Tag Archives: mortgage rates

The Housing Market Goes Down The Drain

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

The Denver Post published an article last week titled, “Major cold front slams Denver housing market in September” (note, weather-wise, September was one of the warmest and driest in many years). Single-family home sales in September plunged 30.5% from August and 21.7% from September 2017. Condo sales fell off a cliff, dropping 43% from August and 17.3% from August 2017. Normally inventory drops slightly in September. This year inventory in September soared. The median price of homes sold fell 3.8%. The article said the high-end of the market – homes worth over $1 million – fell 44.4% from August to September.

In terms of economic trends, Denver historically has been representative of the same
economic and demographic trends nationwide. Based on subscriber emails and articles I’ve read from around the country, the activity in the housing market nationwide is similar to Denver’s.

New home sales for August, which were released last week, showed another year-over-year decline on a SAAR basis and missed the Street’s expectations. In addition, the 627,000 SAAR print for July was revised down 3% from 627,000 to 608,000. Revisions for June and July together were taken down by 39,000. The fact that new homebuilders are sitting on a near-record level of inventory (measured both by value and units) contradicts the NAR’s contention that home sales are declining because of a lack of affordable inventory. Recent results from lower-end, lower-priced homes (Beazer, DR Horton and Pulte) show demand for “affordable” homes is waning.

One indicator supporting my view is the response of KBH’s stock after it reported earnings on September 25th . The past several quarters KBH stock staged a multi-day rally after it reported earnings.  Although KBH reported a revenue and net income “beat” and spiked up at the open the next day, the stock closed down 3% from Tuesday’s close.  KBH’s stock closed 5.8% lower on the week.

While KBH’s revenues, operation income and units delivered showed impressive gains over the same quarter last year, its new orders showed very little growth and the value of the new orders declined year-over-year for the quarter. Furthermore, the Company’s order cancellation rate increased to 26% from 25% in the year earlier quarter. While KBH’s income statement looks impressive in the “rear-view” mirror, the operating statistics that give us insight into future quarters are showing a definitive slow-down.

KBH is trading at a 14x P/E ratio. Historically, homebuilders trade with a 5-8x P/E when they actually manage to generate “E.” I believe it’s safe to assume that KBH’s earnings will decline for at least the next several quarters. This means that KBH’s stock price will drop from both lower earnings and P/E ratio compression. In fact, I believe this will occur with all the homebuilder stocks.

KBH stock is down 37% from high in mid-January this year. I believe over the next 12-24 months, the stock price will be at least cut in half.

The commentary above is an excerpt from the latest Short Seller’s Journal. My subscribers and I have made easy money shorting KBH and other homebuilders. This week I feature a little-known homebuilder and explain why its disclosure last week shoots a hole in the National Association of Realtors’ propaganda that the falling home sales is attributable to low inventory. I also feature two other great short ideas – one in retail and one in auto finance. You can learn more about this newsletter here:   Short Seller’s Journal information.

Precious Metals, Mining Stocks, Housing Market – What’s Next?

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

“The housing market is 100% a function of the Fed’s money printing.  Half the money the Fed printed, $2.2 trillion, went directly into the housing market.”

Analysts and financial media meatheads look at the $4.5 trillion created by the Fed and truly believe that it wasn’t money printing because it’s “backed” by Treasury bonds and mortgages.  But this is pure ignorance.  Not taken into consideration is the amount of credit and debt issuance enabled by using the $4.5 trillion as the “reserve capital.”  It’s fractional banking on steroids.

As the U.S. financial system reaches its limit on the amount of debt that can be serviced from the current level of wealth output, what happens next?  We’re already seeing what happens in the housing market per the fact that the homebuilder  stocks are in an “official” bear market, with some of them down over 30% since late January.

Then what?  The Fed will have to print multiples of the original amount it printed or face systemic collapse. At that point the precious metals sector will soar beyond anyone’s imagination at this point in time.

