One of the sectors I've been relentlessly negative on for the past few years is housing in general and the homebuilders specifically. It's time to start putting the homebuilders with the greatest focus on first-time buyers on your watch list: Hovnanian (HOV) and Beazer Homes USA (BZH).
I started my admonition against the homebuilders about 2.5 years ago in the column, "Time to Move Out."
The ballpark expectations I shared then and since are that, in my opinion, they were all overpriced and needed to decline by about 50%.
Hovnanian and Beazer have declined steadily since then and are down 71% and 63%, respectively, near their immediate post-Lehman-era-crisis lows.
The reasons for this performance have been centered on why first-time buyers have largely been absent from the marketplace for homes since the Lehman-crisis era. I've written many columns on why this is so, but there are two common themes among them all: a lack of financial resources and a lack of confidence in future financial resources.
The principal reason for those concerns is the lack of job creation and income growth since the Lehman-era crisis.
A similar kind of event took hold of the housing market after the savings and loan (S&L) debacle of the late 1980s and early '90s. Home prices, home sales and homebuilders' stocks crashed. Real national average home price appreciation grew below the rate of inflation for the decade that followed and lenders were hesitant to supply development capital to homebuilders.
As the old saying goes, though, time heals all wounds. Buyers, lenders and builders returned to the market.
I discussed the similar sequence of events that followed the S&L debacle and the spectacular returns of homebuilder NVR (NVR) in the column, "Lessons From 1994 on Rates and Housing."
The same will happen this time. It's been almost eight years since Lehman failed and more than 10 since subprime mortgages began to default.
During the ensuing years, as first-time homebuyers have failed to return to the market, beyond the lack of job creation and income growth, many causal reasons for such have been identified. One of them has been the idea that the younger generations do not have the same interest in being homeowners as previous generations and would prefer to collect experiences instead of things.
Although there may be a temporary component of logic to this, it is illogical to think it is permanent.
Everyone wants to have a place they can call home and feel secure in. It's the first and second rungs on Maslow's hierarchy of needs.
The temporary nature of the lifestyle chosen by the younger generations will last as long as the lack of financial security lasts; and that will continue until job creation and wage growth increase.
The most immediate path for such is through direct job creation by the federal government, through an infrastructure program or some other kind of direct spending focused on human labor opportunities.
That brings me to the reason to put the first-time homebuilders on watch now.
Of the two presumptive presidential candidates in the U.S., Donald Trump has been the only one to repeatedly focus on the need for infrastructure investment, which he discussed again in today's speech.
He's not laid out how he would go about it, but no matter how that occurred, it would create a lot of jobs.
That speech is being billed by the media as his beginning focused assault on Hillary Clinton's character, an issue I discussed in the column, "Trump Says He'll Go After Infrastructure and Clinton (Not in That Order)."
Although he only mentioned the deletion of emails by Clinton once in that speech, as I discussed in the previous column, I suspect it will become a bigger part of his attack on her as well as the existing parties involved in the investigation of it; namely Attorney General Loretta Lynch and FBI Director James Comey.
If he does so, the media will be obligated to report on the issue, something that's been absent since last summer.
It will also force the existing Republican leadership in Congress to do the same, which they too have chosen not to discuss.
If these things happen, and I think it is logical that they will, the prospects for a Trump win in November will increase and that should cause investors to start to become more optimistic about job creation and the natural trajectory of economic events that follows.
I'm not advocating taking a position in the builders referenced here yet, but advise being watchful for the evolution of events that I've outlined here, which should be positive for them, if it occurs.