(Edited to add ITB weekly chart)
We chuckle in Chat when we see a fund manager recommend a short (or buy) in an area we've already discussed on site. Case in point: home builders.
Having a mortgage banking background AND given the current state of low wage job creation, I could not agree more with Doubline's Gundlach. Increasingly big business lobbyists are pushing for the Obama Administration to increase the number H-1B visa issuance, stating that the U.S. doesn't have the skilled workers needed to fill their need. In truth are they merely pushing for a cheaper, more pliant labor? That's an entire debate on it's own but I also think the charts are signalling future weakness as I recommended shorting TOL and PHM in April.
CLICK ALL CHARTS TO ENLARGE
You have cash buyers (top/left) buying up bank foreclosures to help with not only their balance sheet, but with existing inventory..............but NEW, first-time home buyers? Their credit scores are still decimated from the credit crisis. They're struggling with the increase in rents and moving back home to Mom and Dad. They're struggling with enormous student loan debt (chart right) and simply do not have the savings for a 10-20% down payment; even though rates are low.
I personally feel this shift is more secular than cyclical when you consider the enormous rise in education costs (left) and ITB possible weekly double top (top right)
As for builders, what will rising interest rates mean for their future sales?
Buyers coming back in large numbers? Not Joe the apprentice plumber. Not any time soon. The baby boomers are getting ready for the rest home and their kids..........will probably keep Mom/Dad's house because they can't afford a new one.
From Gundlach:
Pitch: Single Family Housing recovery is not happening. Household debt fell only because mortgage credit dropped due to default. Housing market has been supported by a surge in second lien financing and cash transactions. Cash transactions are 50% of deals, up from 20% in pre-2008. Existing home sales and new ones are weak. Housing starts have improved, but still below 1M per year.
Housing affordability isn't really that good now if you look at the long-term charts. There are no first-time buyers. Household formation is depressed. Young people are staying with parents much longer and have higher unemployment rates. Student loan debt is higher, another headwind. People moving rate has been in decline for decades. Still 19.4% negative equity nationally.
Generational preference shift - young people prefer to rent. He says home ownership rate will DECLINE further, not rebound like most people think. Says the rest of his career we will NEVER see 1.5M housing starts in a year again. IDEA: Short XHB.
View Gundlach's slide presentation HERE
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