Realogy: Why The Shorts Are Wrong

by: Dutchtender

It seems that a few bears think shorting real estate services company Realogy (NYSE:H) is the pathway to riches. Why I disagree:

First, the housing market is not uniform and that can skew the statistics. Yes, there is a bubble in a few select areas of the country but there is no bubble in other areas.

Second, sellers can't sit on their hands forever. Outside of bubble territory, most people that sell homes have to sell. They need to sell. They start families, have kids need a bigger place. They get a new job out of the area. Parents need to down size. Kids go off to college. Sellers can sit tight but not indefinitely. Note this is why Buffett loves the business. Also, buyers need to buy. Transactions MUST take place. They always have and always will. On average, over generations, people move about every six years. Because they want to or have to.

Third, I wonder if things are so awful, why Warren Buffett is buying real estate brokers hand over fist? I mean, if earnings are going to disappear I wonder why he is paying premiums to buy real estate brokers? What does Warren know that you don't?

Now, about Realogy. I wonder why the single largest individual shareholder announced on a conference call that the H shares were badly mispriced at $21, and that they would immediately buy back stock? Then, within days, he goes out and borrows money to buy back stock.

This is a massive buyback of shares with borrowed money. This decision was made by an owner/operator who knows the business very well, talks to realtors all the time, and knows what the long term values are for this business to private equity investors.

So real estate bears, go ahead and short the company, which is capable of returning 50% on its tangible assets, at a time when Buffett is investing heavily in brokers, all the current bubble "bad" news is in the stock, and the company itself has borrowed a large amount of money to buy in a massive amount of stock.

There must be better ways to make a living.