patrick.net

Logan Mohtashami says

Everyone assumed housing was strong that was their first mistake

During the crisis, existing home sales fell far less than new home sales, as we had overbuilding.
Now this situation will reverse as we move into far under built territory. People maybe had incorrect hopes for new home sales, but building MUST happen sometime .

Logan Mohtashami says

They were always going to miss their mark so once the market place finally got it, they sold them off

That was my call for 2015, 8%-12% growth with upside if Median Price fell

Median price fell we got 14.5% growht that is a 10%-27% miss on sales expectations

Logan Mohtashami says

The CNBC discussion is perfect clear on why the Builders had no value last year

I don't understand. They had a pe of maybe 10, now fall to 7.
At what point exactly did the market get ahead of itself?
That is your definition of no value? pe 10 with a growth of 10+%? In what other sector do you see that?

Logan Mohtashami says

We had one rate spike in 2014, Builders missed their sales metric points by 20%-28% in 2014

Is there a rate spike now?

And again the problem is not that credit is hard to get or expensive, even in 2014. The key problem on buyer side is that prices are ultra high.
The entire reason why sales are low and prices are high is because they are not building enough.
"Not building enough" cannot be a barrier to more building.

Heraclitusstudent says

At what point exactly did the market get ahead of itself?

If you based the pricing multiple and book value on new home sales hitting 24%-41% sales growth for last year, you were lead to believe a false model of growth

Rate of sales were decelerating from the start of the year but no one picked that up until it was too late

People forget headline sale numbers are misleading both up and down, revision trends are key for new home sales, I wrote about that a lot last year

and now everyone is wondering why the builders got smacked

It's because they missed their sales estimates

Heraclitusstudent says

Is there a rate spike now?

Work of 4.5% 30 year as a test level 10 year is 1.73% basically the low level of the mortgage rates range I have talked about for 2 years now, we are in a channel now on 10's

Logan Mohtashami says

It's because they missed their sales estimates

What was the final growth?
What pe you would generally associate with that growth rate, and why?

Heraclitusstudent says

What was the final growth?

14.5% which means that if you didn't have such a miss in new homes sales in 2014 new home sales would have been down negative 6 -8 percent

Over estimating sales for the 3rd year in a room

Hence why a lot builders and the XHB are 2012/2013 levels

A lot Wall Street people lead investors to believe there was a escape velocity thesis when all it was was a slow and steady rise for a post WWII low level

Logan Mohtashami says

A lot Wall Street people lead investors to believe there was a escape velocity thesis when all it was was a slow and steady rise for a post WWII low level

It was always obvious we would go through years of slow building, after such a massive building boom.
But we are now getting under built.
This is being controlled. It was kept slow because they wanted prices to rebound. Now this is done, the incentive will align on the "build more" side.
If all this is true, this is probably the best buying opportunity right now.
It is unlikely rates will be a problem considering the rest of the economy.

Heraclitusstudent says

If all this is true, this is probably the best buying opportunity right now.

It is unlikely rates will be a problem considering the rest of the economy

The reason I mentioned median price falling is good, is because it means they're selling smaller priced homes

We have over 5 months inventory for new homes and they still missed sales by double digit, this is a demand problem only

Logan Mohtashami says

they still missed sales by double digit, this is a demand problem only

Demand is low because prices are too high.
They should have plenty of room to lower price/focus on more basic homes/apartments.
Still grow.

Heraclitusstudent says

They should have plenty of room to lower price/focus on more basic homes/apartments.

Profit margins

Bread and Butter are single family homes that sell big, that's their issue, even their lower end homes that don't have the bells and whistles ... they can sell them but it isn't as profitable

That gets into a complicated game with the builders, I minded everyone to just keep an eye out on conference calls, and when DHI the new wall street darlings began to speak their stock went down too.

So demand is one things but how much $$$$$$$$$$$$ you can make is the other factor

Logan Mohtashami says

Bread and Butter are single family homes that sell big, that's their issue, even their lower end homes that don't have the bells and whistles ... they can sell them but it isn't as profitable

No one says they can't continue to sell luxury houses for the same margin. The question is whether they address the demand for more basic homes thus making an extra profit.
Profits growth trump margin.

The question is whether to buy CVX with a pe 17, a profit margin of 3%, and revenues down 35% in an environment where oil prices are FUCKED.
OR I could buy DHI with a pe of 9, a margin of 7% and revenues up 5% in an environment where housing is rare and expensive.
Hummm....

