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Short Homebuilders?

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April 25, 2010 – Comments (3)

First and foremost I in fact have never shorted anything; the title is just to make a point.  Homebuilders have had a decent run of it lately for some reason.  But the fact of the matter is that new homes are more expensive, and there's a boatload of inventory to go before we get anywhere near back to normal.  Forget that they are slashing prices on new homes.  Consider the following:

*During the big time, approximately one in six homes sold was new construction; now it is one in twenty.

*Data in February show that the average new home ran about $220,500; the average "used" home ran approximately $165,000.

*March foreclosure filings came in at a record of approximately 367,000; looks like we have another 5.5 million or so additional foreclosures in the pipeline.

*The government's efforts, whether you agree with them or not, are not exactly rendering the results they seem to have been hoping for.  Granted the situtation would most likely be ( or have been) more drastic if they didn't do anything (remember Seinfeld...Prognosis Negative...so funny), the argument can be made here that this wouldn't necessarily be a bad thing.  Then at least we could have been through the worst of it and have a better idea of where things really stand.  I realize that is pure speculation.

So I gleaned these stats from a recent TWSJ article and felt like putting fingers to keys.  I wouldn't necessarily call myself a bear (though I have been known as a pessimist by some), but I also feel like there is a spooky sense of optimism in the markets right now.  I am at best cautiously optimistic, and keeping a nice bit of cash in my portfolio while being that way.

TMFJMo

3 Comments – Post Your Own

#1) On April 25, 2010 at 11:43 PM, anticitrade (99.65) wrote:

I work for a company that depends heavily on "new home builds", so we watch the number of permits issued pretty closely.  From looking at that data set we believe that home building should grow pretty dramatically over the next few years.  So personally, I would be cautious about betting too heavy on either side of this macro trend.

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#2) On April 25, 2010 at 11:47 PM, ralphmachio (27.56) wrote:

It is a shame that florida Builder came, gave us some great info, or what at the time seemed like good info, and then deleted his posts! Otherwise he could have told you about all the builders who were overvalued at the time, like Pulte Group, his absolute favorite short, which is at around $13, from around 11.00, when it was de-pumped. Miraculously, I made money on this trade, but it is only because of a feeling I got after making a couple of hundred. Right now, I am thinking about re-shorting them, based on their ownership of too much land bought at too great a price, which is worthless right now, and will probably get worse. 

If I sound inappreciative for the advice from Frorida Builder2, it is not true. Timing the market is a difficult task that you cannot attempt for long without losing bad a couple times. I believe his advice to short pulte Group is now more of an opportunity than ever, so it will probably be an even better short 2 - 8 weeks from now. 

Im also looking to short Zion Bank, because their chart looks so similar in nature, and they didn't get their biggest gains till the last week, which I believe will be erased in the grand scheme of things, but not till they get to an even more ridiculous high, possibly 50% higher than where they are at now. I could see them getting to 45, and then dropping to under 10 in under 6 months. 

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#3) On April 26, 2010 at 7:35 AM, dragonLZ (99.32) wrote:

I could see them getting to 45, and then dropping to under 10 in under 6 months. 

I think you are wrong about the dropping under $10 part...

I also wouldn't short homebuilders...

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