Goldman Sachs On Why The Housing Market Is Terrible And Homebuilders Are Doomed

chartNew Home Sales

Photo: Goldman Sachs

A note out from Goldman’s Joshua Pollard tells investors to fade the rally in homebuilders.While homebuilder stocks have outperformed the market by 1.5% in the past three months, Pollard says stocks are getting ahead of the recovery. Actually housing data has been lackluster this winter, and indicators like new mortgage applications point to a low sales in the spring.

Goldman has reduced its target for 2012 new home sales to 425k from 485k.

The bank predicts 10-15% new home sales growth in 2011 and 2012, well below consensus estimates for 20% growth in 2012.

Mortgage applications show the direction of home sales -- and they crashed over the winter

Low mortgage apps in January indicate only a 61% increase by April

Low mortgage applications in January predict low mortgage applications in April (and last year's jump was based on housing stimulus)

Weak growth in mortgage apps translate into seasonally-adjusted flat new home sales

This is the key season for homebuilders. A weak spring means a weak year.

Homebuilder stocks are massively outpacing housing starts

Low new homes inventory reduces pricing pressure

The premium on new homes is at the highest level in decades

Now look at the large existing homes inventory -- not even counting the delinquent mortgages that could flood the market

Low new home inventory predicts low new home sales

BIG PICTURE: Goldman expects 10-15% new home growth in 2011 and 2012 -- i.e. no significant recovery

Although the bottom in housing sales...

Recently this correlation is weakening. New home sales are not keeping up with even a lackluster jobs recovery.

Good sales data in December was skewed by a record increase 71% in the West -- and Goldman blames this on statistical error!

Homebuilders in these regions could suffer most...

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