Prepared to Buy Homebuilders Even As Housing Pause Reawakens Some Short Interest

(This is an excerpt from an article I originally published on Seeking Alpha on September 29, 2013. Click here to read the entire piece.)

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Mortgage rates and treasury yields come down off recent highs
Mortgage rates and treasury yields come down off recent highs

Source: St. Louis Federal Reserve

Homebuilder stocks joined most rate-sensitive plays by falling sharply from their lofty levels once the direction and momentum of rates became clear. {snip} I consider any of the dips that are likely to come in the next several weeks to represent particularly good buying opportunities.

Interestingly, higher rates and weakening technicals for homebuilder stocks did not spike the interest of homebuilder bears. {snip}

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Click image for a larger view…


Shares Short in Select Homebuilding Stocks With Year-to-Date Decreased Short Interest (Sept 15, 2011 to Sept 15, 2013)
Shares Short in Select Homebuilding Stocks With Year-to-Date Decreased Short Interest (Sept 15, 2011 to Sept 15, 2013)

Shares Short in Select Homebuilding Stocks With Year-to-Date Increased Short Interest (Sept 15, 2011 to Sept 15, 2013)
Shares Short in Select Homebuilding Stocks With Year-to-Date Increased Short Interest (Sept 15, 2011 to Sept 15, 2013)

Source for data: accumulated from NASDAQ.com short interest

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I am keeping my eye out on the horizon because the housing recovery is just getting started. Homebuilding is still in a deep recession relative to past decades. The longer economic conditions suppress this building activity, the more pent-up demand grows in the system. {snip}


Total New Privately Owned Housing Units Started (Seasonally Adjusted Annual Rate)
Total New Privately Owned Housing Units Started (Seasonally Adjusted Annual Rate)

Source: St. Louis Federal Reserve

Total One Family Units Privately Owned Housing Starts (Seasonally Adjusted, Quarterly)
Total One Family Units Privately Owned Housing Starts (Seasonally Adjusted, Quarterly)

Source: St. Louis Federal Reserve

{snip} On Nightly Business Report, September 26, 2013 (start 11:30 in the video), Mark Hanson of M Hanson Advisors claimed that new home sales are currently only 7% of all home sales whereas typically they contribute about 20-25%.

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Some of the bearish arguments I have read latch on to every data point as a negative:
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Anyway, I think a better framework for thinking about the housing recovery is to recognize that the industry is in the early stages of pulling out of a depression. The deflationist psychology inherited from the crashing of the bubble will take considerable time to heal. {snip}

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on September 29, 2013. Click here to read the entire piece.)

Full disclosure: long TPH

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