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John Gilluly

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  • November Existing Home Sales - Look Out Below [View article]
    We are building the same number of houses in 2013 as in 1947. The only comparable 5 year period to 2007-2012 was 1941-1946 during the WWII years. (See chart from Hovnanian builders: The population in 1947 was 40% of today's growing population.

    There will be a severe return to the mean over the next 2 years. The enticing logic of John Williams and his shadow statistics will prove faulty. It is not a matter of if, but when.
    Dec 23 12:41 PM | 4 Likes Like |Link to Comment
  • Brookfield Residential Hits Another Homer - So Why The Q3 Booing? [View article]
    A little over a month has gone by, and the trading in the stock has been very positive. My buys at 19.50 are now up 3.30 (17%) and accumulation has been steady. Except for the new IPOs TPH (see article on this company on S/A) and LGIH, Brookfield has once again regained its rank as one of the top builders for 2013 (+27%). The main thing for me is the continuing 20% to 25%+ growth in its asset base every year. This will surely lead to higher earnings in the future. My target on the company remains $54.
    Dec 19 03:10 PM | Likes Like |Link to Comment
  • Housing Starts Surge To The Highest Level Since 2008 [View article]
    I noticed something in your housing-starts chart (above: Starts and permits were range bound for the previous 9 months through September. Then in October permits jumped, and now - disproportionately - starts jumped.

    Since it takes about 90 days to complete a home from the time that construction commences (starts), it makes sense that these homes will be available at the start of the Spring selling season on March 1, 2014. This jibes with the Wells-Fargo Home-builders sentiment index for future conditions.

    Profits and ASPs might be less in 2014 (or the rate of increase in same), but volumes should make up for that, thus keeping the builders at a "buy".
    Dec 19 12:43 PM | Likes Like |Link to Comment
  • Housing Starts Surge To The Highest Level Since 2008 [View article]
    Nice Article James. If profits follow starts, builders could hit new highs in 2014 after what seems an eternity of consolidation and bearish media reports since the Spring of 2013 (following Bernanke's May 5th taper call).

    I have tried to look at the housing market in a deductive way, i.e, "What kind of economy - and what level of wage or income gains - supports what level of interest rates?" and I can't see mortgages above 4.5% to 5.5% for as far as the eye can see, maybe even through the remainder of the decade.

    The housing starts number and the YoY percent changes reveal that we have been in the midst of a consolidation, not an imminent downturn. The only way the inventory problem in housing is going to be resolved is through new construction; modest mortgage rates; and slightly higher home prices that will move more home owners out of negative equity. The Fed knows that and will continuously adjust policy towards those ends. I think the Yellen Fed will bring in a new, improved, and no-surprises Fed.

    The main reason the Federal Reserve will remain accommodative is because of the multiplier effect of housing on the Main Street economy. That's also why I think the Mortgage Backed securities market (MBS) in the likes of Analy Capital Mgmt will do much better in 2014. I am looking for 2 points higher in Analy plus a continuation of their yield at about the same level as now.

    I believe the best areas for housing investment in 2014 will be a resurgence in the dominant CA builders (LEN, TOL, KBH, TPH, SPF) and the builders with large land banks acquired in the 2010-2012 time frame (BRP, DHI, KBH, TOL). In Brookfield's case (BRP), much of the land was acquired almost a decade ago.

    These builders have been roundly-criticized for putting cash into land instead of cash onto the balance sheet, but here we are coming in to 2014 and that 2010-12 land is valued at 20%-35% above what they paid for it (for example, the price TOL recently paid for Shapell's developed lots in CA); and the big public builders have enough land to last them through the remainder of the decade. Local predictions for housing prices in CA for 2014 are close to an 8% raise. Builders can do very well with a rise like that coupled with higher volumes.
    Dec 18 12:29 PM | 2 Likes Like |Link to Comment
  • Housing Market Setting Up For Another Crash [View article]
    An excellent article that every retiree in an expensive area (like I live in) should read.
    Dec 17 03:20 PM | 3 Likes Like |Link to Comment
  • America's Rental Crisis [View article]
    What I have seen from the low income housing available in San Francisco is this: as soon as ownership becomes a possibility, even housing projects transform themselves from crime-ridden areas to communities with a "moat".

