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cubanstockpicker (20.20)

Is the housing bust over? Not by a long shot if the current trnd in Miami has anything to do with it.

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January 28, 2008 – Comments (0) | RELATED TICKERS: LEN

I know that the housing stocks and shorting them has been a dangerous option, since they go up basically on good news and bad news alike.

However, since basically everyone on Wall Street is trying tio catch the falling knife and in some respects have. Here are some interesting facts about the Market in my area.

Sellers are offering huge cash advantages to buyers "on the side" because appraisers havent adjusted the true price yet and they are using the appraising system allowed by banks.

The property value will be above the sellers asking price, but the buyer will be offered up to 30% outside of closing in cash "tax free" money coming from the bank that is still offering 95% or 100%. There is something smells and illegal about all of this activity. Firsty, prices on homes are staying inflated since the homes sales price is fudged by illegal activity. Most of these buyers are buying homes to raise captial to adjust for the loss on their home. They are using every which way still allowed in the "system" to get thse homes closed, includin, but not limited to

 1: Faking a divorce, which would allow the person "relinquishing" claim on the property to buy another Primary residence.

2: Duping the still weak system of income verification by "recirculating money". Giving a company money to write a check to give to the borrower in a form of a payroll check, then the borrower can claim "employment".

There are signs everywhere reading short sales being done by the same people who were getting people into subprime homes. These short sales make the bank lose more than 40% of the original mortgage, not to mention having the 2nd lien lose everything. 

The fact is, most closings being generated today in the area are a result of a huge cash advantage. Some buyers also hint that if things dont go well, they wont pay the home after 6 months, the default period for most banks that would get a broker in trouble for fraud.

Now, being that the bubble is being "sustained" by these kinds of proceedings, only means the losses again will be reported, again, by home lenders and housing developers for at least another 12 months. This new loan type and borrower scenario being created recently will let the bubble stay patched up until some more real bad news comes out.

I am not saying this is right, I disagree with it wholeheartedly, but a home buyer who got stuck with an inflated property will not care to lose it and keep the extra money from either a short sale, or from a recently purchased home under these new scenarios.

Short sales can also be programmed to look the way the seller wants to make it look. A short sale preprogrammed with a "straw buyer"(term for person buying in lieu of real buyer) already in mind will mean the seller or foreclosee will rebuy the home after a couple of years back from the straw buyer at a discount, making the original bank take a bath in more losses.

Because of the swelling in foreclosed homes and REOS, this situation is sure to create another downfall in profits for major banks still lending thinking the worst is over. 

As far as the homebuilders stocks and mortgage lenders stocks go, I dont think they can survive and compete in selling their inventory, when someone accross the street is offering the same price but with a nice tax free cash gift.

LEN: Is currently holding fire sales in all their communities (no one is buying them)

CTX, DHI, TOL, BZH, KBH cant compete with desperate sellers. 

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