JB - Kinda hard to have a bubble if you can't get into one (like you described, above). The one thing that is worrisome to me is the student debt overhang that will effect an entire generation of home buyers.
Other than that, I'm not too worried. The housing crisis has severely crimped mobility. As prices gradually rise and those on the cusp of negative equity turn positive, the mobility in the society will return. New home starts need to rise toward 1.2 ML - and home equity needs to rise about 10% for underwater homeowners - before any kind of "stasis" is gained and a more normal homeowner market ensues. Until that tipping point of "normal", homebuilders will build up and into it. We are NOWHERE near that at 750K/annualized, and that figure is up 50% from the 2011 lows.
To con a phrase from Shakespeare about a rose, "O demographics, by what other name shall we call thee? 10,000,000 homes have been built in the U.S. every decade for as long as anyone can remember. From 2000 to 2010, 10ML homes were again built, it's just that 8ML were built in the first 6 years of the decade and a paltry 2 ML in the last 4 years of the decade. Normal, but just terribly skewed at the front (bubble) end. At 500K in 2011, we are woefully behind the pace for 2011-2020. So it is catch up time, and because of tight credit, the public homebuilders who have the cash and the equity offerings and the 3.5% interest rates as tail winds behind them - are the only game in town. A single glance at any housing starts chart from the last 10 years, especially the last 50 years, will clearly tell you the direction we are heading towards with our brand new 30ML extra citizens from the last decade. The bulls have been saying for years that demographics matter, and the bears have proudly retorted "Nah. Don't think so."
As we all know in investing, things can mean nothing for a long long time, until suddenly they do - which is where we are right now.
I think Bernanke's goal is to do for Main Street - through resurrecting the home buyer market and the American Dream - kinda what the Fed has done for the stock market - the goal being to return the home building market and housing recovery to a point where the housing crash becomes a distant memory. You might call that Bubble II, but I believe that is his goal.
If readers would read my two articles on SA: "KB Home as a Turnaround Play" and "Housing Starts Remain Bullish" they will see that we are in the early innings of a multi-year recovery in real estate. Finally, regarding KB - they are steadily moving into higher-priced home communities in premier geographies. In the short run, I believe KB has another 50% in its tank.
Labor Shortages Underline The Housing Recovery [View article]
Not really. Just a neighborhood where every available property sold out in two months, and now there's nothing left (unless you want to pay $75,000 more than you would've in June). I like CA's chances. If it's so awful awful awful, how come everybody wants to live here (in the SF Bay Area, KB's biggest market). Stupid people who like to watch real estate double every 10 years?
The new home market is going to come roaring back as CA's unemployment moves down towards 9%, then 8%, then 7%. The next two years will tell the tale; and yeah, if I was a kid, I'd be looking to get into this industry and become a foreman.
Home Prices Improve But Case And Shiller Express Concern [View article]
That's an interesting approach. Continue to be wrong until time finally proves you right. Well okay, I'll put on my pundit hat. "I predict that there will be another recession - at a time when I least expect it - sometime in the second term of President Obama." How am I doing? Kinda right, kinda global enough? To pinpoint it exactly, just mark on your calendar the day you turn bullish.
To put it another way, what if they gave a bear market and nobody came? Biderman, Housman, Rogers, Roubini - whenever they are on the tube and someone dusts them off as the end of civilization draws nigh again (which is every summer if you're a PIIGS) - it's been the best of times to buy. Good is okay; but bad times? That's even better.
Home Prices Improve But Case And Shiller Express Concern [View article]
I got to agree with danstvguy. You're stuck.
"When the facts change, I change my mind. What do you do, sir?" (John Maynard Keynes).
You kinda remind me of Lakshman Acuthan, the now-disgraced economist who called the stock market's valuation BOTTOM (notice, I didn't say top) In October of last year, saying a recession was surely just around the corner. For the bearish mindset, it always is, just that, just around the corner, until it isn't.
And it most certainly isn't for the homebuilder index (XHB) that has completely obliterated the housing bust (that lasted 6 years) in a terrific 9 month rally. Look at Home Depot. It's at a 10 year high; and you are bearish on the builders? Stop looking in the rear view mirror - being the exceedingly wise (but nonetheless broke) curmudgeon bear - and look what's up ahead- 1.2ML housing starts.
Labor Shortages Underline The Housing Recovery [View article]
Great chance for a kid out of high school with a good sense of proportion and a strong work ethic to get in on the ground floor of a new business model. So much has changed in the last 6 years. Normal peak age for a productive construction worker is in their 30s. By the time they are in their 40s they need to be foreman, journeymen, someone more on the thinking, planning and overseeing side of things than the grunt side. They delegate the work, not do it.
