Submitted by Realistic_Weight_703 t3_zxvi00 in wallstreetbets
What are the communities thoughts on buying put options on home construction companies like Lennar, Beazer, Tollhouse Brother, etc.
I’ve noticed that they all have a decent chunk of unsold (quick move-in homes) that will carry over on their books on top of slowing construction due to interest rates.
The bulls are pointing out the relatively low P/E ratios (around 4-5) but I’m still skeptical.
>I think that buying put options on home construction companies is a good idea. I believe that the market for these types of companies will continue to decline, and as such, their stock prices will go down as well.
[deleted]
[deleted]
I'm fucking dying here 🤣🤣🤣
since interest rates are likely to raise for the next session it could be a decent short term play. The P/e ratio is arbitrary in this case, i would seek out the earnings growth rates are go from there.
Yea you’re going to lose money
Puts on Tollhouse. Hate those cookies. As for the builder Toll Brothers, duck them too. But yeah LEN rolled over hard today
I would keep an eye on housing starts, commodity prices, interest rates expectations and go from there. Now I'm ready to start looking lol..
[removed]
My builder said they’ve had multiple people walk days prior to closing.
Fucking bots…
The risk reward..don't like the idea at all.. It may work but I'm buying puts on garbage companies.. I post daily ideas on what I'm looking at
Probably not the best idea now.
https://www.kbhome.com/move-in-ready?state=texas
347 move-in ready just in Texas…
Google the other builders they are sitting on inventory like a snorlax
Sell calls now, buy puts in at least 1-2 months, both sell and buy puts for a while til you think close enough to bottom or stalled thst others will be looking forward then keep buying outs and sell the fuck out of calls
Or what you see fit. I mean by this- employ your inclination/thesis for one position and the use inertia of sentiment as a weapon as well.
Garbage in, garbage out.
I work for one of those. I can confirm inventory backlog issues. Closing issues etc. bleak 23' coming don't want to say to much
who has the most debt that may need to be serviced soon? Do any of them look like they may need to dilute shares to raise cash? Do any of them have a price point below 5 that pension funds may have to liquidate due to guidelines?
Just give me the strike and expiration. I'll figure out the rest.
I have more information then what I probably legally am allowed to say. I wish I knew what to do with it quite frankly
I have shares in TOL, sold CC against them, nice premiums, I also have some puts for insurance. So I am ready. Dividends are icing on the cake.
Excellent questions I need to look into
Since you work for one of them, you probably can't buy puts on that information but couldn't you buy puts in a related company? I assume if one of them is in trouble, they all will be to some extent.
Someone mentioned a RE related company that was going to lay off a bunch of people but since they worked for them, couldn't publicly say who. I DM'ed them and was told the company but it was already pretty beaten down so didn't do anything with that info. It has fallen 60% since that message. Oof.
I am bearish on them. Been following r/rebubble for years and we hit peak market about six months ago. Builders are dropping prices and still getting cancelled contracts. Double whammy. Theyll be forced to sell existing inventory at a loss meanwhile no demand to build anything new.
I decided to straight up short them. I don’t like buying options on stocks with high bid/ask spreads. Thinly traded options. Then when you go to sell, you take a substantial hit on the spread.
I just went short about $10k on each of the big ones. Opened up the positions over the last few weeks. Not worried about margin call if they shoot up because I have more than enough t-bills to back it up. Also note my $0 value Sberbank position. Thanks, Brandon! 🤡
Also not listed in the screenshot is $100k of GDXJ. If the fed does pivot and restart QE then my shorts against home builders and QQQ and FB will be crushed but gold will go to $4,000 and gold miners will 10x. If the fed doesn’t pivot, gold still on track for $3k soon and gold miners could 2x to 3x. Portfolio hedge here where regardless of what happens, I shouldn’t be blown out and should be positioned to profit.
Oh damn yeah, selling naked calls or credit spreads is a great idea. Depending on the volatility. If it’s high, then worth selling.
This is wallstreetbets. We’re all friends here, my friend.
XHB puts.
Another is MTH they have a metric fuck ton of stale inventory that’s been sitting for close to a year. Check it out: https://www.meritagehomes.com/state/az/phoenix/search/qmi/1/ (400 just in Phoenix, AZ)
Thanks. Good caveat.
Another instance of business vs market differences I fear will kill this idea.
