What is wrong with housing bulls? Are they blind? Or do they just want to be the “one” that can say “I called the bottom… Look at me… Look at me.”
One bull once said, “If the sector stops going down with bad news, it may imply that it has found a bottom.”
Sorry, pal. But when homebuilders start raising prices instead of cutting them, we’ll be at a bottom.
And there’s Citigroup’s Stephen Kim, who is no stranger to being embarrassingly wrong.
On December 6, 2006, Stephen Kim reported, “While many wait for an improvement in fundamental data such as prices or inventory to signal an ‘entry point’ in the stocks, we urge investors to look back to prior cycles, when the group rallied far ahead of fundamentals.” The brokerage firm raised its price targets on the following companies…
Pulte Homes Inc. – $45 [now $11.93]
D.R.Horton Inc. – $48 [now $11.39]
Lennar Corp. – $88 [now $17.86]
Centex Corp. – $83 [now $20.64]
Toll Brothers Inc. – $42 [now $20.18]
KB Home – $92 [now $23.74]
MDC Holdings Inc. – $85 [now $35.41]
Ryland Group – $95 [now $24.25]
Beazer Homes USA Inc. – $80 [now $9.10]
Hovnanian Enterprises Inc. – $63 [now $8.59]
Standard Pacific Corp. – $43 [now $2.95]
Meritage Homes Corp. – $87 [now $14.31]
Even today, the homebuilders are in bad shape. They’re not earning money. They’re writing off millions in debt. And it’ll only get worse when millions foreclose on ARM resets. Remind me again what happens when foreclosed homes go back on market… Oh that’s right. It adds more glut and depresses prices further.
Lesson learned, if you wanted to lose 80% of your money at the time, listen to Kim.
But did that stop Kim from upgrading housing in October 2007… nope. Instead, on October 1, 2007, Kim raised his ratings on several homebuilder stocks on signs that the worst may be behind housing.
He was quoted as saying, “”While we don’t expect any of the builders to move much lower over the near term, we expect the larger-cap builders and those with the strongest balance sheets to benefit most from any near-term bounce — much as they did coming out of the 1990 trough.”
Truth is, we won’t see a bottom in housing until 2009 or 2010, the earliest, as $1 trillion in adjustable rate mortgages reset over the next year, resulting in catastrophic delinquencies and foreclosures.
