The Housing Market Is In Big Trouble

I honestly can’t believe that more investors are not looking at unloading long positions in the homebuilders.  Right now, by virtue of the fact that there’s a lack of good analytic “eyeballs” slicing and dicing the industry numbers and the homebuilder financials, the homebuilder stocks are the most inefficiently overvalued sector of the stock market besides a few select tech stocks.   I’ve been trading every part of the homebuilder capital structure since 1994 (bank debt, sub debt, pfd equity, common stock) and right now this is the easiest call I’ve seen in that period of time.

Here’s my latest assessment of the macro housing data, backed up by some evidence I’m correct that comes right out of Toll Brother’s earnings report two days ago, when TOL’s stock was hit for 5%:   Housing Market Data Continues To Support The Bear View.

I have two short-sell ideas in my research report section.  In the first report I review an area of accounting fraud that I’ve discovered at every homebuilder.  Wall Street has turned a complete blind eye to it.  What it means is that p/e ratios are much higher than everyone assumes.   The second report has an options trading strategies for anyone who is not comfortable shorting stocks outright.

You can access the reports here:   Homebuilder Stock Short-Sell/Options Ideas

At the very least, anyone who is a financial adviser or money manager and has client money invested in the homebuilder sector has a fiduciary duty to look at the facts and re-examine their assumptions about the sector.   I am confident that the two stocks in the link above will be trading well below $10 within a year to two and one of them, which has as much debt as it does inventory, will eventually go bankrupt.


6 thoughts on “The Housing Market Is In Big Trouble

  1. PS – Even if silver goes to $12 an ounce, I’ll stick with metal rather than burnable paper that will never survive the next crash.

  2. The Housing Echo-Bubble Is Popping

    Conventional wisdom on the resurgence of the housing markets takes one of two paths:

    1. Housing is not in a bubble, it is merely returning to “normal”

    2. Housing is bubbly in some markets, but prices will continue to rise

    Here’s an alternative view: housing is in an echo-bubble that’s popping. Courtesy of the excellent Market Daily Briefing, here are some charts that make the case that the housing echo-bubble was just another Federal Reserve-induced speculative asset bubble that’s popping, like every other speculative bubble in recorded history.

    (sorry for posting so much – just found this. The video posted on is very errie of what is happening right now.)

  3. Dave, you probably touched on all of these points, so please forgive me for repeating them here.

    Home builders, much like the rest of the real estate industry, suffer from willful blindness as far as the reality of real estate is concerned. They all think the market will recover in a year or two, refusing to realize that the market has changed, and unless they change with the times they are doomed to fall by the wayside.

    The buyers during the bubble mania are not coming back, they either walked away from the house, lost it in foreclosure or are paying for an underwater house hoping and praying someday some fool will show up and take their white elephant off of their hands. These buyers are out of the market for the foreseeable future.

    Banks are still sitting on unsold houses, they can’t or won’t sell for less fearing that to do so would end up having to post the loss on their balance sheet thus hurting their bottom line, hurt their stock price and outrage shareholders for bad business practices possibly forcing a change in the board of directors. By keeping hoses on the books at artificially high prices, the houses are listed as assets making the bank’s balance sheets look better than what they really are.

    Many who could buy today are unwilling to buy for fear their jobs might not exist next year due to the awful economy, or the need to be able to relocate if need be. relocating is easier if one rents than if one owns, you don’t have to worry about trying to sell a house if you rent.

    All of these things, and much, much more are impacting the housing recovery, and if home builders can’t see the light, then they are doomed to stumble in darkness and bankruptcy.

    Housing is going up in some places, the rich still have money to spend. I had read on Ben Jones housing bubble blog that one reason the Chinese are buying up property in the US is due to the need for a safe haven if things go wrong in China. Unlike in the US, when someone in China commits fraud, the Chinese Government isn’t afraid to prosecute fraudsters, or use fraudsters for target practice. Such an incentive would encourage the buying of property in a country with limited or no extradition treaties, especially here in the good old U S of Fraudmerica.

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