Tag Archives: homebuilders

The Debt Bubble Is Beginning To Burst

There will be numerous excuses issued today by perma-bull analysts and financial tv morons explaining away the nearly 10% drop in new home sales.  Wall Street was looking for the number of new homes, as reported by the Census Bureau, to be unchanged from June.  June’s original report was revised higher by 20,000 homes (SAAR basis) to make this month’s huge miss look a little better.  The primary excuse will be that new homebuilders can’t find qualified labor to build enough new homes to meet demand.

But that’s nonsense.  The reason that home builders can’t find “qualified” labor is because they don’t pay enough to compete with easier alternatives, like being an Uber driver, which can pay nearly double the wages paid to construction workers.  I had a ride with a Lyft driver, a family man who moved to Denver from Venezuela, who to took a job in construction when he moved here.  As soon as he got his driver’s license, he switched to Lyft because it was easier on his body and paid a lot more.  If builders raise their wages to compete with alternatives,  they’ll be able to find plenty of qualified workers but their profitability will go down the drain unless they raise their selling price, in which case their sales will go down the drain…which is beginning to happen anyway.

Toll Brothers, which revised its next quarter sales down when it reported yesterday, stated that new home supply is not an issue in the market for new homes.  No kidding.  I look at the major public builders’ inventories every quarter and every quarter they reach a new record high.

The real culprit is the record high level of household debt that has accumulated since 2010. The populace has run out of its capacity to take on new debt without going quickly into default on the debt already issued.  Mortgage purchase applications are a direct reflection of this.  Mortgage purchase applications declined again from the previous week, according to the Mortgage Bankers Association.  In fact, mortgage applications have declined 14 out of the last 20 weeks.  Please note that this was during a period which is supposed to be the seasonally strongest for new and existing home sales.  Furthermore, since the beginning of March, the rate on the 10-yr bond has fallen over 40 basis points, which translates into a falling mortgage rates.  Despite the lower cost of financing a home purchase, mortgage purchase applications have been dropping consistently on a weekly basis and at a material rate.

The NY Fed released its quarterly report on household debt and credit last week. In that report it stated, “Flows of credit card balances into both early and serious delinquencies climbed for the third straight quarter—a trend not seen since 2009.”

The graph above is from the actual report (the black box edit is mine). You can see that the 30-day delinquency rate for auto loans, credit cards and mortgages is rising, with a sharp increase in credit cards. The trend in auto loans has been rising since Q1 2013. The 90-day delinquency graph looks nearly identical.

I’m not going to delve into the student loan situation. Between the percentage of student loans in deferment and forbearance, it’s impossible to know the true rate of delinquency or the true percentage of student loan debt that is unpayable. Based on everything I’ve studied over the past few years, I would bet that at least 60% of the $1.2 billion in student loans outstanding are technically in default (i.e. deferred and forbearance balances that will likely never be paid anyway). In and of itself, the student loan problem is growing daily and the Government finds new ways to kick that particular can down the road. At some point it will become untenable.

The auto loan situation is a financial volcano that rumbles louder by the day. Equifax reported last week that “deep subprime” auto delinquencies spiked to a 10-year high. Deep subprime is defined as a credit score (FICO) below 550. The cumulative rate of non-performance for loans issued between 2007 and Q1 2017 ranges from 3% (Q1 2017 issuance) to 30%. The overall delinquency rate for deep subprime loans is at its highest since 2007. To make matters worse, in 2016 deep subprime loans represented 30% of all subprime asset-backed securitizations.

Combined, the percentage of auto, credit card and student loan delinquencies and rate of default is as big or bigger than the subprime mortgage problem that led to the “Big Short.” To compound the problem, the nature of the underlying collateral is entirely different. A home used as collateral has some level of value. Automobiles have collateral value but a shockingly large number of borrowers have taken out loans well in excess of the assessed value of the car at the time of purchase. Unfortunately for auto lenders, used values are in a downward death spiral. Credit card and student loan debt have zero collateral value.

