August Existing Home Sales Tank Despite Lowest Mortgage Rates In Year

Just for the record, I would not be surprised if tomorrow’s new home sales report is stronger than expected.  The numbers are coming from the Government’s Census Bureau and the new home sales series has been irregularly volatile and unreliable.  But based on every homebuilder earnings report released so far, new home sales are dropping quickly.  Mortgage purchase applications confirm this, as 93% of all new homes use a mortgage for the purchase.   Any bounce in homebuilders on tomorrow’s report should be shorted with both hands.

Sales are going lower from here. We are in a long term secular bear market and the market – aided by several trillion in Fed and Govt stimulus, achieved a small dead cat bounce in the context of the bigger trend going on. Employment as a percent of the working age population is at historical lows and those who are employed are back to the 1994 average earnings levels. There is no organic economic support for the housing market.

I thoroughly review the National Association of Realtors’ August existing home sales report in this article:   August Existing Home Sales Unexpectedly Drop.

As you’ll see, an analysis of the data not promoted in yesterday’s headline reports shows the market is really starting to deteriorate.  And this is with a backdrop of mortgage rates that are the lowest in a year and not far from all-time lows.

The homebuilder stocks are a phenomenal shorting opportunity. By the time this over, at least half of them will be bankrupt because of all of the debt they’ve taken in the last 24 months and the ones that survive will be trading well under $10.   I have three homebuilder short-sell ideas, one of which will probably be one of the bankruptcy casualties:   Homebuilder Short-Sell Reports.


One thought on “August Existing Home Sales Tank Despite Lowest Mortgage Rates In Year

  1. I disagree with the rosy conclusions about US foreclosures and the over health of the US housing market in the following RealtyTrac report, but there are some data included that are useful.

    “Scheduled foreclosure auctions increased from a year ago in 24 states, including Colorado (up 160 percent), Oregon (up 117 percent), Connecticut (up 81 percent), New York (up 81 percent), Oklahoma (up 72 percent), New Jersey (up 71 percent), Illinois (up 25 percent), South Carolina (up 21 percent) and Maryland (up 17 percent).”

    “Florida, Nevada, Maryland, New Jersey, Georgia post highest state foreclosure rates
    A total of 6,468 Florida properties started the foreclosure process in August, a 74 percent jump from the previous month and up 24 percent from a year ago, the first year-over-year increase in foreclosure starts after 17 consecutive months of year-over-year decreases. The rise in foreclosure starts helped Florida post the nation’s highest state foreclosure rate for the 11th consecutive month. One in every 400 Florida housing units had a foreclosure filing in August, nearly three times the national average.”

    It’s not just the “sand states”. US RRE is still a mess and about to get messier as mean reversion continues. Gov’t intervention only delays the inevitable…

    The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’ – Ronald Reagan, 40th president of US (1911 – 2004)

    Humpty Dumpty sat on a wall,
    Humpty Dumpty had a great fall.
    All the King’s horses, And all the King’s men
    Couldn’t put Humpty together again!

    Good luck trading.

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