Tag Archives: foreclosures

Housing boom or housing stock bubble? Got Gold? Silver?

Financial Markets, Gold, Housing Market, Market Manipulation, Precious Metals, U.S. Economy, , ,

The DJUSHB (Dow Jones Home Construction Index) hit an all-time high on Thursday. The previous ATH was in July 2005. The current SAAR (seasonally adjusted annualized rate) for existing home sales as of the June report is 4.2 million. It’s the lowest sales rate since July 2010. The last time the DJUSHB was trading over 1,100 (July 2005) , the single family existing home sales rate was over 7 million.

Similarly, new home sales peaked in 2005 at a 1.4 million SAAR. The current annualized run-rate per the June new home sales report is just 776,000. The average price per home for new and existing homes back in 2005 was roughly equivalent to the current prices for each category. On an inflation-adjusted basis, homes were selling at higher prices 15 years ago. I’ll let you decide if the homebuilder stocks overvalued right now based on those statistics.

Two more points of note about the potential for an accident in the homebuilder stocks. A new survey by Apartmentlist.com released August 6th showed that 33% of households (renters and mortgagees) entered August with unpaid housing bills for the fourth straight month. As of the first week of August, 11% of all households had made a partial payment of their monthly rent or mortgage bill and while 22% had yet to make any payment.

Furthermore, “early stage” delinquency rates on mortgages are starting to accelerate. Per a Corelogic report for data available through the end of May, 7.3% of mortgages were at least 30+ days delinquent. This is compared to a 3.6% delinquency rate in May 2019. Barring additional additional intervention from the Federal Government, Corelogic expects delinquency rates to further spike.

Eventually unpaid housing bills and mortgage delinquencies will pull the rug out from under the housing market and homebuilder stocks. This also explains why, despite the propagandist housing market hype plastered all over the media, private residential construction spending is contracting rapidly.

Phil Kennedy (Kennedy Financial) hosted a discussion about the housing market that included myself, Aaron Layman and Karl Krentzel. We also discussed the precious market and why, contrary to mainstream belief, gold is not even remotely in an investment bubble:

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Note:  I do not receive any promotion or sponsor payments in any form from the mining stock companies I present in my newsletter. Furthermore, I invest in many of the ideas personally or in my fund.

The Big Short 2.0: The NAR Whiffed Badly This Month

Financial Markets, Gold, Housing Market, Market Manipulation, U.S. Economy, , , ,

Based on the National Association of Realtor’s “Seasonally Adjusted” Annualized Rate (SAAR) metric, home sales were said to have ticked up 0.7% in September from August. On a SAAR basis they declined 1.5% from September 2016.  In his customary effort to glaze the pig’s lips with lipstick, NAR chief “economist” and salesman, Larry Yun, asserted that sales would have been stronger but for the hurricanes that hit Florida and Texas.

This guy should do some better vetting of the data before he tries to spin a story. The Houston Association of Realtors was out a week earlier stating that Houston home sales were up 14% in September from August and up 4.2% from September 2016. Yun’s fairytale is a stunning contrast to what is being reported from Houston. But it illustrates the fact that the data on housing the NAR reports is highly suspect.

As I’ve been detailing for years, the NAR’s existing home sales report is highly manipulated and flawed.  It works well for the industry and the media in rising markets, but the real estate market has rolled over and is preparing to head south.  Likely rather quickly.  As it turns out, the September existing home sales report released Friday reinforces my view that the market is starting to topple over.  I go over the details in the next issue of the Short Seller’s Journal, with a couple examples which foreshadow a collapse in the over $1,000,000 price segment of the market.  This in turn will affect the entire market.  I always suspected that the “Big Short 2.0” would start at the high-end.  An example outside of Colorado can found here:  Greenwich Sales Plunge.

Four weeks ago I presented a housing-related stock as a short good idea.  The stock is down nearly 10% in four weeks.   How can this be?  Isn’t the housing market hot?  It will be going much lower.  This week I’ll be featuring a housing industry supplier stock that went parabolic and will soon go “cliff dive.”  If you want to find out more about this subscription service, click here:  Short Seller’s Journal info.

I love your Short Seller’s Journal. Keep up the great work – recent new subscriber

A Bearish Signal From Housing Stocks

Financial Markets, Housing Market, Market Manipulation, U.S. Economy, , , , ,

The yield on the 10-yr Treasury has blown out 109 basis points since July 3rd – 70 basis points since October 30th. 30yr fixed rate mortgage rates for 20% down payment buyers with a credit score of at least 720 are up 90 basis points since October 1st.

Interestingly, the Dow Jones Home Construction index has diverged from the S&P 500. While the DJUSHB index is up since election night, it has been lagging the S&P 500 since the beginning of the year:

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The graph above is a 1yr daily which compares the ROR on the SPX with that of the DJ Home Construction Index. I use the DJUSHB because it has the heaviest weighting in homebuilders of any of the real estate indices. As you can see, the DJUSHB has been in a downtrend since late August, almost as if stock investors were anticipating the big spike in interest rates that started about 6 weeks later. You can see that, while the volume in the DJUSHB spiked on December 5th, it’s been declining steadily since then. The SPX volume spiked up on December 5th and has maintained roughly the same daily level since then. Note: volume often precedes price direction.

