Housing Market: Desperation Is Setting In

Investment Research Dyanamics

A colleague of mine who has a second residence in Arizona told me today that he received a card in the mail from Toll Brothers.  TOL was offering to reimburse up to $2,000 in travel expenses if the person receiving the card bought a new home in Arizona.   Toll must be getting desperate because the only way to get the information needed to mail my colleague was to physically go make copies of the property tax rolls at the County admin offices.   He said he had not seen something like this in the 15 years he’s owned a home in AZ.

This is in addition to the massive amount of incentives that these new homebuilders are already offering:  free pools in warm States, price discounts and other “value-added” incentives that these companies are throwing in to try and move homes.  This is in addition to the fact that they underwrite most of their own mortgages, which enables them to build in subsidized financing.

The housing market is deteriorating quickly, along with the rest of the economy.  I wrote an article for Seeking Alpha which documents several non-price/volume indicators which reflect the rapid deterioration in the underlying fundamentals.  You can access that article here:   Housing Market Update:  It’s Getting Worse.

The homebuilders have staged a bounce along with the rest of the stock market, although this bounce has been primarily driven by declining volume.  The S&P 500 and Dow continue hit new all-time highs but the homebuilders can not even bounce back to recent highs.  This tells us that the market is starting to understand just how quickly the fundamentals for housing are fading.

Every single one of my new homebuilder short reports are still valid.  You can access those reports here:   Homebuilder Stocks:  Why They Are Great Shorts.

The stock market is bounding higher on Fed hot air and unbridled investor optimism.  The hot air will eventually get cold and the optimism, in my opinion will soon fade.  The risk in this market is to the downside.  In case no one noticed, Ukraine is heating up again and the Middle East gets more violent by the day.  The recent economic reports, rigged and manipulated as they may be, show a U.S. economy that weakens by the day.