<the mortgage stocks have made an undeniable and major divergence from the home builders.>
Refi was what boosted mortgage stocks last year. Now that this has dried up, it is hardly surprising that the stocks have been hurt. However, refi has nothing to do with new home sales.
<Assuming the builders fundamentals are starting to weaken,..>
No evidence of this so far. There is some evidence that industry sales are growing less rapidly than in the past (this is not weakening, just INCREASING, but at a slower pace). It remains to be seen if the growth in market share will allow the major builders to continue to return superior returns. I believe they will.
<..the trend will have changed well before they admit it.>
The sales data will tell the story, whether you or the HB management admits it or not.
<<Refi was what boosted mortgage stocks last year. Now that this has dried up>> what do you think all these lenders are going to do,,,,,, Let the builders sell the loans?? this is going to exasberate the HBs even further,,,, they will "GIVE AWAY" free loans at the cost of margin,,,,, or the competition will leave driving up the cost of loans,,,,driving down prices,, either way the margin squeeze will be greater than the stock price squeeze (looking forward not back) <<There is some evidence that industry sales are growing less rapidly than in the past (this is not weakening, just INCREASING, but at a slower pace>> This is looking like a trend (not confirmed) and if it even just softens in TWO months the YoY comparisons are really going to get harsh and if they only go down a little for 6 months (because of RAIN) the comparisons are going to be UGLY,,,, looking back
Now you were saying, if money stays FREE and if sales trend back to projectile, and if costs go down, and if the loans they give away perform they will beat there targets again,,, Well you Alex and the longs will be right again, I am just a little IFFY myself
I agree, the divergence here would seem to be material. I think the bulls believe that finance isn't a major contributor to the HBs fortunes while most bears see a bubble driven by low rates and loose credit. I would expect to see the HBs trade down but that said we seem to be in some pretty wild territory here so I'm just not sure where we'll be at next week. Since CNBC is telling us daily about the HBs there are a lot of momentum players involved now that are pushing the sector.
A big surprise to the upside on the jobs number on Friday would amp talk of a 50bps raise by the Fed and would seem to cause the HBs to sell off. A miss to the downside will cause bonds to rally and probably the HBs too. Since the jobs number is so volatile Friday will be interesting.