Real estate as a business is a beast on sentiment to its following. High hopes always. It makes me think super volatile, same as these cheap watch movement-esque ticks up once daily on DRV. It just feels like RE sector investors are always all gung hoe (so?) but the reality hits in just a little— so many haven’t bailed from REITs and residential property companies yet that it’s just begging for selling em what they want.
But In this market’s world, volatility it’s doesn’t necessarily make, I fear.
Also I probably wouldn’t go short on larger commercial and industrial builders for too long I don’t think. Especially those building in for medical space (that PE market seems to be climbing)
Plus those guys should actually get a little more of the pass through on some of the materials prices that have fallen, I don’t think resy will get that full discount to real commodities pricing plus standard MU for some time
Look from 2006 to 2009 TOL fell from 60 to 15.
During march 2020 TOL fell from 45 to 15. As a society we are scarred by the GFC and any time it seems like shit might get rocky everyone gets mega bearish on housing and mega bearish on builders.
i'm mega long all of these shits for this reason, RE bulls are delusional af and loss averse af. THey will refuse to sell for a loss. How is this good for builder ? For one, it ices the home flipper lottery...home flippers are kinda price insensitive in a mania and will bid up contractors, equipment, materials. Look at lumber, price way downies. Contractors are now hungry for work. Etc. margins are expanding for builders. Home flippers are gonna hold the bag for years rather than take the L and move on with life. Not only that, but who is gonna buy from a flipper when they could just buy a brand new home from one of these builder for a 5% discount off median or whatever
Btw BLDR bought back literal 10% of their float in the last fucking quarter and has a forward p/e of like 4
backlogs of a year broadly throughout the market idk literal GFC is already priced in, as long as Jerome doesn't use his tool too hard i don't see how i lose money on this
so this is a good point, builders with regional presence might be fucked. I think ackman is fuckign himself with his Howard Hughes home building play, they mostly build in Vegas, Phoenix, Texas, they are fucking fucked those markets are all down -20% already what's to stop them from going another -20%
KBH and TOL do have exposure to cratering markets, but they also have exposure elsewhere, including multifamily residential in cities...they can rotate around and print money thru whatever is next in the economy. We have an undersupply of homes coz no one built shit after GFC, airbnb hosts going wild obviously is contributing a little to make this a "shortage" and those airbnb hosts will capitulate, but even if/when they do it's not gonna make up for the structural deficit
we are in populist politic regime, millenials are gonna vote for politicians that keep helicoptering money for new home builds so we can all have our picket fence and fluffy doggie
i am long
i am kind of happy to know that everyone in this shid is bearish
i am bearish home prices, home flippers are fucked and all the airbnb hosts are gonna bankrupt each other
but builders margins compress once home flippers are iced. Too many people are expressing a bearish home price thesis (which i think is correct) with a short home builder trade structure, which IMO is silly and ya'll gonna get face ripped
Anyways one of us will eat
Remind me in 6 months
Explain what will happen to the builders inventories currently unsold due to cancelled contracts and the ones that will be finished in coming months?
Recession means unemployment. JPOW raising rates.
AirBNB investors getting crushed. What if they sell their properties? Inventory goes higher. Builders need to lower prices even more for unsold inventory.
Cost of new home stays the same since labor costs high but costs of existing homes drops. Fewer will choose to buy new builds.
I'm seeing here about an hour outside of Nashville. The prices are dropping fast and and slowly creeping inwards. The same way they shot up in Nashville and then radiated outwards to the suburbs they are now dropping in the suburbs and moving inwards.
I was helping a family member look back in February and there was literally only 1 listing in our county. And it was a 30-year old trailer selling for $200k. I looked a couple weeks ago and there was 58 listings and there were several older 3-bedrooms in the $140k range. Same thing with my house the "zestimate" on Zillow had it at $330k back in February today its $240k.
Little too late for this play.
people have been cancelling liek crazy and walking away from deposits...oh no the builders keep the deposit and then drop the price by 10% and sell it to someone else and still keep a huge margin.
Look there are risks here no doubt, but right now every builder has GFC being priced in when it is in every politicians best interest (including Jerome) to keep the housing ponzi going.
Speculators are gonna get blown out coz they need a 6% increase just to break even post fees and what not, but homebuilders keep margins even if speculators lose money. Go thru their income statements, 20% margins broadly, and their costs have been coming down as speculators get iced
so TOL average home selling price is 1mil
idk who makes the lower priced housing, but the luxury end of housing is keeping up in enough markets that builders can maintain their margins
the key is understanding that homebuilder costs went up a bajillion % when they were competing with speculators and flippers. Now their costs are cratering as the price insensitve speculators get fucked, so even if home prices crater, they can still maintain margin
It’s just a crowded short. Everyone knew rates were going up months ago. Time to do that would have been 4-6 months ago.
