Homebuilder Stocks: One Big Head-Fake

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):

BZHKBH

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…

8 thoughts on “Homebuilder Stocks: One Big Head-Fake

  1. Dave:
    I read your blog a couple of times a week – noticed your comment on the 750k + inventory build up out there in the mile high city. As I have noted before I am holding off purchase when I move out there this summer from Chicago due to the inflated prices I am seeing – and you are correct on the inventory build up – in my search process I have access to Core Logic’s home search engine and it seems these high priced homes are coming on the market more and more every day – the little green houses used to mark the homes on the market are beginning to blot out the map of the central and south region down through Larkspur. Was not like this a year ago.
    Keep up the good work – and thanks for saving my butt!!!

  2. One more thing regarding the build up – there are alot and I mean alot of 1.5 mil and up homes just sitting and sitting. Look at remote areas of Parker, Castle Pines, Roxborough Park area and high end areas around Castle Rock – just scary.
    Frankly I have no idea who will be buying the homes that are being built in that area called Ravenna near Roxborough. 1.0 mil is the low end there and alot of them on the market.

      1. My sense is folks are looking for a store of value as I noted previously – seems that the folks are starting to chase yield wherever they can get it – only problem is when there are too many dollars chasing yield prices go up or inventory builds. I don’t know enough of the dynamics of all this but to say that a correction is due big time in the higher echelons of housing.
        Again – thanks for saving my butt – was really anxious to make a simple one stop move and realized early enough that buying in this environment is just nothing short of foolish. Better to sit on cash and wait it out I think.

  3. I first read this on caseyresearch.com and looked up the link-

    http://www.econmatters.com/2015/02/the-sad-chart-of-us-home-ownership.html#more

    “Did you know that the rate of homeownership in the United States has fallen to a 20 year low?”

    With the economy, the real-in-your-face-its-bad-out-there economy, not the smoke-and-mirrors-make-up-data-to-make-it-all-look-good e-CON-omy, I seriously doubt housing will pick up for real until the overhead is cleared off the bankster’s books. How much shadow inventory is out there?
    Only The Shadow knows, and even he isn’t sure.

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