Phil Kennedy (Kennedy Financial) invited me to discuss these issues on his podcast.  Phil’s podcasts blend truthseeking, facts, humor, humility and sarcasm.  It’s  well-worth the time spent to listen:

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If you are interested in ideas for taking advantage of the inevitable systemic reset that  will hit the U.S. financial and economic system, check out either of these newsletters:  Short Seller’s Journal information and more about the Mining Stock Journal here:  Mining Stock Journal information.

Will The Housing Market Fall This Fall?

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

“The number of homes on the market surged, the number of sales dropped, and price reductions were abundant last month, all signs that buyers are pulling back in metro Denver” – Denver Post (September 6, 2018) citing the Denver Metro Association of Realtors.

Buy a home now if you must if you manage to qualify for one of the de facto sub-prime mortgages sponsored by the Government Taxpayer. But I guarantee that if you wait 6-12 months, you’ll be able to buy the same home or a better home for a lower price…

Denver has been one of the top-10 hottest housing markets in the past few years, largely driven by an enormous inflow of households moving to Denver from California. However, I started seeing signs developing of a market top that were similar to the indicators I noticed leading up to the popping of the last housing bubble.

As reported by the Denver Metro Association of Realtors (NAR-affiliate) single-family home sales dropped 7.5% in August from July and were down 9.8% from August 2017.Condo sales dropped 5% in August from July and fell 15.6% year over year. At least 30% of the sales were below the original listing price. The inventory of listed homes rose at a record rate for the month of August. Normally inventory from July to August drops a small amount.

Based on articles I encounter in my research or sent to me by subscribers, most if not all of the hottest markets are experiencing a similar development. The spokesman for the Denver affiliate of the National Association of Realtors, like a good salesman, attributes the declining sales to “push-back” from buyers. But, as you might well have expected, I disagree with that assessment.

As I’ve discussed previously, the Government lowered the bar on mortgage qualification requirements for its mortgage programs starting in 2015 in order to counter, what was then, a deteriorating housing market. The Government has lowered the bar on its guaranteed mortgages each successive year since 2015. A growing portion of the home-buyers using Government guaranteed mortgages would have been considered “sub-prime” in the previous mortgage/housing bubble.

In effect, the Government has kept “juicing” the housing market by enabling a larger population of people to buy a home that they otherwise could not afford unless they could get a low-down-payment, rate-subsidized, sub-prime quality Government mortgage. At some point, the limit will be reached on the number of people who can qualify under the current requirements. I would argue that the system is approaching that point.

The second factor in reduced buyer demand is the potential buyers who can qualify for and afford a mortgage from any issuer (Government or private-label) are starting to see a lot more inventory come on the market accompanied by falling prices. Many will hold off on the decision to sell their existing home and “move-up” in order to see if prices come down. It doesn’t take a genius to understand that the prices are going to go lower when you drive around desirable neighborhoods and see a lot of “for sale” signs.

Once the buyers are in full-retreat, we’ll start to see sellers get more aggressive on pricing and we’ll see motivated sellers panic. Similar to the last bubble, the motivated sellers will primarily be “investors” who are stuck with a home they can’t rent at a rate that covers their expenses and flippers who can’t sell at a price that covers the costs of buying the home and preparing it to flip. Just like 2008, this is when the “price wars” will start (as opposed to the buyer “bidding wars” in a bull market) and prices spiral south.

This is why the stock chart of the Dow Jones Home Construction Index looks like this:

The homebuilder stocks have been in a bear market since the end of January. Many homebuilders are down over 30% since then. If that fact surprises you, it’s likely because you get your news from CNBC, Bloomberg, Fox Biz or the Wall St Journal, none of which have reported the bear market in home construction stocks. This is just like the mid-2000’s bubble leading up to the financial crisis. The homebuilders peaked in July 2005 and were in a full-fledged bear market before 2007.

The Economy Is Collapsing Under The Unbearable Weight Of Debt

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

“Those who see no Lehman-like episode on the horizon did not see the last one.” – highly regarded writer, George Will, in a National Review article titled, “America Is Overdue For Another Economic Disaster”

Lost in the largely meaningless political Kabuki theatre being staged on Capitol Hill is the fact that the economy is deteriorating. Real average weekly earnings in July declined for production and non-supervisory workers. It was down 0.01% from June to July and down 0.22% from July 2017. For all employees, real average hourly earnings declined 0.20% from June to July but was flat year over year.

