Another Local Homebuilder Taken Out

Large local Homebuilders continue their vanishing act.

This week it was Pacific Ridge that was bought out.

D.R. Horton buys small home builder in Seattle

The $72,000,000 buyout  included 350 lots, 90 homes in inventory and 40 homes in sales order backlog. Horton also acquired control of about 400 lots through option contracts.  DR Horton was the largest Homebuilder in the NW prior to the purchase so the acquisition was a means of securing more lots.  This will help Horton cement their position in Snohomish County.  The optioned purchases are a very nice feature for both Pacific Ridge as well as the landowners as Horton will most certainly exercise the options, cashing out the owners, while they undoubtedly didn't cost Pacific Ridge much to put in place but probably received top dollar for them from Horton.

This deal puts a new twist in the trend of National builders seeking market share in the Puget Sound area.  Most prior transactions involved new National's moving into the Puget Sound Market.  This could be viewed as a defensive maneuver by Horton by taking out a possible candidate for other National's looking to move in.  Make no mistake, the Bigs want into the NW.  The list of new Nationals is growing ever longer and include Richmond America who bought SDC, Mainvue that bought Bennett Homes, and Newland Communities that bought the MPD Tehaleh, all during 2011.  Soon after Toll Brothers bought out Camwest while Lennar took out Premier Communities.  Tri Pointe Homes pulled off the largest purchase to date which was the 2014 buyout of Quadrant, the perennial 800 lb gorilla in the NW.  Not long after William Lyon Homes took Polygon off the list of large local builders.  The list of the largest builders in the NW now resembles most markets around the country.  Builder Magazine ranked the top ten builders in 2014 as follows: DR Horton, Pulte, William Lyon, Lennar, Tri Pointe, Toll, Richmond, Mainvue, MF and Shea.  The lone local builder on the list is Murray Franklyn.   This is a far cry from 2009 when only Horton would have made the list.  

The strategy is quite simple for the remaining locals.  Tie up as much property as possible, preferably using options and Notes Payable.  Hammer in a For Sale sign at the corporate office and wait for the phone to begin ringing.  

  

 

Read more here: http://www.star-telegram.com/news/business/article19714767.html#storylink=cpy

The Squeeze is on

Potential Home Buyers continue to feel the squeeze.

 

While inventory rose by 274 homes in April, this is still a record low for the month.

 

In the meantime, 4,020 sales were closed.  That puts the months' of supply at less than 1.

 

The Case-Shiller Index is a 3 month average of prices.  The latest month reported was February.   It's a pretty safe bet that it will be much higher when June's 3 month average is reported.

Rates are on the Move

Significant week for 10Yr US Treasury Notes.

 

10 yr rates jumped over 3% on Friday ending the week at 2.6%.  That puts September's increase up to over 12%.  The gap up out of 2014's wedge points towards significant momentum behind this move.

 

The weekly chart adds a little perspective.  Last week had a solid candle with the Indy's curling up from oversold conditions.  The next significant source of resistance is at 27.  A break of that would challenge the 20 history of lower and lower rates, as seen on the next chart.

Should rates break 27 the next target would be 33.  The monthly indicators have a lot of work to do before they would be supportive of such a move.  The RSI has some support at 50, but the other indys are still pointing south.

King Dollar

The US Dollar continues on the tear that began in July.

 

The Dollar broke out of its long term base and is nearing 2013's highpoint.  A break above 85 would suggest that the next resistance level is 88.  The indys are getting pretty overbought.  A backtest of the breakout area of 84 will be in order before challenging the 2010 high.

A strong Dollar has wreaked havoc on Commodities.

 This daily chart shows the spike in the Dollar.  Commodities of all stripes are getting pummeled.  The Agricultural index, DBA, has been in a downtrend since the first bottom in the Dollar.  Oil, Gold & Copper had held up well until the July bottom.  Curiously, 10yr Treasury Notes had been a beneficiary of a stronger Dollar, until this week. 

Are Commodities Ripe?

Last month's comments out of the ECB regarding the potential for some form of QE launched the US Dollar out of a 12 month trading range.

The strength of the move is undeniable, but the indicators are clearly into Overbought territory.  The strong dollar has been weighing on Commodities.

Early this year, Commodities broke out off a 3 year wedge.  DBA is currently backtesting the breakout as the Indy's have reset.  A move up the ma's would represent a new breakout with a first target of 29. 

