The U.S. housing market is in a freefall. Prices are tumbling. Foreclosures are soaring. The subprime loans that spawned this train wreck are still wreaking havoc on the financial system.
So what are insiders doing at major home building companies? Selling their shares in a panic, right? Nope. They're buying up as much stock as they can get their hands on.
Insider buying is usually a bullish signal, because it indicates that company officers and directors think their shares are a bargain. Who better to judge the prospects of a company than the people who actually run it.
And if that's the case, you have to wonder if the folks who run home building companies know something the rest of us don't. Like maybe the housing market - or at least the home building industry - is nearing a bottom.
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True, there's no sign of a rebound in any of the recent U.S. housing numbers, most of which have been flat-out awful. But let's not forget that the stock market is forward-looking, so it reflects events that may be six months or more away. If there is any inkling of even the slightest turnaround in the making, insiders at home builders would be the first to feel it.
Which may explain why they've been gobbling up so much of their own stock.
According to Thomson Financial, industry insiders have snapped up a record $59.1-million (U.S.) worth of shares since November. Although one company, NVR Inc., accounts for $52.5-million of the total, the trend has been widespread, with 14 other firms also having insider purchases over the last few months.
Two insiders at Hovnanian Enterprises Inc., for instance, scooped up more than $2-million of stock. At Meritage Homes Corp., three insiders spent more than $1.5-million. And at M/I Homes Inc., five insiders shelled out a total of more than $1-million, according to Thomson Financial.
Why does this matter? Because insiders have shown an uncanny ability to time booms and busts in the housing market. The last round of heavy insider buying occurred in September, 2001, presaging a 79-per-cent increase in the S&P home builders index by the following June.
But by 2005, even as the housing bubble was still inflating, insiders were selling at an unprecedented pace. They got out right at the top, as it turned out; the S&P home builders index subsequently plunged 60 per cent.
"Such precision clearly demonstrates the expertise and the insight insiders have," Thomson Financial said.
They may have called it right this time, too. Since Jan. 9, when the S&P home builders index hit a low of 287.19, it has surged 45 per cent. Over the same period, the S&P 500 is down about 3 per cent.
Mind you, home builders' shares are still miles below where they were trading at when the subprime craze was still going strong and investors were flipping properties without even bothering to move in.
But at least the shares have stopped dropping. Whether that means the housing market will soon bottom remains to be seen, but the fact that insiders see value in their own stocks is one of the few bright spots in an industry that could use a shot of good news.
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