Posts filed under “Fixed Income/Interest Rates”

Housing Starts Soften; Builder’s Bear Market?

signs were appearing that Housing was cooling back in August. More recently, there was also a comprehensive front page WSJ article on the subject.

The evidence is now readily visible, and its no big surprise to us: Housing Starts (seasonally adjusted) faded quite a bit in October -

Wsj_20051117090841WSJ:   "The Commerce Department said housing starts decreased 5.6% to a seasonally adjusted 2.014 million annual rate — the largest decline since a 17.7% drop in March. September starts, originally seen at 2.108 million, were revised upward to 2.134 million. Building permits, an indicator of future construction activity, fell 6.7% to a 2.071 million annual rate in the steepest drop since a 7.2% fall in September 1999.

Builders appear to be dialing back new construction amid growing inventories and signs of slowing demand. The estimate of new houses for sale at the end of September climbed to 493,000, a supply of 4.9 months at the current sales pace, according to an earlier report from the Commerce Department. The stockpile had gone up 3.1% from August and was 20% higher than a year ago. Meanwhile, new-home sales in September were 0.1% below last year’s level."

There’s not a whole lot to argue with there. But the more interesting question was raised by Justin Lahart today:  Are the home builders in a bear market?

Lahart observes:

"Going by the rule of thumb that says stocks are in a bear market when they have fallen 20% below their peak level, home-building stocks are in a bear market.

Since hitting its peak in July, the Dow Jones U.S. Home Construction Index has fallen 21%. Some components have fared much worse."

That’s an interesting take. Let me confess here that I  have not owned any Home Builders this run. I have missed the huge ruun, on the basis of my macro risk/reward analysis  (No one ever said full disclosure was fun).

JL gets to the really damning testimony later in his column:

"It isn’t the only bout of selling that home-building stocks have seen in recent years, but this downturn may have more significance. As the stocks pushed toward their peaks this summer, management teams, founders and other insiders were steadily selling shares — often a sign that business is peaking."

Good stuff.

The last housing related piece was a terrific article in the Personal Journal on the flattening (and possibly inverting) Yield Curve. The main takeaway was to note that as Long and Short Rates converge, there are good reasons to avoid bank and housing stock. Here’s the money quote:


The flattening yield curve — when the gap between short-term and long-term rates narrows — is generally bad news for small investors. Here’s why:

• It often signals an economic slowdown, which can lead to lower corporate profits and a stock-market decline.

• If the economy contracts, corporate bonds could also suffer, especially riskier high-yield issues.

• For conservative investors who prefer to keep their money in cash, though, rates are close to long-term bond yields.

NOTE to Editors:  I’m guessing this wasn’t in the Money & Investing section cause of yesterday’s Bonds Signal Challenges Ahead for Economy (just curious)


Flattening Yield Curve


courtesy of WSJ



UPDATE: November 20, 2005 8:56am

Interesting chart showing the Homebuilders Index Returns for the past 5, 3 and 1 years:


chart via WSJ


Housing Starts Declined 5.6% In October; Permits Also Slid
November 17, 2005 9:43 a.m.

AHEAD OF THE TAPE: Razing the Roof?
WSJ, November 17, 2005; Page C1

A Message in the Bond Market
As Long and Short Rates Converge, Advisers Push Cash but Shun Bank and Housing Stocks
THE WALL STREET JOURNAL, November 17, 2005; Page D1

Bonds Signal Challenges Ahead for Economy
THE WALL STREET JOURNAL, November 16, 2005; Page C1

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