Eli Broad’s Two Cents on the Housing Market

Eli Broad is one of the country's wealthiest men. He rode the housing boom in the U.S. for all its was worth, turning his KB Homes into one the largest homebuilders in the country. He made perhaps more money from his investment in SunAmerica, which was purchased by AIG.

This wealth he has amassed allowed him to build one of the world's largest art collections, donate millions to charity and even slap his name on the business school at Michigan State University. Much like EF Hutton, when he speaks, people listen:

Eli Broad, a philanthropist and co- founder of KB Home, the fifth-largest U.S. homebuilder by revenue, said he expects home prices to drop another 20 percent.

`I don't think we're anywhere near a bottom in housing,'' Broad told Bloomberg TV at the Milken Institute Conference in Beverly Hills, California. ``We're going to have a big inventory of unsold, unoccupied homes that's going to take three or four years to clear out.''....``People were using their home equity as really an ATM machine,'' Broad said, referring to an automated teller machine. ``They were spending more money than they were earning by taking equity out of their home. That couldn't go on indefinitely. We're now paying a price for that.'' Bloomberg

Mr. Broad, the "B" in KB Home (KBH-NYSE) certainly has the bear case for housing down stone cold; unfortunately he is not telling investors anything they don't already know. The homebuilding stocks don't seem to care, they are among the biggest gainers in the market year to date.

Short sellers, however, seem to share Eli’s skepticism; short interest in many of the NYSE listed stock’s were essentially unchanged in the most recent update, suggesting the shorts do not seem in any hurry to cover. Super sleuths might want to check options activity to be sure, something that I have not done.

And the Homebuilding ETF (XHB) is approaching technical levels that the bears have recently used to turn back the determined bulls. Will it hold the next re-test?

A push slightly higher might finally prompt the shorts to cover in a panic, which would quickly settle the matter.

Eli’s recent investing track record is a mixed bag, he has made a fortune in the art market, but his injection of capital into Goldman Sachs’ Global Equity Opportunities hedge fund last summer was a short lived affair; Goldman’s stable of quant hedge funds are on their last legs and pulled the cash earlier this year.

To be fair, Eli did not speak to the future direction of the homebuilding stocks, but the scenario he laid out cannot be construed as bullish. The stocks are talking, but many investors are not buying it.

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KB Home’s Broad Says Home Prices May Drop Another 20%
Bloomberg
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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