Tag Archives: housing inventory

Home Sales Data Show The Bubble Is Bursting

There’s no question in my mind now that the housing “snowball” has started downhill and it won’t take long to develop into an avalanche. In addition to all of the “for sale” and “for rent” signs I’m seeing with my own eyes popping up around Denver, I’ve been receiving emails from subscribers describing the same thing in their area.Short Seller’s Journal, July 22nd issue

The existing and new home sales reports this week were worse than even I expected.  Given the statistical manipulation tools used by the National Association of Realtors (existing home sales) and the Census Bureau (new home sales) – both entities use the same regression software – one can only wonder about the true rate of home sales decline.

Yesterday, CNBC.com featured a report titled, Southern California home sales crash, a warning sign to the nation.  I was surprised to see CNBC issue a bearish report on anything.  This report is similar to what’s occurring in New York City – rising inventory and falling sales.  Apartment rents in NYC are also dropping.  It’s similar in nearly all “bellwether” markets.

The Housing Bubble Blog (thehousingbubble.com), which was around during the mid-2000’s housing bubble, posted an article on Friday titled, “Discount sales can create a snowball effect.” The article featured articles from different cities, Portland, Dallas, Ft Collins (Colorado) and Minnapolis/St Paul which described rising inventory and falling prices.

This explains why the homebuilder stocks are in an official “bear market,” with some homebuilder stocks down over 30% since late January. I have yet to hear or read about this fact from the mainstream financial media or Wall Street.

Today’s new home sales report, along with the serial decline in the housing starts  data, disproves the “low inventory” narrative.  Affordability, rising rates and a shrinking pool of potential homebuyers who can qualify for a conforming mortgage has torpedoed demand.  The latest U of Michigan Consumer Sentiment report featured this chart on homebuying sentiment:


As you can see, the consumer “sentiment” toward buying a home is at its lowest reading since 2008. This is not a fact that would ever show up in the mainstream financial reporting on the housing market.

As for the low inventory narrative. The California Association of Realtors reported that June existing home sales plunged 7.3% from June 2017 and inventory is up 8.1%. A subscriber of the Short Seller’s Journal showed me an email in which Pulte Homes (PHM) was offering up to an unprecedented $20,000 bonus to realtors who sold Pulte homes in new developments in northern Florida.

Housing starts for June reported last Wednesday came in at 1.17 million (SAAR). The Wall Street brain trust was looking for 1.32 million. This was a 12.3% plunge from May.  May’s original report was revised lower. Starts for both single-family and multi-family homes were down sharply across the entire country. If inventory were “low,” housing starts would be soaring, not falling.

I’m sure northern Florida is not the only market in which Pulte is offering large selling bonuses and I’m sure Pulte is not the only homebuilder offering large broker incentives. I look at the inventory numbers across homebuilders every quarter. A lot of the inventory is “work-in-process.” But finished a new home does not necessarily show up in the MLS system unless the builder lists it. This is why, on the surface, new home inventory might look relatively low but the builders are showing huge inventory levels in their SEC-filed financials.

Because of the nature of the asset, and the relative illiquidity of the market relative to actively traded financial assets, change in the direction of the momentum in the housing market is like turning a large ocean-freighter around. The manic phase of the housing bubble is over. The momentum has been turning in the opposite direction since late 2017. Flippers who bought homes in the last 3-6 months will soon become desperate to sell. Some will look to rent and “wait for the market move through this valley and head up again” only find that rental prices in many areas are now below the cost of carry.  They forget to tell you that part in flipper seminars advertised on local radio stations.

Soon the “discount effect” of falling prices will snowball into an avalanche.  If you think this is wrong, take another look at homebuilder stock charts.  The commentary above is partially excerpted from the latest issue of the Short Seller’s Journal.  In this issue I discuss various strategies for building and managing short  positions in the homebuilder stocks in the context of the homebuilder earnings reports due out tomorrow (Thursday, July 26th).  New subscribers get a handful of back-issues, an option trading primer and a copy of my Amazon Dot Con report.

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