Housing: You Call This a Bottom?!

The WSJ reports that the U.S. Economy is poised to shake off the housing slump and regain momentum by year's end. That's the  positive economic consensus that has formed as we begin the New Year. (see WSJ: Economy Poised For '07 Rebound, Forecasters Say; and NYT: Economists Cautiously Optimistic About 2007)

Hardly any of the dismal scientists expect Housing to be an appreciable drag on economic growth. Indeed, quite a few observers believe that the Housing sector has bottomed: Last week, the WSJ had two separate very optimistic columns on the subject:  End of Housing Slump Seems to Be Drawing Near (free) and Home Sales Bode Well for Big Picture (no pun intended).

The fascinating thing about these articles is that included charts that seem to belie the content of the column: I read these charts and simply do not reach the same conclusion as the author. As we discussed earlier, sales remain in a downtrend, with inventory still near record levels:

Charts courtesy of WSJ

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Speaking of stabilizing Housing, since the Bottom is already in, I wonder what to make of this pre-announcement by Lennar, the  $8.3B homebuilder. This morning, they released preliminary numbers for the quarter ending Nov. 30 -- and they are a doozy:

"Lennar Corp., the fourth-largest U.S. homebuilder by revenue, will post a fiscal fourth-quarter loss after taking a pretax charge of up to $500 million to write down land it no longer intends to buy.

The loss in the three months ended Nov. 30 will be 88 cents to $1.28 a share, the Miami-based company said today in a statement.

When the
company released its third-quarter results in September, Lennar warned
it expected below-forecast earnings of $1 to $1.30 a share. Wall Street consensus was for lowered to $1.07, Not counting the $1/2B writedown, the projected fiscal
Q4 earnings are 70 cents to 75 cents a share.

"Market conditions continued to weaken throughout the fourth quarter and we have not yet seen tangible evidence of a market recovery,'' Lennar Chief Executive Officer Stuart Miller said in the statement.

