DCM

Those Who Know and Those Who Don't

Mr. Panzner:
Is it not possible to have a bottom in the price of housing stocks and still see declines in the prices of homes? I don't think their is a direct correlation between the two but I may be wrong.

The bigger question is how can builders maintain any profit margin when building costs are staying level if not increasing and sale prices are declining by 30 to 40%? Were profit margins that enormous (40 to 50%) at the beginning of this decade? I was under the assumption that builders were operating at about 20 to 30%, in which case there should not be any profit margin left. Assuming that traditional credit underwriting will remain the norm where are the buyers going to come from? In many previously active markets, there is a 3 to 5 year supply of homes. How can a builder sell into an oversupply of existing homes that sell at a discount to new construction? I must be missing something here.