NOTE: The stock market has not priced in the coming debt apocalypse nor has it begun to price in at all the upcoming Treasury debt ceiling/budget fight that is going to engulf Capitol Hill before October. The Treasury apparently will run out of cash sometime in October. Supposedly the Fed has a back-up plan in case the issue can’t be resolved before the Government would be forced to shut-down, but any scenario other than a smooth resolution to the debt ceiling issue will reek havoc on the dollar, which in turn will send the stock market a lot lower. In my view, between now and just after Labor Day weekend is a great time to put on shorts.

Existing Home Sales Tank This Summer: Fact vs Fiction

Existing home sales declined nearly 2% in June from May on a SAAR basis (Seasonally Adjusted Annualized Rate).   (SAAR is the statistically manipulated metric used by industry organizations and the Government to spin bad monthly economic data into an annualized metric that hides the ugly truth).

Here is the NAR-spun fiction:  “Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that’s straining their budget…” – Larry Yun chief “economist” for the National Association of Homebuilders.

This has been Yun’s narrative since home sales volume began to decline last year.  His headline mantra of low inventory is mindlessly regurgitated by Wall Street and the financial media. But here’s what the truth looks like (click to enlarge):

Going back to 1999, this data sourced from the Fed, who sourced it from the NAR, shows an inverse correlation between inventory and sales. In other words, low inventory drives sales higher.  Conversely, as inventory rises, sales drops.  You’ll note that the chart does not go past 2015.  This  is because, for some reason, the Fed purged its database of existing home inventory prior to June 2016.  There’s a gap in inventory between mid-2015 and mid-2016.  However, there is this (click to enlarge):

I hate to call Larry Yun a “liar” because it sounds unprofessional. But what else am I supposed to call him when the data completely contradicts the narrative he shovels from his propaganda port-o-let into the public domain? I have no choice.

AS you can see, from 1999 to mid-2015 and from mid-2016 to present, inventory and sales are inversely correlated.

This has been the worst selling season for the housing market’s peak sales months since 2011.  In 2011 the Fed was dumping trillions into the housing market and mortgage finance system.   To make this morning’s report worse, mortgage rates have been declining at a steep rate since the end of December.  Near-record low rates, combined with near-zero percent down payment Government-guaranteed mortgages combined with the lowest credit-approval standards since 2007 combined with the peak selling months should have catapulted home sales much higher this year.

Here’s the problem:  the factors listed above have tapped out the available pool of homebuyers who qualify for a near-zero downpayment, low-credit rating Government-backed mortgage:

The graphic above shows the average household mortgage payment as a percentage of disposable personal income (after-tax income). The graphic above is for those households with 20% down payment mortgages. As you can see, that ratio is at an all-time high. It’s far worse for households with 3% down payment mortgages.  Either the Government will have to roll-out a program that directly subsidizes the households who still want to over-pay for a home but can’t afford the mortgage payment let alone the cost of home ownership – i.e. helicopter money – or the housing the market is getting ready to head south.  This won’t end well either way.

As for the inventory narrative.  New homebuilders are bulging with inventory.  How do I know? Because I look at the actual balance sheet numbers of most of the publicly traded homebuilders every quarter.  Newly built homes sitting in various stages of completion or sitting complete but completely empty often are not listed in the MLS system.  There’s a rather large “shadow inventory” of new homes gathering dust.  This fact is reflected in the fact that the rate of housing starts has been declining for most of the past 8 months.   There’s plenty of new home inventory and homebuilders are open to price negotiation. This is evident from the declining gross margins at almost every homebuilder.

This is the type of analysis that is presented in the Short Seller’s Journal.  I research and dig up data and present facts that will never be reported by Wall Street, industry associations and the financial media.  This is why my subscribers were short Beazer (BZH) at $14.99 on May 21st.  It’s currently at $13.39 but has been as low as $12.  It’s headed much lower.  Despite the Dow et al hitting new highs, there’s a large universe of stocks that are plumbing 52-week and all-time lows.  You can find out details about the SSJ here: Short Seller’s Journal information.   In the latest issue I present an in-depth analysis of Netflix’s accounting and show why it’s a Ponzi scheme.

