Monday, January 27, 2014

December Existing Home Sales: The Housing Bear Roars

December existing home sales were released last week by the National Association of Realtors.  Despite the happy headline report of a 1% gain over November, when you factor in the nearly 6% downward revision of November's previous reported result and look at the 6-month trend in existing home sales, the market is clearly headed back down into the bear trend that started in mid-2005.

I wrote an article for Seeking Alpha with the numerical analysis which you can read here:  December Existing Home Sales

Two specific points of data that I found the most troubling for housing market hopefuls:   If you look at the rate of decline in homes sales for the entire 4th quarter of 2013, Q4 was down over 27% from the fourth quarter of 2012 and nearly 8% from the third quarter of 2013.  That's something you will not see reported by the media or Wall Street.  I guarantee you that Obama will not talk about that fact in his State of Disaster speech tomorrow night.

The biggest factor that everyone is overlooking is that the consumer is dead in terms of ability to spend over and above necessities.  Real disposable income is declining and people in general do not have much left over after paying for daily necessities plus the much higher than advertised cost of Obamacare.

One more point, I predicted last quarter that we would start to see a lot more "for sales" signs pop up in January despite the fact that the real listing/selling season doesn't get started until March.  Anecdotally judging from what I'm seeing everywhere I drive in Denver, my prediction is correct.  I really noticed it this past weekend.

FYI, anyone holding onto stock market positions is hereby officially forewarned to get out now.  It's going to get ugly.  The trade that drove the SPX up at a near-parabolic rate last year and drove gold lower is going to unwind.  Don't listen to Wall Street.  Wall Street's only job is to take money from your pocket and put it in their's.  Just like stocks shocked people to the upside in 2013, gold is going to shock even more people this year with its move higher.


  1. Dave, what about Yellen backing off of QE in the wake of the stock market route and the upcoming debt ceiling fiasco? Will she let the markets tank? The IMF is already moaning about the new for MORE QE.

  2. I only hope you are right about gold, Dave. Ive been buying for years but am still at the break even point fiat wise. I know its a preservation of wealth and I do not even look at the spot price but continue to stack and hold. Silver also. But it gets discouraging at how they can naked short and extend this leveraged gold price manipulation for so long.

    Mac Slavo aptly notes "thousands of independent journalists, broadcasters and bloggers" are now exposing the corporate state, it's hidden agendas, vested interests and heavy-handed, Orwellian rituals that unify us in righteous indignation and common purpose.
    "While Matt Drudge’s latest comments could be referring to anything, given the types of stories he’s covered in recent years we could make the case that he is referring to worst-case scenarios.

    His exit plan warning may encompass any number of potential scenarios such as a coming shock to financial markets, evacuating major cities in an emergency, preparing for the destruction of our currency, or having a way to get out of the United States in the event of a Soviet-style purge.

    Whatever the case, Matt Drudge understands that his views and comments are followed by hundreds of millions of people worldwide, thus we are confident that he would not publicly issue such a warning unless he has access to credible information that supports his claims.

    That being said, we urge readers to remain vigilant. And, in the off chance that some terrible event is in our near future, we strongly suggest having a preparedness plan that includes emergency food storage, barter supplies, medicines, precious metals, and a strategic relocation plan in case you are forced to evacuate your current residence."

  4. one of your comments at the bottom of your article:

    "Again, explain to me where the average homebuyer is all of a sudden going to get the money for a down payment and the income to service a mortgage, rising cost of insurance, rising real estate taxes, etc. May as well throw in the ballooned cost of healthcare.
    The middle class is out of money. These people are not making money in the stock market. The average person - 76% of the country - is living paycheck to paycheck and their disposable income is plummeting. "

    That statement is the most precise of why you are so right on on this.

    BTW, has bankruptcies started to climb? as people start running out of monies, they will be forced to default on student loans, credit cards, cars, electronics, etc. The home will be last but it will have to be claimed.

    1. Thanks. Amazing that it's so hard for housing bulls to grasp that. As for default, studies have shown that, at least historically, people will default on their home before they default on their car. They need their car to get to work. If they get foreclosed, they can always rent.

  5. Matt Drudge issues warning: "Have an exit plan"

  6. "FYI, anyone holding onto stock market positions is hereby officially forewarned to get out now. It's going to get ugly."

    Dave, does this apply to commodity stocks? And precious metal stocks? Thanks.

  7. Thank you for your great insight Dave.

  8. You were SO wrong about D.R Horton. Read your "evidence", and I'm glad I did my own research and stayed long.

    Here's some evidence for you:

    Fiscal 2014 First Quarter Highlights - as compared to the prior year quarter

    Net income increased 86% to $123.2 million
    Diluted EPS increased 80% to $0.36 per share
    Pre-tax income increased 76% to $189.7 million
    Pre-tax income margin increased 290 basis points to 11.4% of revenues
    Home sales gross margin increased 350 basis points to 22.3%
    Net sales orders increased 14% in value to $1.5 billion and 4% in homes to 5,454
    Homes closed increased 33% in value to $1.6 billion and 19% in homes to 6,188
    Sales order backlog increased 20% in value to $2.1 billion and 5% in homes to 7,684

    1. I'm not wrong about DHI. I'll be posting an article shredding their latest earnings report. Of course you only look at the first paragraph of their earnings release where companies put all their "spin" for superficially analytic investors like you.

      Tell you what, I challenge you to go through their earnings report thoroughly like I did yesterday and come back with a report on the red flags. They abound,.

      I'll refer you to my Jan 28, 2013 piece in which I first announce I'm shorting DHI, which was just under $24. I have announced every step when I add to my short position, which I did when it bounced over $27. I'm still up about 20% on the avg cost of my short and the SPX is has gained well over 20% during that period, making my call even better.

      In fact, I added to my short position on yesterday's absurd bounce.

    2. You can't assume what I look at. I've read your analysis. To be honest, I think you are being fooled by randomness. I look at the big picture. Bottom line = interest rates are staying low. Once the US raises them, the economy will be in big trouble. As long as interest rates stay low the housing market will be fine....and interest rates are going to stay low for a looooong time. The US is half way through a lost decade since the collapse in 2008.

      DHI is well managed they will always be able to make money in this environment,as we are seeing. The stock fluctuates more on every word that comes out of Bernanke's mouth.

      I think think you are getting lucky with some trading. Which is fine. But this could easily go against you when you have to cover your short (which can definitely happen)

      So, I'll tell you what. How about I don't take you up on that challenge! Not going down that rabbit hole!

    3. I can assume you don't know what the fuck you are talking about. How much did they earn in 2007 and 2008? Can you tell me that? I can tell you - but do you have any fucking clue, Mr Unknown/Anonymous?