Tag Archives: housing starts

“No Virginia, There Will Be No Rate Hikes This Year”

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Fed has been signaling it will raise rates for two years now. Same powerplay as #grexit scare. Won’t happen. System is broken till a Reset – next signal will be QE4 rumors  – Willem Middelkoop on Twitter

Yes!  Someone else who gets it.  Every week we getting these dopes from the Fed coming out and saying “hey man, the Fed is behind the curve – time to raise rates.”  But the even bigger dopes are the dopes who believe the hot air.  And now supposedly the Fed is on track to raise rates twice still this year.

The Fed has been on target to raise rates several times a year ever since Bernanke’s infamous “Taper” speech back in May 2013.   Last time I looked, the flag flying above the White House was not a Japanese flag, but the Federal Reserve, Wall Street, financial media stage show sure looks a lot like Kabuki Theatre – quite literally, “the art of singing and dancing.”

ROFLMAO1

Here’s one of the MAJOR reasons that the Fed won’t touch this rates – not this year and not next year:    Housing Starts Unexpectedly Plunge 11.1%

SingleFamStarts2

May housing starts dropped 11.1% in May from April, with single family unit starts falling 5.4% and multi-family units dropping 18.5% (data from the link at the top). Although the month to month data reporting in the housing starts series has been volatile, there has been a definitive downtrend in starts since the beginning of 2013.

You can read the rest of this article I wrote for Seeking Alpha here:   Housing:  Look Out Below

A housing market that is on the precipice of re-collapse is just one of the reasons that the Fed will not be raising rates this year.   The reason the Fed won’t be raising rates next year is because we may well have experienced a systemic reset by then…

Housing Starts Plunge – Apartment Building Bubble Is Popping

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Every new apartment building in Denver is now offering one month free as a move-in incentive; some buildings will give you two months free if you push them. There are at least 12 new big buildings in central Denver in various stages of construction. – Investment Research Dynamics

Housing starts plunged 11% in May LINK.  Ironically, this comes a day after the National Home Building Associating reported huge jump in homebuilder “sentiment.”  Let’s remember, “hope” is not a valid investment strategy.

This housing starts number is about as bearish as it can get for the new construction market.  It is also consistent with my detailed research which shows that homebuilder companies have accumulated an all-time high level of inventory, despite a unit sales run-rate which is about 60% below the previous all-time high in inventory back in 2005:

HousingSentimentAs you can see from this graph to the left which shows homebuilder “sentiment,” industry “hope” has perilously disconnected from the reality of sales. Today’s housing starts report is consistent with the actual transaction data. Since when has a business – other than tele-evangelists – ever been able to convert “hope” into cash flow?

The Orwellian financial media is going to focus on the “housing permits” number.  But, to begin with, the filing of building permit is not a valid economic metric.  It costs next to nothing to file a permit and the act of filing for a permit merely gives a builder the right to build.  Second, and more important, the large jump in permits was for mult-family units:

startsandpermitsDespite signs of a glut forming in apartment buildings in most cities, builders filed “permits” to build even more buildings. I know from my own due diligence that every new building in Denver will offer a new tenant up to two months free as a move-in incentive. I am getting reader reports of similar
apartment gluts in many other cities.

Six years of ZIRP and $3.6 trillion of printed money has stimulated an unprecedented degree and catastrophic amount of capital misallocation.  Massive bubbles have formed in every major asset category:   bonds, stocks, real estate and collectibles.

The bubble that has reformed in the housing market is going to result in a more painful collapse than the original housing bubble.  More on this later, but data available from the National Association of Realtors and RealtyTrac shows that 40% of the sales volume this year has been driven by individual investor/flippers.  We are at the point in the cycle at which many of them will be left “holding the bag.”   To compound the problem, many of these “retail” home traders are now using mortgages to fund their  game of hot potato.

I can’t speak on this for every major city, but I know for a fact that in metro-Denver there has been a recent “flood” in home listings.  Even more indicative, I am now receiving “new price” alerts via REColorado several times a day, mostly in the over $800,000 price range. The glut that has formed in both rental apartments and higher end homes for sale in Denver is nothing short of stunning.

The Fed is out of the type of bullets that can be used to support the massive Housing Bubble 2.0 that it has premeditatively blown.  Interest rates are already at zero, although starting to rise uncontrollably on the longer end.  Mortgage rates have blown out close 100 basis points from the recent bottom.  Easy credit has flooded the mortgage banking system in many different forms.