Real earnings is not a statistic discussed in the mainstream financial media, but it reflects the ability of the average household to consume non-discretionary goods and services. It also reflects the ability and willingness of the average household to borrow.

The U.S. economy’s appearance of wealth creation and economic growth has been fully dependent on debt creation since 2009. As the graphic from John Williams’ Shadowstats.com shows, the rate of growth in real consumer credit outstanding is approach zero (no growth):

The chart above shows the year-over-year growth rate of real consumer credit outstanding with and without student loans. As you can see, ex-student loans (blue line) the rate of growth in outstanding consumer debt (not including mortgage debt) is close to zero. The increase in consumer credit reported for June (the latest month for which data is available) was $10.2 billion vs $16 billion expected. It was down from May’s increase of $24.6 billion. The perceived growth in GDP is inextricably tied to the growth rate in the use of debt. The near-zero growth rate in consumer credit is thus consistent with the view that the U.S. economy is weaker than the promotional propaganda flowing from Wall Street and DC.

“Student Loans Are Starting To Bite The Economy” – That was title of a Bloomberg article last week. With $1.4 trillion outstanding, student loans are the second largest category of household debt after mortgages. 22.4% of all households carry student debt. 44.8% of households in the 18-34 age demographic carry student debt – that’s up from 18.6% in 2001. Student debt is carried by a large amount of past college students, but learning how to repay student loans is not as spoken about. There are various repayment plans to suit different needs, student debt carriers could read each of them and see which one suits them if they require help.

Not discussed by the article is the estimated that 40% of borrowers will default on their loans by 2023. The current 90-day “official” delinquency rate is 11.2%. But this number is highly deceptive because 30% of all student loans are in deferment or forbearance. These loans are put into “remission” for many reasons but the most common is that it enables the borrower who can’t make payments to defer the stopwatch on delinquency/default.

While it’s possible that the student loan problem is affecting potential demand from potential homebuyers, most people who have student debt also have credit card and auto debt. There are also schemes such as an employer student loan repayment that help employees pay back their student debt. So it’s not clear that student loan debt alone has affected the ability of first-time buers (18-34 age cohort) to buy a home.

Rather, I would argue that it’s the accumulation of debt since 2012 that is affecting all areas of the economy:

As you can see in the chart above, total household debt through the end of March 2018 – which means the debt level is even higher now – is considerably higher than the previous peak at the end of Q3 2008. Not shown is a graph I constructed on the FRED site that added nominal GDP. The rate of growth in household debt has sharply surpassed the rate of growth in GDP since Q3 2015.

This is why the economy is stalling. This is why the housing and auto markets are now in definitive contraction. It has nothing to do with the trade war or low housing inventory. It has everything to do with an economic system that is losing its ability to support the massive amount of debt that has been issued since the last financial crisis (de facto collapse).

The weekly economic reports – both Government and private sector – continue to reflect a downturn in economic activity. Moreover, the reports almost always are below the hyped-up expectations of Wall Street’s brain trust. The chart below reflects the irrational optimism of anyone chasing stocks higher (primarily hedge fund algos):

As you can see, since the middle of August, the 30-yr Treasury yield has negatively diverged from the S&P 500 after being tightly correlated for the first two weeks of August. The spread between the 2yr and 10yr treasury is at its lowest since August 2007.

The Treasury curve “flattens” when the short end of the curve rises relative to the long end. The curve flattens when the market has decided that the Fed is wrong on its policy of raising the Fed Funds rates because the economy is slowing down. Large Treasury buyers pile into 10yr and 30yr Treasuries on the expectation that a deteriorating economy will force the Fed to reverse course and lower rates again. The chart above reflects the market reacting to the steady flow of negative economic reports.

If the Fed is right, we should see the 30yr yield “catch up” to the SPX. Conversely, if the market is right, the chart above is yet another warning sign of an eventual stock market “accident.” I have no doubt that the Fed is wrong. That said, the Fed has painted itself into a corner on rates. Contrary to the Fed’s public propaganda of “low inflation,” the Fed is well aware of the true rate of inflation – inflation created by the Fed’s monetary policy since 2008. If the Fed does not act to tighten monetary conditions, price inflation will continue to accelerate and inflict serious damage to the U.S. economy.