Well....most of those guys, if they had families, have disappeared over the last 6 years. They are either too old, moved on, or gone. So it's a brand new game for a young guy; especially in CA where just last week the governor signed a bill allowing undocumented aliens under 30 the right to a drivers' license and a SS card. That should bring in a nice chunk of previously undocumented tax receipts, and allow a whole generation of young people the opportunity to drive to work to the construction site. You Latinos listening over there in "We don't want no foreigners Arizona"? Let the bellicose rot in their own sputum.
Come to California. Work for KB home. Viva La Raza!
Correction for a mistake in my article (above). The approximate number referenced in Las Vegas is for 2,000 developed lots, not acres.
On a brighter note, Fitch came out today (9/6/2012) with its new watch rating on KB's debt - from negative to positive. Some good comments from them on the fundamental side (the only side bond guys refer to). I would think KB's 8% yielding bonds in a rising market with solid fundamentals should be worth quite a premium in today's scaredy-cat market, especially when treasuries for the same duration are under 1%.
KBH is now up 25% since this article was first published on July 23, 2012. I expect another 25% by October, 2012. KBH, PHM and HOV remain the top 3 performing home builders since June 1, 2012.
Latest Housing Price Data Confirm Housing Bottom Is Underway [View article]
As long as this kind of bearish sentiment is being expressed, the rise in homebuilder stocks ahead of the recovery will continue. It is hard for me to fathom how knowledgable people could still be this bearish on this sector after starts and permits have all doubled in a year.
Along with Dr. Duru, my favorite (at this point in time) still remains KBH, the leading CA homebuilder. See article "KBH as a Turnaround Play" on Seeking Alpha; and see also: http://bloom.bg/SGOaam?
The latter Bloomberg article is a good review of the CA residential home building market in terms of available inventory and developed lots. KBH, LEN, and TOL have been big buyers of finished lots in CA in 2011-12. The inventory of new, available lots is freakishly low in Coastal CA.
Did Higher Rates Just Help Housing? [View article]
I'm sorry you're number 1 ranking in Real Estate has seemed to blind you to what's actually happening on the ground. After a blistering summer of sales, there are three to four weeks of available inventory left in CA . And that's in the 8th largest economy in the world.
After years of inventory and foreclosure overhang that seemed to languish on the market interminably, available inventory has quickly sold out and is almost gone. There's almost nothing left to buy today. That's why new construction - and especially the pace of it - has suddenly become so important. The large public builders are the only game in town, and it's a game that desperately needs to be played if buyers are to find homes. ASPs have risen about 15-20% since the beginning of the year. This sudden change had been hoped for years; but when it came to pass, it was like a blink of your eye.
If the public home builders don't expand their community counts feverishly this winter, there will be nothing left to buy in summer 2013 (again). Their profitability is limited only to how many homes they can build and how quickly they can bring them to market. The recent report by TOL (8/23/2012) is very indicative of what's happening on the ground in real estate today. You will see similar reports by KBH and SPF as we move into the Autumn. The next two quarters will be the biggest for the builders since 2007. Unlike the stock market, a trend change in real estate lasts for many years before it's exhausted. This is not a flash in the pan.
Read my recent article - Housing Starts Remain Bullish - and click on the research links provided by the Federal Reserve (local area housing starts and permits). Also read what Credit Suisse is garnering from real estate agents working in those actual locales (Credit Suisse Monthly Survey of Real Estate Agents, July, 2012).
Researching the real estate market in this manner is akin to visiting automobile factories in the U.S. to see what make and model and how many are being bought and sold. It is a factual rather than subjective (macro) approach to researching this important sector.
There was an article today in the online WSJ referencing a comment by Bob Wetenhall, a senior analyst at RBC Capital Markets.
"...after accounting for tax benefits that it accrued during the housing downturn, the company's (KBH) price/book ratio is 1, about 30% below that of other home builders."
The main takeaway from this is that as stated by management in the March, 2012 conference call, KBH has over $1BL in future profits that are fully tax-sheltered by the IRS. They accrued these carry-forwards at the tail end of the mammoth 6 year housing meltdown. At the current corporate tax rate, that's a $380ML gift from Uncle Sam.
Deck Stacked Against Real Estate Recovery [View article]
I would like to make a comment on your "softening" statistics regarding permits/starts. If you go to FRED (Federal Reserve Economic Data) and look at the monthly seesaw patterns from month to month; it is easy to see that the month to month fluctuations - even quarter to quarter - don't capture the essence, which is the trend.
