Housing Stabilization? PUH-leeze

I am listening to some pundits on TV. They are so positive about the Homebuilders Sentiment Index that I immediately click over to NAHB.org.

Their braggadicio about the "Stabilization in the home builders Index" was so over the top, I expected to see an enormous change. Instead, this is what greets me:




Stabilization? You mean after 8 consecutive months  of free fall, we see a tiny blip up? I fail to see what these spinmeisters are so breathless about . . .

Here’s an excerpt from NAHB:

October 17, 2006 – Breaking a string of eight consecutive monthly declines, the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), which gauges builder sentiment in the single-family housing market, posted a modest one-point gain to stabilize at a level of 31 in October.

“While the index remains at a low level, the single-point increase from September’s reading suggests that builder attitudes for new-home sales may be stabilizing,” said NAHB Chief Economist David Seiders. “This is attributable to several key economic factors: mortgage interest rates have fallen substantially from their summer highs, energy prices have dropped dramatically from their recent peaks, consumer sentiment has posted a strong rebound and the job market is doing reasonably well.”

Why bother with reality when fantasy is so much more amusing?


UPDATE: October 18, 2006 11:19am

Kevin over at Minyanville has a similar take this morning:

NAHB Housing Index Shows Dramatic, Imperceptible Surge   

-"US housing bottoming out!," screamed one headline.   
-"Builder Confidence Stabilizes in October" the NAHB

-A separate article noted the positive nature of the NAHB
-The index was up just one point to 31,
but this is a positive
considering the index has fallen in 13 of the past 16 weeks.





Builder Confidence Stabilizes In October
October 17, 2006

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. jj commented on Oct 17

    what’s stabilizing is the degree of freefall , that’s constant

  2. Hockeyman77 commented on Oct 17

    I found great humor as well in all the headlines like housing has rebound because of an uptick of 1, especially when the west the biggest market was down 5 points.


    dont you love all the comments today about the PPI at the core rising .6 but its no big deal because it was just cars & trucks. I seem to remember just a couple months back the core PPI came in so low because of low truck prices, which you nicely write about. So even though the core was higher then there was no inflation because of trucks being cheaper which no one talked about but you, and then today the core is through the roof but no big deal its just trucks without them its only .1, seriuosly WTF(pardon my french) how stupid are these people

  3. GRL commented on Oct 17

    What does the index measure, exactly?

    If it measures homebuilder sentiment, that’s different from actual sales or construction levels.

    We are heading into the homebuying off-season, so it could simply mean that builders may perceive (rightly or wrongly) that, instead of falling off a cliff like they did during the summer, sales and construction will decline somewhat more modestly than they previously thought from already disasterously low levels.

  4. Mark commented on Oct 17

    If you look at the historical data you will notice in the last big sentiment declines the same kind of 1 point upticks occurred followed by a continuation of the downtrend into the 20s. So The Great Stabilization is an effing joke. Look at AUG/SEPT/OCT in 1990. Could be the same series, just different years


  5. fred c. dobbs commented on Oct 17

    The condition of the patient stabilized when he died.

  6. Cherry commented on Oct 17

    This is based off a September “dead cat bounce” in some regions(though obviously not the west lol), though things have gone to hell again in October. This index doesn’t always capture the “up to the minute” reading since it covers 2 month span in all reality.

    The December reading will challenge the record low set in 91. I suspect from a production standpoint, RE is set for a 4th quarter dive(looking at the way this October is going) for the passing out stage. Starts will fall down to 1.000 by January, NHS’s down to 850 by January, really the key 2 indictors to use.

  7. wcw commented on Oct 17

    While I remain fundamentally bearish on housing and recently reshorted one of my favorite homebuilder targets, there are some observers who more rationally argue that home sales are bottoming. The best arguments are mortgage apps in which some see a flattening, and historical home-sales models like Danske Bank’s (PDF) in which they model new homes sales based on unemployment, wages and rates. As Danske says, “..new home sales were probably fundamentally misaligned during 2004-05, and this might be the underlying reason behind the current housing correction. Secondly, following the recent correction, new home sales are well-aligned within the fundamentals of the model.”

    Now, I disagree, since I believe there is evidence that things are different this time, starting with the most obvious, prices. However, despite the potential for more downside, I think the easy money shorting the homebuilders has been made.

  8. KL2005 commented on Oct 17

    I have to agree. Housing does not look pretty.

    Hopefully the decline will be longer than steeper and we can handle the pain from housing.

  9. bob commented on Oct 17

    The NAHB reading of 20 means most homebuilders are ready to commit suicide but don’t have money for bullets.

    Reading of 25 means they are stockpiling wiskey and don’t show up at work. They don’t show up for paycheck either.

    Reading of 31 means they completely ban TV, newspapers and Internet at home and in office. They ask CFO to not report balance sheet. They start drinking first bottle of wiskey each Friday at 5pm.

    This is about the level we are “stabilized” at.

  10. sport commented on Oct 17

    >They ask CFO to not report balance sheet.

    See KBH delaying 3rd quarter release to 12/24 due to ‘options backdating’.

