Tag Archives: New home sales

Short This Homebuilder Bounce

Last week and the week before, Pulte and Calatlantic (Ryland/Std Pacific merger) reported their latest fiscal quarter.  Both companies reported a decline in homes delivered to buyer (closings).  This was consistent with the new home sales reports, overall, for the 3-month period.  The home builders were hit after both of these reports, taking the DJUSHB from 600 down to 560 – or 6.7% – over the next 13 trading days.  Beazer is still down 20% from when I first posted the original research report.  It’s headed to zero, or close to it.

Yesterday DR Horton reported its Q4/Fiscal yr-end results and Beazer reported the same today.  While DHI “beat” earnings by a penny, it missed on the Street’s revenue estimates. Beazer missed on its revenue estimate.  It’s earnings vs estimates is useless because Beazer decided to dump $323 million – or more than 10x its operating income for the quarter – of non-cash “tax benefits” into its net income calculation.

While both companies, contrary to Pulte and Calatlantic, showed an increase in units delivered/closed, further analysis I’m sure will show some extreme measures were implemented in order to move inventor.  I’ll will have updated research reports on both and special research report offer sometime over the next couple of days.  If you want a head-start, I would suggest taking a look at this report, which will not be part of the research report special:  RED FLAG ALERT FOR THIS HOMEBUILDER

However, interestingly both homebuilders stopped investing in new inventory.  By this I mean on a net basis, they both reduced their inventories quite a bit during their Q4.  If the outlook for the housing market is extremely optimistic – per the NAHB builder “confidence” report – how come these two homebuilders reduced their inventory after building them up to levels that exceeded their 2005/2006 housing bubble peak levels?

On a quick glance at Beazer’s numbers, its margins took a hit during the quarter, which means it was offering its homes at a big discount.  DHI’s cancellation rate during the quarter popped up to 27% vs 23% for all of 2015, which is a huge red flag.  Among other indicators, it means that DHI’s reported order book is highly over-inflated.   BZH’s cancellation rate also increased during Q4.

Furthermore, DHI’s Numbers were not nearly as strong as the headlines in their press release. They “beat” by a penny, but there were several somewhat arbitrary non-cash adjustments that gave them the leeway to engineer a “beat.”  It also looks like like they underwrote the mortgages for a lot of their buyers which means they financed subprime buyers to the hilt. We know this because their “mortgages held for sale” jumped nearly 50% year over year. If these were conventional, non-subprime mortgage, they would be able to off-load onto FNM/FRE and not hold them for sale.   It also means that there will be mortgage loss write-offs in DHI’s future.

It’s highly likely that this quarter will be the “last hurrah” for homebuilder sales volume and rising prices.   Most Americans are sliding into insolvency and it looks like the Fed/Government has saturated the last of the population that makes enough money – for now, anyway – to support the monthly cost of home ownership.  For example, read this report:  Most Americans Are Too Broke To Afford To Buy A Basic Home.

Next Up:   Another bailout of Fannie Mae and Freddie are inevitable and the FHA will require one as well (FHA was 2% of the mortgage market in 2008, it’s 20% now).

Homebuilders Were Ripped Lower – Again

In an acknowledgement of how insanely overvalued the homebuilders are, the Dow Jones Home Construction index is down another 3.5% today. It’s down 5% from last Friday’s close, despite all the “good news” about the economy this week:

Homebuilder Stocks

The catalyst today was bit surprising. Meritage, a somewhat smallish homebuilder missed its net income bogey. I guess the fact that it guided well below what the snake-oil salesmen on Wall Street were pimping is what has undermined this stock, which is down 9% today. But it’s an insignificant factor in the Dow Jones Home Construction index.

This tells me that the market is starting to unload the homebuilders on any scrap of not-positive news. The hedge funds are substantially overweighted in this sector, as the homebuilders have been short-squeeze momentum darlings for quite some time.

Crispin Odey was in Zerohedge earlier this week  LINK  bragging about being short the stock market.  Ironically, the homebuilders are one of his largest long positions. His shorts will be more than offset by the huge beating he is going in incur from being long homebuilders.