Here’s another interesting graphic sourced from the Mortgage Bankers Association:

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The data is through December 2nd, as mortgage application data lags by a week. As you can see, mortgage application volume – both refinance and purchase – has been negative to highly negative in 9 of the last 12 weeks. So, if you want to sell mortgage note it is worth doing thorough research before you do.

A report by Corelogic was released today that asserted that foreclosures had fallen to “bubble-era” lows. This is not unexpected. Historically low rates have enabled a lot mortgagees who were in trouble to defer their problems by refinancing. Unfortunately, the Marketwatch author of the article did not do thorough research – also not unexpected.

As it turns out, mortgage delinquency rates are quickly rising:

Black Knight Financial Services, which provides data and analytics to the mortgage industry, released its Mortgage Monitor report for October. It reported that the 30+ day delinquency rate had risen “unexpectedly” by nearly 2%. The overall national delinquency rate is now up to 4.35%. It also reported a quarterly decline in purchase mortgage lending. The highest degree of slowing is among borrowers with 740+ credit scores. The 740+ segment has accounted for 2/3’s of all of the purchase volume – Short Seller’s Journal – December 11, 2016

Even more interesting, it was reported by RealtyTrac last week that home foreclosures in the U.S. increased 27% in October from September. It was the largest month to month percentage increase in foreclosures since August 2007. Foreclosures in Colorado soared
64%, which partially explains the rising inventory I’m seeing (with my own eyes). Foreclosure starts were up 25% from September, the biggest monthly increase since December 2008.

Finally, again just like the mid-2000’s housing bubble, NYC is showing definitive signs that its housing market is crumbling very quickly. Landlord rent concessions soared 24% in October, more than double the 10.4% concession rate in October 2015. Typical concessions include one free month or payment of broker fees at lease signing. Days to lease an apartment on average increased 15% over 2015 in October to 46 days. And inventory listings are up 23% year over year. Note: in the big housing bubble, NYC was one of the first markets to pop. Short Seller’s Journal – November 13, 2016

Finally, I saw an idiotic article in some rag called “The Sovereign Daily Investor” that was promoting the notion that another big boom in housing was about to occur because of a surge in buying by millennials. Unfortunately, the dope who wrote this article forgot to find data that would verify proof of concept. On the other hand, here’s actual data that applies heavily to the millennial demographic:

The Fed reported on Wednesday that household debt had hit a near-record $12.35 trillion led by new all-time highs in student loan debt ($1.28 trillion) and a new all-time high in auto loans ($1.14 trillion). 11% of aggregate student loan debt was 90+ days delinquent or in default at the end of Q3 2016. Fitch has projected that it expects the subprime auto loan default rate to hit 10% by the end of the year. At the time of the report, it was at 9%. – Short Seller’s Journal – December 4, 2016.

The point here is that the millennial demographic is overburdened with student loan, auto loan and personal loan debt and with pay day loans constantly rising, homeownership is becoming a challenge for these people. In addition, it’s becoming increasingly hard to find post-college full-time employment that pays enough to support the cost of home ownership, especially with the mortgage payments associated with a 3% down payment mortgage. This means that more homeowners are looking to loan companies similar to Happy Loan in Calgary for their lending needs. This is the dynamic that has fueled the rental market boom (and soon the rental housing bust).

Speaking of which, Blackstone, the largest player in the buy-to-rent game, quietly filed an IPO of its housing rental portfolio about a week ago. If Blackstone thought there was more value to be squeezed out of its portfolio – i.e. that housing prices and rents had more upside – it would have waited longer to file. I’m sure that Blackstone would love to get this IPO priced and its equity stake in this business unloaded on to the public before the market cracks.

The housing market data tends to be lagged and extremely massaged by the mofst widely followed housing data reporters – National Association of Realtors and the Government’s Census Bureau (existing and new home sales reports). The reports from these two sources are highly unstable, subject to big revisions that go unnoticed and entirely unreliable. But the fundamental statistics cited above will soon be filtering through the earnings reports of the companies in the DJ Home Construction Index. I would suggest that the market has already sniffed this out, which explains why the DJUSHB is diverging from the S&P 500 negatively in both direction and volume.

The Short Seller’s Journal is a subscription-based, weekly publication. I present in-depth detailed data, analysis and insight that is not presented by the mainstream financial media and often not found on alternative media websites. I also present short-sell ideas, including recommendations for using options. Despite the run-up in the broad market indices, there’s stocks everyday that blow-up. Last Restoration Hardware plunged 18% after reporting its earnings. You can subscribe to the Short Seller’s Journal by clicking on this link: SSJ Subscription. It’s monthly recurring and there is not a minimum number of months required.

