So What Exactly Is The "Short Homebuilders" Thesis At This Point

[SMIS]

I've spent some time thinking about this.  It might be a good time to buy if you have a very long-term orientation.  Supply/demand is still very imbalanced (in favor of builders), but affordability is a disaster.  Homebuilders will need to cut production and wait this out.  I wonder if the SFH rental REITS with an internal homebuilder will be attractive.  Valuation don't look particularly compelling, but I suspect rent could be strong while we wait.  It's all too uncertain for me to want to jump in though.

[crs223]

On 12/31/2022 at 2:13 PM, Spekulatius said:

I think people with low cost mortgage will just stay put for a long time generally unless something forces their hand. So transaction volume may go way down, but prices not so much.

 

I agree: those with low fixed rate mortgages are incentivized to not sell.  I agree that should cause volume to drop.  But i do not agree that this means “therefore prices should not go down”.

 

If there are too many sellers and/or too few buyers, then prices will drop (regardless of volume).

[crs223]

On 1/1/2023 at 9:42 AM, RedLion said:

 

I'm a first time homebuyer right now. I waited way the hell too long to buy a house due to a lot of personal reasons and some just plain stupid debt aversion at better times to buy. 

 

I'm under contract in my inspection window on a place for all cash at 35% less than last year's Zestimate. I do think this can be a good time for first time buyers, but only if they have a big slug of cash and can shrug off these interest rates for a few years until an opportune refinance zone materializes. I think buyers need to look long and hard for a good realtor to accommodate making low offers. I fired the first several I worked with because they would all just say to pay asking or close to asking price. It's crazy how much things have changed in just a few months in the housing market. 

 

Great news, hope you got a great deal!  Where are you looking to buy?

 

I sat out housing bubble 1.0 (2006) and bought my first house in 2012.  it was tough not buying with everyone else.  I also missed the popping of the GFC bubble.  unfortunately I deceived myself to think i was good at identifying bubbles… turns out i just had “permabear syndrome”.

[RedLion]

3 hours ago, crs223 said:

 

Great news, hope you got a great deal!  Where are you looking to buy?

 

I sat out housing bubble 1.0 (2006) and bought my first house in 2012.  it was tough not buying with everyone else.  I also missed the popping of the GFC bubble.  unfortunately I deceived myself to think i was good at identifying bubbles… turns out i just had “permabear syndrome”.

 

Thank you. Northern California between Sacramento and Redding. I think houses are still overpriced here and heading down, the local economy is not super amazing and the median house is about 8X income here. BUT, this place is selling at way below replacement cost. On acreage right outside of town with a nice size house and an ag well. It would cost $850k+ to buy something like this and probably $1.2 million to build it including the land and well. I'm hoping to do a complete remodel before moving in and be out the door for under $650k. If this was a pure investment I probably would wait, but I'm so incredibly ready for a better place that satisfies more of my personal needs (proximity, house size, storage, land to have privacy and do whatever projects or hobbies I want), and I think this place will work out perfectly after the remodel is done. Hoping to get a decent cash out refinance at some point, because I don't want to leave a big chunk of my capital tied up in a home, but I do think the cash offer enabled me to get a better price on this place.

Edited January 3, 2023 by RedLion

[ValueArb]

The next few months are going to be very interesting since I'm expecting volume to pick up and show us where pricing really is.

[changegonnacome]

1 hour ago, RedLion said:

I'm so incredibly ready for a better place that satisfies more of my personal needs (proximity, house size, storage, land to have privacy and do whatever projects or hobbies I want)

 

Best time to buy home is when you need a home - and broadly unless terribly unluckily it works out very well as an investment over time (inflation/population/GDP growth) then add on the enforced savings/discipline aspect of it too and really it works out well for almost everybody.

[ValueArb]

I'm not shorting homebuilders.

[ValueArb]

 

Nope, still not shortin them.

Edited January 19, 2023 by ValueArb

[Spekulatius]

I was surprised to read that KBH's inventory value was actually down QoQ ($5.54B vs  $5.74B). They have put he brakes on land acquisitions a while ago and now control less lots than a year ago. Inventory value YoY is still up ~15%

https://www.sec.gov/Archives/edgar/data/795266/000079526623000004/exh991kbh-earningsrelease1.htm

[Gregmal]

Just wondering how many years worth of returns from the highly acclaimed 5% treasury one would need to acquire the returns received from the start of this thread?