The homebuilders are more overvalued now than they were at the peak of the housing bubble. I have several research reports which show in detail why these builders are all going below $10, many below $5, and some will hit the wall and disappear. I am offering my older reports for a package price, but as soon as earnings season over over I will be updating all of them and raising the price.   HOMEBUILDER REPORTS

If you are interested in purchasing my homebuilder reports in a package deal, contact me at this email address: investmentresearchdynamics@gmail.com LINK.   Anyone who has purchased my reports is entitled to receive the updates as part of the purchase price.

Pulte Home Misses By A Country Mile

Pulte Home missed its Wall Street earnings nut by 10 cents. It would have been more had the Company not continued to burn shareholder cash with another huge quarterly share buyback. Closings were down 6% for the quarter year over year and the Company’s book value continues to plummet.  But, of course, they promote “orders.” “Orders” don’t mean a thing in a business model for which cancellations run 15-20%. Yes, upper management continued to dump shares into the Company’s share buybacks…

The Fed has handed the entire housing a multi-trillion gift in the form of a $2 trillion injection of printed money directly into the mortgage market and a zero-percent interest rate policy that has produced record low mortgage rates. Plus the taxpayer has, unwillingly subsidized down payments and interest costs, as all three major Government-backed mortgage entities are offering 3% down payment mortgages.

PayPalPicFor PHM to screw this up means that the Company’s management is incompetent. If you had purchased by latest homebuilder report when it was published you would be sitting on 6% gains in two days outright and even more if you played puts.  (click on the image to the left to access my stock report)

But this is just the beginning for PHM and my report explains why there’s an easy $10 of downside in this stock. This graph tells us everything you need to know about the true fundamentals of the housing market – even in an environment in which the Fed and the Government is literally shoveling money at the housing market as means of trying to prop up the economy, over the last 5 years the homebuilder stocks have underperformed the S&P 500 by 70%:

SPXvsHomebuilders

New Homebuilder Report: Large Homebuilder With Declining Unit Sales

Today’s housing starts number for September was highly misleading, as the overall headline result was skewed by a big jump in multi-family units, primarily 2-4 unit buildings.  Single-family home starts declined 5% from August to September.  It’s the single family unit starts that are relevant to publicly traded homebuilders.  Their stocks continue to be more overvalued today than at the peak of the housing bubble.

I have a new homebuilder short-sell report posted.  I want to share an interesting story about this Company, which further adds to the number of “red flags” I have found buried in this Company’s financials.

In late 2013 I wrote an article showing how this Company was managing its earnings per share with share buybacks and inappropriate NOL reversals. Mr. Zeumer sent me an email questioning my math on the effect of the share buybacks and Net Operating Loss reversals. I replied by saying that my math was laid out in detail in the article and that if he was confident that the Company’s math and its use of NOL reversals was appropriate, then he and rest of upper management should take after-tax cash from their bank accounts and buy the stock for their own accounts. I added: “we know that management has been good at selling stock into the Company share buybacks.”  Not surprisingly, I never heard back from him after that.

This particular Company reports its earnings soon. While I have no opinion with regard to whether it will miss consensus or use the accounting gimmicks I present in the report to engineer a “beat,” the Company did miss earnings last quarter. I would suggest the way to play this one is to take a partial short position ahead of earnings with the intent to add if the Company “engineers” a beat and the stock pops, or wait until after earnings to start building a short position. Either way, this stock is eventually going a lot lower:  NEW HOMEBUILDER SHORT-SELL REPORT

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The Real Estate Bust Part 2 (Plus A Resurgence In Mining Stocks)

We’ve seen a big slowdown” said RE/MAX Unlimited realtor Ronda Courtney. “I have a listing that I’ve had to reduce twice in the past month…Sellers are starting to chase the market down,” said Anthony Rael, chairman of the market trends committee with the Denver Metro Association of Realtors.  – The Denver Post – Link1, Link2

Kerry Lutz of The Financial Survival Network invited me back on his show to discuss the housing market and mining stocks.  The housing market since 2010 has experienced what can at best be described as a “dead cat” bounce from its plunge that began in late 2005/2006.  This was to be expected given the trillions thrown at the housing market by the Fed and the Government.

