THE SKY IS FALLING!!!!!! Part 1

NEW -> Contingent Buyer Assistance Program
H

hbunny_IHB

New member
From The Street's "What A Week" Column, The Fed appears to think that housing isn't falling off a cliff and may be stabilizing:

"The Fed, which had focused on housing as a key concern through December, apparently came around to many traders' point of view that the worst is behind us, a view supported by Standard Pacific's ( SPF - Cramer's Take - Stockpickr - Rating) upbeat outlook Friday. Reflecting the recent rise in home sales and declining inventories, the Fed statement read: "Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market."
 
"... and some tentative signs of stabilization have appeared in the housing market."

I'll believe it when I see it. "Tentative" is not definite, nor indicative of a trend.
 
Standard Pacific's most recent earnings guidance.

"Our guidance for 2007 does not reflect additional inventory impairment charges or write-offs of land deposits and preacquisition costs for abandoned projects. If general or local market conditions deteriorate further, or our competitors change their pricing strategies, we may have to further reduce home prices or adjust our discounts and concessions which may, in turn, trigger additional impairments.

Mr. Scarborough concluded, "2006 was clearly a year of transition from the robust growth of the first half of this decade to the market realities we currently face. And while there is uncertainty as we begin 2007, we approach the new year focused on positioning the Company to weather the current downturn, while strengthening our balance sheet.""

That doesn't sound particularly bullish to me.

" Net new orders companywide (excluding joint ventures) for the fourth quarter of 2006 totaled 1,296 homes, a 40% decrease from the 2005 fourth quarter, while gross orders were off 21% year-over-year. The Company's consolidated cancellation rate for the 2006 fourth quarter was 43% of gross orders during the quarter compared to 25% in the 2005 fourth quarter and 50% in the 2006 third quarter, while the Company's cancellation rate as a percentage of beginning backlog for the quarter was 22% compared to 9% last year. The overall decline in unit orders resulted from the continued weak demand for homes in the Company's three largest markets, California, Florida and Arizona. The declining level of demand in these markets is generally attributable to reduced housing affordability, modestly higher mortgage interest rates, and increased levels of new and existing homes for sale. These conditions have contributed to an erosion of homebuyer confidence in these markets."

That doesn't sound like the bottom to me.

I won't be buying homebuilder stocks any time soon.
 
From Sandra Pianalto, President and CEO of Federal Reserve Bank of Cleveland - a voting FED member.

A Policy Makers Perspective on Monetary Policy and the Economy

"Some observers think that the worst of the national housing contraction is behind us. That view may be premature..."

For those hoping for a rate cut, Pianalto argues the Fed will not cut rates to support the housing market: "Unfortunately, the FOMC can do very little to directly soften the housing contraction. The supply and demand for housing must eventually come into balance on its own." In fact, Pianalto believes "some additional policy firming may be needed": "The national inflation picture has been clouded in the past few years by large swings in energy, commodity, and housing prices. As these markets normalize, and as we gain a clearer picture of the underlying inflation trend, we may see that some inflation risks remain. In that case, some additional policy firming may be needed - depending, of course, on the outlook for both inflation and economic growth."This is only one member of the FED, and it is not Chairman Bernanke, but she doesn't sound like she sees a bottom forming.
 
irvinerenter - I think stock direction can be even harder to predict than home price so I am not even gonna try to argue in any direction on this one :)-

Regarding the Fed rate, I think that it can determine the likelihood of soft landing scenario.

While I agree that Fed will probably not going to do anything to "directly soften housing contraction", I blv it will have to do something when subprime defaults/foreclosures starts to hurt economy, dont you think so? I mean the foreclosure isn't just a problem of greedy subprime borrowers localized in bubble areas, this is happening all over US. In fact Texas leads the nation in foreclosures right? And Texas home price has been pretty much flat the last 5 years or so. So this could simply be a middle class issue across the nation and the Fed might have to do something about it.
 
Irvinerenter - you beat me to it. Reading that and other statements from the voting Fed members it seems to be clear that they have no intention of saving the housing market. The only thing I can add is that Kiplinger's newsletter a few months back said that oil would be at $60 by spring and possibly $75 by summer and now they are saying $70 for the summer. They were spot on last year so I think that if they are correct again this will only add to inflation. What do you and everyone else think?
 
"I think stock direction can be even harder to predict than home price so I am not even gonna try to argue in any direction on this one :)-"

I agree with you on that one. I play the market as a trader, but I work to capture short term moves. I am as clueless as everyone else when it comes to the longer-term direction of stocks. However, I wouldn't play the homebuilders or sub-prime lenders right now except on the short side. I could be wrong. I didn't foresee the rally in the homebuilders since last summer either.

My point is making the post was to show that the homebuilders own statements are not bullish. In fact, the guidance from homebuilders across the board has been very bearish. It is only the realtors and to a lesser degree the mortgage brokers who are saying things will turn around. Since the homebuilders have to answer to shareholders (or their attorneys) they will endeavor to be more accurate or conservative in their assessments. The realtors and mortgage brokers are not accountable to anyone, so they will lie their asses off to generate a commission.

"I blv it will have to do something when subprime defaults/foreclosures starts to hurt economy, dont you think so? "

Depends on what is happening with inflation. If they believe inflation is under control, they will probably lower rates. This will help bail out several areas of the economy, I just don't think it will do much to help housing. I hope they do lower rates as I will make more money on my stock trades.

I don't know much about what is happening in the Texas market right now. If their house prices have been relatively flat, they are probably leading in foreclosures because everyone went out and got a HELOC, and they didn't have the advantage of appreciation to help them out. HELOC's are a nationwide time bomb; it makes sense that areas with the least appreciation would blow up first. It doesn't mean we will avoid the problem, it just means we are delayed in seeing its effect.
 
You must log in or register to reply here.
Back
Top