Which way is the trend going? That's the important issue.
Starts are up almost 50% since their bottom in February, 2011. So yeah, anybody who eats a big dinner is going to take time to digest it. For homebuilders, that digestion process is called "sales", and those sales are going to be big in Q2 and Q3/2012.
Online media sources - Redfin, Credit Suisse, Zillow, Fiserv, Trulia are full of stories about bidding wars in A locations. And "location, location, location" is the defining product differentiation for home sales. It doesn't matter what's going down in the lousy locations. It matters what's happening in the Texas oil patch and the Califormia tech bubble. The houses from those starts are being sold right now (and there is not enough of them to meet demand). Backlog, ASPs, and volumes are rising 40% for most builders year over year.
Just because an anaconda is digesting a buffalo doesn't mean he's dead or dying. You seem to be only concerned with the trading aspect of home builders; not the investment side.
This quote (below) should be good for Pulte and KBH - who have divisions specializing in first-time buyers.
"Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities. We've been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors."
Pulte just reported blowout earnings today. KBH will be next in late September.
One of the reasons KB appeals so much as a trading buy is the degree of "catch-up" potential I see in the shares. This may be why Goldmans raised its point target 50% on the shares from $10 to $15. It has only advanced 8% in a year, while its peers have risen 50 to 60% in the same time frame.
KB is now focused on two very profitable real estate markets - CA and TX (46% of their revenues). And as the CEO said in their last CC, they're "going on offense". I expect their ASPs to steadily rise towards $250,000 this year and $300,000 next year. Most of the increase will come from their CA properties (average $500K+ in sale price) and the purchase of their green models by buyers.
Lastly, for all the bearish talk about KB, their $1.8BL in bonds are actually selling for a premium above par.
What we are seeing on the ground in the SF Bay Area is 1.4 months of housing inventory and falling. There's already bidding wars in San Francisco and San Jose. Homes are going for median asking prices elsewhere, and those prices have risen about 10% from April through June, 2012.
As soon as someone has a job, they go look for a house because of the compelling opportunity you've outlined. In almost all cases it's cheaper than the rising rents around here. The rental market has become a shark pit. My home - Mello Roos taxes and all - costs me $2,700/mo to own. The rental cost in my neighborhood for the same thing is $3,500. I have never seen a time in CA where home ownership is cheaper than renting. Even in the mid 1990s, owning a home cost twice as much a month as renting. Today, owning can be as much as 25% CHEAPER. Plus - if you have the 3% for FHA downpayment - it's still cheaper than renting.
One fact the naysayers never say - people with stable jobs who are moderately underwater (15-25%) aren't putting their homes up for sale. They are riding it out. For the 90% of Americans with decent jobs and an underwater home, that shadow inventory is a meaningless statistic.
And what about the foreclosure inventory? Wall Streeters and cash buyers gobble it up for flips or rentals as soon as its available. Cash cost for that inventory is less than replacement cost (of new construction) by about 25%. Our post-bubble environment reminds me a lot of the post-S&L crisis, where that glut of homes was bought up from the Feds for a song at the beginning of the last real estate cycle (1990-95).
All this should put demand pressure on builders to provide inventory. I like KBH, the largest CA builder by volume.
Could Homebuilders Be The Next Bear Market Victims? [View article]
The people who sell residential properties every day of their lives say exactly what you are saying. Armchair der bunker says different. It comes down to who you listen to.
Housing Sector Gains Will Continue [View article]
Other than that, I'm not too worried. The housing crisis has severely crimped mobility. As prices gradually rise and those on the cusp of negative equity turn positive, the mobility in the society will return. New home starts need to rise toward 1.2 ML - and home equity needs to rise about 10% for underwater homeowners - before any kind of "stasis" is gained and a more normal homeowner market ensues. Until that tipping point of "normal", homebuilders will build up and into it. We are NOWHERE near that at 750K/annualized, and that figure is up 50% from the 2011 lows.
To con a phrase from Shakespeare about a rose, "O demographics, by what other name shall we call thee? 10,000,000 homes have been built in the U.S. every decade for as long as anyone can remember. From 2000 to 2010, 10ML homes were again built, it's just that 8ML were built in the first 6 years of the decade and a paltry 2 ML in the last 4 years of the decade. Normal, but just terribly skewed at the front (bubble) end. At 500K in 2011, we are woefully behind the pace for 2011-2020. So it is catch up time, and because of tight credit, the public homebuilders who have the cash and the equity offerings and the 3.5% interest rates as tail winds behind them - are the only game in town. A single glance at any housing starts chart from the last 10 years, especially the last 50 years, will clearly tell you the direction we are heading towards with our brand new 30ML extra citizens from the last decade. The bulls have been saying for years that demographics matter, and the bears have proudly retorted "Nah. Don't think so."