While YTD in 2015 home sales overall are up a bit from 2014, home sales volume actually declined if you compare 2015 to 2013.  The only reason 2015 is up vs. 2014 is that FNM and FRE reduced their down payment minimum from 5% to 3% in January and, along with the FHA, all three agencies reduced the amount premium payment required to fund mortgage insurance for low down payment mortgages (i.e. down payments under 20%).

Furthermore, the primary component of the sales volume this year has been individual “retail” investors looking to generate rental income or to flip.

As we discuss in the podcast, this is the “retail” investor dynamic of “piling at the top of a market” after the sophisticated money has decided to sell, as the institutional fund money has disappeared from the market and many funds are now looking to sell part or all of their rental portfolios in response to a failed business model.

I will have a lot more to say about the housing market in the weeks ahead, but suffice it to say that, unless the Fed can push mortgage rates a lot lower and the Government uses even more taxpayer money to subsidize new home buyers, the housing market is about to shock a lot of people to the downside.

It’s called “The American Dream” because you have to be asleep to believe it. – “Julie Sheats,” Twitter

Game Over For Housing – And The Entire Economy

Some people never learn. They follow the same path that destroyed their finances in the past. Wall Street is desperately packaging the increasing amounts of subprime slime in new derivatives of mass destruction and peddling them to clients, while shorting those same derivatives. It’s called the Goldman Sachs method. When home prices begin to tumble, these derivatives will self-destruct again. What is happening today is nothing more than rearranging the deck chairs on the Titanic. The iceberg has been struck, we’re taking on water, and this sucker is going to sink. Game Over  –  Jim Quinn, The Burning Platform

I wanted to post this piece by Jim Quinn a)  because it is incredibly well-written and b) so that everyone can see that I’m not the lone voice in the wilderness on the housing market (and the rest of the economy).

Unfortunately, a home is largely a not very liquid asset.  During brief periods of mania, fueled by Fed-induced monetary promiscuity (debt and printed money), Americans begin to think that houses can be traded like stocks – i.e. there’s always a “deep” bid to the buy side.  But what’s happening now is the same thing that happened in 2006-2008 in real estate.  Supply is quickly outstripping demand and demand is plummeting.  The housing market was very liquid when the $2 trillion of mortgage QE was going in to it.  Now it’s about to become very illiquid and eventually it will become largely “offered without,” meaning a flood of listings that scare away almost all potential buyers.

I highly recommend reading Jim Quinn’s commentary:   Two Outs In The Bottom Of The Ninth (and no one on base)

The Housing Market Is Toast

Don’t take if from me, take it from honest industry professionals:

Plenty of volatility to come for the home builders. I received a text from a major national builder this week letting me know they would take $90K (14 percent) off of the listed price for one of their inventory homes. Several Katy/West Houston neighborhoods rolling over on price as inventory builds in the upper price segments.

While industry pundits and the marketing arm of the local real estate board keep telling everyone things are fine, the underlying fundamentals continue to deteriorate. – Aaron Layman, Aaron Layman Properties, Houston, TX

It’s not just Houston, I receive emails from readers all over the country with similar stories. Most of them are from people who were able to sell before the summer started and now are seeing a literal avalanche of homes “stuck” on the market.

Note:  The National Association of Realtors’ inventory data is severely lagged and based on sketchy data surveys.  Also, it would not include “coming soon” homes, which are a one-broker exclusive and not put in the MLS system for at least 30 days.  There is a literal plethora of “coming soon” homes in Denver.  Real estate brokers are glorified car salesmen.  They sit somewhere on the ethics scale between Best Buy electronics salesmen and Wall Street fraud pimps.

The homebuilders rolling over here.  The pop in price over the last two days was a function of the enormous Fed intervention in the equity markets.  Despite one Fed officials hint of possible negative interest rates today, the homebuilders are red:

Homebuilder StocksMy homebuilder reports give you a unique insight into why these stocks are extremely overvalued and have a long way to fall. The two reports on my “sidebar” to the right show why these two stocks will hit the wall sometime in the next 24 months, if not sooner.

You can access my reports here – the price is going up once I get them updated.  Anyone who buys now (or previously) will receive the updates upon request:  HOMEBUILDER REPORTS

Each report takes a in in-depth look at the questionable accounting games being played by these homebuilders, shows why they are burning cash and contains trade management advice and suggestion for how to use puts and calls.

