The Government's Housing Starts Data Is Rigged: Sell Homebuilder Stocks

With horrendously-distorted reporting and seasonal-adjustment issues carrying over from last year’s shutdown of the federal government, the Census Bureau appears to be unable to publish consistent housing starts data on a regular monthly basis. The problem is ongoing, and it has reached a level where the initial headline reporting is virtually worthless.  - John Williams from ShadowStats.com

As I suspected, the Census Bureau put out a trumped up report showing a raging rise in housing starts for July yesterday.  The majority of the statistically manipulated number came from a pop in starts for large apartment buildings.  The homebuilder stocks spike up higher by quite a bit on this news yesterday.

I have been advising people who are looking to short the homebuilders to wait for the extreme oversold condition of the homebuilders to disappear before establishing short positions.  Yesterday’s move on phony numbers wiped out a signifcant amount of this oversold condition.  Tomorrow’s existing home sales report, if miraculously bubbly, will likely take the homebuilders to an overbought condition.

The homebuilders have been loading their boat with inventory, primarily fueled with debt. Housing starts that consist of apartment buildings do NOT affect the revenues of most homebuilder companies.  They rely on single-family sales financed with mortgages.  Speaking of which, today’s Mortgage Bankers Association weekly mortgage applications report showed that purchase mortgage applications declined another 2% from the previous week and 11% lower than the same week last year.  93% of newly built homebuyers use a mortgage.  I’ll let you make the leap to the obvious conclusion to this picture.

I have just finished my second homebuilder stock report.  This particular company missed earnings expectations by quite a bit, as made several misleading and inconsistent statements about the market and their operating strategy.  They are using an extreme form of earnings management and insiders are dumping shares.   Finally, they’ve made a big bet on the entry-level segment of the market.  That is, the market segment that is collapsing (they even unwittingly disclose this in their latest investor presentation, which I detail in my report.

I have included a detailed section on using calls and puts to enhance your trading abilities.     You can access the report here:   Homebuilder Short-Sell Report