The Housing Market Bubble Is Popping

As with all other highly manipulated data, the financial media has a blind bias toward the “bullish” story attached to the housing market. Understandable, as the National Association of Realtors spends more on special interest interest lobbying in Congress than any other financial sector lobby interest, including Wall Street banks.

New home sales were down last month, according to the Census Bureau, 11.3% and missed Wall Street’s soothsayer estimates by a rural mile. Strange, that report, given that new homebuilder sentiment is bubbling along a record highs. Existing home sales were down 2.3%. You’ll note that the numbers reported by the Census Bureau and NAR are “SAAR” – seasonally adjusted annualized rates. There is considerable room for data manipulation and regression model bias when a monthly data sample is “seasonally adjusted/manipulated” and then annualized.  You’ll also note that mortgage rates have dropped considerably from their December highs and May is one of the seasonally strongest months for home sales.

It’s becoming pretty clear to me that the housing market’s “Roman candle” has lost its upward thrust and is poised to fall back to earth. I believe it could happen shockingly fast. Fannie Mae released its home purchase sentiment index, which FNM says is the most detailed of its kind.

The report contained some “eyebrow-raising” results. The percentage of Americans who say it’s a good time buy a home net of those who say it’s a bad time to buy a home fell 8 percent to 27% – a record low for this survey. At the same time the percentage of those who say its a good time sell net of those who say its a bad to sell rose to 32% – also a new survey high. In other words, homeowners on average are better sellers than buyers of homes relative to anytime since Fannie Mae has been compiling these statistics (June 2010).

Currently the prevailing propaganda promoted by the National Association of Realtors’ chief “economist” is that home sales are sagging because of “low inventory.” He’s been all over this fairytale like a dog in heat. The problem for him is that the narrative does not fit the actual data – data compiled by the National Association of Realtors – thereby rendering it “fake news:”

The graph above shows home inventory plotted against existing home sales from 1999 to 2015 (note:  when I tried to update the graph to include current data, I discovered that the Fed had removed all existing home sales data prior to 2013).   As you can see, up until Larry Yun decided to make stuff up about the factors which drive home sales, there is an inverse correlation between inventory and the level of home sales (i.e. low inventory = rising sales and vice versa).   I’m not making this up, it’s displayed right there in the data that used to be accessible at the St Louis Fed website.

Furthermore, if you “follow the money” in terms of new homebuilder new housing starts, you’ll discover that housing starts have dropped three months in a row. The last time this occurred was in June 2008.   IF low inventory is the cause of sagging home sales – as Larry Yun would like you to believe – then how come new homebuilders are starting less homes? If there’s a true shortage of homes, homebuilders should be starting  as many new units as they can as rapidly  as possible.

Although the Dow Jones Home Construction Index is near a 52-week high – it’s still 40% below it’s all-time high hit in 2005.  Undoubtedly it’s being dragged reluctantly higher by the S&P 500, Dow, Nasdaq and Tesla.   Despite this, I presented a homebuilder short idea to subscribers of the Short Seller’s Journal that is down 13.6% since  I presented it May 19th.  It’s been down as much as 24.2% in that time period.   It is headed to $7 or lower, likely before Christmas.  I also  presented another not well followed idea that could easily get cut in half by the end of the year.

The next issue of the Short Seller’s Journal will focus on the housing market.  I’ll discuss housing market data that tends to get covered up by Wall Street and the media. I have been collecting some compelling data to support the argument that the housing market is rolling over…you can find out more about subscribing here:  Short Seller’s Journal info.

In the latest issue released yesterday, I also reviewed Amazon’s takeover of Whole Foods:

I just read it and the analysis on Amazon is awesome. This has the potential to be the short of year when the hype wanes and reality sets in – subscriber, Andreas

A Quick Note On Today’s Existing Home Sales Report

What about the biggest rise in existing home sales on record in December? These guys are offending my sensibilities. By virtue of all the fake statistics and bogus market action, there has to be something seriously wrong right now.  –  John Embry email to IRD

Existing home sales are based on a sample estimate of contract closings.   The actual “sale” took place when the contract was signed 30-45 days ago.  The headline report is based on a “seasonally adjusted annualized rate.”  The big farce about statistics, away from the obvious fact that “seasonal adjustments” are a polite way to say “statistically manipulated,” is that the metrics reported in terms of percentage changes can make an economic report sound a lot better than the underlying reality.