[Gregmal]

Green shoots ah everywhere. Some say fireballs are raining down. Feels more like chillin in a jacuzzi.

[Gregmal]

KB Homes says whats up fellas? 

[ValueArb]

Short homebuilders? How about commercial real estate instead?

 

 

[Gregmal]

Have any of the experts that promised us massive write downs and impairments told us when exactly this is happening? Did they update their spreadsheets? These things continue to print money. Brrrrr

[LC]

One of my more successful trades (emphasis on trade) this year has been selling OOM calls on LPX. Long the stock and periodically short and then re-buy OOM calls depending on the market. 

 

I'm actually hoping to get called out of the position as I'd rather own the REIT rather than the builders or suppliers.

[Gregmal]

Yea the premiums are surprisingly large on both sides, especially given where the VIX is and has been. Between this trade and selling HHC puts at 75 and lower theres just been a ton of juice which adds up. I havent been doing anything heroic, just running the post covid CLF trade where you short near duration puts and buy longer duration calls to varying degrees and variations. Just sucks NVR doesn't have options LOL. Couldn't have done it without all the housing experts. Any of them have tip jars?

[Spekulatius]

How much of the improved sentiment in homebuilders and construction related stocks is due to the long and of the interest rates curve and with it mortgage rates falling?

 

I think it's the main factor, if the long end of the rates goes up again and mortgage rates with it, then these stocks will get another flogging.

[Gregmal]

Rates haven't fallen all that much though. 30 year fixed is still mid 6s. 

[Gregmal]

And it continues. Greenbrick just murdered the Q. Following pretty much every builder to report. Shorting near dated puts and buying longer calls continues to be free money.

[Gregmal]

Blowout from Toll Brothers. And now margins are improving lol. Wonder if the wizards are still shorting?

[LC]

https://boredbat.com/the-housing-market-has-never-been-this-unaffordable-for-new-buyers/

 

 

[Gregmal]

Still searching for impairments. Higher we go. Experts still puzzled by what sat in plain sight. Some of the dumb dumbs are still clinging to hopes of a housing crash. But we like roadkill so let ‘em be. 

[Gregmal]

Saw on feed I saw some silly little headline with one of those "here's how much" titles on DR Horton. Turns out if you bought DR Horton 15 years ago, yup before the market imploded during GFC, a $100 investment would be worth about $1000. This thread is called "so what exactly is the short homebuilder thesis"....but in general I also think it's become super clear, if it wasn't already, that buying and holding great companies is a fool proof way to invest. Id ask "what is the thesis for short term, speculative macro market guessing at this point?". Because it always used to be "well if you bought at exactly the top....you woulda been in trouble"....but more often than not, even thats not the case. And if you bought anywhere else, you are doing A-OK. 

[Spekulatius]

On 6/12/2023 at 1:32 PM, Gregmal said:

Saw on feed I saw some silly little headline with one of those "here's how much" titles on DR Horton. Turns out if you bought DR Horton 15 years ago, yup before the market imploded during GFC, a $100 investment would be worth about $1000. This thread is called "so what exactly is the short homebuilder thesis"....but in general I also think it's become super clear, if it wasn't already, that buying and holding great companies is a fool proof way to invest. Id ask "what is the thesis for short term, speculative macro market guessing at this point?". Because it always used to be "well if you bought at exactly the top....you woulda been in trouble"....but more often than not, even thats not the case. And if you bought anywhere else, you are doing A-OK. 

The homebuilders peaked in 2005 and the started to go down before the GFC. The stock peaked at $40 in 2005 and I think it went to $10. You could still buy $DHI in 2020  for ~$25. So definitely not a buy and forget stock in my book.

 

Just my guess that at some point down the road, you can buy this stock again for half what it’s going for now (which would be $58 or thereabouts).

[Gregmal]

1 hour ago, Spekulatius said:

The homebuilders peaked in 2005 and the started to go down before the GFC. The stock peaked at $40 in 2005 and I think it went to $10. You could still buy $DHI in 2020  for ~$25. So definitely not a buy and forget stock in my book.

 

Just my guess that at some point down the road, you can buy this stock again for half what it’s going for now (which would be $58 or thereabouts).

So the stock peaked at $40, spent tons of time between $10-25, and wouldn’t have been a worthwhile investment? Especially with a common sense DCA strategy?