    That moat is ownership.

    Say what you will, that's how it worked out. I was a private religious-social worker in some of the worst areas, and as soon as they became condos or condos mixed with affordable rentals, the atmosphere changed. I was amazed at how the "intractable crime" seemed to die down when people were given the opportunity to have some skin in their game.

    The same rules of the road applied that work with all housing sales: moderate underwriting; careful screening for criminal records, domestic abuse, or serious credit risks.

    When you ignore underwriting, you ignore human nature.

    That's really what the 2008 Financial Crisis was really about. Probably what all life in a capitalist society is about, if you think about it.

    Just because you are poor doesn't mean you're a criminal. But you sure would like to live in a crime-free (or freer) atmosphere for you and your children. Here is where the stupidity of politicians comes in - lumping everyone under one-income-size fits all.

    I recently was part of one of the largest affordable ownership/renting offerings in the United States. It was enormously successful for the 700 families that took part in the lottery. 3,500 people applied - some from other parts of the USA. Everyone who applied - who hung in there - eventually was accepted over a 4 year period and acquired a condo or an affordable rental.

    But there was one small geography - located in a pristine area along the San Francisco Bay in a secluded area - surrounded by spacious alfalfa fields and total quietude - a completely brand new complex of maybe 75 units - where the units were rented (big mistake) instead of sold as affordable units to low-income families - and NO UNDERWRITING or SCREENING was done.

    Three years and 26 evictions later - and almost daily police visits to stem the drug-running, speeding, and drive-bys - a reasonable selection process was re-instated for the area and the mess died down.

    Politicians - in their "caring desire" to help families in a high-crime housing project - had simply imported the king-pins of that local scene into a luxurious setting they never would have been given in the first place. This stupidity gave a bad name to the whole project - endangered those who lived there - and it affected the property values and the reputation of an otherwise successful and happy community.

    If you drove to this area or flew over it in a helicopter, you would assume that it was a high-priced condo development. It just goes to show you can put the wrong people into even the most salubrious environment and they can turn into hell on earth. This probably echoes some of the other comments made here by landlords of low-income housing. At the end of the day it's all about selection - and the selection process.

    Which leads me to the second point being made here: education. As a high school teacher, every day I see students making the decision to prepare for college and/or a career; and another 30% actively engaging in decisions - contrary to all encouragement and support to NOT go that way - preparing for a life of poverty, poor job opportunities, and poor choices.

    Often the future is a decision, not just the result of an environment. Every immigrant to America has had a chance to prove that over and over again; and I see it every day in my work.
    Dec 16 12:33 PM | 6 Likes Like |Link to Comment
  • The Beige Book Is Bullish For Annaly [View article]
    NLY has averaged a 43 cents/Q dividend for 65 quarters.

    Something to consider. I sure am; especially if you factor in the Fed's desire to keep the housing market affordable, and the 6 month window needed to readjust NLY's portfolio (as author states).

    Secondly, has anyone looked at the insider transactions for NLY from Wellington (CEO), Keyes (President), Konrad (CIO), Fortescu and Votek over the last couple of months at these prices ( These executives have been with the company for a long time. Maybe what the author is actually considering is that we invest alongside of them.

    Lastly, insider trading for another property Reit, HTA, looks the same. Massive buys for a year around and under the $10 mark.
    Dec 13 08:20 PM | Likes Like |Link to Comment
  • Homebuilders In Head-On Collision With Affordability [View article]
    "When a market is dependent on real income, and that income isn't enough to push prices higher, there you have it."

    Dwallam, that it is one of the most succinct sentences I have ever read to describe 2003 and what happened after it. My wife and I wanted to buy a home at that time, but could not see how - in any reasonable fashion - someone could afford the homes being offered at prices that levitated above $ reality; the twenty and thirty-somethings that were lined up like troops to buy them (with what?); and the financial engineering that would have HAD TO TO TAKE PLACE if these homes were ever to be sold. That's where the rub came - at that point - which put the housing market over the edge.

