Homebuilder Sentiment Tanks

Yesterday I got a lot of “WTF?” inquiry about the spike up in the homebuilders despite the market sell-off.  I have been saying all week that the homebuilders are spectacularly over oversold and are due for a bounce.  They typically will rally into the NAHB homebuilder sentiment report and the housing starts report, the latter of which is released tomorrow.  Yesterday’s spike up was based on what I just described plus the remarkable plunge in the 10-yr Treasury yield, which at one point was below 2%.

I got news for the housing bulls, lower interest rates are not stimulating sales.   Today’s homebuilder sentiment index showed an 8.5% drop from last month and it was well below the lowest Wall Street estimate (56 to 61).  Most notably, the foot traffic component plunged from 47 to 41, with anything below 50 measuring a marked pattern of declining foot traffic.  Bloomberg’s color commentary on the report said this:

The drop this month in interest rates isn’t driving up demand for housing, based on weekly mortgage bankers data for purchase applications and on the housing market index from the nation’s home builders which is down 5 points to 54.  Lack of traffic points to lack of interest including lack of interest from the important group of first-time home buyers

Bloomberg always has a positive spin on the housing data.  But not today.

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.


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.


The stock of the company in my latest is a little lower than when I first published the report on October 1 (i.e. those who bought it the next day and shorted this stock are in the money already).  But yesterday’s spike up homebuilder stock prices has given us an opportunity to start building, or adding to, a short position in this stock.   You can access this report here:    Homebuilder Short-Sell Reports.

In this report I go into detail on why this company is in worse financial shape than at the peak of the original housing bubble and how it uses a significant of misleading GAAP accounting gimmicks in order to deceive the casual investor or stock analyst.

While I think the DJUSHB homebuilder index may bounce back up to its 50 dma, thereby relieving the technically oversold condition, now is a great time to establish shorts.  In my report I offer both capital management/trading advice and I have specific options strategies outlined for this stock.


3 thoughts on “Homebuilder Sentiment Tanks

  1. Two important facts emerge from the past four weeks’ news. First, China is becoming the world’s largest economic power, officially overtaking the US, based on GDP measured in purchasing power terms (IMF figures) of $17.61 trillion (compared to $17.4 trillion for the US). If the official media hasn’t raised the slightest eyebrow to this information, our team believes that it’s an historic event: the US is no longer the world’s largest economic power and, inevitably, that changes everything !

    Especially as, in addition to crossing this threshold, the US, after having tried to impress the world with an overflowing militarism during the Ukrainian crisis, is revealing a major strategic weakness in its “management” of the Iraqi crisis. A strong-arm policy which seemed to require the world to remain under US tutelage for an as yet undefined time is coming to an end.

    Both these two indicators enable us to see the beginnings of a major turning point in the unfolding of the global systemic crisis: a tilt from a US world to a Chinese world.


  2. Why Are Chinese Millionaires Buying Mansions in an L.A. Suburb?

    This flood of money, arriving from China despite strict currency controls, has helped the city build a $20 million high school performing arts center and the local Mercedes dealership expand. “Thank God for them coming over here,” says Peggy Fong Chen, a broker in Arcadia for many years. “They saved our recession.” The new residents are from China’s rising millionaire class—entrepreneurs who’ve made fortunes building railroads in Tibet, converting bioenergy in Beijing, and developing real estate in Chongqing. One co-owner of a $6.5 million house is a 19-year-old college student, the daughter of the chief executive of a company the state controls.

    Smith says many of the newest buyers in Arcadia don’t speak English. “They’ve just come here,” he says. “They’re on that EB—what’s it called?” He means the EB-5 visas that the U.S. grants to foreigners who plow at least $500,000 into American development projects. Congress created the program in 1990 to spur investment, and demand for the visas has grown recently. This year, for the first time, the government gave away the annual allocation of 10,000 visas before the year was over, with Chinese nationals snapping up 85 percent. Brokers in the area say it’s the most common way buyers are coming to town. “Once they obtain residency, they want to bring their family over and get the United States education,” says real estate agent Ricky Seow. “They can start a new life in California.”


    1. A few hidden details that the article didn’t mention, at least directly, but were mentioned on Ben Jones bubble blog; The Chinese may be buying houses in the US to use it as a form of money laundering, money gained less than honestly in China needs a place where it can do the most good without the threat of a long prison sentence or death penalty in mainland China. Another reason the Chinese may be buying houses overseas is to have a safe haven if things get too hot in China and a safe retreat is needed to avoid trouble. No doubt many Chinese remember or read of the Cultural Revolution and are concerned of a repeat occurring today. When someone has a large sum of money, security is one of the top concerns, not just for keeping the money safe from loss but keeping th owner safe from harm.

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