The commentary above is from the latest issue of the Short Seller’s Journal. I explain why the housing market is heading south quickly, update my homebuilder short ideas and discuss Tesla. You can learn more about this newsletter here: Short Seller’s Journal information

Bad News For The Housing Market Continues To Pile Up

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

I remember vividly the scene in The Big Short when a housing broker was driving the “Steve Eisman” group around California’s “Inland Empire.”  Home prices were dropping and the vista was littered with “for sale” signs.  The broker remarked awkwardly, “the market is going through small valley right now.”  Successful realtors can look anyone in the eyes and present a small nuclear bomb as a box of Godiva chocolates.

The National Association of Realtors’ chief “economist,” Larry Yun, has been pleading for more than a year that declining existing home sales is caused by low inventory. But this is mere propaganda.  I’ve presented a chart more than once on this site from the Fed’s database (FRED) which shows that sales volume and inventory is inversely correlated.

Redfin released its”Housing Demand Index” through June on August 1st. It fell nearly 1% from May and was 9.6% lower in June 2018 than 2017. The number of people requesting tours fell 6.1% compared to June 2017 and 15% fewer made offers on homes. This is despite noting that inventory levels surged in the hottest markets in which RDFN operates. This index is representative of demographic trends nationwide, as RDFN operates in the largest metropolitan areas outside of New York City. The Index covers 15 metropolitan areas.

Demand is falling because pool of potential homebuyers who can qualify for one of the Government’s subprime mortgage programs has dried up like Lake Mead. This was evident in this week’s existing and new home sales reports, both of which showed home sales falling month to month and year over year. Both numbers were well below the expectations of Wall Street’s brain trust. Existing home inventory on an outright basis (not the highly massaged “months supply” basis) is 9% above the average inventory level in 2015 and 31% above the outright inventory for 2017. New home sales dropped “unexpectedly” from June to July despite the fact that June’s original headline report was revised lower. New home sales according to the Census Bureau have declined 3 out of the last 4 months.

The Dow Jones Home Construction Index is down 22.6% since mid-January. Some homebuilder stocks are down over 30% since then. The homebuilder stocks are in a bear market based on the “20%” decree. This is a fact that is not reported at all in the mainstream media. The homebuilder stocks peaked in July 2005 and were in a tail-spin well before it became obvious to all that the mid-2000’s bubble had popped. I doubt it will take 18-24 months from January 2018 before it becomes apparent to most that the housing market is in trouble.

My subscribers and I have been raking in easy money shorting the homebuilder stocks. I will be updating the my short ideas – including ideas for using puts – in Sunday’s issue after TOL’s numbers triggered a one-day spike up in the DJUSHB. I’ll also be updating the Tesla saga. You can learn more about this newsletter service here:  Short Seller’s Journal information.

Housing Heads South – Precious Metals Getting Ready To Soar

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

“We’re now forecasting slower revenue growth for the third quarter based on an unexpected drop in Redfin’s bookings growth in the past three weeks, slowing traffic growth in a weakening real estate market.” – CEO of Redfin (RDFN) on the earnings conference call. Redfin stock plunged 22% after it reported its latest quarter this past Thursday after the market closed. I’ve been recommending RDFN as a short for several months in my Short Seller’s Journal.

I joined Elijah Johnson and Eric Dubin on SD Bullion’s weekly Metals & Markets podcast  to discuss the popping housing market bubble and to explain why the risk of missing a big move higher in the precious metals market is much greater than the risk of more downside from here:

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I just released my latest issue of the Short Seller’s Journal in which I explain why Tesla’s days may be numbered and I offer ideas for speculating that TSLA goes to zero sometime in the next two years. I also update my homebuilder short-sell ideas. You can learn more about this newsletter here:  Short Seller’s Journal information

Wash, Rinse, Repeat: The Big Short Mortgages Are Back

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This almost makes me wonder if Angelo Mozilo is running NASA Federal Credit Union.

