Tag Archives: new homes sales

Housing: I’ve Worked Thru 4 Bubbles – They All End The Same

The three primary drivers of the economy are starting to head south:  retail, housing, autos.  I can smell the housing market slipping away now. I’ve been early on housing, like I was when the mid-2000’s Bubble 1.0 popped, but I was eventually very correct (I sold my dream house in November 2004).

The housing market is beginning to crater. I draw on “hands on” data from the Denver area because I can get “boots on the ground” due diligence accomplished. Denver is considered somewhat of a demographic “bellweather” for economic trends as they unfold. I don’t care what the media propaganda is reporting, in Denver housing sales are rapidly slowing, inventory is rapidly building and prices are falling. I’ve witnessed two $2 million+ homes in my area reduce their offer price 14% and 20% respectively shortly after their initial listing.

Ultra-high end resort areas are starting to get killed. Aspen is reporting that sales are down more than 42% in the first-half of 2016 vs. 2015: Aspen’s Sustained Nosedive. Same with Long Island’s Hamptons, where sales volume in East Hampton and Southampton plunged 53% and 48% respectively from a year ago: LINK.

Once the high-end wets the bed, the rest of the market follows very reliably and obediently.

My view is supported by the homes sales data for July reported by Redfin.com last week. According to Redfin, home sales (closings) fell 11% in July:  LINK.  Redfin of course concocts a ridiculous calculus to rationalize the decline, but that’s nothing more than a disconsolate effort to defer acceptance of the unpleasant but inevitable reality.

Perhaps most shocking in Redin’s report is the extent to which the bottom fell out of what had been some of the hottest markets in the country.  Year over year for July closings fell 46% in Vegas, 24% in Miami,  21% in Portland, 20-% in Oakland and 11% in Denver.

I’ve been focusing on the housing market in my weekly Short Seller’s Journal  because the homebuilder and related home construction stocks are no-brainer shorts.  It’s been my view that flippers/”investors” have been the majority of existing home sales volume reported this year.   I have a subscriber who is three decade-plus real estate professional in Denver who is sharing some great insider color on the market, something you will NEVER get from the National Association of Realtors:

You are spot-on the housing market.   I think the flippers in Denver metro are driving the under $400,000 price to a frenzy and the over $500,000 in the burbs are dropping in price. Some of these flippers have 8-10 houses at the same time. A little jiggle and they will dump. Then the part time rental landlords follow in selling as the rental market gets tough

I am selling a $309,000 condo and showing another buyer $300,000-$350,000 houses in the same part of Denver. Condos and houses of the same 1980’s age are not worth the same. Every time the condo and house of same square footage and age get the same price, the prices fall. Condos go down the farthest of anything.

I believe the flippers who are facing getting “stuck” with their inventory will start to panic and look to unload their “investments.”  Many of them are using debt to make their purchases.  This of course will hasten the downturn in housing. This is exactly how the end of the big Housing Bubble 1.0 was triggered.

The current housing bubble is the most extreme of the four bubbles I have witnessed since the late 1970’s.   Prices for new homes have moved above the prices of the last bubble. In many areas, existing home prices are now at all-time highs.  This is despite the fact that sales volume is roughly 2/3’s of the volume of the last bubble.  This activity is occurring amidst rapidly rising inventories.
The next downturn in housing will be worse than the last one because the Government Untitled1has aggressively stuffed as much mortgage debt as possible into the system with its 3% to no-percent down payment programs, reduced mortgage insurance requirements and by looking “the other way” on credit scores.

If the Fed hikes rate in September, as it incessantly insists will definitely possibly happen, it will be lights out for housing.  On the other hand, it can only take interest rates down 50 basis points to zero, probably will not enough stimulate sales because anyone with a high degree of monthly payment sensitivity has most likely already overpaid for their “dream” home.  When the Government introduced 0-3% down payment programs plus subprime programs.

September New Home Sales Plunge Nearly 100k From The Original August Report

The stock market remains a real insult to human intelligence.  – John Embry

I’m right about the housing market and I’m right about Amazon.com. The only factor I can’t control is the amount of fraud and corruption that is being engineered by Wall Street in conjunction with the Government in order to try and make it look like the reality that analysts like me report is wrong.

August new home sales were reported originally at a 552k annualized rate. The “annualized rate” format is important to understand because it magnifies any estimation and “adjustment” (i.e. manipulative) errors by a factor of twelve (12x). Here is the original Wall St. Journal headline announcing the “good” news from August: “U.S. New-Home Sales Up 5.7% in August – Single-family home sales rise to new post recession high.” Don’t forget, the market trades off of this headline.

This morning the Census Bureau reported that September’s seasonally adjusted, annualized rate of sales had plummeted to 468k, or nearly 100k from the original August report. But the CB decided that it’s original estimate for August was off by 22k, or 4%. Thus, the media is reporting an 11.5% drop in home sales from August for September. However, the September report is 15% below the original estimate for August – the number which the market originally incorporated into its trading models. The 468k missed Wall Street’s consensus estimate of 549k.

Regardless of what the propaganda laced media is reporting, the housing market is starting to drop quickly. Price does not reflect supply/demand, it reflects rampant inflation that is being manifest in insane degrees of debt-financing which enable homebuilders to raise prices because the amount someone pays who is dumb enough to buy a new home is now a function of how much monthly payment they can afford.

This is why we are now seeing this:

zero money downThat sign is not the the type of promotion you would see in a market in which supply is limited and demand is strong. That is the unmistakable indicator of a homebuilder desperate to unload inventory.

The homebuilders are insanely overvalued relative to their underlying fundamentals, especially debt and inventory levels, which are higher now relative to sales than they were at the peak of the housing bubble.   Furthermore, all of these homebuilders are generating highly negative cash flow from their operations because they are overbuilding inventory to an extreme degree.

I just published a new report on a homebuilder (Homebuilder Reports) that is loaded with red flags, including an ongoing audit by the IRS.  The drop in this homebuilder is just getting started.  In fact, it will soon have a graph that will look like this, which is another homebuilder that I recommended shorting when it was in the low $20’s about a year ago:

This is what the graphs of almost all of the homebuilders will look like, only they will notUntitled
experience the temporary price recovery you see in the graph of this stock.  The price recovery 100% a function of the Fed’s interminable support of the S&P 500.  With Thanksgiving around the corner, a lot of these homebuilders will soon have graphs that look like “turkey shoots.”