The underlying reality in today’s report is that allegedly a technical glitch cited by the NAR pushed some closings from November into December and therefore artificially depressed the November number and  artificially inflated the December number.  This is only part of the explanation for the 14% seasonally adjusted annualized rate of increase for December vs. November.   The balance of the 14% seasonally adjusted annualize rate metric is most likely attributable to the “seasonally adjustments” applied to the sample data.  It’s analogous to taking the scraps of pig of the slaughterhouse floor and putting these scraps though a grinder to produce “sausage.”

By the way, does anyone find it a bit suspicious that a “seasonally adjusted annualized rate” metric is used to describe what may or may not have occurred during one month? Think about that.

Notwithstanding this statistical smoke and mirrors, pending home sales for November dropped 1% vs an expected rise of .7%.  Pending home sales are contracts signed, most of which evolve into closings, which become existing home sales.  Some of this decline in pending home sales should have been reflected in December’s existing home sales – in other words, it calls into question the credibility of the existing home sales report.

Furthermore, the November pending home sale number should translate into lower closings, i.e. existing home sales, for January.  That latter assertion relies on an unwillingness of the NAR to completely lampoon the statistics for January’s report- an assumption that may be highly naive based on the degree to which the NAR has been adulterating the statistics for at least the last year.

One last thing.  If you find yourself wanting for some intellectual entertainment this weekend, compare the commentary from the NAR’s Larry Yun in the Pending Home Sales report and his commentary in the Existing Home Sales report.   It epitomizes the phrase, “through the looking glass.”

The homebuilder stocks are rebounding right now on the back of that rigged existing home sales report.  One of the featured stocks in this week’s report will either be a homebulder or a homebuilder supplier.  The last h/b supplier I featured is now up (i.e. down in price) over 13% from the 12/7/15 report.  The last h/b I featured 2 weeks ago is now down 8%.  You can access my Short Seller’s Journal here:   SSJ Subscription

 

This Homebuilder Could Default In 2016

UPDATE: This stock is down over 3% today and headed lower

I was responsible for forecasting at Toll Brothers during the peak bubble years. My forecasting model showed a massive downtrun coming. The CFO refused to look at and consider my forecast.  Bob Toll ignored the signs and bought $1 billion of land at the peak in 2006. I saw the writing on the wall and quit before the brown stuff hit the fan I left the company to dodge the coming storm. Toll then lost money for 14 quarters in a row…It’s about to happen again.  – email yesterday from a well-known blogger

We’ve seen four homebuilders report their quarterly and or fiscal year end results so far. Two builders showed considerable unit volume delivery declines and two reported increases.  Going forward from here it will be all down hill.

In revising and updating my stock report for one particular homebuilder, I discovered that this Company has a huge debt repayment in second half of 2016.  This company must be worried about that because for the first time since 2012, it did not add homes to its inventory, it only replaced what it sold.  It’s cash balance still declined significantly year over year.

The stock is still down 22% from its price when I first published this report.  Even if I’m still early BlogPicon my call for the overall market, and I’m more confident everyday that the market is in trouble, this Company’s stock will likely head lower.   The section on prudent capital management and using options (puts and calls) has been updated to reflect my current suggestions.

Despite an increase in both price and unit deliveries, this Company’s operating income declined year BlogLOGOover year for its fiscal year.  That fact alone tells us that something is wrong with the way this Company operates.  Imagine that, in the greatest new home price inflationary environment in history, this Company is still having trouble generating a profit.

You can access this report here:  This Homebuilder Could Face Involvency In 2016.  The section on prudent capital management and using options (puts and calls) has been updated to reflect my current suggestions.