A Short Seller’s Journal subscriber heard an ad for this mortgage product on his local radio in Atlanta. NASA Federal Credit Union is offering 0% down payment, 0% PMI (Private Mortgage Insurance. “This is unique because conventional lenders will normally require PMI when your down payment is less than 20% of the home purchase price. So, if that down payment was keeping you from getting into your new home, talk to a mortgage loan professional at NASA Federal!”

Fast closing guaranteed. If you don’t close by the contract data, NASA Federal will give you $1000 toward closing costs. Jumbo Mortgages are included in this offering.

The only thing guaranteed about this product is that a large percentage of the borrowers will eventually default.  With 0% down, the borrower is going to be underwater by at least 10% after all closing costs are factored into the equation.

What could possibly go wrong?  Lending Tree stock, which reflects loan demand, primarily from potential homebuyers shopping online for mortgages, is down 42% since early February:

Lending Tree reported that mortgage products revenue fell 9% from Q1 and 6% from a year ago when it reported its earnings yesterday. Easy-money mortgages offered by the Government have fueled home price inflation. TREE’s numbers tell us that mortgage activity is rapidly declining, which means that homebuyer demand is declining. NASA Federal is offering a subprime product at the top of the market in a desperate attempt to stimulate its mortgage underwriting fees. I can only wonder if the proprietors are counting on another Taxpayer bailout of the banks this time around…

I presented Lending Tree as a short idea to my Short Seller Journal subscribers in early June at $260. In the next issue I’ll update my view on TREE and how to play it with put and call options. One subscriber emailed me yesterday to report that he shorted August $300 calls for $2.92 when I suggested the idea in June and covered them for a dime. You can learn more about this newsletter service here:  Short Seller’s Journal information.

The Q2 GDP Farce, The Big Short 2.0 And Gold

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

The Bureau of Economic Analysis (BEA) released its “advance” estimate of Q2 GDP on Friday. The Government would have us believe that the U.S. economic growth accelerated to a 4.1 annualized growth rate in Q2. Other than the fact that a one-time jump in soybean exports ahead of the trade war contributed to 25% of the alleged 4.1% growth, nothing about the report is credible. (excerpt from the latest issue of the  Short Seller’s Journal)

Total home sales in SoCal were down over 11% year over year in June (as reported by the California Association of Realtors).   With housing, as goes SoCal, so goes the rest of the nation.  The homebuilders are the short seller’s gift that keeps on giving.

Silver Doctors invited me on the Weekly Metals & Markets podcast to discuss the GDP report, the housing market and gold:

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I just released my weekly issue of the Short Seller’s Journal. In this issue I present more stunning housing market collapse data, I discuss AMZN’s latest earnings report and I talk about Steve “The Big Short” Eisman’s latest short position, which has been one of my SSJ recommendations for a several months.  You can learn more about this newsletter service here:  Short Seller’s Journal information.

Adios Housing Bubble

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

The homebuilder and related stocks are in an “official” bear market.  For a short-seller it’s the perfect scenario, as the decline in homebuilder stocks has received little to no attention from the mainstream financial media.  The current bubble is a “price bubble” that was fueled by the $2.5 trillion of printed money dumped into the housing market by the Fed and de facto subprime mortgages underwritten by the Government (Fannie Mae, Freddie Mac, FHA, VHA, USDA).

Prices are beginning to fall in many markets and inventory is rapidly increasing.  Many of the new listings are flippers who soon will become desperate to unload.  This is how the mid-2000’s market collapse was triggered.

Meanwhile, the housing market stocks began to collapse in mid-2005 – an omen ignored most.  It would appear that history will once again repeat.  And the homebuilders have a long way still to fall:

My Short Seller Journal subscribers and I are making easy money shorting the homebuilder stocks. I called Hovnanian at the beginning of the year at $2.88. It’s currently trading at $1.53. The homebuilder stocks provide opportunities for profitable short term trades plus positioning for long term short-sell “investing.” In last week’s issue I discussed a strategy for navigating yesterday’s earnings reports for DHI, PHM and BZH. We are already making money on these ideas. You can learn more about this newsletter service here:  Short Seller’s Journal information.

