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cubanstockpicker (21.12)

Housing market up? Is it real?

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October 02, 2007 – Comments (2)

After watching my housing stocks that I have shorted strangely going up in value made me wonder why the sudden increase in activity AND  price.

After reviewing the news, I am still not satisfied with the fundamentals on this type of speculative play. And i think the speculators are absoultely wrong.

Here are my reasons:

1) The worst isnt over. There isnt one single indicator showing that. If there is, please reply with a link, anything. I think the speculative rise comes from a spec report that maybe, just maybe the housing crisis is over. Why did they arrive to that conclusion? Because banks are reporting their losses clearly for the first time, ala Citigroup and Merril Lynch. The problem with that spec play is the home lending fundamentals have changed dramatically.

2) There are no more subprime loans, alt-a and stated, nina, sisa and all other types and styles of programs are done for. So, if the housing boom was fueled by speculative buyers and easy lending guidelines, WHO ARE THE HOMEBUILDERS GOING TO SELL TO NOW? The fact is, the average joe never really qualified for any homes when their LTV was 100% and their DTI (DEBT TO INCOME) was well above safe levels. Fannie Mae/Freddie MAC, VA and FHA have thier DTI at around 40% with some slight modifications. ALT-A and BC had programs that went all the way to 55% DTI. That basically meant that bad loan with a teaser rate was already right at a dangerous waterlevel. Now imagine when these loans mature?

3) If Mr. Average Joe cant buy now, then who are the homebuilders going to sell to?

4) Add to that total the unsustainable increase in property value especially where I am at(Miami, FL) and the rest of the country that is a housing GLUT, the increase in property inventories Month over Month and increase in foreclosures month over month will create a competition where one didnt exist. The banks need to sell their foreclosed homes at reduced prices, they have sold their bad mortgage backs at 96 cents on the dollar and now, so if their selling at discounted prices, why would a homebuyer buy the "NEW HOME" when they can buy a 2005 gem with a 20% price reduction? While answering that question in your head, play the Jeopardy theme.

5) There is an inventory glut of such massive proportions that it is a full fledged buyers market, with a twist. We cant buy our future home as we did before due to lending guidline changes and we now have options of what, when and from whome to buy.

Our potential buyers list is greatly reduced by higher lending standards, the rise in inventory month on month is full proof evidence that this is already occurring.

Its fine that the housing stocks are cheap and at some historical lows, but there are no buyers. ANd the homebuilders built the newer homes on speculation that the Housing BOOM would continue. If you are not feeling this report, just try a local search in your county records for foreclosure listings. (this only applies to more highly urbanized areas where the majority of the housing prices rising was stronger). Which consequently is where the concentration of bad subprime loans still issued through until Feb, March 2007 occured.

 Anyone interested in linking to Miami-Dad county's foreclosure listing can go to

http://www.miami-dadeclerk.com/dadedoc/mortgage-statistics.asp 

Im having trouble hyperlinking since my computer crashed and I cant copy paste( I think I need to reboot). But the fact is the numbers are clear.

Starting in January here are the foreclosures month on month 

Jan 1,404

Feb 1,563

Mar 1,759

April 1,749

May 1,984

June 2,060

July 2,280

August 2,521 

And by far this year is the highest the foreclosures have been almost 1,000 more than the highest number on a 5 year trend. As a matter of fact to get close to comparing the disparity, we need to go back to 2001 when miami-dade had 14,567 foreclosures.

WE ARE JUST IN THE BEGINNING OF OCTOBER. And in 2001, home prices werent even half the price they are valued at now.

www.floridahomeloan.com

NOW PLEASE SOMEONE, TELL ME WHERE THE HOUSING MARKET IS GOING? 

Fellow Fool, Gabriel The cuban stock picker. 

2 Comments – Post Your Own

#1) On October 02, 2007 at 7:53 PM, hall9999 (99.24) wrote:

  Yes the housing market is terrible.  Yes the worst is still yet to come.  The thing is, at this point everybody knows that.  Bad news no longer sends these stocks rocketing down.  Homebuilders are trading at P/S between .15 and .60 (most of them around .30).  Once housing does recover (which admittedly won't be until at least 2009...another thing that is generally agreed upon) current stock prices will mean they are close to fair value or possibly even bargains.  So, the stocks will probably drift until the companies either go under or recover. 

  The shorts have made a ton of money.  There's not much downside until something suggest a possible bankruptcy filing.  Shorts are taking their gains and moving on.

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#2) On October 04, 2007 at 11:46 AM, cubanstockpicker (21.12) wrote:

I was digging a little deeper last night into this whole housing issue. And I have to say some people are calling this the bottom of that company. Well I think there should be a drop still by a couple of points. If these companies have cash in reserves, they need this cash to finish their current projects that have gone to far into construction. They also need money to buy the supplies that are needed to make these residences including copper, wood and cement to name a few... All these products have higher prices that have been driven up by ROW.

That means the increase in prices with a discounting of prices of homes due to lack of sales means smaller profits . That only means their market and enterprise calue will decline. Their profit margins will decrease.

I would think the two companies with the most cash and least debt would be able to weather the storm.

Any thoughts are welcome. 

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