I liken individual home flippers to the proverbial retail stock market investor who waits until the top of the market to pile on. Nothwithstanding the fact that the National Association of Realtors’ data reports are of highly questionable quality, October’s supposed sales gain was driven entirely by the all-cash individual investor/flipper. You can read my analysis here: Existing Homes Sales For October.
I also wrote an analysis for Seeking Alpha of the rest of the housing market data that was reported this past week. While headline reports had a bullish spin, the actual underlying details shows a market that is deteriorating quickly: False Flag Housing Data.
The reason I say the NAR data is highly questionable is because of the methodology used to calculate the numbers it publishes. The NAR takes data samples, extrapolates those samples into a national number for a given month. Then it runs that number through its seasonal adjustment sausage grinder. I have requested information on the variables and methodology behind the adjustments and they respond with the middle finger. Then they take the seasonally adjusted ground pork parts and calculate an annualized rate for the monthly number. This methodology, used by most industry organizations AND the Government/Fed, is nothing but Orwellian adjustments tortured into questionable data samples. This is data that drives the stock market. It’s the life-blood of the U.S. Ponzi scheme.
The homebuilders are being pushed higher by the flood of computer-driven algorithmic HFT buying that is fueling the S&P 500 every day now. It is now more divorced from the underlying fundamental realities than at any point in the history of this country. The homebuilders are more over-valued now than they were at the all-time housing bubble peak in 2005. I first recommended shorting the builders in January 2013 when the DJUSHB was at 515. It ran to 550 by May. I added to my shorts. Then it sold off to below 400. It ran back up to 530. You get my point. At some point it will rollover again and likely go well into the 300’s before some corrupt Fed official blows smoke about interest rates and QE in order to save the market again.
I have been very clear about stating that this sector is very volatile and you have to save dry powder to add to your positions when the market squeezes higher and take some profits when the market does a cliff-dive. We’ve seen this cycle occur since July this year. I am adding to my homebuilder shorts today. See my housing stock reports linked at the top for some ideas. I am short 3 of the 4 names.