Short This Homebuilder Bounce

Last week and the week before, Pulte and Calatlantic (Ryland/Std Pacific merger) reported their latest fiscal quarter.  Both companies reported a decline in homes delivered to buyer (closings).  This was consistent with the new home sales reports, overall, for the 3-month period.  The home builders were hit after both of these reports, taking the DJUSHB from 600 down to 560 – or 6.7% – over the next 13 trading days.  Beazer is still down 20% from when I first posted the original research report.  It’s headed to zero, or close to it.

Yesterday DR Horton reported its Q4/Fiscal yr-end results and Beazer reported the same today.  While DHI “beat” earnings by a penny, it missed on the Street’s revenue estimates. Beazer missed on its revenue estimate.  It’s earnings vs estimates is useless because Beazer decided to dump $323 million – or more than 10x its operating income for the quarter – of non-cash “tax benefits” into its net income calculation.

While both companies, contrary to Pulte and Calatlantic, showed an increase in units delivered/closed, further analysis I’m sure will show some extreme measures were implemented in order to move inventor.  I’ll will have updated research reports on both and special research report offer sometime over the next couple of days.  If you want a head-start, I would suggest taking a look at this report, which will not be part of the research report special:  RED FLAG ALERT FOR THIS HOMEBUILDER

However, interestingly both homebuilders stopped investing in new inventory.  By this I mean on a net basis, they both reduced their inventories quite a bit during their Q4.  If the outlook for the housing market is extremely optimistic – per the NAHB builder “confidence” report – how come these two homebuilders reduced their inventory after building them up to levels that exceeded their 2005/2006 housing bubble peak levels?

On a quick glance at Beazer’s numbers, its margins took a hit during the quarter, which means it was offering its homes at a big discount.  DHI’s cancellation rate during the quarter popped up to 27% vs 23% for all of 2015, which is a huge red flag.  Among other indicators, it means that DHI’s reported order book is highly over-inflated.   BZH’s cancellation rate also increased during Q4.

Furthermore, DHI’s Numbers were not nearly as strong as the headlines in their press release. They “beat” by a penny, but there were several somewhat arbitrary non-cash adjustments that gave them the leeway to engineer a “beat.”  It also looks like like they underwrote the mortgages for a lot of their buyers which means they financed subprime buyers to the hilt. We know this because their “mortgages held for sale” jumped nearly 50% year over year. If these were conventional, non-subprime mortgage, they would be able to off-load onto FNM/FRE and not hold them for sale.   It also means that there will be mortgage loss write-offs in DHI’s future.

It’s highly likely that this quarter will be the “last hurrah” for homebuilder sales volume and rising prices.   Most Americans are sliding into insolvency and it looks like the Fed/Government has saturated the last of the population that makes enough money – for now, anyway – to support the monthly cost of home ownership.  For example, read this report:  Most Americans Are Too Broke To Afford To Buy A Basic Home.

Next Up:   Another bailout of Fannie Mae and Freddie are inevitable and the FHA will require one as well (FHA was 2% of the mortgage market in 2008, it’s 20% now).

Peak Housing Market Propaganda

I was chatting with an Denver-based real estate professional yesterday.  This person stated outright that the real estate market was in an insanely overvalued bubble that was going to pop.

It’s pretty obvious to anyone who makes the decision to look at the facts.  For instance, the media, Wall Street and industry association promotional juggernauts (National Association of Realtors, National Association of Homebuilders) continue to gloat over the supposed continuous price increases being reported by highly statistically unreliable data series like the Case-Shiller housing price index (Even Robert Shiller has admitted to this series’ flaws in the past).

Every metric promoted in the headlines is based on “year over year” comparisons.  A far different truth emerges when you shine the light on month to month changes in price.  In fact, I linked an article in a blog post earlier this week (LINK) which showed that 30% of all homes across the major MSAs lost value over the last year.  In many markets, prices have been declining for most of this year to date when measured serially month to month.

In just about any market across the country, if you closed on a home in June and used a 10% or less down payment, you are now underwater on your mortgage.  That’s a fact agreed upon by my friend mentioned above.

