Mortgage purchase applications one again registered a weekly decline. If people are not applying for purchase mortgages, they’re not buying homes. 90% of all new homes are financed with a purchase mortgage…
Yes, I know, the homebuilder stocks have been on tear since mid-January. But on what fundamental developments? Anyone? But guess what, two homebuilder stocks have done cliff-dives because they released their quarterly earnings and the truth was exposed – KBH and BZH (click to enlarge):
Those two charts show what happens when truth infects the stock price of an insanely overvalued stocks. Both companies warned about their business going forward and both companies are more leveraged now than at the peak of the housing bubble in 2005/2006.
But ALL of the homebuilder stocks have this problem. Readers who purchased my KBH and BZH reports and shorted the stock the next day have made 28% and 24% if they covered at the bottom of the drop on both stocks. All they had to do was ride. The same will be true for the other three companies in my Homebuilder Report section. Those three stocks have a lot further to fall. KBH and BZH will be great shorts after their dead-cat bounce. BOTH companies are eventually going to hit the wall and the stocks will go well under $5. Look at where HOV trades today and see the future of KBH and BZH.
The point here is that the fundamentals do not in any remote manner support the valuations of any of these stocks. The move higher in the DJUSHB over the last 3 days has occurred on increasingly declining volume. That is bearish. The sector will do another cliff-dive soon.
I published an analysis of the National Association of Realtor’s existing home sales report for December. It is exceedingly misleading and deceptive at the headline level – I explain why in my article, which you can read here: Bearish Data Behind The Existing Home Sales Report.
I spoke to someone today who owns a rental home in Denver. He’s putting it on the market this week – priced to sell – and he’s putting some of the proceeds into the fund I co-manage. He fully understands what is happening in the housing market and the rest of the financial markets. Meanwhile, the real estate listings over $750,000 continue to pile up in the Denver metropolitan area. It’s actually kind of spooky because Denver is highly affected from the crash in oil. I have no idea who the buyers for all of that inventory would be…