Homebuilder Stocks Throw A Flag On The Existing Home Sales Report

Homebuilders close down over 1% after early knee-jerk data bounce.

I’m not wrong on my bearish housing market call.  I’ve perhaps underestimated the ability of the Fed and Wall Street to manipulate, obfuscate and fabricate the actual data.  But the homebuilder stocks are not buying today’s “seasonally adjusted and annualized” number published by the National Association of Homebuilders – click to enlarge:

ExistingHomeSalesReport

The above graph shows the intra-day (1-minute) trading action of the Dow Jones Home Construction Index today.  There was a huge sell order at the open (big red bar on the left side) followed by a grind higher into the 10:00 a.m. EST release of the report.  Someone had an early glimpse at the report as there is a big green bar with some volume at 9:58 a.m. EST.   The DJUSHB rallied up to its high of the day of 579.61.

The homebuilders began to sell-off right after it hit that level.  The S&P 500 has held steady most of the day and 10yr Treasury rates are slightly lower today.   Homebuilder stocks have sold off because the market sees through the statistical games being played by the NAR.   Furthermore, the Chicago Fed National Activity Index (per my earlier post) shows that consumption and housing declined in February.  Whom do you trust less – the Fed or an organization (NAR) that functions as the cheerleading section for the housing industry?

I’ll have more in-depth analysis of today’s existing home sales report later.  But the homebuilder stocks are more overvalued now than they were at the peak of the big housing bubble.   You can take advantage of this with my homebuilder research:   Homebuilder Equity Reports.

I show in detail how the homebuilders are using misleading accounting to make their reported income look higher than it really is.  A couple of them are losing money when you back out the b.s. accounting tricks.   All of them are bleeding cash.    Interestingly, more housing analyst bears are starting to show up on Seeking Alpha.   I was early but I am right.

 

3 thoughts on “Homebuilder Stocks Throw A Flag On The Existing Home Sales Report

  1. Dave:
    Your posts have been sitting in the back of my mind over the last several months and really came to light as I went west again in an impending move to the Denver area.
    I am just today back here in Chicago after a three day tour again in the Denver area. Your comments re the increase construction of apts. and rentals there is at a glance dead on – there are so many projects going up all over town I have to wonder who will be renting this stuff. South of Union Station – there is at least a 1/2 mile section where all new, not open yet, studio/ one / two bed places are being finished. Rents we estimated at between 1200 for the studio to over 2k for the three bed place. Same is true for I-25 corridor south to Ridgegate. Visisted an AMLI apt. complex – two beds at 1660 to 1900 a month. Lots of amenities but still – money out the door every month with nothing to show for it at all down the road. Who will be renting this stuff? Esp. since there seems to be alot of recent supply added to the pipeline.
    Looked about for newer developments – went to an area of some 40 units currently under construction by Taylor Morrison – interesting area near Columbine Valley but the homes – exclusively for empty nesters like me – average 650K for a glorified townhouse community. This was off Bowles at South Platte. Great area but at what cost?
    Honestly I have to wonder when the legs are gonna be kicked out from under the stool of this housing cabal.
    Weather was great – blue sky – lots of sun and just great to be out but I have to wonder – how are regular folks able to live there?

    1. The $650k and over segment of the market has had a literal avalanche of supply. I was driving around the Hilltop area yesterday and was stunned to see all the “for sale” signs. This area is homes mostly in the $650k – $1.5mm range.

      I know that area south of Union Station. Drove around there last week. It’s a crappy area to live in my opinion. The Columbine Valley is boredomville. If you’re going move to Denver, live in the central area like Wash Park, Platte Park, Capitol Hill areas.

  2. Very often, like you Dave, I found myself ahead of the herd by about 18 months. I’ve learned this the hard way so often I wait a year to short or buy cheaper puts. I’ve got so many great short ideas but not one of them will work SIGNIFICANTLY as long as the FED keeps up ZIRP eternity.

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