Related Topics
Stocks , Trading , US Markets

Housing Recession? This Homebuilding Stock Says, "I Ain't Scared."

Last November, experts called the "R" word on the U.S. housing market. The 4th largest homebuilding stock (NVR, Inc.) should've crumbled. But instead, this happened.

by Nico Isaac
Updated: March 10, 2023

A few months ago, my brother's landlady abruptly announced that, due to soaring property taxes and the commensurate surge in building materials to do necessary renovations, she would be selling her house by March's end.

Thus began he and his partner's amazing race-like rush for an affordable rental property equidistant to their respective jobs. One failed attempt after another, they finally found a place that wasn't snatched out from beneath them. The application process was as stringent as the background check to becoming an FBI agent. But after a week of filling out paperwork, they received an approval letter.

"Congratulations," it began. "If you'd like to move forward and secure this property, we require immediate remittance of the following fees." This included 2 months' rent as a security deposit, prorated rent, non-refundable pet deposits, and the real clincher, pet rent for each animal.

Pet rent!? They have 2 tiny lap dogs. Are they supposed to sign tiny chihuahua-sized checks and stamp them with their paws?

All of this to say, unless you've been living under a rock for the last year (which I'm sure comes with both rock and pet rock rent), you know the U.S. housing market has gone from boom to bonkers to dare I say, bust-ish. It's been a perfect storm of soaring home prices making buying prohibitive, along with soaring mortgage rates rising to 20-year highs, building material inflation, and by proxy surging rents all contributing to an affordability crisis and the National Association of Realtors declaring an official housing recession in August 2022.

On Oct. 24, Barron's reported that "sales of existing homes in September were 23.8% below the same month last year," and predicted:

"All signs point to a continued slump. Home loan applications, a leading indicator of home sales, have continued to pull back, with the volume of home purchase applications during the second week in October 38% below year-ago levels."

And from there, the news went from bad to worse:

  • "Housing Market Recession Deteriorations Continues" (Nov. 17 Forbes)
  • "Home Builder Sentiment Drops to Decade Low" (Nov. 16 CNBC)
  • "Home Builders Warn Collapse is 'Unsustainable' and Prices Could Tumble Another 20%" (Nov. 16 CNBC)
  • "Home Builders Headed for More Pain" (Nov. 10 Kiplinger)

Now, imagine being in the shoes of an investor during this time. You're scrolling through the Big Board ticker tape, trying to decide which stocks to buy. The second-most expensive NYSE listee, NVR Inc., which also happens to belong to the 4th largest U.S. homebuilding company, pops up. The "fundamental" backdrop for NVR was as dire as my brother's chihuahua Bandit's face when he realized he'd need to get a job to afford his $50 per month rent.

By mainstream accounts, NVR couldn't have been a less attractive buy.

And yet, by Elliott wave accounts, the homebuilder was as bullish as they come. Yes, you read that right.

Here, on November 1, our Trader's Classroom presented this chart of NVR, which carefully analyzed the price action since June and determined the sloppy, choppy, and downright ugly movement to be a textbook countertrend move. Specifically, the three-wave structure known as a zigzag.

NVR Inc - NYSE - 240 minute bars - 11-1-22

Wave C of zigzags usually move well beyond the end of wave A, hence the bold arrow pointing NVR higher. From the November 1 Trader's Classroom:

"As you can see the focus is going to be to the upside moving forward up to that 4900-5000 mark as we trade into November, December, even January. The way I arrived at this hypothesis of higher prices in NVR was by simply looking at the chart and going hey, this price action right here, I understand the modality of the market during this period of time, and this typifies corrective price action. In other words, this is a countertrend move, and as a countertrend move, once complete, we can expect it to be more than fully retraced."

Notice: The looming housing recession, and homebuilding crisis played no role in Trader's Classroom forming its bullish hypothesis.

And from there, NVR followed its Elliott wave script, soaring to its highest level in 2 years in February.

The fourth-largest U.S. homebuilder stock stared a grisly housing recession in the face... and soared to multi-year highs. And yet, you hear every day that news and events drive price trends. Ha! Investor psychology, which unfolds in Elliott wave patterns directly on price charts, is the real driver.

Of course, trading markets carries risk and not all Elliott wave interpretations turn out to be correct. But in order to anticipate trend changes in the markets you follow, you must understand WHY they go up and down -- you must see the pattern. Our Trader's Classroom is where education in pattern recognition meets opportunity.

Resolve to become a stronger, and more independent, participant in the markets you follow AND watch the newest lessons instantly.

(Also, if anyone's looking for a professional table-scrap cleaner with 12 years of experience, I know a chihuahua for hire. Pet rent is due.)

Trading Lessons (Plus, Market Opportunities): 2 for 1

3 times a week, press "Play" and watch the instructor Robert Kelley explain in comprehensive detail how to recognize the relevant Elliott wave patterns (and supporting technical indicators) underway now and in the future.

This is every Trader's Classroom video in a nutshell: a lesson, often with a new opportunity.

Here's how to watch the latest lessons now.

Overseas Buyers Scoop Up U.S. Shares (Bullish or Bearish)?

You may want to keep an eye on the buying and selling levels of U.S. stocks by overseas investors. History shows that this has served as an excellent indicator for decades. Learn why this indicator is important now.

Interest Rate Whiplash: Our Forecast Before Bank Implosions!

Have a look at recent action in the huge 10-year Treasury Note market, and see the opportunity subscribers had to "position correctly" before Silicon Valley Bank's explosive failure made headlines.

Crude Oil: Will “Banking Crisis Send Prices Even Lower”? Ha!

The financial media blamed crude oil's 5% slide on March 15 on the banking crisis. Yet, Elliott wave analysis anticipated oil's downward move well before the bank failures hit the headlines. Here's a sample of our commentary during the past couple of months.