I am once again forced to ask the question: You call this a bottom?

~~~

On a related note, here's a multiple choice question: Who is sleazier, Lennar releasing the news this morning, or the SEC, waiting until the day before the Christmas vacation to back away from their previously announced executive compensation disclosure plan?

Sources:
Home Sales Bode Well for Big Picture
Second Consecutive Rise Points to Limited Fallout From Market Slump in 2007
By CHRISTOPHER CONKEY
December 29, 2006; Page A2
http://online.wsj.com/article/SB116731180162761474.html

Lennar to Post Loss on Charge of Up to $500 Million
Peter Woodifield
Bloomberg, Jan. 2  2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=af8b3N2J7pqU&

End of Housing Slump Seems to Be Drawing Near (free)
Signs of Stability Emerge In Mortgages, Home Sales, Buoying Economic Prospects
By CHRISTOPHER CONKEY
December 28, 2006; Page A3
http://online.wsj.com/article/SB116722992975360513.html

Comments

[Bob K.:]

Barry is absolutely correct, the media, power brokers, and the industry has been happy talking the housing sector for a better part of a year. They obviously fear a collapse in sentiment which will take the legs out from the market. By any measurement, housing prices are extremely overvalued in the aggregate and will continue to fall as people give up. We have two major overhangs to digest, the ratio of investors to homeowners are out of whack (18% of buyers from 2003 to 2006 Vs. a long term 10% average) these people do not have the cash flow to maintain their positions and will sell as they run out of cash, further suppressing the market and the sub prime borrower which has been discussed previously. Don't get caught in the bear trap, this will be long and painful. Bob

2007 Jan 02 10:41 AM

[Paul Meisel:]

What do you find so sleazy about the timing of the announcement? I know the market is closed for the Ford funeral, but most people are still checking the news after 1 or 2 weeks of mostly holiday.....

2007 Jan 02 12:13 PM

[NO DooDahs:]

Who gives a rodent's buttocks about "housing?" The bottom in housing STOCKS is behind us already.

2007 Jan 02 05:18 PM

[Bob K.:]

Maybe, maybe not...that is not where you will get burned. The consumer drives 60-70 percent of GDP, if they are continually denied access to the cash in their homes, they will need to stop spending(starting to happen), extract from non secured sources (Stephanie Pomboy from Market Mavens has recently reported on the significant increase in credit card debt), which is a short term fix. Thus setting up a significant slow down, that the fed can't easily fix by lowering rates (why, he does not control the ten year, which affects the Home equity rates, won't raise housing prices, and non secured debt is relatively immune to fed policy), thus a recession is in the cards sooner than later. By telling people all is now OK when in fact it is not, dooms those who think it is safe to extend themselves in the housing and / or the stock market on a false premise.

2007 Jan 02 05:35 PM

[NO DooDahs:]

All that macro stuff is garbage. Micro the companies from a fundamental and technical perspective, keep a technical eye of the indices, and you never need to worry about the "economy."

That eco-babble is just noise when it comes to making money in the markets. Where's the TRADE in any of that stuff? When it doesn't present a trade, it's smoke in a mirror .. . GDP, the consumer, housing, who cares! There are STOCKS to screen!

BOOYAH!

Name the last specific trade-able idea you got from anything Beary Ritholtz writes.

2007 Jan 02 06:02 PM

[Bob K.:]

You are obviously a very successful trader....most are not. I am a technical based investor, but as you know, the macro helps you pick the sectors where you will shorten your odds, but maybe you just follow Cramer's picks. Having said that...I believe Barry is early, but correct...but why are you mad at him, your a trader, his insight shouldn't hurt you. His insights have helped me put on shorts or puts on Apple, Whirlpool, Google, Group one, Nutrisystems, and Childrens place, (all but NTRI, GPI are closed booked profits) as a trader you cannot help to see the deterioration in their TSV, and Moneystreams. And I bailed on oil after three years this fall. Good luck to you. Throw out your picks, love to learn from you.

2007 Jan 02 07:04 PM

[NO DooDahs:]

Click my name to visit my blog. My watchlist and trades are public and updated within 24 hours of making a move. Check for the review of the 2006 prognostications as well. Technical and fundamental. Look on my links page and you can find some articles I've written for another site, not about macro but about individual stocks.

Back to the subject of Beary ...

I would love to see links to specific posts where he detailed analysis on those equities you mentioned. I've seen his blog and several samples of his newsletter and have found zero actionable insight in them, just rambling about econ, but I can't say I've read *everything* he's ever written. I searched his site with Google looking for where he discusses his returns ... he doesn't. I searched the internet for his hedge fund's returns ... couldn't find them. I do know that he was way wrong, way low, three years in a row on the BusinessWeek survey and his macro views blinded him to the market rally this year, where he's been bearish on it for six months. Stopped clocks aren't right often, but somehow, they get attention - provided they are bearish stopped clocks.

To me, macro is *entertainment* because it doesn't move anything. Sentiment moves things, and you can see the sentiment in a chart without following the news. So while Beary gets on my nerves, you combine that with more noise about housing, which doesn't matter, and I guess I just snapped! LOL

2007 Jan 02 07:18 PM

[Bob K.:]

Thanks, I will. Have a great night

2007 Jan 02 09:39 PM

[FIG trader:]

No Doo Dah; I here you, and sense your frustration at the free publicity pundits get just for being pundits with lots of free time (when do they work??), with zero accountability by the media. I'm not aware of Beary's track record, though being a guest on Kudlow is a strike against him, in my opinion. I have seen some value in some of his graphs and charts. That said, there are some who are good strategists and fundamentalists (not many I would agree). But not everybody has a trading mandate; real money needs to find a home for the long term, hence taking longer term positions based on "funniementals" are some peoples real jobs, though they may have the foggiest notion of what they are doing. As well, there are many frauds in the technical analysis arena. The best out there is someone you have probably not heard of at OpCo. The real winners will be those that integrate both methodologies

2007 Jan 03 09:02 AM