Aaron Layman, based in Houston and one of the few truly honest real estate professionals, posted commentary today which shows just how extremely misleading media reports about the real estate have become.  His example uses the Houston condo market, but the same type of relative numbers apply to most large MSAs:

  • Annualized sales of townhomes/condos are down 1.6 percent, but inventory is up 12.9 percent.
  • Annualized sales of highrise condos are down 14%, but inventory is up a 16.1 percent!
  • The median price of combined new and existing highrise construction is down 11.6 percent.
  • The median price of new highrise construction in Houston has shown ZERO appreciation from last year!
  • Annualized sales of new highrise condos are down a stunning 75 percent!
    Inventory of new highrise condos in Houston is up 44.2 percent!
  • MLS shows 111 months of inventory for new highrise construction in Houston!

You can read all of Aaron’s commentary here:  LINK

That same dynamic is definitely occurring in Denver.  And the non-stop rise in rent prices being reported all over the place is just outright wrong.  Nearly every building in Denver is offering some type of rent concession to sign a year lease, with some offering up to two months free.  Denver has been cited as allegedly one of the hottest markets.

The homebuilders are more overvalued now than they were at the peak of the housing bubble.  We’ve already seen one homebulder stock lose over 9% in one day.  I happened to have published a research report on this company about 4 days before it reported.   You can still take advantage of the significant amount of downside that remains in this stock, which is loaded with red flags – including an ongoing IRS audit:   RED FLAG ALERT HOMEBUILDER

Pulte Home Misses By A Country Mile

Pulte Home missed its Wall Street earnings nut by 10 cents. It would have been more had the Company not continued to burn shareholder cash with another huge quarterly share buyback. Closings were down 6% for the quarter year over year and the Company’s book value continues to plummet.  But, of course, they promote “orders.” “Orders” don’t mean a thing in a business model for which cancellations run 15-20%. Yes, upper management continued to dump shares into the Company’s share buybacks…

The Fed has handed the entire housing a multi-trillion gift in the form of a $2 trillion injection of printed money directly into the mortgage market and a zero-percent interest rate policy that has produced record low mortgage rates. Plus the taxpayer has, unwillingly subsidized down payments and interest costs, as all three major Government-backed mortgage entities are offering 3% down payment mortgages.

PayPalPicFor PHM to screw this up means that the Company’s management is incompetent. If you had purchased by latest homebuilder report when it was published you would be sitting on 6% gains in two days outright and even more if you played puts.  (click on the image to the left to access my stock report)

But this is just the beginning for PHM and my report explains why there’s an easy $10 of downside in this stock. This graph tells us everything you need to know about the true fundamentals of the housing market – even in an environment in which the Fed and the Government is literally shoveling money at the housing market as means of trying to prop up the economy, over the last 5 years the homebuilder stocks have underperformed the S&P 500 by 70%:

SPXvsHomebuilders

Existing Homes Sales Drop 3x Faster Than Expected

Existing home sales for August were released Monday.  They declined nearly 5% from July, with July revised down from the original report.  The brain trust on Wall Street was expecting a 1.3% decline.

It was only a matter of time before home sales started dropping again.  But a drop of this magnitude in August took me by a bit of surprise.  Of course, the National Association of Realtor’s chief “economist” offered pathetic excuses for the hammer applied to home sales in August with half-truths, distorted truths and omission of facts.   I was actually a bit shocked by the transparency of his apologies for the highly disappointing report.

For instance, every month he blames disappointing sales on low inventory.  The NAR is showing 5.2 months of supply as of the end of August.  However the inventory jumped to 5.2 months of supply from 4.9 months in July.  And the NAR inventory numbers are lagged by a couple months and do not include “coming soon” listings, which are listings exclusive to the listing broker for typically 30 days before they hit the MLS database.

Furthermore, based on what I’m seeing all over the metro-Denver area, the number of new listings accelerated toward the latter half of August and continued to increase on a daily basis throughout September.  This is interesting because typically listings tail off toward the end of the summer as families focus on back-to-school and then the holiday season. Even worse for the market, price reductions are hitting the market at an alarming rate.  It reminds me of 2007-2008 in Denver.