 

The Daily chart shows the top of the wedge.  It also reveals a smaller wedge that has formed since the US Dollars July low.  The smaller wedge was broken last week.  The Indy's look like the have room, but there needs to be a break of 26.85 for the big move.  

Corn looks interesting.  After getting whacked for 15% in May-June due to bumper crop reports, it got taken for another 15% after the US Dollars low.  Since then Corn has been wallowing between 25 & 26 on somewhat surprising volume.  It seems that the Indicators need more time to reset but Corn looks attractive above 26.5 with an obvious stop at 25.25.  With the first target of 30 a return of 10% would make a punt worth it.

Other non-agricultural commodities are showing potential bottoms including Oil, Copper & Unleaded Gas.  All ears will be on the ECB this Thursday when they announce their monetary plans.  If they announce QE plans, the size & scope will determine the markets moves.  Some QE is already priced into the US Dollar.  No QE, or, smaller than expected might provide the fuel for the commodities markets to make a comeback.

 

 

Atta Boy Junior!

The Juniors have quietly built a nice base.

After setting a potential base top, the junior miners are testing the ma's on declining volume.  Last week's bar shows a decent looking tail.   The last 2 month's pullback might also suggest a backtest of a June Breakout. 

 

A closer look at the Daily chart reveals a wedge breakout on Friday.  The Indy's look favorable, as do the the ma's.  A move up to 45-46 would set a nice looking Cup & Handle opportunity.

 

Zooming in on the Hourly chart shows the potential for another base with the base.  The Indy's are a bit extended short term which may prevent the Juniors from a breakout here.  A further test of the base top back to the ma's may be in order prior to a breakout.

GDXJ  is a long under 42.  A stop at 40 is a little loose, but for the patient holder the weekly target is 53 offering a decent return.  The shorter term target is 45-46.

 

Interest Rate Update

 

The 20yr down trend in Interest Rates continues.  The monthly indicators are pointing south with the MACD crossing down this month.  

 

The 8yr weekly down trend is also intact with rates down nearly 20% in 2014.  Seems like there is still time before rates get oversold.  24-25 continues to be the line in sand.  Until 25 gets taken out the path of least resistance continues to be down.

Relief at the Pump

Unleaded Gas took a tumble this week.

 

Unleaded Gas started the week with a gap down which ought to provide a short term cap on prices.  In the Puget Sound area prices should tumble after Labor Day.  It certainly would be nice to see prices below $3.75/gallon. 

Housing Perks Up

The Homies put in a strong week.

The Builders finished the week with a full candle adding nearly 5% for the week.  The indicators look set to extend the rally with the STOs heading North after showing POS D.  Just need the MACD to cross to confirm the rally.  If confirmed 28 looks like the target.

Likewise, Lumber looks poised for a breakout.

Lumber needs to make the move this week.  If it does the target is in the mid 400s.

Active Listings Fall

After peaking in September and matching 2012 levels, Active Listings have seen the seasonal decrease into yearend.  This is quite encouraging since listing could have easily kept increasing from the historic lows seen in 2012.  Typically listings don't pickup until March signalling the start of "Selling Season".  Even though inventory levels are only 250 homes away from the record low last year, it seems unlikely that inventory will drop that low during 2014. 

2013 Closings beat 2012 every month until petering out into yearend.  The interest rate spike in May and June may have prodded many fence sitters into buying resulting in the strong sales during the Summer.  Brisk September/October sales suggest interest rates aren't the only factor in sales rates.  Should the market produce sales above 2,200 in January/February inventory will remain depleted setting the stage for price increases. December's Months of Supply at 1.05 serves as a reminder of tight inventories.

In 2013 record low inventories coupled with increasing buyer interest pushed Case-Shiller prices up 14% last year.  After peaking in July prices leveled out thru October.  With weaker sales in November/December and ample inventory, Case Shiller prices ought to drift lower in November/December.  If inventory remain scarce into the Spring, prices are poised for another run up in 2014.  14% increases won't be seen as interest rates will continue to upside appreciation.  7% wouldn't be surprising.

2014 ought to be a good year for Builders/Flippers that can bring inventory to the market during the Selling Season.  Waiting until the Spring to set prices may be a profitable decision.