Housing Starts Plunge 11% – Signals Renewed Downturn In The Housing Market

The monthly contraction of 11.0% (-11.0%) in October 2015 housing starts was muted by a downside revision to September 2015 activity, yet it came in well below already-negative market expectations…With headline negative detail in October, and downside revisions to August and September detail, the aggregate housing-starts count fell at a revised annualized-quarterly pace of 1.6% (-1.6%)…Based on October’s one-month reporting, the aggregate housing-starts count was on target to contract an annualized quarterly pace of 28.6% (-28.6%) in fourth-quarter 2015.   – John Williams, ShadowStats.com

It’s happening everywhere, not just in Denver.  The “for sale” signs are piling up at the wrong time of year for people to be listing their homes and the “price reduced” signs tell us the sellers are chasing prices lower.   The statistically brewed inventory measurement metric published by the  National Association of Realtors has big lag built into it.  Especially when the current rate of monthly sales is well below the seasonally adjusted, annualized rate cesspool that vomited out by Larry Yun and his confederacy of statistical dunces.

Anyone who bought a home anywhere in the country, except maybe a in a few statistical outlier areas (and those areas will soon catch down to the rest of the market), with a 10% down or less mortgage within the last six months is now underwater, especially when transaction/closing costs are factored in.  Most “first-time” buyers have been using 0-3.5% down mortgages.  They’re now drowned in mortgage debt.

The pundits will blame the housing starts report on a big drop in multi-family unit starts.   The the housing starts numbers originally reported in August and September were revised lower.   It doesn’t matter.  Almost every major city either has a glut of apartment buildings now or will soon.  The truth is, single-family unit housing starts have been flat to down all year.

One of the best “hidden” indicators that the housing market is now contracting is in mortgage activity.  LoanDepot Inc had to pull its IPO late last week – LINK.  LoanDepot is part of the non-bank mortgage lender segment of the mortgage industry, which now accounts for 40% of all mortgage dollars originated.   There’s a lot of reasons this deal was pulled, but perhaps the biggest one was that LoanDepot’s mortgage volume took a big hit in Q3.   When home sales slow down, less mortgages are originated.  Pretty simple math.  It also suggests that professional investors see the same downturn in housing that I see.

Although the dynamics of the current housing market “boom-let” differ from the dynamics of the big housing bubble.   What has occurred since 2010 is a Fed/Government stimulated dead-cat bounce in the context of the secular bear market in housing.  The policy-makers, urged on by the greedy bankers and housing industry chieftains, never allowed the “cleansing” process from the housing bubble to clear itself out.   There’s been plenty of mortgage fraud and subprime activity, but it’s been better disguised over the last couple of years.

The homebuilder stocks are now one of the most overvalued sectors of the stock market. With careful 2ReportSpecialpositioning and trading, there is a lot money to be made on the downside with these stocks.  Despite the recent run-up in the S&P 500, the stock prices of my two most recent homebuilder reports are still below their price when I posted these reports.  One of them experienced declining new home sales unit closings for the past two quarters and one of them, quite frankly, may hit the wall in last quarter of 2016.  My reports show in detail why these two stocks can be profitably shorted – including suggestions/examples on using puts and calls to replicate shorting a stock – and I am offering them together for a special price.  Click on this link or the pic on the right to take advantage of this opportunity:   Homebuilder 2-report Special

14 thoughts on “Housing Starts Plunge 11% – Signals Renewed Downturn In The Housing Market

  1. Dave, out here in West L.A. there has been a significant shift. We’re observing SFH rentals on the market in quantities I haven’t seen in years. Asking rents also adjusting down and vacancies a couple to several months out. The past few years the competition for these rentals was off the charts.

    As for Chinese money, out here ground zero is Arcadia and things are languishing there. A big shift as well.

    The wildcard I have my eye on for housing is programs to extend loan terms out 40-45 years. I think that’s the only thing left at this point which wouldn’t also nuke other areas of the economy like negative rates and more QE would do.

    1. Thanks for the color. I think what you described is happening in most major MSAs. There’s still going to be some hot markets. It’s like smoldering fire with some embers still glowing. I think by the middle of the first quarter/early spring next year it will be pretty obvious to everyone what’s happening.

      As for extending the maturity date of a mortgage to lower the monthly payment, I think the artificially low mortgage rates have already pulled forward a lot of lower income buyers who didn’t already own. Statistically I think the “pool” of people who don’t own right now are incapable of supporting overall monthly cost of home ownership. Don’t forget aside from the mortgage payment, there’s HOA dues in a lot of cases, insurance and real estate taxes. I know a lot municipalities raised the assessed value of homes in the last year.

  2. Keep up the awesome reporting on RE. I’m in the mountain west in Utah and I have a realtor friend who won’t stop yapping about “getting in before it’s too late…”.

    I send him the links to your blog.

    I’m beginning to see properties sit. The big mover has been remodeled inventory. I think some flippers are about to get run over.