The Housing Market Is Unraveling

Financial Markets, Housing Market, U.S. Economy, ,

You wouldn’t know it from the housing industry organizations, Wall Street or the media propaganda, but the housing market is starting to unravel. It does not matter which person or political party occupies the White House and Capitol Hill. The debt orgy that followed the Fed’s QE program is now showing visible signs of unintended but inevitable consequences and it’s beginning smell a lot like 2008.

Per RealtyTrac, U.S. foreclosure activity increased 27% from September to October. Foreclose starts posted the biggest monthly increase since…December 2008. Scheduled foreclosure auctions posted the biggest monthly increase since 2006. The data is even more startling in certain States. Foreclosures in Colorado jumped 64% in October from September and foreclosure starts soared 71%. Colorado tends to be an economic and demographic bellweather State. In the housing bubble 1.0, foreclosure activity in Colorado began to accelerate before it hit all the other major MSAs.

Just in time for foreclose activity to ramp up, the Obama Government rolled new Fannie and Freddie mortgage programs which removed or reduced required mortgage insurance. Once again the Taxpayers will be left holding the bag and monetizing a mortgage collapse from which the bankers, real estate and mortgage industry collected $100’s of millions in fee money.

Per this analysis posted by Wolf Richter, the Miami condo market is in a freefall: LINK. Mortgage rates have spiked up considerably in the last week. This will extinguish a significant amount of home sales and cash-out refi’s – note – the following is an excerpt from the latest issue of my Short Seller’s Journal :

untitledI continue to see with my own eyeballs, which I trust a lot more than the manipulated b.s. reported by the National Association of Realtors and the Government’s Census Bureau, a stunning number of “for sale” and “for rent” signs all around central Denver. Note that Colorado has 11,000 people per month moving here, so if inventory in both homes for sale and rentals are visibly increasing here it means they are increasing everywhere. Those looking to move into the area may want to seek out a denver realtor and see the property listings they have; there are many exceptional homes for those planning to move to this great city on the market.

I’ve heard horror stories about the south Florida market from several sources. A colleague who runs a real estate brokerage firm in Houston published a report last week on a growing glut in luxury apartments in Houston: LINK.

I bought Toll Brothers (TOL) December $28-strike puts on Thursday for 64 cents. The stock at the time was $29.40. It closed Friday at $28.25. I also bought Pulte Home (PHM) January $18-strike puts for 72 cents. The stock at the time was $18.65. It closed Friday at $18.32.

I did this after chatting with the friend of mine mentioned earlier who is a Mortgage broker in Sydney. We are working on a refi for my significant other, which is why he called me on Thursday to see if I wanted to rate-lock her loan after informing me that the mortgage market was getting “funky” and spreads were widening.

Finally, again just like the mid-2000’s housing bubble, NYC is showing definitive signs that its housing market is crumbling very quickly. Landlord rent concessions soared 24% in October, more than double the 10.4% concession rate in October 2015. Typical concessions include one free month or payment of broker fees at lease signing. Days to lease an apartment on average increased 15% over 2015 in October to 46 days. And inventory listings are up 23% year over year. You can see examples of studio apartments at websites similar to lincolntowersnewyork.com and notice that their inventory has increased. Why don’t you have a look at the most expensive housing markets where you live to see whether or not you will be affected.

DR Horton (DHI) reported earnings on Tuesday. It missed both revenues and earnings. The stock was hit 5.4% that day and closed even lower by Friday. Any stock that sold off on Thursday and Friday while the stock market was going orbital has real problems. DHI reported the slowest order growth rate in three years. More troubling from my perspective is that, with the market obviously slowing down, DHI’s inventories continue to balloon, increasing by $537 million to $8.3 billion vs $7.8 billion at the end of September 2015. The Company’s cancellation rate jumped to 28% from 23% last year. Again, this smells exactly like 2008…perhaps this part of the reason the Dow Jones Home Construction index looks so ugly:

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The graph above shows the Dow Jones Home Construction index vs the S&P 500 for the past year. Since hitting 601 on July 26, the index is down 14%. It’s down 16.5% from its 52 week high of 618 on December 1, 2015. As you can see, the index is below both its 50 and 200 dma’s (yellow line and red line, respectively). The 50 dma is about to cross below the 200 dma, another potentially highly bearish techincal indicator. Perhaps first and foremost is the fact that the homebuilders were extremely weak relative to the buying frenzy that gripped the market Wed thru Friday.

In my opinion, it’s safe to put a fork in the housing market. And this is the primary reason that it smells to me a lot like 2008.

You can access the Short Seller’s Journal with this LINK or by clicking on the graphic to the right. Almost all of the ideas I have presented since NewSSJ Graphicearly August have been working, some have been yielding tremendous returns. It’s a weekly report for $20/month with no minimum subscription requirement. I provide options trading ideas as well as disclose all of my trading activity from the short-side.