Tag Archives: homebuilders

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…

Econ Nazi To Homebuilders: “No Soup For You” – Lumber Is Limit-Down

Buyer of my homebuilder research:   I’ve never gotten a bigger return for the value. Paid $25 pay for the report,  invested $4k in KBH Jan 15’16 $15 put since August [2014] and closed today [mid-Jan 2015] for $3.2k profit.

The price of lumber is the “tell-tale” of the tape.  It sold down hard early in the year and got a manipulated dead-cat bounce along with oil.  It’s limit-down today and headed back to multi-year lows:

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Homebuilder sentiment peaked in mid-2005, just in time for Dow Jones Home Construction Index to plunge from 1,039 to 140 over the next 3 years – click to enlarge:

UntitledOutside of AMZN and private Silicon venture plays – which can’t be shorted – the homebuilder sector is THE best sector of the market to make a lot of money shorting. My reports will help you understand why:
HOMEBUILDER SHORT SELL REPORTS

This sector has more debt and more overvalued inventory than it did at the peak of the market in 2005/2006.  The p/e ratios are several multiples higher.  The last of the public has gorged on easy credit and “easy flips.”  This will be worse than the bear that started in 2005/2006 – the second leg down in bear markets always is…

Once I get my reports updated, I will be raising the price.

New Home Sales Report: Epitome Of Government Fraud

I like the way Zerohedge refers to today’s Census Bureau tragicomedy on new home sales:

New Home Sales Data Goes Full Retard With Report Frozen Northeast Saw 153% Surge:   The (third) reason why today’s data is just absolutely seasonally-(un)adjusted garbage is because somehow, even when all the other housing data would have us believe the Northeast was a barren wasteland of snow and freezing soil, New Home Sales in February in the Northeast rose from 17K to 43K, an increase of 153%!

I will have much more to say on this later.  But anyone looking to make money off today’s new home sales report from the Government’s Census Bureau should short this spike up in the homebuilders.  It will fade – probably quickly.

Even Bloomberg is questioning the Census Bureau report:

The figures are based on a small sampling of builders which makes them subject to revisions. The report showed the confidence interval for last month’s reading was plus or minus 15.2 percent. That means there was a 90 percent chance the change in sales in February was between a decline of 7.4 percent and a 23 percent advance.  – Bloomberg

The Government report was at complete odds with yesterday’s existing home sales report from the NAR.  I have demonstrated in detail previously that the Census Bureau numbers are not credible in general.  I’ll have more later on this tragic farce but I know from a contact in Texas who is a real estate broker that Houston’s new home sales in February were DOWN 20% year over year.

Drop In Pending Homes Sales Portends Bigger Drop For Housing Market

I know, I know I’ve been radio silent on the precious metals sector.  That’s because there’s nothing constructive for me say right now given the extreme level of intervention going on and everyone can read rants about that ad nauseum on a lot of other blogs.  I will say that I believe the relentless take-down of the metals using massive quantities of paper gold (Comex futures, LBMA forwards) is throwing off the rotten stench of extreme desperation.  I have my views on why, which I’ll share later.

Meanwhile, there is area of the market that is very ripe for making money – shorting the housing market.  And this strategy has produced pretty good returns since early 2013.  And it will produce even better returns as the natural force of the market’s fundamental “gravity” gets its grip on the helium – helium in the form of printed money – which is levitating the SPX/Dow.  And the best way to short the housing market is by shorting the homebuilders.   When the SPX eventually goes down “X,” the homebuilders go down 2-3X.

I have written a detailed article on the Pending Home Sales index, which you can read here:   Pending Home Sales Report Forecasts Further Gloom For Housing.  Perhaps the funniest part about this report was the NAR’s chief donkey, Larry Yun, attributing the decline in pending home sales to a “rising interest rate” environment.  Well, Larry, the actual market data shows that during August the rate on 30yr mortgages was at its lowest in a year and close to all-time lows.

The real culprit is the exit stage left of big investment buyers and small-time flippers and the continued fade of the first-time buyer segment. I’ve got bad news for Larry.  Mortgage purchase applications declined in three out of four reporting periods during the month of September.  On the assumption that flippers did not pick up their activity – probably a great assumption – September’s pending home sales report will be negative as well.

I just posted a new homebuilder short report which you can access here:   Homebuilder Short Reports.  On the assumption that some kind of miracle does not save the housing market, I expect that this latest idea will achieve a 70% ROR over the next 18-24 months.  This particular company is highly “leveraged” to the first-time buyer market and it employs highly questionable accounting techiniques as a means of managing its GAAP net income.

In Detail, Why The New Homes Sales Report Was Completely Flawed

Gyrating wildly month-to-month, as seen also with the extreme and unstable monthly reporting of the housing-starts series in Commentary No. 660, headline August new-home sales rose by an incredible 18.0% for the month. Even more incredible—as to why the Census Bureau even bothers to publish the current detail—a headline monthly gain of that magnitude was not statistically-significant at the 95% confidence level.  – John Williams, Shadowstats.com

I know I’m beating the drums often on the housing market.  But I had it pegged fairly accurately at the top in 2005/2006 and was too busy with the precious metals market to take advantage of it.   The housing market is crumbling again, and what’s been promoted as a “recovery” is nothing more than a multi-trillion dollar stimulus-fueled dead-cat bounce that is rolling over and headed below where it was after the first leg down.

The August new home sales report gave the housing market perma-bulls a spark of hope. The only problem is that the Census Bureau report is as misleading as all of the other statistically manipulated, propaganda-laced economic reports vomited at us by the Government.

I have written an article for Seeking Alpha which details how the numbers produced by the Census Bureau were entirely outside any probability of being authentic.  You can read it here:   LINK.