Here’s the extra good news:  Jim “Mad Money” Cramer has been pounding the table on the homebuilder stocks!  You know what that means…

New Homes Sales For July: Full Of Hype But Lacked Substance

As usual, the headline monthly and annual changes in new-home sales were not statistically significant…While the headline July 2015 sales level of an annualized 507,000 units (42,250 monthly rate as used in the graphs) was up versus June, it was below the levels of activity in April and May 2015, and it still was down by 63% (-63%) from the pre-recession peak for the series.  With the otherwise meaningless monthly swings in these numbers smoothed out, new-home sales activity continued in a broad pattern of low-level stagnation.  – John Williams, Shadowstats.com

New home sales for July missed Wall Street’s consensus guesstimate, coming in a 507k vs. 516k expected.  This number is not a real number, as it is based on sketchy Census Bureau date collection methods and questionable “seasonal adjustments.”  The CB then takes this cesspool and turns it into an annualized rate.

I wrote an article for Seeking Alpha which dives into the details of the report and shows why numbers are highly unreliable.  You read this article here:   July New Home Sales

Hedge funds have taken excessively large positions in the homebuilder stocks.  The question is, who will be there buy those positions when the hedge fund operators all rush for the exits at once when they realize that housing market is rolling over in a big way?

Reckless and fraudulent mortgage underwriters were one of the primary cause of the housing bubble that popped in 2005/2006.   This bubble never finished deflating.  The Fed’s zero interest rate policly and close to $2 trillion injected directly into the housing market has cause an extraordinary degree of overbuilding.

Homebuilder inventories and debt levels are now higher than they were at the bubble’s peak.  The muppets on CNBC, Bloomberg and Fox Biz have been furiously hyping the housing market.  This is a bad sign.

Homebuilder stocks are now several multiples more overvalued relative to their underlying fundamentals than they were in 2005, when they peaked in price.  There is a lot of money to be made shorting the homebuilder stocks ahead of the inevitable rush for the exits by institutional investors. My homebuilder reports explain why and how.  You can access them here:   HOMEBUILDER RESEARCH REPORTS

Once I update them, I’ll be raising the price.

I made $600 on a $1,060 investment selling (short) a BZH calls a few weeks ago because I read your reports on these companies

 

 

Short Seller’s Journal: More On Housing

The only data that gets more statistically distorted and incompetently analyzed than the housing data is the Government inflation, GDP and employment numbers. In some cases it’s a toss-up. The builder sentiment index is bordering on retardation. Builders are always optimistic, especially because they use other people’s money and take fees off the top. The “sentiment” index always seems to peak at the top of the market.

Housing starts and permits are are almost equally as useless, especially seasonally adjusting and annualizing the data. Literally, a start is counted with a builder sticks shovel in the ground on land which has a permit attached. Homebuilders will always file permits on land they own because it costs next to nothing. “Starts and permits” do not necessarily translate into revenue producing events. If anything, homebuilders always load up on too much land and end up writing it down and unloading a lot of it when the market turns.

Just to show you I’m not on drugs, I wanted to share a some comments I received today and yesterday about my views on housing:

Been reading your take on the housing market for some time and I agree completely. I sold my house located in a neighborhood of McMansions and downsized in April. This action freed-up a bunch of cash and also reduced my real estate taxes big time. I moved out to the sticks where neighbors are few, I can do whatever I want w/ my property (no HOA), and taxes lower. Considered following your advice and just renting, but the rental market here is not very good (high rents, few options) and I found a place I was able to pick-up on the cheap since it was a cash house sale so I could act quickly.

If/when things really fall apart I would rather be where I am at vs where I was (around a bunch of clueless yuppie-types who are used to writing a check for everything).

Get this… the guy who bought my old place financed 104% of the sales price! He went VA which requires no down pmt, but charges all these crazy fees which are just tacked onto the loan amount. So he is already under water and will likely become another “victim of the banks” when the housing and mortgage market blow-up again. Unreal.

