Housiing And Mortgage Stocks

Discussion in 'Trading' started by swimmus, May 2, 2004.

  1. swimmus


    I have been looking over a huge number of charts this weekend and came across some interesting charts to watch in the upcoming weeks. (I am a swing player on stocks).

    I have noticed that residential construction and mortgage investment sectors are in downtrends appearing to be on support or breaking it. I am not ready to jump into shorting just yet, still expect a sucker trap to happen.

    On the construction side, RYL and TOL appear very weak.

    On the mortgage side, NCEN, CFC, LEND, and DRL are all on my watchlist for a break below support.

    Does anyone follow any of these stocks? Do you have any input?

    Like I said ealier, even though they appear weak, it almost seems like they may just be ready to bounce hard after sucking a few shorts in.

    Any input would be greatly appreciated. Thanks
  2. CFC looks the best.. I would wait for tuesday fed before I would short.. also I would watch this friday carefully to see how the stock reacts to unemplyment report.

    Technically u dont wanna see CFC close above its 50ma.

  3. Osman


    Thanks for pointing out interesting stocks to follow in this industry.

    I do not regularly follow these companies but do agree with Trend Fader and say that CFC looks the worst. TOL will be a great short once it breaks support too. The others have more support/resistance levels below them from a weekly chart basis.
  4. lindq


    These stocks are a dangerous play either way at this point. A rise in interest rates will not kill the housing market. But market sentiment will be down on them short term. So they are all a gamble, and not worthy of a solid bet on either side.

  5. Totally wrong. A rise in rates will destroy the housing markets. Its just a matter of time until all the debt and mania unwinds.

    Stocks like CFC have seen their best days.. every rally should be shorted.. until these stocks correct by atleast 50%.

    Look at a stock like NFI. Thats what will happen to this sector altogether. The fundementals are changing this will no longer be buy the dip on profit taking. You have to understand what is going on. Real estate mortgage stocks will be under major pressure as rates are rising.. there is a tremendous amount of leverage in this industry that will have to be unwound.

    For a good reference on real estate look at VNO.. its a primiere company especially here in NYC. WHen a stock like that is trading under its 200ma.. the party is over.

  6. Perhaps title insurance carriers based on the drop off in refi activity? The industry is listed as surety and title insurance companies I believe. I have not had success in the past taking on FAF however.

  7. lindq


    The time to short these stocks was 30 days ago, so you are way behind the curve.

    Do you suppose that traders/investors have had their heads stuck in the sand?
    Of course they haven't. The prospect - the certainty - of higher rates is priced into these stocks to a large degree. Greenspan and Co. have sent clear signals of what they intend to do.

    Mortgage interest rates would need to move toward 8% to counteract the demand for housing as a result of stonger job growth and security, and very strong growth of immigrant populations in major cities.

    As I said, stocks in this sector are NOT a certain trade in either direction.

    P.S. As of this writing, CFC is up over 1.50 from the open, the day before the FOMC meeting. Does this indicate to you that traders expect higher rates to destroy the housing and mortgage market? Of course not. There is just as much a chance for a relief rally as there is a drop in the sector.
  8. While the sector is trading off rates right now, most of the names are still quite cheap with multiples of about 9-12x and growth rates of 2-3x that. Balance sheets are pristine as well. Also, the better names have upgraded managements and continue to take market share from the mom and pops. And, as we all know, home prices remain strong, immune as they are from the cheap Chinese imports that are squeezing margins in so many other industries, and due to tight inventories and scarce land tracts in many areas of the country.

    So, though the sector has always been seen as a cyclical play that shouldn't be owned in a rising rate environment, I'm not sure that still holds given current industry dynamics.