Fund Manger: The Housing Market Bubble That Is Bigger Than 2008 Is Popping

Tuesday, July 3, 2018
By Paul Martin

SilverDoctors.com
July 3, 2018

Dave Kranzler says the housing bubble is popping, and it’s not about supply but demand. Here’s the details…

by Dave Kranzler of Investment Research Dynamics

The XHB homebuilder ETF is decisively below three key moving averages after it knifed below its 50 dma last week. KB Homes reported a big earnings and revenue “beat” on Thursday after the market closed. The stock soared as much as 9% on Friday. Per the advice I gave my subscribers about shorting the inevitable price-spike in the stock, I shorted the stock Friday mid-day (July and August at-the-money puts). The stock is down 6% from its high Friday and is back below all of its key moving averages (21, 50, 200).

Several subscribers have emailed me today to report big gains on put options purchased Friday. When a stock sells off like this after “beating” Wall St estimates and raising guidance, it’s a very bearish signal. I’ve identified the best homebuilders to short and I provide guidance on timing and the use of put options.

Housing is dropping and it’s demand-driven, not supply-driven – All three housing market reports released two weeks ago showed industry deterioration. The homebuilder “sentiment” index for May, now known as the “housing market” index for some reason, showed its 4th decline since the index peaked in December. The index level of 68 in May was 10 points below Wall Street’s expectation. The index is a “soft data” report, measuring primarily homebuilder assessment of “foot traffic” (showings) and builder sentiment.

While the housing starts report for May showed an increase over April’s report, the permits number plunged. Arguably the housing starts report is among the least reliable of the housing reports because of the way in which a “start” is defined (put a shovel in the ground, that’s a “start”). On the other hand, permits filed might reflect builder outlook. To further complicate the analysis, the report can be “lumpy” depending on the distribution between multi-family starts/permits and single family home starts/permits.

A good friend of mine in North Carolina was looking at the Denver apartment rental market earlier this week and was shocked at the high level of vacancies. I would suggest this is similar in most larger cities. It also means that multi-family building construction will likely drop off precipitously over the next 12 months.

Existing home sales for May reported Wednesday showed the second straight month-to- month drop and the third straight month of year-over-year declines. The headline SAAR (Seasonally Adjusted Annualized Rate) number – 5.43 million – missed Wall Street’s forecast for 5.5 million. April’s number was revised lower. Once again the NAR chief spin-meister blames the drop on low inventory. But this is outright nonsense. The month’s supply for May increased from April and, at 4.1 months, is above the average month’s supply for the trailing 12 months. It’s also above the average months supply number for all of 2017. If low inventory is holding back pent-up demand, then May sales should have soared, especially given that May is historically one of the best months seasonally for home sales. The not seasonally adjusted number for May was 3.4% below May 2017.

The Rest…HERE

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