Housing market up? Is it real?
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
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
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.
NOW PLEASE SOMEONE, TELL ME WHERE THE HOUSING MARKET IS GOING?
Fellow Fool, Gabriel The cuban stock picker.