Little things appease small minds and we are particularly pleased with a new screen showing which shares have hit a new 52-week high in terms of short selling. This new arrow in our quiver has thrown up a trend hitherto missed – demand to borrow the main listed house builders is very strong at present. We will look at Lennar (NYSE:LEN), DR Horton (NYSE:DHI), Pulte Group (NYSE:PHM), Toll Brothers (NYSE:TOLL), Standard Pacific (NYSE:SPF), KB Home (NYSE:KBH), Beazer Homes (NYSE:BZH), and a couple of UK firm’s that feature in the form of Persimmon (LON:PSN) and Bovis Homes (LON:BVS). We will also look at Sino-Ocean (HKG:3377) and Agile Properties (HKG:3383) in Asia.
US and UK house builders have survived the financial crisis, and in the main, purged themselves of most debt leaving them less leveraged and fit for a future of more modest demand. However, investors are borrowing shares in names like DR Horton, because demand for new homes in the US is not rebounding as many would hope. US macroeconomic data is mixed, but one thing is sure: confidence is low and is not being encouraged by further quantitative easing from the Fed. DR Horton sees just under 10% of its shares on loan, which is a day or two off its annual high.
Lennar is the name with an actual short interest figure at its 52-week high at 13% of total shares. Along with most of the US house builders, they build homes and lend people money. Beazer Homes USA has an equivalent figure of 15% while the smaller KB Home is 16%. To prove that this is a nationwide view, we also look at the west coast specialist, Standard Pacific to see that they have 8% of their shares on loan. While lower than the others, it is around four times the average for US equities.
The rather more upmarket house builder, Toll Brothers are less in demand from short sellers at 6% of shares borrowed. Pulte Group, who partly focus on first time and second time buyers, have 9% of their shares on loan. This is much lower than it has been, but the number has been recently rising and the shares have been suffering.
Against the backdrop of the latest round of potential bank renationalization in Europe, are the UK equivalents in the same boat? Only two firms: Persimmon and Bovis Homes, seem to fit the bill, and even then the scale of demand to borrow is far below that of the US names. Counter balancing this fact is that there are far fewer funds which actively short UK equities compared to US equities, so the numbers are likely to be smaller anyway.
Short selling in Persimmon is miles lower than it was in the credit crisis and it has been slowly declining over the past two years. But, this switched around in early September when stock on loan more than doubled from 2% to 5%, and has since been rising to 5.5% today. The increase took place earlier in the year with Bovis Homes, but there has been some short covering recently as the price has fallen from 380p to 330p since October.
In Asia there have been recent developments to cool their property market, which could slow down the price increases in the likes of Sino-Ocean Land and Agile Properties. In the latter, short selling has climbed back to levels last seen in June. This was the last time people expected a cooling off of China’s rampant property market. For Sino-Ocean there has been dramatic short covering, but it remains quite high at 4% of all shares while the price is falling.
