Tag Archives: home builder stocks

Housing Market Horror: Home Equity Loans Making A Big Comeback

…Just in time for the housing market to take a big dump. I’m going to really start hammering on the truth about the housing market. The media propaganda and industry hype is flowing in epic proportions. Lately I’ve been hearing a plethora of ads on the radio for mortgage companies pushing home equity loans. “Time to take advantage of the higher housing prices and use the equity in your home to pay off credit cards or remodel your house.” Vintage 2005. The ad I heard earlier today said that you can close in 10 days and not have to make a payment for 60 days. Lead the sheep to slaughter.

This is just in time for a big price collapse to hit the market. Most of you probably missed this report, but I did not:   30% Of Homes Lost Value Over The Last YearLINK

Almost 30% of all homes lost value in August from a year earlier, according to real estate company Zillow Group Z, -0.81% down from a recent high of 65% in January 2009… real-estate website Trulia’s recent report on the fastest moving housing markets showed a slowdown in how quickly homes are being sold…

This means that in most markets, if you bought a home in the last 9 months and took advantage of the new FNM/FRE 3% down payment program, you’re already way underwater.  The article references Denver has a “hot market.”  Yes it was white-hot until about June.  I would bet, based on all the data that I observe, that the average price is down 10% since June.  My email gets peppered every day with notices of price reductions on metro area homes.   This is not the kind of sign you see in a market that’s hot:

MakeOffer1

I recently posted an article from the Denver Post in which an actual realtor was quoted as saying that buyers were drying up and sellers were chasing the market lower with price reductions. This is how it started when the big bubble popped. Denver was one of the hottest markets during the bubble and it was one of the first to explode. Any buyer who bought a home in the last three months with the intent of fixing it up and flipping is now going to be stuck unless they’re willing to eat a big loss.

The reason home equity loan pimps are working overtime is because the banks that fund this paper take the security and throw it into a pooled asset-backed structure and they slice it up into “risk” tranches and wrap derivatives around it and toss it to the institutional pigeons who have loads of cash looking for yield.  No one factors in loss of principal in their ROR models.  All they care about is that the “juicy” 4% yield.

While the re-emergence of aggressive home equity lending is a signal the top is in and a renewed collapse is starting, this is perhaps the biggest warning flare, just like the first time around 8 years ago:    Hamptons Mansions Pile Up on Market as Luxury-Home Sales Dip

As I was discussing with a good friend of mine in NYC yesterday, it’s not the absence of foreign money that’s taken the bid away from the Hamptons, as the Bloomberg article asserts, it’s the bread and butter Wall Street jockey who is looking at a serious cut in bonus compensation and the possible loss of his job.   Just wait until the ones who leveraged up with a big fat jumbo mortgage realize that they can no longer afford to maintain their Hamptons retreat and their NYC apartment or their NY/NJ Mcmansion.   There will be a lot of homes out on the east end of Long Island from which the owner walks.

The Hamptons indicator precluded the popping of the big bubble. It will also be one of the smoking guns that precedes the re-collapse of the housing market.

The Mortgage Purchase Index Plunges – Again

The lack of movement for the purchase index underscores the lack of traffic and lack of demand in the housing sector.  – Bloomberg News

Once again the Mortgage Bankers Association purchase applications index fell 5% week to week and 9% year over year (LINK).  Mortgage rates have fallen 30 basis points over the past month and 10 points over the past week. This is stimulating refinancings but not buying.

Cash/investment buyers disappearing – cash buyers were 24% of new home sales in September this year compared to 33% in September 2013.  If the number of buyers who require a mortgage are falling and cash buyers are fading, who is going to buy homes?  This situation is exacerbated for new homebuilders, as 93% of a newly built homebuyers use a mortgage.

I wrote an analysis of yesterday’s existing home sales report which goes into detail as to why the reality is much different than the headline reports you may have seen:   Existing Home Sales Drop Yr/Yr For the Eleventh Month In A Row.

The homebuilder stocks have bounced back up to a level which is ripe for shorting.  My three latest homebuilder reports explain why these homebuilders are particularly good short-sell candidates, especially my latest one:   Homebuilder Short-Sell Reports.

These homebuilders are riddled with misleading accounting, excessive inventory and debt levels and declining unit deliveries.  They are more overvalued in relation to their underlying business fundamentals than they were at the peak of the housing bubble.  My reports go into detail on all of those issues.  In short, homebuilders are insanely overvalued.

At the very least, any money manger who is long these stocks has a fiduciary duty to look through my work and reassess their investment strategy with regard to this sector.  If you happen to be invested in mutual funds with exposure to this sector, get out now.

The Scatalogical Matter Is Really Flying Now

Now that everyone is blaming Russia – instead of the weather – for everything that is happening (Adidas blamed Russia for its poor results instead of the fact that its shoes suck) – I’m wondering when Obama is going to come out and tell us Russians killed Jesus.

Of course, ignore the Chicago PMI report today – which just posted the 2nd biggest drop on record and the biggest ever miss vs. Wall Street Einsteinian forecasts:  LINK.

Conveniently skip that fact and continue to believe in a 4% GDP report and Santa Clause.

When the stock market finally cracks, it will exert particularly brutal downside force on the housing stocks.  I uncovered a particularly shocking aspect to one homebuilder’s financial disclosure that no one else has mentioned.

I believe this stock can be shorted for an easy 60-70% gain from here, with patience. You can see the details here:   Short Homebuilders – Research Report.

The re-collapse of homebuilder stocks is just starting.  There are huge gains to be made from shorting the right ones for the right reasons.