Short Seller’s Journal: More On Housing

The only data that gets more statistically distorted and incompetently analyzed than the housing data is the Government inflation, GDP and employment numbers.  In some cases it’s a toss-up.   The builder sentiment index is bordering on retardation.  Builders are always optimistic, especially because they use other people’s money and take fees off the top.  The “sentiment” index always seems to peak at the top of the market.

Housing starts and permits are are almost equally as useless, especially seasonally adjusting and annualizing the data.  Literally, a start is counted with a builder sticks shovel in the ground on land which has a permit attached.  Homebuilders will always file permits on land they own because it costs next to nothing.  “Starts and permits” do not necessarily translate into revenue producing events.  If anything, homebuilders always load up on too much land and end up writing it down and unloading a lot of it when the market turns.

Just to show you I’m not on drugs, I wanted to share a some comments I received today and yesterday about my views on housing:

Been reading your take on the housing market for some time and I agree completely. I sold my house located in a neighborhood of McMansions and downsized in April. This action freed-up a bunch of cash and also reduced my real estate taxes big time. I moved out to the sticks where neighbors are few, I can do whatever I want w/ my property (no HOA), and taxes lower. Considered following your advice and just renting, but the rental market here is not very good (high rents, few options) and I found a place I was able to pick-up on the cheap since I was a cash buyer and could act quickly.

If/when things really fall apart I would rather be where I am at vs where I was (around a bunch of clueless yuppie-types who are used to writing a check for everything).

Get this… the guy who bought my old place financed 104% of the sales price! He went VA which requires no down pmt, but charges all these crazy fees which are just tacked onto the loan amount. So he is already under water and will likely become another “victim of the banks” when the housing and mortgage market blow-up again. Unreal.

And this:

I’ve said it before and I’ll say it again: The market in Denver terrifies me. I am happy that we didn’t end up buying a home late last year / early this year, but according to “news” sources, people just keep snapping up apartments right and left in Denver, and vacancies still seem to be very low. After trying to rent something basic (when we realized buying was out of the question,) we were outbid on APARTMENTS; in some cases, there were 15 applicants for one unit. That’s why we’re living with family for another year to try to save up more money to either move out of state, get a decent apartment here, or try to buy. I am not optimistic.

On the other hand, I do see a lot of “new price” signs everywhere. Doing a simple search on Redfin reveals that a lot of the higher priced homes in the Highlands, Wash Park, etc. (assumed to be hot areas) are sitting for weeks and even months in some cases.

And this:

Thought you might be interested in this. We are also seeing a lot more houses on the market. Brokers are reporting that things are really slowing down. Remember, S.E. Michigan has been one of the strongest economies (fueled by sub-prime auto loans). Thank you for all you do!!!

As for the homebuilder stocks, they are at their most extreme valuation levels in history relative to their underlying financial fundamentals.  Debt and inventory levels now exceed the 2005/2006 highs in these metrics, at the peak of the housing bubble.  Nominal p/e ratios are also at historically high levels for market tops.  And net income is distorted by several accounting gimmicks, the most extreme being that every homebuilder with few exceptions has moved “interest expense” off their income statement and on to the balance sheet (capitalized interest).

Perhaps the only balance sheets more nuclear than homebuilder balance sheets are big bank balance sheets.  This will not end well and you can take profit from the extreme overvaluation in homebuilder stocks by taking advantage of my research reports.  Here’s my two favorite short ideas right now, although all of the companies I have written reports on will tank hard – click on pic to access reports):

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And here’s why – note that both of these homebuilders have substantially underperformed the Dow Jones Home Construction Index over the last year. The balance sheets of these two companies are nuclear – click to enlarge:

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You can access my homebuilder reports by click on this link: Homebuilder Short Sell Reports

Once I get my homebuilder reports updated with current financials, I will be raising the price.    Here’s a testimonial from someone who bought one of the reports and was able to time the big drop in early January with puts:

I’ve never got a bigger return for the value. $25 for the report, $4k invested in January 2016 near-money puts since August (2014)  and closed today (early Feb)  for $3.2k of benefit. 

As an added benefit, Cramer recommended the stock on the right about 6 months ago!!

6 thoughts on “Short Seller’s Journal: More On Housing

  1. Just sold a home in the Chicago suburbs in an upscale neighborhood, on the market for 6 months, lower price 3 times, put money in to update kitchen, finally sold. We had lived there for 20 years, kids grown, most of the neighbors preping to sell next year. All I can say is good luck!

  2. Few people appreciate just how quickly things can turn in the real estate market. That “equity” in your home can disappear rather quickly in a market that’s turning. We’re already seeing that here in Houston. With oil near $40, the bayou city is staring down the barrel o f a loaded gun. but local economists won’t hear of it. Of course this time is different.
    As a case in point, I just opened my listing updates this morning to see a nice executive relo with a pool that’s a good fit for one of my clients. Interestingly we had looked at a similar property a week ago for $150,000 more. It was obvious the sellers of that home were looking for that greater fool who likes eye candy.
    Home builders bought into this “recovery” hook line and sinker, and some will pay for it dearly. Instead of pushing for reform and sound market fundamentals, they were happy to cheer for higher prices to re-inflate the last bubble, a necessary ingredient to cover up all of the fraud.
    http://aaronlayman.com/2015/08/oil-takes-out-41-home-builders-walking-into-a-trap-of-their-own-making/

  3. It seems like both Obama and Holder is hitting the fan today.
    In regards of the PPT they seem to be like the guy who tries to pick up a dime in front of a steamroller.

  4. Well know body has mentioned it, but the Dow seems to be quietly CRASHING…..so my air brain is telling me MOAR QE….followed by either or Stampede into gold? or Dow 30k? or nup…. not smart enough don’t have an or, Ponzi du jour anybody? “capital raising my ass.

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