As we all know in investing, things can mean nothing for a long long time, until suddenly they do - which is where we are right now.
Housing Sector Gains Will Continue [View article]
I think Bernanke's goal is to do for Main Street - through resurrecting the home buyer market and the American Dream - kinda what the Fed has done for the stock market - the goal being to return the home building market and housing recovery to a point where the housing crash becomes a distant memory. You might call that Bubble II, but I believe that is his goal.
If readers would read my two articles on SA: "KB Home as a Turnaround Play" and "Housing Starts Remain Bullish" they will see that we are in the early innings of a multi-year recovery in real estate. Finally, regarding KB - they are steadily moving into higher-priced home communities in premier geographies. In the short run, I believe KB has another 50% in its tank.
Labor Shortages Underline The Housing Recovery [View article]
The new home market is going to come roaring back as CA's unemployment moves down towards 9%, then 8%, then 7%. The next two years will tell the tale; and yeah, if I was a kid, I'd be looking to get into this industry and become a foreman.
Home Prices Improve But Case And Shiller Express Concern [View article]
To put it another way, what if they gave a bear market and nobody came? Biderman, Housman, Rogers, Roubini - whenever they are on the tube and someone dusts them off as the end of civilization draws nigh again (which is every summer if you're a PIIGS) - it's been the best of times to buy. Good is okay; but bad times? That's even better.
Home Prices Improve But Case And Shiller Express Concern [View article]
"When the facts change, I change my mind. What do you do, sir?" (John Maynard Keynes).
You kinda remind me of Lakshman Acuthan, the now-disgraced economist who called the stock market's valuation BOTTOM (notice, I didn't say top) In October of last year, saying a recession was surely just around the corner. For the bearish mindset, it always is, just that, just around the corner, until it isn't.
And it most certainly isn't for the homebuilder index (XHB) that has completely obliterated the housing bust (that lasted 6 years) in a terrific 9 month rally. Look at Home Depot. It's at a 10 year high; and you are bearish on the builders? Stop looking in the rear view mirror - being the exceedingly wise (but nonetheless broke) curmudgeon bear - and look what's up ahead- 1.2ML housing starts.
Labor Shortages Underline The Housing Recovery [View article]
Well....most of those guys, if they had families, have disappeared over the last 6 years. They are either too old, moved on, or gone. So it's a brand new game for a young guy; especially in CA where just last week the governor signed a bill allowing undocumented aliens under 30 the right to a drivers' license and a SS card. That should bring in a nice chunk of previously undocumented tax receipts, and allow a whole generation of young people the opportunity to drive to work to the construction site. You Latinos listening over there in "We don't want no foreigners Arizona"? Let the bellicose rot in their own sputum.
Come to California. Work for KB home. Viva La Raza!
KB Home As A Turnaround Play [View article]
On a brighter note, Fitch came out today (9/6/2012) with its new watch rating on KB's debt - from negative to positive. Some good comments from them on the fundamental side (the only side bond guys refer to). I would think KB's 8% yielding bonds in a rising market with solid fundamentals should be worth quite a premium in today's scaredy-cat market, especially when treasuries for the same duration are under 1%.
KBH is now up 25% since this article was first published on July 23, 2012. I expect another 25% by October, 2012. KBH, PHM and HOV remain the top 3 performing home builders since June 1, 2012.
Latest Housing Price Data Confirm Housing Bottom Is Underway [View article]
Along with Dr. Duru, my favorite (at this point in time) still remains KBH, the leading CA homebuilder. See article "KBH as a Turnaround Play" on Seeking Alpha; and see also: http://bloom.bg/SGOaam?
The latter Bloomberg article is a good review of the CA residential home building market in terms of available inventory and developed lots. KBH, LEN, and TOL have been big buyers of finished lots in CA in 2011-12. The inventory of new, available lots is freakishly low in Coastal CA.
Did Higher Rates Just Help Housing? [View article]
After years of inventory and foreclosure overhang that seemed to languish on the market interminably, available inventory has quickly sold out and is almost gone. There's almost nothing left to buy today. That's why new construction - and especially the pace of it - has suddenly become so important. The large public builders are the only game in town, and it's a game that desperately needs to be played if buyers are to find homes. ASPs have risen about 15-20% since the beginning of the year. This sudden change had been hoped for years; but when it came to pass, it was like a blink of your eye.
