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Wall street just predicted a 2022 housing crash and as a result investors are fire sailing the stocks and shares of real estate related companies on the stock market particularly the big three Lennar the biggest home builder in America.
zillow the biggest online Site and then open door the biggest home flipper all three of these publicly traded stocks are in crash mode over the last several months and to see just how big of a free fall these real estate companies are take a look at this graph where we’re tracking the percentage decline in stock price over the last six months.
For Lennar the orange line you could see a 25 decline in the stock price of the largest home builder in America then we have a 54 decline in the stock price of zillow the largest online web portals and a massive 70 decline in the stock price of open door meanwhile the s & p 500 the broader market is only down 2.5 in the same span this is a sign that wall street investors institutional investors who buy stocks are becoming negative and bearish on the housing market.
That’s because the earnings and the profits of these real estate companies is dependent on the future growth of the housing market so if we have a housing boom you can bet that the home builders and the Realtors and the home flippers are going to do well meanwhile if we’re going to have a housing crash then all these companies are going to do very poorly their earnings are going to go down and their stock prices going down is the first sign of that occurring and to understand this trend better.
So you can see the link between the performance of real estate stocks and the broader housing market take a look at this graph which is tracking the growth in home values in America over the last four years you can see that heading into late 2019 early 2020 before the pandemic the housing market was only appreciating by about three and a half percent per year.
It actually wasn’t performing very well then the pandemic hit and everything changed however it took a little bit of time for everything to change it wasn’t until late 2020 early 2021 when we really started to see home values rocket up and now we’re at 20 growth in home values year over year in one of the biggest housing bubbles of all time if you compare this growth and home values to the red line which is zillow‘s stock price.
In the same period you can see that zillow‘s stock price was actually going up it was booming well before home prices started going up the same trend exists with Lennar the home builder the orange line you can see that Lennar stock price was going way up before home values were going up and so heading into this housing boom it was actually wall street and the stock market which saw it happening.
They saw it coming and that’s why these real estate related stocks like zillow and Lennar did so well before we actually saw home prices take off but now the signal coming from the stock market in wall street investors is the opposite we see that zillow‘s stock price has collapsed all the way down to 48 dollars a share actually lower than the price it was prior to the pandemic meanwhile Lennar stock prices collapsed down to 75 a share basically the same level.
It was at in mid 2020 and barely above where it was prior to the pandemic and so now you might be asking yourself well wait a minute why are zillow and Lennar crashing why are these big real estate companies seeing 30 40 50 declines in stock price over the last six months and what does that mean for the near-term future of the housing market well.
Let me tell you what it means folks it means a housing crash is around the corner that’s right because if all of a sudden wall street becomes bearish on a company like zillow or a company like Lennar and their stock price goes down by 30 to 50 percent what that’s essentially saying is that wall street in the stock market believes the earnings and the revenue of these companies is going to be going down over the next six to 12 months.
Lennar makes their money by selling homes wall street’s saying we think Lennar is going to sell fewer homes zillow makes their money by selling leads to realtors wall street’s saying we think zillow is going to sell fewer leads and there’s going to be fewer interested realtors.
Open door remember them they make their money by flipping homes wall street’s saying well open door you’re down by 70 we think you’re going to have a more difficult time doing that in the future the prediction from wall street that all these real estate businesses are going to struggle is a signal that the housing market is going to struggle a signal that home sales are going to go down that home prices are going to go down and it’s going to happen sooner than you all think.
How do I know that well let’s go back actually to the mid-2000s the mid-2000s housing bubble and then the subsequent crash so you can see how changes in real estate stocks predicted this crash and what you can all see is that from 04 to 06 we had a big boom in the housing market.
This was arguably the biggest bubble of all time prices up by 10 11 12 per year but then starting in around mid 2007 home prices started going down in America we had the biggest crash of all time now let’s take a look at what Lennar the homebuilder what did their stock price do around the same time.
We can see that interestingly Lennar‘s stock peaked at 66 dollars a share in mid 2005 well before the actual housing crash took place then Lennar stock went down a little bit by early 06 but then had a big crash by the middle of 2006 about a 33 decline from its peak interestingly at this point home prices in America were still appreciating.
