Keystone continues bringing a wet blanket to the housing party. The US housing recession started at Christmastime and begins its 8th month. The spread of the signal lines is widening in the chart above verifying that the housing recession is worsening (the signal lines are diverging).
It is different this time. With both the housing and manufacturing industries in recession in the United States, the overall economy should follow suit but instead everyone continues partying like its 1999.
The Federal Reserve has made the rich filthy wealthy over the last decade with non-stop easy money printing. There are rich folks buying homes with cash these days. The first-time home buyer does not have a chance. People are staying in their homes enjoying low mortgage interest rates which is an incentive not to move. This creates the low inventory in existing homes and drives prices higher.
The new homebuilders are benefiting as some folks, unable to find and buy an existing home, decide to build anew and companies such as DR Horton, DHI, benefit. Builders are also offering incentives to get the new buyers to commit to a new house. Housing sales drop as the corrupt Fed raises rates. Builders have hunkered down over the last couple years, getting lean and mean, sh*t-canning workers and decreasing new homes under construction. However, the modern-day era of easy money (MMT; modern monetary theory) and rampant corruption and non-transparency continues fueling housing demand.
One in five homes are purchased by corporations (that also account for the cash buyers) a disturbing trend. People are moving to states such as Texas and Florida also creating enthusiasm in the new home market but this activity should fade over time. Commercial real estate remains a growing problem; watch the activity at strip malls.
The housing market must be viewed from the price versus sales perspectives. Typically, they move together but in this goofed-up world of greed, they are not. The soft patch in housing is lower overall sales, however, there is no soft patch in house prices. There lies the conundrum. Keystone used a ten-dollar college word. People saying that the housing sector is no problemmo are only looking at prices and ignoring all other factors at play.
Homebuilder stocks are at record highs as evidenced by DHI, LEN, TOL and the XHB ETF. The low existing home inventory pushes people into buying a new home that they likely cannot afford if they looked at their finances honestly. No matter how strong the recent trend is of home buyers electing to build a new house, most folks cannot afford a new house if they are looking at existing homes in the first place (the privileged elite, upper middle class and foreign buyers are the new home buyers and this is a finite group).
The TOL weekly chart is shown above. The tickers mentioned all have the same look and are topping-out on the weekly basis. The Toll Brothers chart is shown since it is the first one that will roll over. The bell tolls for thee. The red lines show the matching high in price with ALL the chart indicators negatively diverged (sloping lower) signaling that a top is occurring and a multi-week downward slide is set to begin. TOL dumped -6% last week and that trend is expected to continue for several weeks forward (of course the path will be fits and starts but it will be a weekly downtrend ahead).
Note the Aroon on the chart with the green line at 100% and red line at 0%. That's funny. The chart tells you that 100% of the home builder bulls are convinced 100% that the stocks will go up forever and 100% of the bears are also convinced that home builder stocks will go up forever. Everyone is on the bull side of the boat (Titanic). What do you think?
The LEN weekly chart is topping out next over the coming days and then DHI and XHB will top out over the next 2 weeks. DR Horton and XHB continue displaying a long and strong MACD line. They need a jog move (up-down) where price comes up for another matching high and at that time the MACD should go neggie d to call the top on the weekly basis.
The US housing recession is now 7 months along, starting the 8th month, with the indicator lines diverging from each other (worsening). Here is a link to the prior housing market chart. As expected, the joy in Housing Starts data a month ago was revised lower.
Loan rejections are at a 5-year high. Put that in your pipe and smoke it. Sounds like the corporations will buy more homes. Robert Shiller says home prices may have topped out but as usual, he weasels all his words and never commits to a direction in housing until after the fact when he then opines about his prescient market calls.
Keystone is not playing the homebuilders currently but obviously the play going forward is on the short side as explained above. If you made a bunch of money riding the home building stocks higher, ditch TOL now, ditch LEN next week and ditch DHI and XHB in a week or two. You do not have to guess. Simply call the top in these extended stocks when price makes a matching or higher high and ALL the indicators go neggie d. Plan accordingly as the homebuilders draw One Last Breath. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added Thursday Evening, 7/26/23, at 6:38 PM EST: Fed Chairman Powell says the housing market is weakening in today's press conference. It went unnoticed. Powell says the Fed staff (not the same as the voting members) are no longer forecasting a US recession. That is big news. Whatever they are smoking, they need to pass it around.
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