If the public home builders don't expand their community counts feverishly this winter, there will be nothing left to buy in summer 2013 (again). Their profitability is limited only to how many homes they can build and how quickly they can bring them to market. The recent report by TOL (8/23/2012) is very indicative of what's happening on the ground in real estate today. You will see similar reports by KBH and SPF as we move into the Autumn. The next two quarters will be the biggest for the builders since 2007. Unlike the stock market, a trend change in real estate lasts for many years before it's exhausted. This is not a flash in the pan.
Read my recent article - Housing Starts Remain Bullish - and click on the research links provided by the Federal Reserve (local area housing starts and permits). Also read what Credit Suisse is garnering from real estate agents working in those actual locales (Credit Suisse Monthly Survey of Real Estate Agents, July, 2012).
Researching the real estate market in this manner is akin to visiting automobile factories in the U.S. to see what make and model and how many are being bought and sold. It is a factual rather than subjective (macro) approach to researching this important sector.
Housing Starts Remain Bullish [View article]
"...after accounting for tax benefits that it accrued during the housing downturn, the company's (KBH) price/book ratio is 1, about 30% below that of other home builders."
See: http://on.wsj.com/OLE9VI?
The main takeaway from this is that as stated by management in the March, 2012 conference call, KBH has over $1BL in future profits that are fully tax-sheltered by the IRS. They accrued these carry-forwards at the tail end of the mammoth 6 year housing meltdown. At the current corporate tax rate, that's a $380ML gift from Uncle Sam.
Deck Stacked Against Real Estate Recovery [View article]
Which way is the trend going? That's the important issue.
Starts are up almost 50% since their bottom in February, 2011. So yeah, anybody who eats a big dinner is going to take time to digest it. For homebuilders, that digestion process is called "sales", and those sales are going to be big in Q2 and Q3/2012.
Online media sources - Redfin, Credit Suisse, Zillow, Fiserv, Trulia are full of stories about bidding wars in A locations. And "location, location, location" is the defining product differentiation for home sales. It doesn't matter what's going down in the lousy locations. It matters what's happening in the Texas oil patch and the Califormia tech bubble. The houses from those starts are being sold right now (and there is not enough of them to meet demand). Backlog, ASPs, and volumes are rising 40% for most builders year over year.
Just because an anaconda is digesting a buffalo doesn't mean he's dead or dying. You seem to be only concerned with the trading aspect of home builders; not the investment side.
June Pending Home Sales Slip 1.4% [View article]
"Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities. We've been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors."
Pulte just reported blowout earnings today. KBH will be next in late September.
KB Home As A Turnaround Play [View article]
KB is now focused on two very profitable real estate markets - CA and TX (46% of their revenues). And as the CEO said in their last CC, they're "going on offense". I expect their ASPs to steadily rise towards $250,000 this year and $300,000 next year. Most of the increase will come from their CA properties (average $500K+ in sale price) and the purchase of their green models by buyers.
Lastly, for all the bearish talk about KB, their $1.8BL in bonds are actually selling for a premium above par.
U.S. Housing - A 20,000 Foot View [View article]
As soon as someone has a job, they go look for a house because of the compelling opportunity you've outlined. In almost all cases it's cheaper than the rising rents around here. The rental market has become a shark pit. My home - Mello Roos taxes and all - costs me $2,700/mo to own. The rental cost in my neighborhood for the same thing is $3,500. I have never seen a time in CA where home ownership is cheaper than renting. Even in the mid 1990s, owning a home cost twice as much a month as renting. Today, owning can be as much as 25% CHEAPER. Plus - if you have the 3% for FHA downpayment - it's still cheaper than renting.
One fact the naysayers never say - people with stable jobs who are moderately underwater (15-25%) aren't putting their homes up for sale. They are riding it out. For the 90% of Americans with decent jobs and an underwater home, that shadow inventory is a meaningless statistic.
And what about the foreclosure inventory? Wall Streeters and cash buyers gobble it up for flips or rentals as soon as its available. Cash cost for that inventory is less than replacement cost (of new construction) by about 25%. Our post-bubble environment reminds me a lot of the post-S&L crisis, where that glut of homes was bought up from the Feds for a song at the beginning of the last real estate cycle (1990-95).
All this should put demand pressure on builders to provide inventory. I like KBH, the largest CA builder by volume.
Could Homebuilders Be The Next Bear Market Victims? [View article]