New home sales passed the annual run rate of 400,000 last month and the anchors and reporters and pundits began their jig. Given the falling prices of new homes and the expiration of the home buyers’ tax credit, these are awful numbers bordering on disastrous.
“The recovery goes mainstream, anyone who does not like these is against the economy,” said one supposedly objective reporter.
Less than three years ago a run rate of one million was considered a disaster and a reason to buy the home builders. This group has absolutely no earnings power going forward, is wildly overvalued and will slide and once one or two go bankrupt, the entire segment will crash.
Why so bearish? The government has been throwing the kitchen sink at supporting home sales and this what we get – 400,00-plus units. There are another five million foreclosures to hit the market in the next 24-30 months and they sell, on average, about 30% less than mostly smaller new homes. Mortgage rates are bound to rise, and unemployment will continue to be high according to everyone, I rest my case.
Wait until the short term tumult ends, then short them – individual names or the ETF, the XHB.