    I have noticed in the ensuing 10 years how prices seemed glued at the 2003 level for almost half a decade after the bubble burst, because that was the last time they were fairly valued.
    Dec 9 01:01 AM | Likes Like |Link to Comment
  • Are Bonds On A Collision Course With Housing, History And The Fed? [View article]
    Economan - what you are saying is somewhat akin to "buy the news, sell the fact". If it goes as you have outlined - as soon as the taper is announced there will be an exhale - as some sort of economic peak of fervor had been reached by months of constant stimulus - followed by an exhale, and then REALITY.

    The point that Bernanke made in his white papers (before he was the chairman) vis a vis the Japanese experience and their deflationary spiral; probably could be repeated regarding an interest rate spike in 1947-49, and now this year, 2013.The economy looks so robust, strong and so healthy - until it doesn't.

    It all depends on the view from your bridge: is it Newport Beach, CA and/or the Hamptons, Long Island NY - or is it Main Street somewhere anywhere USA? Very different viewpoints, depending on "from where you are standing".
    Dec 5 01:22 AM | Likes Like |Link to Comment
  • Are Bonds On A Collision Course With Housing, History And The Fed? [View article]
    Yair - All good observations.

    I would just caution you not to adopt a "My dad (statistics) can beat up your dad" when it comes to analyzing data. All data is neutral; and the bears have done quite well for themselves over the last 6 months - and their success a learning experience for me - forcing me to look at interest-rates in a way that would not have been possible if I had not had stock losses in interest-rate sensitive stocks.

    However, I continue to think that although battles will be lost along the way, as the campaign heats up again next year, the home builders will rise to new highs (in spite of interest rates). Understanding why and how that could be was the intention behind why I wrote this article.

    I am currently long BRP, and I added more KBH last week - and again this morning after reading this article (
    Dec 4 12:16 PM | Likes Like |Link to Comment
  • As The Housing Market Approaches The Cliff A Possible Black Swan Appears [View article]
    These people are confident too:
    Dec 4 11:32 AM | Likes Like |Link to Comment
  • Are Bonds On A Collision Course With Housing, History And The Fed? [View article]
    Yair - I am not as certain as you are certain.

    I also can see considerable uncertainty with regards to interest rates and fixed income in general; also with anything stock-related that trades off of interest-rates. Take a look at Scott Grannis's article on Seeking Alpha: "Quantitative Easing Myths."
    Dec 3 05:33 PM | Likes Like |Link to Comment
  • Are Bonds On A Collision Course With Housing, History And The Fed? [View article]
    Yair - Chairman Bernanke - in his detailed comments to the press last summer regarding tapering - described the Fed's stimulus as akin to an accelerator on an automobile. You press down on it and the auto moves faster. You take your foot off it, and the automobile slows down.

    The Fed - through monetary policy (easy money) - wants to "accelerate" the U.S. economic engine until it can "run" at a steady rate on its own. As anyone who has taken their foot off an accelerator can attest, there is a lag period when nothing appreciably happens, followed by a slowing (if you are going uphill - even slightly) or an accelerating (if you are going down hill - even slightly). It all depends on the slope of the terrain which lies ahead.

    In the 2 previous cases (at the end of QE), the lay of the land remained uphill which became immediately apparent. I think that could happen again; just like it did before. But in either scenario- vis a vis the real estate market - the hope is for "modest" to rule the day.
    Dec 3 01:11 PM | Likes Like |Link to Comment
  • Are Bonds On A Collision Course With Housing, History And The Fed? [View article]

    I guess we will talk again at 2ML units. Should be quite different.
    Dec 2 11:32 PM | Likes Like |Link to Comment
  • Are Bonds On A Collision Course With Housing, History And The Fed? [View article]
    Classy D - If I was to extend your thinking into bonds - which, the way you put it was quite nice - "unprecedented in history" - then tapering stimulus should immediately cool the 10 year yield in a downward direction (This was Scott Grannis's observation), and thus - to my mind - raise the affordability index in a positive direction. Favorable interest rates or new jobs - either choice should create demand for new housing. I just don't see how - with the economy we have now - that the economy would justify 4% rates on the TNX if it takes emergency methods to even move its dial a little off the dime.
    Dec 2 08:45 PM | 1 Like Like |Link to Comment