Investing in Housing: Come on in. The water's fine. The sharks are harmless.
By Ian Cooper
“If it weren’t for my horse, I wouldn’t have spent that year in college…” goes a Lewis Black-told favorite that still haunts my brain from time to time. But I warn you… think about that “horse” line too long and your head may explode.
Then I think of Paulson’s constant rhetoric of a mythical housing bottom, and I go back to thinking about why a horse helped someone through college, and then I return to the housing bottom… I come to the conclusion that thinking about how a horse helped someone through college is much easier to think about than the idea of a housing bottom from a well-educated official. I’ve also come to the conclusion that my head doesn’t hurt as much if I ignore Paulson, and opt for the horse.
For the last time, we are not nearing a bottom. We’re not close.
DR Horton just told us, as quoted by Forbes.com, “…there doesn’t seem to be an immediate bottom to the bad times.” This comes from a company where the cancellation rate sits at 38% from 32%. That’s well above the historical average. Bottom line here -- cancellations are rising. People are walking away. People can’t sell their homes in an over-inflated bubble to buy new over-inflated bubble-priced homes. There’s a fear of continuing home depreciation.
But, says Paulson, we’re at or near a bottom…
As for those who don’t believe in housing spillover, take a look at Home Depot and Sears today. Both issued bad forecasts because of the downturn in the housing market. Sears, for one, just announced that Q2 earnings could fall well below expectations because of home appliances and other products. And Home Depot just announced that 2007 EPS would fall 15–18% because of weak conditions in the housing market.
Ian L. Cooper
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