Has The Home (Stock) Owner 'Recovery' Run Its Course?"

Green shoots, growth off a small base, and self-reported awesomeness notwithstanding, the crux of many investors' thesis for believing in a housing recovery is the fact that homebuilder stocks have risen so magnificently; after all the stock market is a 'discounting mechanism' right? (aside from September 2000 and October 2007) The funny thing is - we've seen this kind of 'rally' in homebuilder stocks before, and somewhat remarkably we are following its trajectory almost to the day. 284-days from the March 2009 trough, XHB (the homebuilder ETF) peaked and then lost 30% in the next 45 days. Today marked Day-285 of the current homebuilder rally (coincidentally running at around the same 120% annualized return and exhibiting similar short-squeeze tendencies). Add to that worrying analog, the third divergence between homeowner 'comfort' and renter 'comfort this year - each prior time ending in a rapid collapse in homeowner confidence; and we remain skeptical that the 'market' knows best in this case.


We've seen this homebuilder-rally before...to the day!


The 2009-rally saw two jumps in short-interest which both were squeezed to provide just the fuel to keep the miracle alive (until the short-interest ratio fell back to around 1.3x)...


The 2012-rally has shown very similar jumps in short-interest and the recent rally has squeezed shorts out providing all the ammunition to extend the run to over 110% (leaving the short-interest-ratio back at around 1.3x once again)...


And combine that with the divergence between renter-confidence and owner-confidence (which has twice before this year ended with homeowners losing their 'hope')...


And we can't help but feel any 'real' recovery in housing necessitates the kind of influx of supply and movements off larger numbers (i.e. easy comps are over) that equities more than reflect the exuberant belief that this time is different at a debt saturation point.


Charts: Bloomberg


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