September New Home Sales Plunge Nearly 100k From The Original August Report

The stock market remains a real insult to human intelligence.  – John Embry

I’m right about the housing market and I’m right about Amazon.com. The only factor I can’t control is the amount of fraud and corruption that is being engineered by Wall Street in conjunction with the Government in order to try and make it look like the reality that analysts like me report is wrong.

August new home sales were reported originally at a 552k annualized rate. The “annualized rate” format is important to understand because it magnifies any estimation and “adjustment” (i.e. manipulative) errors by a factor of twelve (12x). Here is the original Wall St. Journal headline announcing the “good” news from August: “U.S. New-Home Sales Up 5.7% in August – Single-family home sales rise to new post recession high.” Don’t forget, the market trades off of this headline.

This morning the Census Bureau reported that September’s seasonally adjusted, annualized rate of sales had plummeted to 468k, or nearly 100k from the original August report. But the CB decided that it’s original estimate for August was off by 22k, or 4%. Thus, the media is reporting an 11.5% drop in home sales from August for September. However, the September report is 15% below the original estimate for August – the number which the market originally incorporated into its trading models. The 468k missed Wall Street’s consensus estimate of 549k.

Regardless of what the propaganda laced media is reporting, the housing market is starting to drop quickly. Price does not reflect supply/demand, it reflects rampant inflation that is being manifest in insane degrees of debt-financing which enable homebuilders to raise prices because the amount someone pays who is dumb enough to buy a new home is now a function of how much monthly payment they can afford.

This is why we are now seeing this:

zero money downThat sign is not the the type of promotion you would see in a market in which supply is limited and demand is strong. That is the unmistakable indicator of a homebuilder desperate to unload inventory.

The homebuilders are insanely overvalued relative to their underlying fundamentals, especially debt and inventory levels, which are higher now relative to sales than they were at the peak of the housing bubble.   Furthermore, all of these homebuilders are generating highly negative cash flow from their operations because they are overbuilding inventory to an extreme degree.

I just published a new report on a homebuilder (Homebuilder Reports) that is loaded with red flags, including an ongoing audit by the IRS.  The drop in this homebuilder is just getting started.  In fact, it will soon have a graph that will look like this, which is another homebuilder that I recommended shorting when it was in the low $20’s about a year ago:

This is what the graphs of almost all of the homebuilders will look like, only they will notUntitled
experience the temporary price recovery you see in the graph of this stock.  The price recovery 100% a function of the Fed’s interminable support of the S&P 500.  With Thanksgiving around the corner, a lot of these homebuilders will soon have graphs that look like “turkey shoots.”

 

7 thoughts on “September New Home Sales Plunge Nearly 100k From The Original August Report

  1. Too much faith in centrally-planned “data”. That’ll teach you to be “data dependent” and reliant on government statistics…

    Forget statistics, charts, graphs, indexes, measurements altogether. These days there is simply no substitute for doing one’s own observation, making the logical deductions and drawing the reasonable conclusions.

    Walk your neighbourhood. Does business activity look brisk? Or not? Are there dead flies in the store windows? Foot traffic in and out of stores? Layoff announcements? Can you see ongoing construction projects – capital misallocations! – even in THIS poor economic climate? How many new pickups are on the streets? How are motorhome vendors? Is the real estate business perking along? Or are there mergers, a slowdown in advertising and increasing numbers of homes on the market for months and months…?

    One can see what’s coming better WITHOUT “government statistics”…

    1. Agree. I drive all over metro-Denver as part of my housing market due diligence. It’s pretty obvious that the
      housing market is starting to drop hard.

  2. This is a great follow-up to an article I just saw in the Denver Post online this morning. New home sales are plunging…yet there are still many who call me and my husband “crazy” and “out of luck” for not buying a house last year. Those same people are now questioning their “investment” because they chose to buy into the madness in Denver real estate – skipping inspections, writing letters and sending flowers to home sellers, offering well above asking price (and financing that extra 10-20k) just to have an offer accepted. I saw another article in 5280 last week about the dichotomy in the Denver RE market and how it’s forcing many into homelessness, including metro college students who are unable to find rents that fit their budget. Here’s the article in case you are interested (although you might have seen it already 🙂

    http://www.5280.com/news/magazine/2015/09/two-sides-denvers-real-estate-boom

    I also want to say thank you for writing these reports and analyses. We ALMOST bought a house last year when I found this blog and opened my eyes to the insanity that we almost bought into. We already have some student debt left, and putting a mortgage on top of that makes NO SENSE…just to say we keep up with our friends or relatives. Also it has opened my eyes to other places where we might want to live instead, and new possibilities – instead of just buying into the status quo. Maybe homes will never be super cheap like they were in the last meltdown…maybe there will be no large correction…but I am happy that we did not buy a house in Denver last year after all.

    Anyway, thanks for writing this blog.

    1. Thanks for the link. Homes will get to be as cheap as they were after the bubble burst. The Fed never let the market “cleanse” itself. If you had bought a home last year, you would be underwater on it now. Denver’s prices are plummeting as I write this. I’ll have a lot more to say about this this week.

      1. Keep up the real estate reality check. I live in Utah and the RE agents locally think they’ve discovered the Holy Grail. Some of the tactics I’ve seen looking at homes are incredible. The most common?

        “We have another interested party…”

        What other industry has institutionalized lying other than maybe used cars?! It’s incredible.

  3. It reminds me of what Michael Lewis documented in the Big Short. These strange odd ball characters who were on the short side of the sub prime madness. They went all across the U.S. Looking in detail of the crazy property market. Places like Vegas where strippers were getting 7-8 times salaries. People were putting down overtime, and commissions and bonuses that they would never be able to guarantee.

    When this whole thing crashes I wonder if there will be printed money to bail it out like last time? Here in the UK the London market has reached insanity. Many of the new build apartments don’t even get listed in London. They get sent straight to Hong Kong for marketing to the Chinese.

  4. Silicon Vally technology bubble capital has had a strange phenomenon happening as of late, which was practically unheard of during the previous (1998-2000) dot-com bubble days:

    Even though, real estate from San Jose to San Mateo to Fremont continues to be overpriced in a bubble, high-end restaurants have started closing shutters altogether for lunch on Saturdays & Sundays! (I’m not talking about low-end pizza places or eateries like Chipotle, which don’t have this issue.) This is so counter-intuitive, based on past patterns you would’ve thought those are prime time-slots for market activity!?! Such observations were made in multiple locations like Mountain View, Palo Alto, San Carlos, San Mateo, Fremont, San Jose. What’s going on???

    One of the explanations I was given was the enforced minimum wages by communist California govt have messed up the situation. Apparently, the minimum wages for restaurant workers for weekend hours are much higher than weeknights; making more weekend restaurant hours a money losing proposition. Meaning, despite over-inflated technology stock market bubbles, the restaurant owners can’t afford to raise their menu prices beyond certain threshold to break even. More research needed to figure out if that’s indeed the case. Something very fishy is indeed going on.

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