Don here…
Blake Young pulled the fundamentals on the home builders today. Toll Brothers now needs 16 months to sell the inventory it used to clear in 13.
Their net profit margin fell 15% in a single year. Costs are climbing faster than home prices.
Yesterday set the table for it. The Fed held rates steady. The market treated that as bad news and sold off hard.
Blake points to Warsh. He intends to fight inflation aggressively back toward 2%. That path runs through selling bonds or raising rates.
The selling dropped the S&P 500 almost perfectly into Blake’s buyer zone. It gapped up from 727 and spent today trying to close higher.
He is watching 738.50 into the close. A close below that monthly monkey bar puts 727 back in play, then 716 or lower.
Housing is where the real opportunity sits. Inventory has climbed against average sales for five straight years, with only two months as exceptions.
April 2026 inventory reached 1.47 million units. That works out to 4.4 months of supply, and it has kept building since.
Costs refuse to cooperate. Copper trades above 647, near multiyear highs, and the US Geological Survey still ranks construction as its number one use.
Lumber tells the same story. Prices ran from 525 to 623 per thousand board feet, roughly 15% to 20% off the lows. Fresh tariffs on Canada point higher.
Tonight’s video breaks down the fundamentals and the exact structures Blake is using:
- Toll Brothers inventory turnover sits at its worst level in five years. Blake tracked it from 93% down to 79%, then to 73% this year, stretching the time to clear inventory from 12.9 months to 16.25 months.
- D.R. Horton now takes 12.5 months to turn over a home versus 8.6 months in 2021. Its net margin fell from 17.4% to 9% since 2022, so it earns half as much while working 33% longer.
- Blake passed on the Toll Brothers short call vertical. The 155 strike paid $1.45 against $3.55 of risk, which demands a 71% win rate while the analysis shows 66%.
- The September long put vertical on Toll Brothers costs $11.40 for $20 of width. Break even sits at 153.59 with the stock at 150.50, so the position pays even if price rises $3.
- D.R. Horton’s 149/150 call spread shows a 60 cent mid on wide markets. Blake would take 45 cents, needing a 55% win rate while the numbers give him 61%.
Net margins have not gone negative yet. Blake treats that line as the warning that matters, because a negative margin would mark a full break in the industry.
He is positioning bearish on home builders for the next few weeks, possibly through the rest of the year.