The market is giving investors an easy opportunity to make money by taking advantage of the huge disconnect between the stock prices of the homebuilders (and other housing market-related companies) and reality.  This is probably why the homebuilders are lower in price now than before the new homes sales report was released and did not participate in Friday’s big bounce in the Dow/SPX.

CensusBureau.con

The Government has a set a new standard for meeting expectations of unreliable data reports.  I warned this would happen in my blog post on housing yesterday.    The Census Bureau reported this morning that new home sales for August jumped 18% from July, coming in at a 504,000 seasonally adjusted annualized rate.   This was biggest month to month jump since 1992 and the highest level of new home sales since May 2008.  At this point I can’t even get on the CB website to drill down into the dirty details, so I’m going with the headline numbers, which are simply not even remotely believable or possible.

To begin with, 93% of all new home sales are financed with a mortgage.  I dug up the weekly numbers for mortgage purchase applications from the Mortgage Bankers Association, which showed that purchase applications declined 4 out of the 5 reporting periods for August.  Every week in August declined 10-14% on a year over year basis for the respective week.  Here’s the decline in purchase mortgages:

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New home sales are based on contract signings.   With 93% of all new home sales purchased using a mortgage, how is it even remotely possible that the new home sales for August jumped 18% vs August and even more vs. August 2013?  It’s just not mathematically possible.

In addition, I have now looked at the latest quarterly earnings reports for most of the nation’s largest new homebuilders.   All of them reported either flat or negative numbers for new orders.  Furthermore, as I’ve highlighted in my two most recent homebuilder stock reports, two of the biggest builders stated that the market was getting weak.  In fact, the Census Bureau reported new home sales in the West rose 50% from July and 84% year over year.   This is outright fraud, here’s why:  in my latest homebuilder report, I feature a builder with significant operations on the west coast.  This builder specifically cited a weak outlook for sales.  Furthermore, based on regional reports from both the Bay Area and Southern California – which I’ve detailed in some previous posts – the housing markets in both those areas are starting to deteriorate significantly.

Finally, the Census Bureau is reporting a sizable drop in months supply of inventory.  Again, I defer to what the actual new homebuilders are reporting.  Every single new homebuilder company with public stock is reporting their highest amount of inventory since the housing bubble peak.  Every single one.   How is it earthly, let alone mathematically, possible that new home inventory dropped in August?   That’s right, it’s not.

But don’t take it from me, here’s what the big money is saying – the homebuilder stocks are down today despite the new home sales report (click on graph to enlarge):

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The Dow Jones Home Construction Index is down almost 1%  today as I write this, despite the fact that the Dow Jones is up .5% and the S&P 500 is up over 8 points.   Not even the stock market believes the new home sales report because it’s simply not believable or even mathematically possible.

The DJUSHB is down almost 16% since its May 2013 dead-cat bounce peak, despite the fact that the S&P 500 is up well over 22% since then.   The  DJUSHB bounced to a lower high again by mid-summer this year and is currently down almost 11% from then.  This is despite the fact that mortgage reates are at 12-month lows and not far from all-time lows. That should tell us everything we need to know about the condition of the market.

If you have not looked at any of my homebuilder stock reports but want to take advantage of a market set-up to make a lot of money shorting the homebuilders, you should do it now.  When these stocks start to really tank, it will happen quickly.  If you are not comfortable shorting stocks outright, each report has a section which discusses how to use puts and calls to replicate shorting the stock.  I also offer some basic trade management strategies because this sector can be volatile.   Homebuilder Stock Reports.

If you look at a graph of the DJUSHB going back to early 2008, you can see how quickly these stocks unravel once the heavy selling really kicks in.  I believe 70-80% returns can be made just by shorting now and holding.  More can be made if you trade the market around. I am pretty certain that the company featured in my first report (third down on the list) will eventually have to file for bankruptcy, as it has as much debt now as did at the peak in 2005 despite a unit sales base that is 1/3 the level of 2005 and declining now.

Government Economic Reports And “The Big Lie”

Hitler famously lectured in “Mein Kampf” that if a leader is going to fabricate a lie, it needs to be irrationally outrageous in order to make people believe that it would be impossible to make something like that up (9/11 comes to mind…).   From “Mein Kampf:”

It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously. Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation.

That explanation pretty much sums up this morning’s upwardly revised Q2 GDP.   In fact, I woke up this morning thinking that “they” would revise the initial Q2 estimate up rather than down, because everyone who did not believe the first report was anxiously awaiting to see a downward revision.  So, as Hitler adeptly explains, the solution to try and make the initial Q2 GDP report “believable” would be to revise it higher.   Reread the quote above if that does not make sense.  In actuality, it’s basic freshman level psychology…

My co-producer and I posted a new video yesterday exposing another of the Government’s Big Lies.  I invite you to watch it here:   Obama Lies About Employment.  It’s only 9 minutes and has an entertaining  2 minute segment at the end.

Finally, what is not a lie is the fact that my housing market analysis has been as correct as saying the sun will rise in the east, even on a cloudy day.  The homebuilder stocks are down nearly 15% since their peak May 2013.  This is in the context of the S&P 500 moving up over 20% since then.  Imagine how demolished these stocks will get when the SPX rolls over.  In other words, the housing stocks make GREAT short plays.   I have two stock ideas that are in the mid-teens and low 20’s that will fall hard with patience.  One will likely go bankrupt and the other will trade well below $10:   Housing Short Ideas.

Also included in that link are some high rate of return-potential mining stocks, some of them trading under $1.  Stay tuned because I should have a new idea up today.  This one is an imminent producer trading under $1 that offers the potential for lower-risk double or triple.