Friday, September 3, 2010

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Archive for the ‘Homebuilders’ Category

Which Homebuilder Spec Play Is Better: BZH or HOV?

Posted by admin On September - 2 - 2010

Stephen Rosenman submits:

Are all spec plays in the homebuilder space created equal? Let’s look at Beazer Homes (BZH) and Hovnanian Enterprises (HOV), two tortured homebuilders who once commanded huge market caps and have since been reduced to lowly microcap stocks. BZH and HOV each have about a $300 million market cap and trade at $3.98 and $3.86 respectively. They’ve traded in lockstep the last 2 years.
However, the bond market sees the companies from a vastly different perspective. BZH’s bonds are much more favored than HOV’s.

BZH.GQ 12% coupon maturing 2017
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Construction Spending Falls in July

Posted by admin On September - 1 - 2010

Zacks.com submits:

By Dirk van Dijk, CFA

Total Construction Spending fell in July to a seasonally adjusted annual rate of $805.2 billion, down 1.0% from June, and down 11.7% from a year ago. The decline was greater than the 0.7% decline that was expected. In addition, June was revised down to be 0.8% below May rather than the 0.1% increase originally reported.

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Little Hope for Housing

Posted by admin On September - 1 - 2010

Jon D. Markman submits:

Just when you thought the housing market couldn’t get worse, it did.

New single-family home sales slumped 12.4% in July to a record-low annual rate of 276,000 units, as homebuyers shunned their realtors in the absence of government support. The consensus expectation was for a slight up-tick to a 333,000 unit annual rate, so I suppose it’s time to throw out the models. Sales over the prior three months were also revised lower by 9,000 units.

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Matrix Analytix submits:

Matrix Analytix Equity to Real Estate Capital Reallocation Theory:

  • Significant reassessment of traditional investment vehicles ongoing due to unprecedented concerns over deflation here in the US, with extreme focus on structural integrity of equity market yielding major concerns over asset classes’ ability to act as a long-term investment vehicle,
  • Concerns over deflation and structural integrity of equities causing major capital outflows in asset class with nearly $50B in domestic equity outflows year to date, and most recently the exit of major hedge fund players who have performed extremely well for decades (ie Stanley Druckenmiller’s Duquesne Fund Management),
  • Equity outflows causing major decline in overall market liquidity, making it more difficult for hedge funds to initiate and unwind large positions…equity outflows also causing a decline in pool of risk-taking capital which will result in additional hedge funds closing up shop over the next 6-12 months,
  • Equity outflows have created decrease in market liquidity which is now leaving the door open for much more significant manipulation by larger players … larger players now using manipulation in equities to yield significant profits in short-dated options (note weekly option instruments now expanded to several equities with very high volume in weekly index options) … low volume 2% manipulated move in S&P producing 100-200% gains overnight … note major banks under tremendous pressure to produce earnings as yield curve flattens, trading volumes decline, and FinReg disrupts traditional bank activity (in other words, sharks are very hungry and looking for any possible instrument to produce returns … they are well aware that we are in an environment where only strong will survive),
  • Increase in manipulation in equities yielding dramatic disruption in traditional correlations against bond yields and currencies which is posing major problems for black boxes….black boxes which have performed well in past environment of high volatility now being reconstructed to adapt to new environment in equities which continues to tend toward chaos…again, hedge funds finding it increasingly difficult to put on meaningful medium-term trades with many likely unable to survive this long period of chaos,
  • As choatic period in stocks continues, capital continues to flee equity market ultimately reallocating into Treasuries where yields continue to sit at multi-year lows (nearly $200B in net inflows into bond funds vs $50B in net outflows in domestic equity funds)….relentless bid in Treasuries continues to signal major concerns over deflation and skepticism over current equity pricing,
  • With significant amount of investment capital now sitting in Treasuries with record-low yields and/or money markets with near-zero yield, at some point this capital will become dissatisfied with lack of meaningful returns and look to reassess the two markets which can produce higher yields, namely the equity and real estate markets,
  • As market participants look to reassess these traditional markets on a risk/reward basis we expect market participants will begin to note several attractive data points within the scope of the housing market which will produce a strong bias toward capital deployment into the housing market versus equities:

  1. With possibility of deflation likely modeled into most risk analysis models expect market participants likely take note of the fact that while equities have yet to deflate, the housing market has not only deflated but currently sits at extremely depressed price levels on a historical basis thereby yielding a much more favorable risk/reward profile versus that of equities.
  2. As average Americans reassess how to redeploy investment capital, expect skepticism over the structural foundation of the equity market to continue lingering within the psyche of Average investors which will ultimately lead to a focus on the intangible nature of the assets yielded in a stock investment (outside of a stock certificate) vs. the tangible nature of assets yielded in a real estate investment (an actual home, apartment, piece of property, etc.)…this tangible nature of an investment in real estate will further lead to the assessment that unlike stocks, real estate (especially homes) can not go to zero value and hence their downside risk is limited.
  3. Mortgage rates currently sit at historic lows acting as an extremely strong incentive for real estate investment (should you have the ability to get a loan, which we’ll address shortly).
  4. Since Americans are significantly reducing their exposure to equities, the governments "interest" in seeing higher equity prices to perpetuate a wealth affect will decline (as equity appreciation now begins to affect less and less Americans), leaving the housing market as the most significant market which can have an affect Americans’ wealth…we expect to see significant government tailwinds for the real estate market (specifically aimed at price appreciation) over the next several years.
  5. The expiration of the Bush Tax Cuts at the end of 2010 which will raise capital gains taxes across the board will act as a significant disincentive to owning equities beginning in 2011 as the appeal of buying and selling equities especially for short-term gains declines (transactions now yield less and less profit due to increase in taxes)….we expect that the imposition of these new tax hikes will therefore increase the appeal of long-term investments such as real estate, especially as the downside risk of owning real estate is now diminished.

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Doug Kass Says Housing Is Quickly Nearing a Bottom

Posted by admin On August - 29 - 2010

Brian McMorris submits:

And I don’t believe it for one second. In Kass’s recent letter, he cites the Toll Brothers (TOL) conference call as the definitive word on the future of housing in America (okay, I am exaggerating, he did not say "definitive", but why even quote someone with such a vested interest).

The same day, David Rosenberg in his letter made all the counter arguments, but he cited industry and government data. While government data can sometimes be suspect, in this case I do not think so. From DR’s Thursday letter:

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New Home Sales in Context

Posted by admin On August - 27 - 2010

Zacks.com submits:

By Dirk van Dijk

The shockingly low rate of New Home Sales in July needs to be put into context (see "Worst New Home Sales EVER!"). The only problem is that the context only makes things seem worse than the raw numbers do.

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Investment Directions submits:

Lower home sales articles were everywhere this week and were universally loud and dire. On Wednesday, The Wall Street Journal linked almost every market problem to home sales, starting with its front page article proclaiming, “Plunge in Home Sales Stokes Economy Fears” (By Sudeep Reddy and Nick Timiraos, August 25, page A-1).

Heres what wrong with the reports and how we can profit by them.

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A Final Look at Wednesday’s New Home Sales Data

Posted by admin On August - 26 - 2010

Hickey and Walters (Bespoke) submit:

As we are all painfully aware, yesterday’s new home sales report for July was awful. This morning, though, economist David Rosenberg tried to pour salt on the wound of the optimists by noting that "…the high end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes priced above $750K managed to sell in July. Answer – zero, nada, rien; and for the second month in a row. Only 1,000 units priced above 500,000 moved last month. That’s it!"

At face value these comments make it seem as though the high end real estate market is in an outright freefall and getting worse. A look at the data, however, shows that while the current levels are depressed, relative to total sales, the high end market may actually be holding up better than the overall market. The chart below shows the monthly percentage of homes priced above $500K as a percentage of total sales. While sales of high end homes are down, total sales of homes have dropped even quicker. As shown, in July, high end sales as a percentage of total sales not only remained above the 2.8% low of March 2010, but it also increased on a month over month basis from 3.5% to 4%.

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Take II: New Home Sales Awful; Home Builders Are Rallying

Posted by admin On August - 26 - 2010

andrew horowitzAndrew Horowitz submits:

There was a disconnect Tuesday and perhaps it was simply that the homebuilders have been beaten down so much than even bad news can’t hurt them at this point (click to enlarge).

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The Good News in Bad Housing Numbers

Posted by admin On August - 25 - 2010

Rick Newman submits:

We’ve been hoping to avoid this pain, with vast amounts of medication disguised as Federal Reserve asset purchases, home-buyer tax credits, unorthodox mortgage modifications, and other aid meant to anesthetize the housing market. But it hasn’t really worked, and we’re finally seeing just how deep the housing bust really is.

The latest numbers on existing home sales startled the markets, coming in far below expectations and signaling deep unease among people who ought to be spending money. All along, there’s been a presumption that the government could pull some levers and get the housing bust cleaned up. It seemed to be happening late last year and early this year, when sales stabilized and prices stopped falling. But it was easy to forget that a government tax credit and other federal maneuvers were largely responsible for the boomlet. After the credit expired in April, sales started heading back down all over again — an unmistakable double dip. The pace of home sales is now where it was in 1995, with the latest monthly dip the biggest in 40 years.

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