When I decided to start writing a monthly summary of the status of the housing market, I had assumed that housing was going to remain in or settle into a general holding pattern. I assumed little was going to happen to the upside or the downside for a while. Under those conditions, it did not make sense to rush to analyze every housing report the minute it arrived. As luck would have it, I made this switch just ahead of all heck breaking loose in the stock market. Ironically, I even used the term “coiled spring” to describe the stasis in the market.
This has been a tough time for the stock market. As investors connect dots across negative drivers to draw a picture of a looming economic calamity, cyclical sectors have taken their own special pounding. Home builders have quickly gone from a state of serene market out-performance to a rude awakening to what in some cases are multi-year lows. The most hapless stocks are trading back to levels last seen when housing was still rising out of its 2012 trough.
Pictures speak loudly. I have posted below monthly charts of all the home builder stocks I follow the most. I placed a black horizontal line at the most recent intra-day low to provide a reference to the depth of the current selling. The captions include the name of the home builder and the price-to-book ratio pulled from Yahoo Finance. Notice the large divergence in performance and valuation. The market has quickly priced in the most trouble for the smallest and/or most regionally concentrated builders. Suddenly, diversification and size are clear kings of the lots. LGI Homes (LGIH) is still a notable exception.
Beazer Homes USA Inc. (BZH): 0.4
Century Communities, Inc. (CCS): 0.7
DR Horton Inc. (DHI): 1.7
Hovnanian Enterprises Inc. (HOV): N/A
KB Home (KBH): 0.5
Lennar Corporation (LEN): 1.6
$LGIH has reversed all gains fr Aug, 2015 post-earnings breakout. Down 40% fr all-time hi (Dec, 2015). Good risk/reward spot to get back in
— Dr. Duru (@DrDuru) January 21, 2016
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