To be sure, the Fed can print a lot more money – and most likely will.  But at this point in the game it will be the equivalent of pushing on the proverbial string.  Only this time the hole through which the Fed will be trying to push the string will be closed.

Housing Starts? Census Bureau Reporting Reaches New Level Of Absurdity

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Census Bureau definition of a housing “start:”   Start of construction occurs when excavation begins for the footings or foundation of a building.  Census Bureau

The Shadow of Truth did an interview with NY Post report John Crudele, who is the journalist who caught the Census Bureau fraudulently reporting employment data:  The Unemployment Rate In And Of Itself Is A Joke.

Crudele and the NY Post currently have six Freedom of Information Act requests with Census  Bureau, to which the CB refuses to respond or hand over documents.  Some of them are more than a  year old.  If the Census Bureau/Government does not have any foul play to hide, then why not respond the to the FOIA requests and dispel all doubt?

With this as the context, I think its safe to say that it is highly likely that the CB data with respect to housing starts is wildly inaccurate, especially in light of the collapsing price of lumber:

LumberCollapsing

In fact, when you examine the Census Bureau-generated “housing starts” number vs. the market price of lumber, the Census Bureau data has no credibility (source: Zerohedge, edits are mine):

20150519_starts2The fundamental economic data as measured by the market does not support the data being reported by the Census Bureau. If housing starts were flourishing, the demand for lumber from new homebuilders would be pushing the price of lumber higher.

Given that we know the Census Bureau has been fraudulently reporting employment data, it is highly probable that the Census Bureau’s data collection and reporting process with respect to housing starts and new home sales is corrupted.

As you can see from the way in which the Census Bureau defines a “housing start,” all that is required to be counted is basically any homebuilder sticking a shovel in the ground of a piece of property with an authorized building permit.   The CB has stated that if it can’t collect data on new home sales in certain regions, it will “estimate” the number of new home sales based on housing permits filed.  I would suggest the same absurd technique is utiltized with respect to “collecting” data on housing starts.

Regardless of whether the number reported today by the Census Bureau reflects any remote semblance of reality, if homebuilders are indeed building more homes, the result will be little more than the continued pile-up of homebuilder inventory.

In fact, as I’ve shown in my homebuilder research reports, new homebuilders have amassed a record level of inventory.  This inventory is piled on top of a unit sales run-rate that is roughly 1/3 the peak level of sales in 2005.

The question is, in the context of the rate of homeowership in ths country continuing to plunge to multi-decade lows, the continued lack of participation in home sales by the first-time buyer, and a massive pile-up on in high-end inventory, who in the hell is going to buy all of these supposed new homes being built?

Housing Starts: Biggest Plunge In Four Years

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Will the price of lumber be the tell-tale that they can’t hide? Or do you want to believe the “it was the bad weather in New York, man” narrative? Housing starts ripped lower in February, down 17% from January. They were 14.4% lower than consensus estimate. Here’s the data link: Housing Starts.

Let’s think about that for moment: housing starts missed Wall Street’s brain trust consensus estimate by 14.4%. IF the weather was expected to play a factor in housing starts, wouldn’t Wall Street have revised its estimates for February lower to reflect that? After all, every analyst has had nearly 3 weeks since the end of February to revise down their estimates knowing there was some snow in New York during February…

Single family starts dropped 17% and apartment builder starts dropped 21.6%. I have been suggesting for several months that a glut in apartment building construction has developed. Not only in Denver, which I can observe and experience (I was offered a discount to re-sign my lease in a luxury building that is less than 1-yr old, many newer buildings are offering 1-month free and there’s several big buildings still being built), but I have received reader emails from all over the country which describe apartment building gluts in their area.

Of course Wall Street will promote the “permits” report, which showed a slight increase. But, believe it or not, a homebuilder can’t sell a permit. Homebuilders have already amassed a level of inventory that is as high as it was in 2005/2006 at the peak of the bubble. Some builders, like the ones featured in my research reports, now have inventory levels that exceed their inventory at the bubble peak. Note: unit sales are 60-70% lower than at the peak. Despite the overall plunge, many homebuilders are making use of brand new building methods such as rhino deck for their projects, and to great effect too. As people are starting to take on their own projects now instead of hiring professionals, it is important that you have the best equipment available for you to use. With that in mind, why don’t you invest in some of the Coolest Gadgets to help build your masterpiece.

