Tuesday, October 20, 2009

Reports 2 & 3 Point Lower

I know what you're about to say--"Hold on! The housing starts were up. How is that bad?"

Here's why it's bad--you are adding more homes to inventory. Here's the analogy of the day:

I own a pizza parlor in Hoboken, NJ. I typically make 20 pies and sell each slice for $1.00. Still with me? Ok, then today, I decide to make 40 pies. Nothing has changed and I don't anticipate more pizza lovers, but I decide to make more pizza. Well, I just added to my inventory, thus causing me to HAVE to sell the pizza per slice at a lower clip than $1.00.

Well, the same deal works with housing. Unless we're expecting the US population to increase signficantly, all we're doing is adding to inventory and causing home prices to drop. Why, do you ask, would a homebuilder push themselves into a corner by offering lower prices? It's about property taxes!

Homebuilders own the land and they know it's better to build and get some sucker to buy the house so they can worry about the property taxes, rather than hold vacant land.

So, here's the bearish news: Homebuilder sentiment is lower; Housing starts go up, thus adding to inventory; Permits were down (off 1.2% in September); and Friday is the existing home sales report. The final is the big one, and will be released on Friday morning at 10:00am, NYT.

Stay tuned, but unless our, eh em...trusted lawmakers get their crap together, the housing sector may be on deck for a verrrrrrrrrry long winter.

Talk to you,

Todd M. Schoenberger, Managing Director
LandColt Trading, LLC

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