It's the vastly inflated price of land, stupid
I haven't blogged in over 3 weeks (except on my shamelessly profiteering blog). Going by recs, I haven't blogged well in even longer than that. But I'm back now, and I have something to say.
Homebuilders? Homebuilders?!?!?!? Give me a break! It's not about buyers caught in the credit crunch. It's about them having paid 3-5 times too much for land, like tech stock fund managers buying equities in the year 2000, and now they have to sell into a market that is starting to wake up to valuation reality. And it is just starting, do not kid yourself.
I'm young, and I don't know if there are markets out there that deviate vastly from the national average. But I know that where I live, and in the national average statistics, house prices are at least 20% higher than they should be, even if the economy keeps its legs. The government has taken steps to prolong, not mitigate, the correction. And the FDR-like interventionism of the Bush administration (and, most likely, the next administration) will probably cut the legs out from under the economy, leaving house prices without their only support.
Furthermore, these house prices reflect slashed prices of existing homes! Companies building new homes are going to have even more trouble than that unloading their unwanted inventory into an environment of people living with their parents because they can't find a job.
We've just had our most Nixon-like Republican president since Nixon, and we're about to elect Carter Jr. (guess who -hint: he's half black) or Nixon III (guess who -hint: it's McCain). It's going to be worse than bad. It's going to be stagflation. It's going to be economic hell until we get, to keep the analogy going, Reagan II (guess who -hint: she doesn't have a unit of Vietnamese currency).
Whether you like Reagan or not, don't buy homebuilders for pete's sake.