A Bear's Eye View Of The Housing Market

Investment Research Dynamics

A couple readers have expressed fear over another round of QE having the affect of juicing the housing market even higher  (or at least the homebuilder stocks).  The fact is, QE1-3 didn’t directly create the housing bubble 2.0.  The massive transfer of foreclosed, defaulted and distressed inventory into big investment funds is what triggered the big move up in prices. increase in unit sales and decline in inventory.  Unit sales volume for new homes remains stuck at less than one-third of the housing bubble peak (new home sales 1995 – 2015, click to enlarge):

More QE will not fix this. In fact, new home sales are going to turn back down – quickly. QE is and always has been first and foremost a device to keep the Too Big To Fail banks from collapsing and, seconarily, a mechanism to fund Treasury debt. That’s it. Any non-investment fund homebuyers who bought a home in the last 3 years used an FHA 3.5% down payment, record low mortgage rate mortgage to make their purchase. That market is saturated. Look at the unannualized, non-adjusted volume trend since July 2013 for BOTH new and existing homes – it’s trending lower.    Some homebuilders are offering NO DOWN PAYMENT mortgages.  I’m looking at one now that has that ad on the front of its home page.  It’s called desperation.

Here’s another reader testimonial to my work:

Dave:

I read your blog a couple of times a week – noticed your comment on the 750k + inventory build up out there in the Mile High City. As I have noted before I am holding off purchase when I move out there this summer from Chicago due to the inflated prices I am seeing – and you are correct on the inventory build up – in my search process I have access to Core Logic’s home search engine and it seems these high priced homes are coming on the market more and more every day – the little green houses used to mark the homes on the market are beginning to blot out the map of the central and south region down through Larkspur. Was not like this a year ago. Keep up the good work – and thanks for saving my butt!!!

One more thing regarding the build up – there are alot and I mean alot of $1.5 mil and up homes just sitting and sitting. Look at remote areas of Parker, Castle Pines, Roxborough Park area and high end areas around Castle Rock – just scary. Frankly I have no idea who will be buying the homes that are being built in that area called 
Ravenna near Roxborough. $1.0 mil is the low end there and alot of them on the market.

I don’t know enough of the dynamics of all this but to say that a correction is due big time in the higher echelons of housing. Again – thanks for saving my butt – was really anxious to make a simple one stop move and realized early enough that buying in this environment is just nothing short of foolish.   Better to sit on cash and wait it out I think.

The homebuilder stocks are insanely overvalued.  They all have debt and inventory levels that at the same level as 2005/2006.   But, look at the unit sales volume back then and now.  The p/e ratios – if they have on at all – are 3-5x what they were at the bubble peak.

The train wreck in these stocks will be EPIC and my research reports show how to make a lot of money on this:   Homebuilder Research Reports.