Home Sales Data Show The Bubble Is Bursting

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

There’s no question in my mind now that the housing “snowball” has started downhill and it won’t take long to develop into an avalanche. In addition to all of the “for sale” and “for rent” signs I’m seeing with my own eyes popping up around Denver, I’ve been receiving emails from subscribers describing the same thing in their area. – Short Seller’s Journal, July 22nd issue

The existing and new home sales reports this week were worse than even I expected.  Given the statistical manipulation tools used by the National Association of Realtors (existing home sales) and the Census Bureau (new home sales) – both entities use the same regression software – one can only wonder about the true rate of home sales decline.

Yesterday, CNBC.com featured a report titled, Southern California home sales crash, a warning sign to the nation.  I was surprised to see CNBC issue a bearish report on anything.  This report is similar to what’s occurring in New York City – rising inventory and falling sales.  Apartment rents in NYC are also dropping.  It’s similar in nearly all “bellwether” markets.

The Housing Bubble Blog (thehousingbubble.com), which was around during the mid-2000’s housing bubble, posted an article on Friday titled, “Discount sales can create a snowball effect.” The article featured articles from different cities, Portland, Dallas, Ft Collins (Colorado) and Minnapolis/St Paul which described rising inventory and falling prices.

This explains why the homebuilder stocks are in an official “bear market,” with some homebuilder stocks down over 30% since late January. I have yet to hear or read about this fact from the mainstream financial media or Wall Street.

Today’s new home sales report, along with the serial decline in the housing starts  data, disproves the “low inventory” narrative.  Affordability, rising rates and a shrinking pool of potential homebuyers who can qualify for a conforming mortgage has torpedoed demand.  The latest U of Michigan Consumer Sentiment report featured this chart on homebuying sentiment:


As you can see, the consumer “sentiment” toward buying a home is at its lowest reading since 2008. This is not a fact that would ever show up in the mainstream financial reporting on the housing market.

As for the low inventory narrative. The California Association of Realtors reported that June existing home sales plunged 7.3% from June 2017 and inventory is up 8.1%. A subscriber of the Short Seller’s Journal showed me an email in which Pulte Homes (PHM) was offering up to an unprecedented $20,000 bonus to realtors who sold Pulte homes in new developments in northern Florida.

Housing starts for June reported last Wednesday came in at 1.17 million (SAAR). The Wall Street brain trust was looking for 1.32 million. This was a 12.3% plunge from May.  May’s original report was revised lower. Starts for both single-family and multi-family homes were down sharply across the entire country. If inventory were “low,” housing starts would be soaring, not falling.

I’m sure northern Florida is not the only market in which Pulte is offering large selling bonuses and I’m sure Pulte is not the only homebuilder offering large broker incentives. I look at the inventory numbers across homebuilders every quarter. A lot of the inventory is “work-in-process.” But finished a new home does not necessarily show up in the MLS system unless the builder lists it. This is why, on the surface, new home inventory might look relatively low but the builders are showing huge inventory levels in their SEC-filed financials.

Because of the nature of the asset, and the relative illiquidity of the market relative to actively traded financial assets, change in the direction of the momentum in the housing market is like turning a large ocean-freighter around. The manic phase of the housing bubble is over. The momentum has been turning in the opposite direction since late 2017. Flippers who bought homes in the last 3-6 months will soon become desperate to sell. Some will look to rent and “wait for the market move through this valley and head up again” only find that rental prices in many areas are now below the cost of carry.  They forget to tell you that part in flipper seminars advertised on local radio stations.

Soon the “discount effect” of falling prices will snowball into an avalanche.  If you think this is wrong, take another look at homebuilder stock charts.  The commentary above is partially excerpted from the latest issue of the Short Seller’s Journal.  In this issue I discuss various strategies for building and managing short  positions in the homebuilder stocks in the context of the homebuilder earnings reports due out tomorrow (Thursday, July 26th).  New subscribers get a handful of back-issues, an option trading primer and a copy of my Amazon Dot Con report.