment builder starts dropped 21.6%.  I have been suggesting for several months that a glut in apartment building construction has developed.  Not only in Denver, which I can observe and experience (I was offered a discount to re-sign my lease in a luxury building that is less than 1-yr old, many newer buildings are offering 1-month free and there’s several big buildings still being built), but I have received reader emails from all over the country which describe apartment building gluts in their area.

Of course Wall Street will promote the “permits” report, which showed a slight increase.  But, believe it or not, a homebuilder can’t sell a permit.  Homebuilders have already amassed a level of inventory that is as high as it was in 2005/2006 at the peak of the bubble.  Some builders, like the ones featured in my research reports, now have inventory levels that exceed their inventory at  the bubble peak.   Note:  unit sales are 60-70% lower than at the peak.

The homebuilder sentiment index released yesterday shows falling builder “optimism.”  The most troubling metric was “prospective traffic,”  for which the index level plunged to 37.   Anything below 50 is not good.  Anything below 40 is a disaster.   By the way, those metrics are based on a March survey, when the weather has been exceptionally nice throughout most of the country…

The homebuilder stocks are going to experience an epic crash when reality grips the sector.  The tech bubble that’s formed might last until the SPX finally rolls.  But every homebuilder is carrying massive levels of debt and low levels of cash.  They have to sell homes to service their debt.  The debt levels alone will torpedo these stocks.  I have five great ideas in my  Homebuilder Research Reports  section.

Each report details the highly misleading accounting being used by these builders.  Each one also demonstrates why these builders are more leveraged now than they were at the bubble peak.  And each report shows examples of using puts and calls to replicate shorting the stocks, how to enhance returns and how to reduce the risk of another insanity bounce in stocks overall.   Two of the names have already returned over 20% for the investors who took advantage of them.

 

 

3 thoughts on “Housing Starts: Biggest Plunge In Four Years

  1. Ruh roh….there is trouble in builder land….

    Lennar heading toward the rent market?

    http://www.housingwire.com/articles/33250-is-leasing-the-strategy-that-could-help-boost-lennar

    and this…..from Zerohedge….
    http://www.zerohedge.com/news/2015-03-17/housing-starts-collapse-most-4-years-sept-2013-lows-miss-most-2007

    “There was one silver lining: hedge funds are rushing to take out permits
    on rental housing which soared from 371K to 445K. At this rate there
    will be more rental housing built in the US than single family.
    Assuming, of course, any of these permits actually become “starts.”

  2. I don’t know man. I’m not so sure about this. Ur talking wayyy too much common sense here. You sooo old school in ur thinking. Unfortunately, it really IS different this time. Here’s the simple reason as to why: In the good ol’ days when fundamentals actually mattered, stocks would go up and stocks would go down based upon HUMAN emotions/instincts/behaviors. This HUMAN buying/sellling behavior can be quantified and predicted to some extent by the study of technical analysis. Sadly is no longer the case. The machines/computers/algos are 101% in control now. Therefore, the only thing that now matters is which program is running in the computers that buy and sell. Computers and algos DO NOT respond to things like greed and fear, do they ???

    In order to gain a somewhat level playing field in these so-caled “markets”, one would have to know ahead of time which algo is going to be dominating the trading. And how can one predict this? That would be just like trying to predict ahead of time when & where a professional career criminal is going to rob or kill someone. In other words forget it.

    The BEST thing we could all do is simply not participate. Let the dogs eat each other up in the pen. Don’t feed them period.

  3. Housing Starts Declined 17.0% in February To view this article, Click Here
    Brian S. Wesbury, Chief Economist
    Robert Stein, Deputy Chief Economist
    Date: 3/17/2015

    Housing starts declined 17.0% in February to a 897,000 annual rate, coming in well below the consensus expected 1.040 million annual rate. Starts are down 3.3% versus a year ago.
    The decline in starts in February was due to a 14.9% drop in single-family units along with a decline of 20.8% for multi-family starts. In the past year, single-family starts are up 0.7% while multi-family starts are down 10.3%.
    Starts in February declined in all major areas of the country.
    New building permits rose 3.0% in February to a 1.092 million annual rate, coming in above the consensus expected 1.065 million. Compared to a year ago, permits for single-family units are up 2.8% while permits for multi-family homes are up 14.8%.
    Implications: Don’t get bent out of shape about housing starts plummeting in February. Instead, take a moment to review the data for the month. Retail sales were weak, except for buying over the internet and by mail-order. Utilities soared at the fastest pace in more than 40 years, while manufacturing production fell. And now housing starts plummeted at the second fastest pace in the last twenty years. If it wasn’t obvious already, it should be now: the coldest February temperatures for the most people since 1979 had a huge (but temporary) effect on the economy. In fact, Americans in 23 states experienced a “top-10-coldest February” going all the way back to 1895! But, like last year, we expect a big bounce in growth in the months ahead. Housing starts fell 17% in February, the largest drop in four years. The Northeast had its second slowest pace of housing starts on record, going back to 1959. When it’s this cold and snowy it’s nearly impossible to break ground. However, in spite of the drop in starts, there are still signs the trend in home building is upward. The total number of homes under construction, (started, but not yet finished) increased 0.4% in February and are up 17.1% versus a year ago. Permits for future building rose 3% in February and are up 7.7% from a year ago, boding well for future gains in housing starts. Based on population growth and “scrappage,” housing starts should rise to about 1.5 million units per year over the next couple of years, so a great deal of the recovery in home building is still ahead of us. In other recent housing news, the NAHB index, which measures confidence among home builders, declined to 53 in March from 55 in February. Readings greater than 50 mean more respondents said conditions were good than bad. Expect more Plow Horse-like gains in housing in the year ahead.

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