robert99

Truck Driver Wisdom Suggests Housing Stocks Are Bottoming

This is quite possibly the most ridiculous piece of commentary I have read in a month - And I read 20-30 pieces a day. I can understand the logic behind a contrarian viewpoint (I'm holding AVR... ugh), but the value of contrarian analysis must be weighed against the fundamentals of the relevant topic in order to arrive at some semblance of a logical and potentially valuable conclusion. While it is sometimes true that by the time a trend has become widely known by the masses it is already undergoing a reversal, such is not always the case, and to base one's decisions solely on what the masses believe (albeit the opposite of what they believe) is, in two words, utterly stupid. I'm not trying to begin a flame war, but I don't think any other adverb/adjective combination can fully describe the visceral feeling of contempt I felt for the author after realizing that his analysis of the housing market is based on nothing more than a contrarian analysis of mass sentiment. Or maybe he IS aware of the large and growing pool of evidence which suggests the housing market is hanging in the breeze, off the face of a cliff, by a silk string, and, for some reason, chooses to ignore it. However, in the interest of fostering worldwide financial education, I feel compelled to offer up some evidence that <strong>the housing market is nowhere near a bottom<strong>, just in case he does not have access to it:

First, the Shiller used housing chart, which shows the value of homes since 1890, adjusted for inflation: www.speculativebubble.... It was created in February of 2006, and if it were updated today, you would see a top and slight decline. Remember, the reason a home appreciates over time is NOT because it increases in real value (unless you add value through additions and renovations), but because it keeps pace with inflation. Even though most advanced governments around the world are printing and lending money out of thin air at more than 10% a year, and real inflation is growing at unprecedented rates, it is hard to imagine that inflation has devalued your money by 80% in the last ten years, which is what the case would have to be in order for the housing market to not currently be in a bubble. Very unlikely indeed.

Another chart is the one the previous poster pointed out: tinyurl.com/2h4x8t In terms of subprime pain, 'You ain't seen nothing yet.' We are in the EARLY phases of ARM resets, and the subprime resets haven't even topped out yet!!! More ARM resets mean more foreclosures, which means more newish houses on the market, and as we all know, excess supply drives prices down. Not good for the homebuilding industry.

Ah, I can't forget about tightening lending standards, which means that your average dishwasher with no down payment can't buy a $200k home anymore. That's going to have a serious impact, and will continue to do so as the investigation into 'predatory lending practices' goes on, and lenders are compelled to tighten their lending standards further.

And this is just the tip of the iceberg. I haven't even mentioned the slowing US economy... Check out thebigpicture.com for some good information on the housing market. I wouldn't buy a housing stock right now, or anything even remotely related to US housing, including home builders, HD, LOW, REIT's, or materials producers (GNA, LPX, USG). We have seen NO solid signs of a recovery, despite what the cheerleading squad says, and I expect things to get MUCH worse before they even BEGIN to show signs of a turnaround. Good luck with your Lennar though - They're probably not going to go out of business, but I wouldn't be surprised if they return to 2002 to 2003 valuations before heading back north in a few years.