March New Home Sales Fall Off A Cliff – Housing Stocks Plunging

I knew the top  was in two weeks ago when Cramer went on Mad Money and recommended going long three homebuilder stocks.  We know that Cramer’s function on CNBC is primarily to get retail investors hyped up on highly overvalued stocks that his hedge fund buddies are looking to unload but need liquidity in order to sell big positions. Cramer’s picks are notorious horrendously.   Anyone remember Bear Stearns?

New home sales went off a cliff in March vs. February – down 11.4% month to month.  This is in the context of falling mortgage rates, zero-percent down payment mortgages, significantly reduced FHA, Fannie Mae, and Freddie Mac mortgage insurance premiums and a substantial loosening of mortgage underwriting standards.   This is ALSO in the context of new home builders providing an increasing amount of incentives, price discounts (vs. officially reported prices) and mortgage financing.

I will have lot more to say on this later this week when I get a chance to dissect the new home sales report.  Suffice it to say that – on a seasonal pattern basis – March new home sales are almost always higher than February.   If we could “unwind” the Census Bureau’s “seasonal adjustments” and annualization calculus, I’m sure the actual March number for new home sales was complete disaster.

I know that homebuilder margins are getting crushed because both DR Horton and NVR reported flashy top-line growth but significantly lower gross margins.  Homebuilders calculate revenues using the listed price but have to add price discounts and incentives into their cost of sales.   This is why DR Horton was down over 5% yesterday despite top-line and bottom-line earnings “beats.”

The Dow Jones Home Construction Index is down 4% down 4.5% right now and is down over 7% since Tuesday’s close.  It’s down over 9% since reaching a frenzied, housing stock bubble high of 600 on April 6.  This is in the context of the S&P 500 pushing toward new all-time highs – click to enlarge:

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The homebuilder stocks are offering us one of the best short-sell opportunities since the tech and housing bubbles popped.  Readers who played my Beazer short-sell recommendation made over 20% in a very short period of time.  Same with KB Homes.  Both of those stocks are now back to where they were when I first published.   All of my homebuilder stock recommendations are going to be home runs.

You can read and understand why here:  Homebuilder Research Reports.   I show in detail how these homebuilders are manipulating their accounting to make their earnings per share look substantially higher than it would be if honest were used.  I also show how they all have accumulated a record level of inventory and debt, in the context of unit sales volume that is one-third the level of the peak of the housing bubble.

You can also see a sample of my homebuilder research by supporting this website – I’ve also included a mining stock research report:

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10 thoughts on “March New Home Sales Fall Off A Cliff – Housing Stocks Plunging

    1. Ya I saw that. Last year I challenged PHM’s accounting in a Seeking Alpha article. The investor relations dweeb emailed me and challenged my challenge. He was unable to refute the math behind my assertion but he still disagreed. I emailed him back and said: “If you are so confident that your numbers are correct, why don’t you and your upper management buddies take after-tax cash from your bank accounts and buy shares in the open market?”

      Never heard back from him. ALL homebuilder execs take stock compensation and dump it as soon as it vests. They NEVER use after-tax cash to buy shares.

  1. Hey Dave! Why the discrepancy between existing home sales and new home sales? Is this just further proof that the seasonally adjusted statistics are a bunch of crap or is there a fundamental reason for the anomaly?

    1. No seasonal anomalies. The data is largely unreliable. Existing home sales were driven by sales of vacation homes, which hit a record high March. This is not sustainable – it’s the small percentage of people who have made a lot of money in the stock market because of QE and taking profits and buying a vacation home. Who knows what the real new home sales number was. With all of the statistical manipulation imposed on the data by the Census Bureau, there’s no telling what the real number is. The housing market is falling, net net.

  2. A CNBC quote,
    ” Supply still remains less than half of what it was at the height of the housing boom, good news for home builders who will need to ramp up construction.”
    Hmnnn…. They find a way to put a positive spin on everything. How can people be so blind?

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