The Housing Market Approaches A Cliff

I issued a "sell" on the new homebuilder stocks at the end of January (Dow Jones Home Construction Index basis - DJUSHB). Since then, the DJUSHB is down 18% and has been down as much as 26%. This is a remarkable call considering that in the same time period the S&P 500 was up 20%. During this same period, homebuilder company executives have been dumping their shares at a stunning pace.

I have been postulating that what has been promoted as a housing market recovery by the financial media, Wall Street and the Obama Government is really nothing more than a dead-cat bounce in a long term bear market that has been fueled by a couple trillion in taxpayer-backed Federal Reserve and Government stimulus programs.

Since the beginning of the year, I have written several articles explaining how and why the housing market has appeared to be in recovery when, in fact, both price and transaction volume has been artificially manufactured through the use of direct Fed money printing, Government implemented and tax-payer financed mortgage programs and outright bank accounting and operations fraud. As for the latter, while some of the banks have been prosecuted and/or engaged in what seems to be large settlements for business and accounting fraud, they have found other ways to exploit the numerous accounting and regulatory loopholes in order to continue their schemes. As my English major adviser in college used to say, "same old wine, new bottle."

At any rate, I published an article yesterday on Seeking Alpha which shows why the housing market "bounce" is now transforming quickly into a rapid decline. Keep in mind that when you read news headlines or hear reports on financial tv, they are using year over year comparisons in order to broadcast continued "gains." As I have writing about, in order to understand what's really going now, you need to look at the month-to-month sequential comparisons. On this basis, the housing bounce topped out in late spring and has been declining since June.

What's most interesting about the sequential decline in almost every housing market metric is that this decline has been occurring in what should be the market's strongest seasonal period. If you are looking to sell your house and get the kind of prices that realtors are promoting, it is likely too late. If you want to sell your house, or have to, I would suggest getting it ready to be listed by mid-January and price it to sell, not to maximize profits.