Housing Bubble 2.0

The run up in homebuilder stocks is nothing short of spectacular… and suspicious.

While the S&P 500 is up 28% since September 2011, homebuilder stocks have trounced that gain.

On the low end of the range, AV Homes (NYSE: AVHI) is up 42%, even as they’ve lost $430 million since 2008.

On the high end you’ll see PulteGroup (NYSE: PHM) has mounted an insane 355% rally. And they aren’t really profitable, either. They made $206 million in net income last year, after losing $6.2 BILLION in the prior five years.

This is ludicrous! Take a look…

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Homebuilders have made major adjustments – they’ve written down inventory and reduced overhead costs, like wages. You could call it “right-sizing.” We call it deflation. Nonetheless, these adjustments could have put homebuilders in a much stronger position to be profitable.

But that’s not what I see happening here.

More likely, the outperformance of homebuilder stocks is a sign of pure, unadulterated speculation. Investors – from Wall Street to Main Street – are yearning for “the bottom.” Eager anticipation of a real housing recovery will cause these stocks to be bid up, even if not justified by the fundamentals.

Can you say “Housing Bubble 2.0?”

Stay clear of homebuilders, unless you’re a short-seller. Boom & Bust subscribers will soon receive clear instructions on how to profit from the overzealous bid-up of these stocks. Watch your inbox closely for our April issue, due out soon. If you’re not yet a subscriber, this is not an issue you want to miss. Here’s why.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.