The hype, misinformation and disinformation from housing market propagandists and home salesman (aka “realtors”) has become unbearable. Here’s a prime example:

Now, I don’t know if this fella actually examines SEC-filed financials or if he just sees financial headlines announcing that a particular homebuilder “beat” estimates and, from that, assumes that “profits have been fantastic.” Make no mistake, there’s a big difference between “beating” management-sandbagged guidance and actual profitability. The “earning” beat game in fact has become mindless idiocy.

While it’s true that homebuilder stocks are hitting 52-week highs, the profitability and industry fundamentals have diverged quite negatively from homebuilder valuations. This is not unlike the tech stocks peaking in early 2000 despite rapidly deteriorating fundamentals.

Beazer Homes ($BZH) is a prime example and just the latest homebuilder to report its fiscal year quarter accompanied by an earnings “beat.” But a look under the hood including a perusal of the footnotes that accompany the financial statements – a place no stock promoter would dare venture – shows sharply declining profitability and rapidly shrinking book of orders.

BZH reported is FY Q2 on April 27th after the market closed. The headline EPS of $1.14 handily “beat” the Street consensus of 83 cents. It didn’t matter that new orders fell 8.5% YoY in Q2 vs 2022 and were down 36.2% from FY Q2 2021. New orders through the first half of BZH’s FY 2023 are down 31.6%; the cancellation rate in Q2 was 18.6% and 25% through the first six months; and the order backlog is down 40.5%, with the dollar value of the backlog down 37.7%. BZH’s operating income plummeted 29% and its net income plunged 22% YoY for the quarter. But because the headlines number “beat,” BZH’s market cap jumped by $125 million:

BZH’s valuation is back to where it was in November 2021, around the time it was apparent that the housing bubble was popping. At the end of 2021, BZH’s market cap was 50% of the value of its order backlog value at the time. Currently BZH is valued at 66% of the value of its order backlog. Keep in mind that the Company’s contract cancelation rate over the last six months is running at 25%, which implies that, going forward, a material number of homes in the order backlog will be finished without a buyer. This is sheer insanity, particularly with the economy sliding into what will be a nasty recession.

Beazer is not unique. DR Horton recently reported an earnings “beat” accompanied by financials and operating statistics similar to Beazer’s. Yes there’s been a small dead-cat bounce in home sales in 2023 attributable in part to seasonality and in part to the drop in mortgage rates that accompanied the decline in the 10-year Treasury yield. But for the potential average home buyer (sub-740 FICO, less than 20% down payment) a 30-year conforming mortgage is still at least 7% when all of the various add-on charges are included (the boilerplate rates advertised are for mortgage applicants with a FICO of at least 740 using a 20% down payment – not the majority of applicants).

Moreover, the economy continues to contract and the layoff cycle is just warming up. Mortgage delinquency and default rates are moving higher, a trend which will accelerate going forward. At some point the stock market will begin to incorporate reality in to homebuilder valuations, which should silence the housing market promoters who are trying to squeeze the last few nickels out of the housing market before it collapses again.