US Biggest builders: stocks falling

The charts are telling me a story. If I'm to believe the charts, the story is that the housing boom is kaput -- it's over. The daily charts of three of the biggest builders in the US -- the Ryland Group, Toll Brothers and Lennar Corp. You don't have to be a chart genius to be able to interpret what these three charts are saying. In a word, it's "top-out" (or is that two words?).

At any rate, what these charts are telling us, I believe, will show up in the economy and in consumer spending before this year is out. And I think it's going to be deflation of the housing boom in both prices and the number of new houses that will be built.

Southern California and San Diego have been two of the hot spots of the real estate boom. Prices here have shot up to ridiculous heights. I think this area represents a sort of barometer of the housing industry. At any rate, Robert Campbell puts out a very interesting and unique report, "The Campbell Real Estate Timing Letter" (858-481-3235). This is actually the only report I know of that uses a technical approach to the real estate market.

Robert called the turn in real estate in his August 2005 report, and so far, I think he's been right on the ball. Robert does not believe we're heading for a "soft landing" in real estate. Writes Robert, "Housing prices in seven California cities could go into a steep downward spiral." This is a most interesting real estate report.

I note a remarkable split between the psychology and sentiment of the nation and what I see in the stock market. People, in general, seem to be content. Everybody's drinking four dollar Starbucks coffee. Kids coming out of college can get jobs (not necessarily good jobs, but jobs). Every other goofball walking the streets is glued to a cell phone. The malls are jumping, and the art auctions are going nuts.

But on the markets it's a far different story. The Dow is now plunging in over-100 point chunks, oil is still high-priced, gold is going high-volatile, and most importantly -- the home-builder stocks are swooning.

My view is that consumer sentiment is due to change radically by the third quarter of this year. The markets smell trouble, but the trouble isn't apparent -- yet.