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Doug Poretz

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  • Shorting the Homebuilders as Their Stocks Surge [View article]
    I was a senior exec in a large public homebuilder in the mid 1980s through 1990. Do not dismiss that period -- if you were in homebuilding, you were in a depression. If you bought a house at the peak of the market, it probably took you 7 years or so to get back to your initial price. The depression was helped along by FIRREA (if i have the acronym right after all these tears), which was an unthinking over-reaction to the S&L crisis by Congress (surprise surprise). I remember how the market fell, basically in three stages -- an initial decline followed by a flattening, followed by a steep decline and then a flat period again during which some people said "it can't go any further." And then it really crashed. When people start saying "it can't go any further," i think: "is zero far enough?" Personally, i think consumers are still in denial, we are far from the bottom, we still have to live through the real crash, and then home prices and activity will bounce along bottom for maybe 3-5 years or longer. Stocks will recover before the actual residential real estate market recovers, but not this soon in the cycle. Wait until the housing market hits real bottom sometime in the next year or two. The trend in home prices and energy is south -- is there any reason to believe the trend will reverse? I don't see it ... nor do i see a flattening out. Things will get worse. As things get worse, more homeowners will be affected. Banks are just now starting to freeze home equity lines so that consumers cannot draw on what they thought they had available -- there is a very bad time yet to come. Very bad. Worse than we have seen in decades. Homebuilding stocks are enjoying a false rally. If you don't short them, at least don't own them.
    Feb 24 01:45 PM | Likes Like |Link to Comment