They’ve all actually been very prudent about deleveraging in anticipation of a coming storm.
They have been making so much money. It’s going to be a bad 2023, but I don’t know how low you really expect them to go. They all have clean balance sheets and trade at discount valuations because everyone is already expecting homebuilding to be a mess next year.
It would have to be really catastrophic for puts to print wildly.
Just feels like there is way too much garbage out there to bet against to really need to dig for stories like this, where wildly profitable companies with clean balance sheets and discount valuations are going to have a widely anticipated bad year because of macro stuff. Just bet against the garbage instead.
not the worst idea I've heard on this sub...but, not saying much as I once read a post asking how to short Italy. Yes, the country
One man ran 70k into 1million he going short in CAT, you better go short with him
There is no stock called tollhouse
Single Home development permits are down 6% and building permits are down 2.4% last quarter safe to say puts sounds sensible.
Which builder
Even if there's another housing market downturn, we are still way below the amount of needed housing stock.
Plus, lumber prices are back to normal, which will help builders immensely.
Tollhouse brothers (TOL)
One of the mentioned companies will be starting those layoffs this quarter as well and probably not the one mentioned to you
Margins are not expanding for builders though I can confirm this statement
What does it start with? :)
The L etter might begin with something that you put an enevelope in but this not financial advise at all
[removed]
r/illegallifeprotips is ---------->
Gotta get married and elected to Congress first. Pull a Pelosi.
This guy fucks
His name is Bob, his sentient tools help his bottom line.
I’m long on Florence but Milan is a definite short 🇮🇹
No offense broseph but this play was for 1 year ago today. These stocks already got destroyed.
Slave labor
Yeah, you're not wrong I just think there's still room on the downside to make some coin. We haven't hit the full-blown recession yet IMO
Could short Cemex ticket CX, Mexican cement manufacturer that supply’s southern US and Latin America. Southern USA makes sense especially because we see large growth in places like Texas and Florida.
Is that the same idiot always running around yelling "can we build it!?" Guy needs to just stfu and get to work
Well it could go up but it could also go down.
God this is the type of critical thinking this sub’s missing. I’m in.
Maybe expanding is a strong word, but their costs have cratered I mean lumber is down a bajillion %
You understand that all lumber purchased is from 3-6 months ago not what the current "rate" is right? All the homes built right now are still part of the inflated costs. Only homes delivered in Q3/4 23' will see reflected lumber margin discounts which will be offset by drastically reduced home sales prices
look if you wanna pull up a financial statement from a builder that shows margin compression please do
i haven't seen it yet and ur kind of proving my point
I'm not proving your point what so ever. I don't lose sleep on people not believing what I live day to day. I'm just stating the facts from the northeast region. I really don't give a shit what your thoughts are if you believe me. Sales are down 30% month over month. Monthly cancelations are over 15-17% where normal was 5 Home prices are reducing by 5% cutting into margins As they continue to decrease to meet sales goals. Well. Do the math. A 20k lumber reduction on a house doesn't cover the margin loss with sales price and PSF cost
♥️ u bro
It’s French
I have 1100 30p/April TMHC. Look at the oi on the chain, yup that's me.
TMHC is down 10% this year. It's crushing the market. This one has room to fall.
Lehman Brothers maybe
Low volume/OI — dumb idea. Directional options plays from noobs are typically the first signpost on a downward trajectory right to the Wendy’s dumpster.
Fucking Bob has got to stop Bullshiting on his everlasting coffee break and Get back to work.
You’re late to the game buddy
Lumbers going down, people paying cash for Renos. Weigh the options, in the end it’s your CALL
[deleted]
Why is this nsfw? I am working on trying to get fired and your post is not helpful
Witch builder
What’s the garbage
Unprofitable tech and fintech, unprofitable retail, SaaS companies trading at 30x revenue, SPACs, meme stocks, etc. There is a huge amount of loss making trash in the market that is begging to be shorted.
Homebuilders face a tough 2023, but they are wildly profitable and cheaply valued today and have balance sheets that should stand up well to a big downturn in demand, with margins that are so good that they’ll likely still be profitable even if revenue craters.
Nobody knows anything, but feels like looking for blowups in this sector is unnecessary when there is so much low hanging fruit.