  3. Dave thanks for your hard work and analysis of the crashing housing market…I live on the west coast of Florida and will be buying a new house in mid 2016…so the real estate agents have me on their MLS email lists and all I am seeing lately in my in box is “PRICE REDUCED” listings…….reality is returning to the real estate market …and a lot of people will find out that they bought into a bubble and got duped by all the criminal propaganda that is rampant now….as we enter the final stages of the global credit bubble collapse.

    .

    1. Thanks for the color. That’s interesting because as recently as couple of months ago, a couple people
      were telling me Florida was still hot. My reply was, “come back to me in a couple months and tell
      me what you’re seeing”

      1. All that chinese, foreign money driving R.E. might pause…………..
        U.S. SECURITIES AND EXCHANGE COMMISSION
        Litigation Release No. 23409 / November 19, 2015
        Securities and Exchange Commission v. EB5 Asset Manager, LLC, et al., Civil Action No. 0:15-CV-62323 (S.D. Fla., filed November 3, 2015)
        Assets Frozen in Alleged Immigration Scam

        The Securities and Exchange Commission today announced it has obtained a court order freezing the assets of a South Florida woman and her company accused of purchasing a boat and luxury cars with money she raised from investors seeking U.S. residency through the EB-5 Immigrant Investor Pilot Program.

        Under the EB-5 program, foreign citizens may qualify for U.S. residency if they make a qualified investment of at least $500,000 in a specified project that creates or preserves at least 10 jobs for U.S. workers. The SEC alleges that Lin Zhong and her company EB5 Asset Manager LLC raised at least $8.5 million for use by U.S. EB-5 Investments LLC in job-creating real estate development projects, but they diverted nearly $1 million to purchase a boat, a BMW, and a Mercedes among other improper personal uses of investor funds.

        The SEC also obtained a court order appointing a receiver to administer and manage the business affairs and assets of the company and its subsidiaries for the protection of investors.

        According to the SEC’s complaint filed earlier this month in U.S. District Court for the Southern District of Florida against Lin Zhong, who also goes by the name Lily Zhong:

        http://www.sec.gov/litigation/litreleases/2015/lr23409.htm

        take their money, no project, no visa, no problem…no more money….was bound to happen…might explain:
        Chinese savers stung by $5 trillion stock collapse turn to gold http://bloom.bg/212xBsB

  4. Pretty soon they’ll be telling John Williams to take it down, too…?

    Clinton Goes after Laugh Factory Comedians for Making Fun of Her
    In what appears to be a first for a serious presidential contender, Hillary Clinton’s campaign is going after five comedians who made fun of the former Secretary of State in standup skits at a popular Hollywood comedy club.

    A video of the short performance, which is less than three minutes, is posted on the website of the renowned club, Laugh Factory, and the Clinton campaign has tried to censor it. Besides demanding that the video be taken down, the Clinton campaign has demanded the personal contact information of the performers that appear in the recording. This is no laughing matter for club owner Jamie Masada, a comedy guru who opened Laugh Factory more than three decades ago and has been instrumental in launching the careers of many famous comics. “They threatened me,” Masada told Judicial Watch. “I have received complains before but never a call like this, threatening to put me out of business if I don’t cut the video.”

    Practically all of the country’s most acclaimed comedians have performed at the Laugh Factory and undoubtedly they have offended politicians and other well-known personalities with their standup routines. Tim Allen, Jay Leno, Roseanne Bar, Drew Carey, George Carlin, Jim Carrey, Martin Lawrence, Jerry Seinfeld and George Lopez are among the big names that have headlined at the Laugh Factory. The First Amendment right to free speech is a crucial component of the operation, though Masada drew the line a few years ago banning performers—including African Americans—from using the “n-word” in their acts.

    The five short performances that Clinton wants eliminated include some profanity and portions could be considered crass, but some of the lines are funny and that’s what the Laugh Factory is all about. The video features the individual acts of five comedians, four men and a woman. The skits make fun of Clinton’s wardrobe, her age, sexual orientation, the Monica Lewinsky scandal and the former First Lady’s relationship with her famous husband. The Laugh Factory has appropriately titled it “Hillary vs. The First Amendment.”

    Masada told Judicial Watch that, as soon as the video got posted on the Laugh Factory website, he received a phone call from a “prominent” person inside Clinton’s campaign. “He said the video was disgusting and asked who put me up to this,” Masada said. The Clinton staffer, who Masada did not want to identify, also demanded to know the names and phone numbers of the comedians that appear in the video. Masada refused and hung up. He insists that the comedy stage is a sanctuary for freedom of speech no matter who is offended. “Just last night we had (Emmy-award winner) Dana Carvey doing Donald Trump and it was hilarious,” Masada said.
    http://www.judicialwatch.org/blog/2015/11/clinton-goes-after-laugh-factory-comedians-for-making-fun-of-her/?=7

  5. I’m seeing the same thing in Boise as Frank is seeing in Utah. What I’m also seeing is that we sold in May of this year and a lot of the homes that were sold at that time are coming back on the market with increased asking prices.

    1. Those will be stuck flippers – lol I just realized. In a couple months you’ll “for rent” signs instead
      of “for sale” signs. Then by late spring you’ll see “bank owned” on some of them. ALready seeing “for rent”
      signs on top of “for sale” signs…stuck flippers.

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