  11. Leisa commented on Oct 17

    There has been one builder “Kara” that has filed for bankruptcy. I have to believe that so many of these folks have stretched themselves so thinly, that it’s a matter of time before we see more of this sort of thing. II hope that it is gradual and not swift. aas KL2005 notes. IF it is gradual, it is likely that there will not be a swift rebound.


  12. Cherry commented on Oct 17

    KB homes delayed because they are close to being BK.

  13. sport commented on Oct 17


    You speak my language. I have been stalking them for sixteen months. Took a trip to Lancaster/Palmdale and there were KB Home signs all over the desert.

  14. Uncle Jack commented on Oct 17


    You misspelled “sphincters”

  15. Bob A commented on Oct 17

    the grapevine says Centex is being propped up by Seattle area projects where things are still relatively stable, but even here they’ve cancelled at least one new project and sold off the land.

  16. sport commented on Oct 17

    Thanks Bob A. I have KBH and CTX as my favorites.

  17. Si commented on Oct 17

    Why bother with reality when fantasy is so much more amusing?

    hehe, fantasy rocks!!

  18. K-Dawg commented on Oct 17

    off topic….Barry, like your pic with Todd Harrison in the latest Trader Monthly.

  19. whipsaw commented on Oct 17

    per wcw:
    “However, despite the potential for more downside, I think the easy money shorting the homebuilders has been made.”

    I think that you are probably right about that, especially if you are using puts for the short and the clock is ticking. It’s entirely possible that they won’t drop much more and may just range until they pick up again.

    The bottom feeder mortgage lenders like CFC may be a better play as it takes a while for them to have to disclose non-performing loans and, whether applications are up or not, they have to tighten credit standards which will impact volume. They’ve already dropped from highs of course, but I suspect there is still pretty good risk/reward in shorting them.

    On the long side, the paycheck lenders/pawn brokers may be a good play- sorry I don’t have any ticker symbols at hand, but there are some pretty big ones that are traded.

  20. phil commented on Oct 17

    pawn brokers worth a look: CSH EZPW

    on a side note, some radio finance show had a showcased “entrepreneur” on who was bragging how much money he makes with his co. by borrowing at prime+100 bps and lending at prime+600 bps. what planet these ostriches live on is my main question

  21. PoptheBubble commented on Oct 17

    “While the crash only took place six months ago, I am convinced we have now passed through the worst — and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us.”
    – Herbert Hoover, President of the United States, May 1, 1930

    quite good RentinNJ. Here’s another looking at the similarities of the GD:


  22. samuel commented on Oct 17


    Please do a feature on mutual fund cash levels. It was reported today by merrill lynch that mutual fund cash levels are now at 3.8%. My recollection is that this matches mutual fund cash levels at the dotcom peak in 2000. These extremely low cash levels are an indication of extraordinary manic bullishness on the part of mutual fund managers and suggest that that the market is putting in a major top RIGHT NOW.


    “Indeed, fund managers are back on the bullish wagon, according to the Merrill Lynch survey of fund managers for October. Fund managers reduced their cash balances to 3.8% from 4.4% in August, according to the report, and they’ve deployed it in U.S. stocks.”

  23. diva commented on Oct 18

    I think your (their) time frame is WAY too short.

    = no real perspective

  24. DavidB commented on Oct 18

    you might want to look at debt consolidation companies too. They are probably minting cash right now. If not they soon will be

  25. Michael M commented on Oct 18

    Homies in Helicopter Perspective

    Aside from the day to day crash-timing focus, to find out if the homies are cheap as a long-term holding as some value guys suggest, I would suggest you do the following:

    1. Go to Yahoo Finance or whatever you use and pull up the longest chart of LEN, KHB or TOL (that should give you 1988-2006 if using Yahoo).
    2. Click “Compare vs. S&P 500”.

    What you will see is that the homies and the S&P 500 trade together more or less up until 1999-2002. Then the homies go up 2000-3000% while the S&P doesn’t do so much. Then they back down hard but nowhere near their old trend line. Which leaves us with three possible outcomes:

    Either something happened around the millennium that produced a long-term housing boom in which the existing listed homies can suddenly maintain a competitive advantage in I don’t know..drawing roofs, pouring concrete and buying plywood in bulk…, so that they will prosper at a higher long-term rate than the average S&P 500 company


    The homies will revert back to trend growth as the S&P 500 advances at least 1000% over the next decade while the homies go nowhere


    The homies have very serious downside from here.

    Yeah, I guess you could say that the homies and the S&P 500 could also meet somewhere in the middle e.g. if the S&P 500 is up 500% over the next decade while the homies are cut in half.

    Many things in life depends on timeframe, I guess. If you look at the homies from 1995-2000 they went nowhere while the S&P 500 tripled. Then the homies tripled/quadrupled from 2000-2005 while the S&P 500 settled 20% lower. But long-term I still see no reason why designing and constructing houses should be more profitable than the average S&P 500 business.

  26. Mark commented on Oct 18


    You are thinking way too clearly here. Much of homebuilding has been commoditized. Yes, fit and finish on high quality ones–along with good architecture at the high end—hasn’t but I think you are very right. Good post.

  27. Pete commented on Oct 18

    Michael M — I don’t regularly post here although I’m a regular reader, thanks for that perspective on evaluating stock performance, good stuff.

Posted Under