Wednesday, January 27, 2010

What housing market weakness?

I keep seeing references to the "renewed weakness" in the housing market, which is supposedly revealed in the recent decline in new home sales, housing starts, mortgage apps and refis. But this chart, which is a cap-weighted index of the equities of major American homebuilders, shows that the market's outlook for the residential construction sector hasn't changed at all since last August. Yes, we've seen a drop in home sales, but that came on the heels of a significant rise. New home sales, existing home sales, building permits, and housing starts are all still up over the past year, despite some recent weakness. The market may be looking for an excuse for a correction, but I don't see any sign of legitimate or emerging weakness.


alstry said...


Meritage Homes posted results last night and the headlines were as follows:

Meritage Homes books $43M profit in 4Q....AP

Meritage Homes posts surprise quarterly Reuters

Meritage Homes swings to fourth-quarter MarketWatch

But Digging a Little Deeper you can see that the only reason the HBs are reporting profits is because Obama is subsizing them:

Meritage Homes Corp., Scottsdale, Az. (NYSE:MTH) after market close Tuesday reported a net profit of $43 million ($1.35 per diluted share) for the fourth quarter ended Dec. 31, 2009. The gain resulted from a $90 million reversal of income tax liabilities made possible by a net-operating-loss carry back law that went into effect in November. The company expects to collect a $93 million tax refund early in 2010.

Without the tax benefit, the company would have posted a net loss of $46.9 million on declining home closing revenue and $39 million in impairments and write downs for the quarter.

I guess any business can be profitable if Obama and Congress hand you enough welfare dollars.

It is sorta fun when you can be profitable simply because you are getting free money from the government.

ChronicleSmith said...

What about taking down a 3.6% 30 due in 5 and buying 5 year Australian CDs at 5.6%? That is something I am contemplating.
Bill S.

Scott Grannis said...

What about the currency risk of doing that? The Aussie dollar is about as strong as it has ever been against the US dollar. If the Aussie weakens (in 5 years just about anything can happen in the FX market) then you are in trouble. And you can't really hedge all the currency risk without giving up a lot of the interest differential.

ChronicleSmith said...

Posted this to the wrong place so hope you find this.

Thanks for the comment on currency risk. Have you seen Bill Gross's take on inflation based partly on likely deficits. He thinks that Germany, Australia and China will have the lowest deficits -- with Oz and China having the lowest aggregate debt. My take is that perhaps I should take my money to Oz and buy income producing property -- or perhaps Australian stocks. I suspect Oz is currently experiencing a housing bubble. My wife is from Oz and we already own a house there which is up substantially over the past four years.