It nearly 10 a year when Lennar had this big crash and it was really another 12 months or so before we actually saw home values in America start to go into negative territory and so this is a warning folks if you’re someone looking to buy a house right now or a real estate investment property.
Understand that you’re doing it at likely the peak of the market you’re doing it when wall street investors are fire sailing the shares of real estate companies that historically tend to be predictive of where the housing market is going in of course a lot of this is related to surging interest in mortgage rates 30-year fixed mortgage rate is now above five percent after being at record lows for most of the last two years.
That means that the cost of home ownership is surging far beyond the levels dictated by wages inflation or rental rates and the more that this occurs the more that mortgage rates stay high and keep going higher the less that people are going to be able to afford homes and the more the housing market is going to struggle.
The federal reserve is basically making it their mission right now to crash the U.S. housing market this is a topic I’m going to cover more in a subsequent when you take a look at the words coming out of the mouths of the people at the federal reserve you can very clearly tell that they view the housing market and particularly a decline in the housing market is a great way to tame inflation.
I think we’re just getting going as far as these higher interest and mortgage rates go guys and that’s why we’re seeing these big real estate companies struggle and that’s why we’re going to see the housing market go into a crash in 2022.
In certain parts of the country first before others now I think one objection or one question that some of you might have to this data and my thesis and theory in this is related to how meaningful the signals from the stock market.
I think a lot of you rightfully so view the stock market as kind of a playground so to speak where people just throw money around and you see stocks doing crazy things all the time so how do we know that this is a true signal that we’re getting from the stock market versus you know blind speculation.
You see maybe you know with some of these meme stocks like AMC and Game stop and i would say if you take a look at zillow‘s price chart you see it going up to 160 a share in February 2021 like very clearly this was like a frenzied stock market bubble and that wasn’t indicative of zillow‘s true value.
It should have never really gone up that much however i think more broadly you need to pay attention to the trend and the movement of the stock rather than necessarily like how high the price went and the fact that zillow was going up in 2020 and 2021 before the housing market appreciated is what you need to be paying attention to as well as the fact that zillow has now gone down before.
The housing market has crashed in a similar way to what Lennar did in the mid-2000s this is a signal that home prices are going to be coming down the other question.
I’m sure a lot of you might have is about betting against these companies and you know potentially shorting the housing market and profiting off the crash that is unfolding before our eyes those who’ve watched my channel for the last six months know that I’ve made some pretty big bets against zillow open door and Lennar.
I’ve made a lot of money off those bets buying put options predicting that these companies are going to go down in stock price i originally bought put options on zillow in July of 2021 and made about 300 percent return a forex return through November of 2021.
Based off the decline in solar stock price i also bought puts on open door in November 2021 made about a 500 return by January based on how much open door went down and then i bought put options on Lennar as well as Dr Horton two big home builders in January.
I’m now up about 150 on those put options since then and so if you have conviction that the housing market’s going to go down and you think these companies are going to go further you can buy put options and bet that their stock prices are going to go down more and potentially make money off the housing crash in the housing downturn the one area to be careful here is that some of these companies have already gone down.
A lot in stock price I don’t necessarily think zillow or open door is necessarily going to go down that much more Lennar probably has another 20 or 30 percent to go but if you are looking for a potential strategy or tip maybe you want to look at big corporate landlords that are on the stock market a company like invitation homes they’re the largest single family landlord in America.
They own over 80 000 homes predominantly across the southeast and southwest their stock prices stayed stable it hasn’t gone down yet as you can see by this blue line invitation homes is flat over the last six months.
I think there could be some downside here we had the tech stocks like zillow and open door go down first then we had the home builders I think the big corporate landlords are the next ones to go in terms of the domino effect here in the housing market in the stock market so don’t be surprised if invitation homes is down by twenty or thirty percent over the next six to twelve months.
So potentially if you wanted to bet against them and the housing market you could buy put options on invitation homes this is a strategy that’s been very successful for me over the last six months I’ve made over twenty thousand dollars just by betting against real estate companies through put options of course.
I’m not a registered financial advisor and there is some risk with buying put options so if you are considering the strategy i would encourage you to talk to a registered financial advisor to see if it is right for you.