The homebuilder sentiment index released yesterday shows falling builder “optimism.” The most troubling metric was “prospective traffic,” for which the index level plunged to 37. Anything below 50 is not good. Anything below 40 is a disaster. By the way, those metrics are based on a March survey, when the weather has been exceptionally nice throughout most of the country…

The homebuilder stocks are going to experience an epic crash when reality grips the sector. The tech bubble that’s formed might last until the SPX finally rolls. But every homebuilder is carrying massive levels of debt and low levels of cash. They have to sell homes to service their debt. The debt levels alone will torpedo these stocks. I have five great ideas in my Homebuilder Research Reports section.

Each report details the highly misleading accounting being used by these builders. Each one also demonstrates why these builders are more leveraged now than they were at the bubble peak. And each report shows examples of using puts and calls to replicate shorting the stocks, how to enhance returns and how to reduce the risk of another insanity bounce in stocks overall. Two of the names have already returned over 20% for the investors who took advantage of them.

I Love The Smell Of Economic Napalm In The Morning…

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It smells like…VICTORY:

First off, mortgage purchase applications tanked 7% from the previous week. Mortgage purchase applications are now down five weeks in a row. Mortgage purchase applications have been declining now for over a year. Flash headline: if people are not applying for mortgages, they are not buying homes. Kind of throws napalm on the “seasonally adjusted, annualized rate“ metrics vomited at us by the National Association of Realtors and the Census Bureau. 

Second, housing starts and permits missed the consensus estimate from Wall Street’s brain trust economic propaganda department.  Now, housing starts are kind of a b.s. number because all a homebuilder needs to do is file a permit on a piece of land and stick a shovel in the ground and it’s called a “start” by the Census Bureau.   Based on my in-depth analysis of several of the largest homebuilders – see: Housing Reports – more than 50% of all new homebuilder inventory can be considered “spec” inventory.

With new home sales volume declining (the unseasonally adjusted, unannualized, actual deliveries net of cancellations, the latter of which are running in the low-mid 20’s percent now), the housing “starts” number is largely meaningless.   This is especially true when you factor in that the big driver in the last year has been multi-family buildings.  I know that in Denver there’s a literal avalanche of large new apartment buildings that are now in various stages of completion.  I also know that all new buildings are now offering 1-month free move-in incentives, including the one I live in, which is less than an year old.  I have had several readers send me emails saying that they are seeing the same thing in their cities.   This means that as apartment rents dive, home rental rates dives and the value of homes in general dives.  This is a full repeat of the last housing bust cycle that began in 2005.

Third, industrial production, which came in at .2% for January but missed the consensus estimate from Wall St., which was looking for .4%.   Worse, the -.1% drop in December was revised lower to a -.3% drop.    The manufacturing component of this index rose .2% vs .4% expected BUT the .3% gain in December was taken away and is now being report as…no gain.

Just a quick observation on the slight gain in industrial production in January.  The biggest influence in the gain reported was output from utilities.  This makes sense because its winter and because every household in the northeast was likely running their heaters overtime with the unusually cold weather.   Also, with the wholesale inventory to sales ratio spiking higher quickly – again, another sign that consumerism is tanking hard –  a lot of the product manufactured in January will likely get tossed on the proverbial log-pile, waiting in vain to be purchased by someone with room on their credit card…

The economy is slipping into darkness quickly. It’s probably why the tension in Ukraine is being escalated, as we learned today that the U.S. is now shipping “tanker buster” jets to Europe at Germany’s apparent request.  “When all else fails, they take us to war” – Gerald Celente.

[post_ender]

Spot The Problem? Hint: High Homebuilder Confidence Marks The Top

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Although I never put much credibility in the Government’s housing starts report because the data collection is poor and the data that is collected is put through the Government’s statistics manipulation meat-grinder, today showed a stunning decline in housing starts vs. last month and vs. expectations.  The high volatility last month and this month was due to “reported” starts in apartment buildings.  The last time apartment starts reached a very high level was in 2005 – right before the housing bubble burst.

And yesterday much ado was made about the National Association of Homebuilders Confidence Index report.  It’s reached a level not seen since, well – 2005.  I put together this graphic below which happens to show what happens to housing starts and new home sales when homebuilder “confidence” spikes up like it showed in yesterday’s report (click on graph to enlarge):

SpotTheProblem

As you can see, the last several times builder confidence spiked up, housing starts and new home sales fell off a cliff (2005, 1994 and 1990).  I remember the 1990’s housing market well because I was trading homebuilder junk bonds on Wall Street.  All of them were the junk bonds of the same homebuilders around today who nearly went bust in the late 1980’s and in 2008.