And this:

I’ve said it before and I’ll say it again: The market in Denver terrifies me. I am happy that we didn’t end up buying a home late last year / early this year, but according to “news” sources, people just keep snapping up apartments right and left in Denver, and vacancies still seem to be very low. After trying to rent something basic (when we realized buying was out of the question,) we were outbid on APARTMENTS; in some cases, there were 15 applicants for one unit. That’s why we’re living with family for another year to try to save up more money to either move out of state, get a decent apartment here, or try to buy. I am not optimistic.

On the other hand, I do see a lot of “new price” signs everywhere. Doing a simple search on Redfin reveals that a lot of the higher priced homes in the Highlands, Wash Park, etc. (assumed to be hot areas) are sitting for weeks and even months in some cases.

And this:

Thought you might be interested in this. We are also seeing a lot more houses on the market. Brokers are reporting that things are really slowing down. Remember, S.E. Michigan has been one of the strongest economies (fueled by sub-prime auto loans). Thank you for all you do!!!

As for the homebuilder stocks, they are at their most extreme valuation levels in history relative to their underlying financial fundamentals. Debt and inventory levels now exceed the 2005/2006 highs in these metrics, at the peak of the housing bubble. Nominal p/e ratios are also at historically high levels for market tops. And net income is distorted by several accounting gimmicks, the most extreme being that every homebuilder with few exceptions has moved “interest expense” off their income statement and on to the balance sheet (capitalized interest).

Perhaps the only balance sheets more nuclear than homebuilder balance sheets are big bank balance sheets. This will not end well and you can take profit from the extreme overvaluation in homebuilder stocks by taking advantage of my research reports. Here’s my two favorite short ideas right now, although all of the companies I have written reports on will tank hard – click on pic to access reports):

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And here’s why – note that both of these homebuilders have substantially underperformed the Dow Jones Home Construction Index over the last year. The balance sheets of these two companies are nuclear – click to enlarge:

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You can access my homebuilder reports by click on this link: Homebuilder Short Sell Reports

Once I get my homebuilder reports updated with current financials, I will be raising the price. Here’s a testimonial from someone who bought one of the reports and was able to time the big drop in early January with puts:

I’ve never got a bigger return for the value. $25 for the report, $4k invested in January 2016 near-money puts since August (2014) and closed today (early Feb) for $3.2k of benefit.

As an added benefit, Cramer recommended the stock on the right about 6 months ago!!

Big Cracks Forming In The Housing Market

How many of you reading this were aware that new home prices are down 12% since October 2014?   Do not believe the propaganda.  The headlines are full of lies.  The numbers themselves are lies.

The 2.2% gain in new home “sales” from the Census Bureau was driven by what is likely a corrupted “sales” report from the northeast region.  I am putting “sales” in quotes because “new home sales” as reported by the Census Bureau are based on contracts signed.  How many of you were aware of that?   On average right now roughly 20% of all contracts signed are cancelled.  So the report has a natural 20% error built into it.

But wait, it gets better.  According to the Census Bureau’s stated methodology, in areas where it can’t get data on contracts from homebuilders, it resorts to “guesstimating” the number of new contracts based on the number of permits filed in that area.  In other words the Census Bureau’s data is outright an insane guess in some areas.

As it turns out, the CB is telling us there was an 87.5% jump in “sales” in the northeast in May vs. April.  Well, guess what?  It also turns out that there was a huge spike in permits filed in the northeast in May.   I wrote about this here:  Housing Starts Plunge, Permits Spike Up

Let’s look at some truth.  First, here’s a graph that might startle you:

ConstructionSpending

The graph above shows the year over year monthly change in private residential construction spending. You can see that the metric is falling off a cliff, just like it did when the Housing Bubble 1.0 popped.  You shouldn’t need any more evidence to tell you that what is being reported by the media, Larry Yun, Wall Street and the Government is a complete fraud.

But it just so happens that I wrote a report for Seeking Alpha in which I take a scalpel to the latest Census Bureau reporting abortion and demonstrate that the Housing Bubble 2.0 is about to pop:   May New Home Sales Were Not As Reported

As you can see from the graph above, the homebuilder sector is down 5.3% since its recent high close on April 1. During the same time period the S&P 500 has been flat. This divergence from the market indicates to me net selling by “smart” money. The pattern in the graph above also correlates with the move in mortgage rates from April to the present. If mortgage rates continue to trend higher, I believe it will exert forceful downward pressure on homebuilder stocks.