I get emails from readers describing similar observations in several other cities.  If you are not seeing what is going on in Denver, stay tuned because it is “coming soon.”  If the demographic pattern is similar to the pattern that developed when the housing bubble popped, Denver’s market was hit earlier than most of the other top-20 MSAs, the what is occurring in Denver with regard to an inventory pile-up will soon be all over the country.

The headline numbers and the data referenced by the NAR’s chief “economist” are “seasonally adjusted” and converted into an annualized rate of sales.  Any distortions in the data are exacerbated by when monthly data is converted into an annualized rate.  But let’s take a peek at the “unadjusted” data as reported by the NAR.

On an unadjusted basis, existing homes sales dropped 8.3% from July.  YTD there were 3.55 million homes sold. Compare this to the 5.3 million “adjusted, annualized rate.”  In order to cleanse “seasonality” out of the unadjusted monthly comparison, I looked at what happened from July to August in 2014.  Last year for the two month period home sales fell 3% on an unadjusted basis month to month.  In other words, the month to month drop this year is quite bit worse than it appears in the headlines.  The months’ supply at the end of August 2014 was 5.6.  Just for the record, in 2013 unadjusted sales from July to August were flat, declining by 1,000 homes.

Perhaps most interesting is the fact that the annualized, adjusted  sales rate in August 2015 was 5.2% below the same number that was reported in 2013.   Interesting that Larry Yun leaves that comparison out of his pathetic apology for a housing market report that was likely even much worse than was featured by the headline-regurgitating mainstream media.

Unlike Larry Yun, who seemed to make shameless love to the numbers, the stock market apparently hated the existing home sales report.  On a day when the S&P 500 closed up almost 9 points, the homebuilder index fell 1.3%:

Graph1

The homebuilders popped at the open on the heels of Lennar’s Q3 earnings report, which was mostly hype backed by little substance.  The homebuilder index dropped a bit on the horrific existing home sales reports but remained in positive territory.  It would appear that it took the smart money about 90 minutes to analyze and absorb the sales report, because around 11:30 EST, the homebuilders fell of cliff.

I’m expecting home sales to drop at a faster rate going forward for several fundamental economic reasons.  I’ll have a lot more analysis and commentary on this later this week.

The Housing Market Is Toast

Don’t take if from me, take it from honest industry professionals:

Plenty of volatility to come for the home builders. I received a text from a major national builder this week letting me know they would take $90K (14 percent) off of the listed price for one of their inventory homes. Several Katy/West Houston neighborhoods rolling over on price as inventory builds in the upper price segments.

While industry pundits and the marketing arm of the local real estate board keep telling everyone things are fine, the underlying fundamentals continue to deteriorate. – Aaron Layman, Aaron Layman Properties, Houston, TX

It’s not just Houston, I receive emails from readers all over the country with similar stories. Most of them are from people who were able to sell before the summer started and now are seeing a literal avalanche of homes “stuck” on the market.

Note:  The National Association of Realtors’ inventory data is severely lagged and based on sketchy data surveys.  Also, it would not include “coming soon” homes, which are a one-broker exclusive and not put in the MLS system for at least 30 days.  There is a literal plethora of “coming soon” homes in Denver.  Real estate brokers are glorified car salesmen.  They sit somewhere on the ethics scale between Best Buy electronics salesmen and Wall Street fraud pimps.

The homebuilders rolling over here.  The pop in price over the last two days was a function of the enormous Fed intervention in the equity markets.  Despite one Fed officials hint of possible negative interest rates today, the homebuilders are red:

Homebuilder StocksMy homebuilder reports give you a unique insight into why these stocks are extremely overvalued and have a long way to fall. The two reports on my “sidebar” to the right show why these two stocks will hit the wall sometime in the next 24 months, if not sooner.

You can access my reports here – the price is going up once I get them updated.  Anyone who buys now (or previously) will receive the updates upon request:  HOMEBUILDER REPORTS

Each report takes a in in-depth look at the questionable accounting games being played by these homebuilders, shows why they are burning cash and contains trade management advice and suggestion for how to use puts and calls.

Here’s the extra good news:  Jim “Mad Money” Cramer has been pounding the table on the homebuilder stocks!  You know what that means…