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I’m hoarse from screaming, “There is no housing bottom.” Ask my wife. If we were near a bottom, homebuilders would be raising prices, instead of reducing prices and offering incentives. What the market seems to forget is that a more than eight-month supply of glut, increased mortgage rates, tighter lending standards -- oh, and a lack of buyers -- are making “bottom calling” a guessing game for amateurs.
Even to this day, we still hear the erroneous housing bottom calls made famous by NAR economist David Lereah, Treasury Secretary Hank Paulson, Jim Cramer, and now a Citigroup analyst. Now, before you run out and buy the Lennar and KB Home stocks, let’s review the reasons why they should be heavily sold.
No. 1, new-home sales are worse than what appears. These numbers may have fallen 8.3% in August to the lowest level in seven years, but new home sales numbers are based on contract signings, not closings. Those that inked contracts still have to secure financing in the current environment.
No. 2, $50 billion adjustable-rate mortgages (ARMs) will reset at higher rates this month, which could force millions of cash-strapped homeowners into loan delinquency and foreclosure. This will add more glut to the market, and depress home prices further.
No. 3, pending home sales plunged 6.5% in August to its lowest point since 2001. The Street was only looking for a 2.1% fall, and only confirms that existing home sales are in freefall. A lot of that is because 10% of sales contracts fell through because of loan commitment cancellations.
We could go on, but these numbers alone show that housing has a long way to recover. Just where is that buying opportunity, Citigroup? Experienced investors don’t see it.
Ian L. Cooper,
Death Cross Trader
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