Housing boom or housing stock bubble? Got Gold? Silver?

Housing boom or housing stock bubble? Got Gold? Silver? by Dave Kranzler for IRD

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The DJUSHB (Dow Jones Home Construction Index) hit an all-time high on Thursday. The previous ATH was in July 2005. The current SAAR (seasonally adjusted annualized rate) for existing home sales as of the June report is 4.2 million. It’s the lowest sales rate since July 2010. The last time the DJUSHB was trading over 1,100 (July 2005) , the single family existing home sales rate was over 7 million.

Similarly, new home sales peaked in 2005 at a 1.4 million SAAR. The current annualized run-rate per the June new home sales report is just 776,000. The average price per home for new and existing homes back in 2005 was roughly equivalent to the current prices for each category. On an inflation-adjusted basis, homes were selling at higher prices 15 years ago. I’ll let you decide if the homebuilder stocks overvalued right now based on those statistics.

Two more points of note about the potential for an accident in the homebuilder stocks. A new survey by Apartmentlist.com released August 6th showed that 33% of households (renters and mortgagees) entered August with unpaid housing bills for the fourth straight month. As of the first week of August, 11% of all households had made a partial payment of their monthly rent or mortgage bill and while 22% had yet to make any payment.

Furthermore, “early stage” delinquency rates on mortgages are starting to accelerate. Per a Corelogic report for data available through the end of May, 7.3% of mortgages were at least 30+ days delinquent. This is compared to a 3.6% delinquency rate in May 2019. Barring additional additional intervention from the Federal Government, Corelogic expects delinquency rates to further spike.

Eventually unpaid housing bills and mortgage delinquencies will pull the rug out from under the housing market and homebuilder stocks. This also explains why, despite the propagandist housing market hype plastered all over the media, private residential construction spending is contracting rapidly.

Phil Kennedy (Kennedy Financial) hosted a discussion about the housing market that included myself, Aaron Layman and Karl Krentzel. We also discussed the precious market and why, contrary to mainstream belief, gold is not even remotely in an investment bubble:

 

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Dave Kranzler

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics. Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.