The fact of the matter is, the homebuilders had damn well better be confident because every single one of them is taking down piles of debt in order to build up their inventories to levels last seen in 2005.  Everyone I look at is doing this.  What’s completely startling about this is that, while homebuilder company debt levels and inventories are back to their 2005 levels, the overall sales volume for new home sales is ONE-THIRD the level being sold in 2005.

Hopefully you can see where this is headed because, right now, the homebuilder stocks are THE best short-sell opportunity in the entire market since the opportunity to short homebuilder in stocks in 2005 and tech stocks in early 2000.   Stunningly, the p/e ratios at all of these homebuilders are well in excess – as in multiples – of their long run average p/e’s and their p/e’s at the peak in 2005.

Here’s some facts about the ability of the average American to actually buy a home – this comes from John Williams’ Shadowstats.com, who sourced this information directly from a Government report:   1)  U.S. Economy Re-Entered Recession in 2013, Indicated by the BLS’s Annual Consumer Expenditure Survey;  2)  2013 Total Money Income Fell Even Before Inflation Adjustment.   If people are not earning money, they aren’t spending money.  If they aren’t spending money, they sure ain’t buyin’ homes.   That latter fact is confirmed by this year’s collapse in mortgage purchase applications.

There is a unique opportunity to make a lot of money shorting homebuilder stocks – either outright or via options strategies.  I have three reports which outline how to do this and why these companies are great short candidates here:   Homebuilder Research Reports.

Big institutions with big homebuilder stock positions (Vanguard, Black Rock, Putnam, Fidelity) have not begun to sell yet.  You want to be positioned ahead of their selling when the zombie spreadsheet jockeys at these firms figure out what’s really going on…

The Downward Spiral In Housing Begins…

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      • Mortgage applications continue to plummet.
      • Housing starts take a big drop in June.
      • The increase in the homebuilder sentiment index is deceptive.
      • Homebuilder stocks are negatively diverging from the S&P 500.

With middle class household income after inflation declining and the first-time homebuyer cohort over-leveraged on student loan, credit card and auto loan debt, it’s no wonder that mortgage applications filed to purchase a home are plunging.  Folks, the demographic I just described historically is the majority of the housing market – not big institutional funds and flippers looking to make a quick buck.   If first-time buyers and middle class “move-up” buyers aren’t buying, the market eventually collapses.

With propaganda in ALL areas of our economic and political system now at levels that would make George Orwell put a gun to his temple and pull the trigger, I’ve sifted thru the nonsense coming from Wall Street and CNBC and have written an article explaining why the next down-leg in the housing market is about to unfold.

You can read my article here:  Mortgage Apps And Housing Starts Tank.

The two biggest warning flags:   home sales are dropping during what is supposed to be the strongest period seasonally of the year for the housing market and homebuilder stocks are in a downtrend despite that fact that the S&P 500 is headed to the moon.

I have yet to hear any of the housing market bulls explain any of the factors described above…

Ebullient Housing Starts Headlines Belie Bearish Market Data

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I’m not sure why the market gets excited whenever there’s a seemingly “bullish” housing starts number released.  For sure, in a truly healthy housing market a strong starts number reflects a positive builder outlook and healthy demand.

The details of Friday’s housing starts data showed that single-family home starts were flat from March to April.  This is consistent with the plunge in the builder confidence metric released earlier last week.

The big “jump” in starts was for multi-family rental buildings.  The problem with this is that, as is now evident all around Denver, there will soon be a glut of rental units on the market – both single family homes and apartments.   We know big investment funds have stopped buying homes to rent out and this is why existing home sales are plummeting.  But I’ve also noticed that several new big buildings that have come on-stream in Denver and the surrounding metro area are now offering move-in incentives, indicative that supply is beginning to out-strip new demand.

I published an article for Seeking Alpha which goes over the housing starts data in detail. You can read it here if you are interested in the facts:   The Housing Starts Data Is Bearish.

I have a feeling my interpretation of the data is likely accurate because the homebuilder stocks initially spiked higher on the headline reports but sold off to close flat on the day, despite a .5% move higher by the S&P 500.