Tag Archives: Housing stocks

Housing Market: Desperation Is Setting In

A colleague of mine who has a second residence in Arizona told me today that he received a card in the mail from Toll Brothers.  TOL was offering to reimburse up to $2,000 in travel expenses if the person receiving the card bought a new home in Arizona.   Toll must be getting desperate because the only way to get the information needed to mail my colleague was to physically go make copies of the property tax rolls at the County admin offices.   He said he had not seen something like this in the 15 years he’s owned a home in AZ.

This is in addition to the massive amount of incentives that these new homebuilders are already offering:  free pools in warm States, price discounts and other “value-added” incentives that these companies are throwing in to try and move homes.  This is in addition to the fact that they underwrite most of their own mortgages, which enables them to build in subsidized financing.

The housing market is deteriorating quickly, along with the rest of the economy.  I wrote an article for Seeking Alpha which documents several confidence/outlook indicators which reflect the rapid deterioration in the underlying fundamentals.  You can access that article here:   Housing Market Update:  It’s Getting Worse.

The homebuilders have staged a bounce along with the rest of the stock market, although this bounce has been primarily driven by declining volume.  The S&P 500 and Dow continue hit new all-time highs but the homebuilders can not even bounce back to recent highs.  This tells us that the market is starting to understand just how quickly the fundamentals for housing are fading.

Every single one of my new homebuilder short reports are still valid.  You can access those reports here:   Homebuilder Stocks:  Why They Are Great Shorts.

The stock market is bounding higher on Fed hot air and unbridled investor optimism.  The hot air will eventually get cold and the optimism, in my opinion will soon fade.  The risk in this market is to the downside.  In case no one noticed, Ukraine is heating up again and the Middle East gets more violent by the day.  The recent economic reports, rigged and manipulated as they may be, show a U.S. economy that weakens by the day.

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Homebuilders Setting Up For Another Short Entry

On a per structure basis, activity in multiple units starts is dwarfed by the flat to minus activity in the dominant, single unit housing starts category, which has remained stagnant at a low level of activity since hitting bottom in early 2009. The private housing sector never recovered from the housing collapse of 2006 into 2009.   – John Williams,  Shadowstats.com

The homebuilder stocks staged a dead-cat bounce higher this week.  I have been saying that the builders were very oversold and would likely engage in a sharp short-squeeze rally.   Today’s huge short-squeeze move – see this link – in the entire stock market added fuel to the homebuilder’s spike up.

I mentioned last week that the builders were due for a technically “oversold” short term bounce.  I also asserted that the builders typically rally into the NAHB homebuilder sentiment index and the housing starts report.  Finally, I said a bounce up the 50 dma was likely and a continuation move to the 200 dma was possible.

The housing starts report today was driven by starts in apartment rental buildings.  Just like during the original housing bubble, developers are going to over-build apartment buildings.  This will drive rents lower, which will drive home prices lower.  I’m already seeing some downward pressure on apartment rents in Denver and there’s several large projects in various stages of completion.  I’m also seeing many more homes offered for rent in good neighborhoods than I’ve seen in the last 4 years.

Today the DJUSHB closed at the 50 day moving average.  You can see on the graph below that the move this week was on declining volume and on less volume that the sell-off that occurred last week (white box on the graph – Click to enlarge):

DJUSHB1

The next graph is a 2-yr daily which shows the movement of the homebuilder sector vs. the yield on the 10-yr Treasury (30-yr mortgages are priced off the 10-yr Treasury):

DJUSHB_10yr

As you can see, since the beginning of March this year, the big decline in interest rates has not stimulated the homebuilders, which reflects the fact that new homes sales are now in a downtrend.

The short-squeeze spike up this week has created the perfected set-up to either start a short position in the homebuilder stocks or add to current shorts.  My advice would be to short some stock on Monday and then wait and see if the DJUSHB moves up to the 200 dma, where I would add to positions.

Existing home sales for September are released on Tuesday and new home sales on Friday.  Those reports could be the catalyst that drive the DJUSHB back up to the 200 dma. But if the reports fall short of expectations, the DJUHSB will take another plunge lower.

This market is headed lower.  Much lower than most people realize or are even willing to contemplate.  Although the extreme degree of subprime mortgages are not available now like they were in the years which lead to the housing bubble popping, interest rates over this current period of time are significantly lower than they were from 2000-2006.   Yet, home sales running at 1/3 the level of the peak bubble years.  Stunningly, every single homebuilder I look at has inventory and debt levels as higher, or higher in some cases, as they had at the bubble peak.

My homebuilder reports – see this LINK –  will help you take advantage of the current set-up in the builder stocks.  I have detailed analysis, including an explanation of how and why the homebuilders are using misleading accounting to make their earnings appear better than these companies are really producing.  I also include a section that goes over options strategies.

The market gods have handed us yet another opportunity to make money off of stupidity and greed.

 

First Quarter GDP Was Negative: Economy Headed For Deep Recession

It may not seem like it if you have a well-paying job which covers most of your Obamacare costs and that enables  you make  your mortgage payment, pay the leases on your cars and enjoy discretionary spending, but for the 76% of the country that lives paycheck to paycheck the economy never really recovered from the Great Financial Collapse and is getting worse by the day.  See this article, for example:  CNNMoney.

I predicted late last year that the first quarter GDP might register an economic contraction. You would know it from watching just the stock market, but the first revised estimate of Q1 GDP showed a 1% decline occurred.

I wrote an article for Seeking Alpha explaining how the trend in retail sales and home sales – two key variables to the economy – are showing the strong possibility of an even bigger contraction in Q2.  You can read the full article here:   Negative Q1 GDP, Q2 Worse?

By the way, the bond market – which usually “sniffs” out trouble before the stock market sees it – is telling us that my analysis is likely on the right track.   By the  way, Obama’s war-mongering in the eastern hemisphere plus Obamacare spending saved the economy from going even more negative in Q1 (in case you wondering why Obama seems anxious to start wars with everyone)…

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One more point, before you fall for the highly-spun propaganda that the Obama Government has narrowed the spending deficit, you should know that funded Treasury debt – i.e. the amount of new Treasury debt issued and the money spent – was $250 billion in Q1 – or $1 trillion annualized.  Debt is only issued to cover deficit spending…