OR LGIH, pe 6.5, margin 8%, revenue growth 88%.
Stock down 35% from October.

Heraclitusstudent says

I could buy DHI

KB Home is really selling at liquidation value

In Yahoo, the show book value at 35.50B, market cap at 9B. If true why no one buys them and sell them in pieces?

Heraclitusstudent says

If true why no one buys them and sell them in pieces?

Its never that easy or that fast.

KB Homes stock chart looks like a walking dead going down the hill

However, if you want value, there it is right there

Heraclitusstudent says

In Yahoo, the show book value at 35.50B, market cap at 9B. If true why no one buys them and sell them in pieces?

I think you're looking at the wrong stock, it's KBH vs KB (which has more debt than cash).

KBH

924 million market cap 1% div

Very surprising to me.
I would have thought this is the one sector with a lot of demand in front of it.

Heraclitusstudent says

I would have thought this is the one sector with a lot of demand in front of it.

It was just over hyped last year, that's it

Trend sales are at cycle highs, but people were paying way too much for the builders in 2015 ... (Value) that's the point I made on CNBC last year because the builders were the favorite trade for 2015

Logan Mohtashami says

It was just over hyped last year, that's it

I don't think the need for building to happen is hype. Your own graph shows that.

Logan Mohtashami says

Heraclitusstudent says

I don't think the need for building to happen is hype. Your own graph shows that.

It's price you pay for the company

We are selling new homes at recessionary level markets, so the profits have to be very high..

There is a reason why the Builders got smacked in 2013 and 2015 because those 2 years everyone was over hyping the story line to show top line revenue was going to be booming ...

It was impossible for that to happen in this cycle

Logan Mohtashami says

It was impossible for that to happen in this cycle

Why is it impossible to build more and make a profit when prices are ultra high?

Do you think, we will continue the slow sales at recessionary level until the next cycle?

Something has to give. You can't have prices go up forever and no one answering demand for cheaper structures, while people go increasingly homeless.

Heraclitusstudent says

Why is it impossible to build more and make a profit when prices are ultra high?

You don't have the proper demand curve this cycle. Which was my thesis from day 1, years 2020-2024 will be better though.

For the the most part the builders knew this, I always give them kudos that they tried their best to manage this cycle because they know their homes are too expensive compared to existing homes

Mass supply of cheaper homes is a problem for them

Heraclitusstudent says

I doubt anything will be better in 2020-24

College educated dual Income Americans will buy more homes then just based on the supply of more of them

Logan Mohtashami says

It won't happen

It will happen. Just not in the US. But the US will not be left unaffected.

Heraclitusstudent says

It will happen. Just not in the US. But the US will not be left unaffected.

We don't import recessions only export them.

Demographic economics is going to get better for us soon, No Great Depression, it will be a normal recession and we will have better household formation capacity for better trend growth for a mature country in the next cycle

Logan Mohtashami says

We don't import recessions only export them.

What we are looking at is a deep change in financial conditions, of the way finance works world wide.

Heraclitusstudent says

What we are looking at is a deep change in financial conditions, of the way finance works world wide.

?

XHB still under $30 it's a deal at 2013 levels anyone?

FCX is at 1998 level.
BID at 1989 level.
TOL at 2004 level.
Deal?
I mean look at the max chart and ignore the big crazy bumps in the middle... What's a deal in this background?
I have no idea.

Logan Mohtashami says

We don't import recessions only export them.

We import deflation.

Heraclitusstudent says

We import deflation.

Core CPI inflation has been rising for over 1 year now

Yes we can import deflation ... Kind of

Short term, did we reach the bottom? Or more to go?

Heraclitusstudent says

Short term, did we reach the bottom? Or more to go?

I would say a lot of these stocks have hit a short term bottom because 2012/2013 pricing had a lot less sales into the market place

To me now more than ever because we will have over 500K in sales this year, it's all about profit margins and people forget on the earning call for TOL they had some profit margin issues

That's what you want to do with the builders hear the earning calls and get a good idea on profit margin .. much lower levels on some of these stocks are pointing to a peak builder cycle, don't believe we are there yet

Last year was just doomed to fail all due to the over hyping, we don't have that anymore this year and a lot of these stocks and index are in bear market territory, much better value for $ now that last year's madness

TOL had it's earning and it's not going down stock price?

Almost back to 27! :-)

I'd venture we have a bit more to go downward.
Oil is still accumulating and storage is disappearing fast.