Homebuilder Index Plunges 12.2% In A Month

by Dave Kranzler, Investment Research Dynamics

Note:  Homebuilders are getting whacked again today.

Since it’s high-close of $600 on April 2, the Dow Jones Home Construction Index has plunged 12.2%. This is in the context of the S&P 500 rising 1.2% during the same time period.  During this time period, mortgage rates have risen only 20 basis points.

Given all the media hype about “tight” housing inventories, meteoric home price appreciation and buying frenzies in some markets, I would have expected the homebuilder stocks to have significantly outperformed the S&P 500.

The average beta of the five stocks for which I’ve written research reports is 1.89, which tells us that 1.2% move up in the SPX should have translated into at least a 2.26% move up in the homebuilders.  This divergence by the homebuilders is quite startling and it conveys a very negative signal about the smart money’s outlook for both the housing sector and the homebuilder stocks.  Click to enlarge:


The fundamentals underlying the housing market continue to deteriorate.  I’ll have more details soon, but the homeownership rate hit a 29-year low in April per Gallup and affordability continues drop despite the Government’s recent big push to significantly lower mortgage costs.  Moreover, Realtytrac just released a report that shows home sales to owner-occupants dropped to its lowest level since Q1 2011.  This means that a high percentage of home sales this year have gone to investor/flippers.  This is a bad sign and it’s the same dynamic that occurred in 2005/2006, right as the housing bubble was popping.

I have five homebuilder research reports available which explain how and why these homebuilders are insanely overvalued right now, even relative to their valuations at the peak of the housing bubble:   HOMEBUILDER RESEARCH REPORTS

These reports show in-depth detail behind homebuilder accounting and fundamentals that will never be produced by Wall Street analysts (most of them are intellectually incapable).   I also include a section of using options and prudent capital management strategies.

Reader testimonial:  I’ve never got a bigger return for the value. Paid $25 for the report, $4k invested in  XYZ Jan 2016  $15-strike puts since August [2014] and closed today [Feb 9, 2015] for $3.2k of benefit.

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