Appreciate it . Never shorted before so I’ve been doing a lot of research tryna figure out which companies have the most risk . What do you think about BDCs and private equity firms such as Blackstone , KKR and Ares ?
Probably lenar
Puts on the Keebler elves making mortgage on that tree
Lehman Brothers makes more sense. Puts on Lehman Brothers.
I think with lumber prices back down to normal levels people will start to build more. As opposed to buying existing overpriced homes.
As someone who works for probably the largest material supplier nationwide (i am outside sales directly to the end user contractors) aside from pricing of materials and shortages, most of our salesmen who deal directly with framers and housing are down 20-30% yoy and doesn’t look like it’s getting any better. We have even pushed back our ipo because of probably exactly what you’re questioning. May not be a bad bet
Daaaamn I might have to grab some of these lol. What do u know?!
Go ahead, S'all good, man
Home builders r fukd. California Texas Florida and Arizona builders are especially fukd.
I have puts on DHI and LEN. You could also do ITB for ETF put, I may roll some ABNB put profits into that. Builder stock prices have been holding up better than most, they were doing big buybacks. Hopefully that has come to an end.
That PE is based on the greatest market builder have had in years and they are moving into one of the worse.
LEN :((( whoops
They have not got destroyed.
LEN just reported lower than expected margins on the last earnings.
I think is Lowe's Companies, Inc. (LOW)
The ticker name (LOW) suggests that is going low.
>These stocks already got destroyed.
Are you joking?
Most of them are still way higher than pre-covid levels.
No!! Do not do this!!! You will bankrupt! I’ll post 3 pictures that a trader/Substack I follow posted last week! I pay $125 a month for this… you’re getting it free because I don’t want you to lose money bro
[removed]
Hmmmmmmm mmmmm
I disagree with the bots here. There's ZERO upside with builder in 2023'
Yes I was on earnings call a month ago
So let me explain what is ACTUALLY happening because these other people clearly don't Trust me it not I don't care We have inventory that we built at let's say FOR EXAMPLE 100psf and we anticipated selling for 35% gross margin when we started those homes 8 months ago up until just the past three months we started lowering the pricing so we are still willing to accept a lower gross margin though it hurts the people who just bought in the community (oh well) So those inventory homes we started 5-8 months ago are not selling now in certain areas. We have the margin spread to still make profit beyond expectation prior to Covid. And to hit our numbers (sales only) we will lower the prices all for that signature
So now what is happening is the prices are dropping inventory is increasing cancellations have tripled in past 3 months (hard facts) We still built these homes at 10X lumber costs The stupid response from regards that lumber is almost back to normal doesn't apply to Jack shit until 8-10 months from now Anyone who tells you different is clearly sniffing shit out of grandmas toilet
EVERY National home builder is projecting layoffs in various forms beginning this quarter some like toll have drastically cut staffing in various regions where I am located
Nothing would please me more than to come here and applaud our efforts nationally but I'm telling you facts behind the scenes that exist in private upper level conversations that 2023' is uncertain at best. Negative is anticipated and "get ready for bleak 2nd half" Most of us National builders have backlog sales up to the second quarter this year meaning. We have started homes with declared /projected profit margins based on closings through may/June Sales dropping immensely curbs these expectations after this timeframe This is a RACE to fill our backlog with margins that make sense and keep an "even flow" projection through the year Most if not ALL divisions and companies are projecting even or negative start/closings/sales for back half 23' Some of us will project even comparing 22-23' which is a RARE declaration in todays world. Do what you want with this. Down vote me or ask me anything I don't care
fwiw LEN is diff demo lower cost housing, TOL average sale is 1mil, i'm bullish TOL KBH BLDR LPX BXC PGTI
i know i'm moving goalposts here a bit but i've said this in other comments, higher end homebuilder r diff
Homebuilder that are localized like the shit ackmans in that serves phoenix vegas texas is fucked
lower end possibly fucked idk i haven't really looked into it
EDIT : lower end of econ is getting fucked in a much diff way than higher end rn blah blah i know i'm shifting goalposts a bit here
Great DD,its going LOW,all in bois
I do not totally disagree with this, for now, higher end builders seem to have more demand at this time. However that could change.
[deleted]
[deleted]
VisualMod t1_j22i2r7 wrote
^^Discord ^^BanBets ^^VoteBot ^^FAQ ^^Leaderboard ^^- ^^Keep_VM_Alive