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It's been right to be more than the average bear for months now. But if you believe that housing played some role in the downturn, then you have to believe that the latest moves are very meaningful for that trashed market.
We have had two major problems in housing: affordability and the ease and cost of mortgage money. We got news this week that ameliorated both difficulties, and we cannot sniff at them as much as it has paid to sniff at everything else that has been done.
First, the government's buy of GSE paper revives a moribund market and ends a lot of federal indecision. If you recall when the government confiscated the Fannie (NYSE: FNM) (Cramer's Take) and Freddie (NYSE: FRE) (Cramer's Take) preferreds and therefore made FNM paper more dangerous, the government at the same time said that it would make mortgage rates come down, presumably by buying a ton of Fannie/Freddie paper. Instead it made a half-hearted effort by buying about $25 billion in paper and then disappeared!
That's over. You can tell that by the surge in Annaly (NYSE: NLY) (Cramer's Take) and the other mortgage REITs. The success in lowering mortgage these buys had in the GSE paper -- something that could have been months ago and something that the Fed simply scoffed at when it was suggested in the spring -- tells you that the more that is bought, the lower rates can go.
Any decline of the magnitude we saw Tuesday means that we are finally able to take advantage of the startling decline in yield of the 30-year. Soon mortgages will become so low that you will want to buy something.
And you'll be able to do that. The affordability of homes after these crashes has erased much of the late-stage gains in homes, and in some cases has repealed the entire increase from 2000. So pricing declines and lowered rates are a turbo concept for this market.
"But," people say, "the down payment is still too high." The down payments, though, are simply back to the rates of about eight years ago, when housing was being bought at a much higher clip than it is now. It is true that there is "no rush" because houses keep going down in value. However, if we can keep inventories from building, which we can provided the homebuilders don't get bailouts -- in fact, it is crucial that many of them go under -- then lower rates and lower prices even with higher down payments could return the market to normalcy or even tighten it rather rapidly.
If you then have a situation like Citigroup (NYSE: C) (Cramer's Take) where the toxic assets are cordoned, mortgage rates go down, the yield curve makes mortgage lending profitable and FNM buys make it easy to send the loans to FNM/FRE, then you are going to see a change in psychology that will be meaningful, as it is a root-and-branch attack on the real issue of house price depreciation.
In fact, it is brilliant and long overdue. So why was it greeted so skeptically? After a while, when every move a government makes is wrong -- except for anything that Tim Geithner does, of course -- you only make money being skeptical: meaning, not believing.
This one's a hard one not to believe in. That's why Lennar (NYSE: LEN) (Cramer's Take) and Toll (NYSE: TOL) (Cramer's Take) and KB Home (NYSE: KBH) (Cramer's Take) and Centex (NYSE: CTX) (Cramer's Take) and Pulte (NYSE: PHM) (Cramer's Take) and Horton (NYSE: DHI) (Cramer's Take) deserved to go higher if they are ever going to go higher.
The reason to be skeptical has more to do with unemployment at this point than house affordability. If unemployment goes up huge, then we are back in all-bets-are-off mode.
But to deny that Tuesday was a big day in housing, to deny that major refinances -- great for retail -- won't occur, is simply being too negative.
Can the market pull back to the November lows? This market, which has gyrated more in the last few months than it has in almost all of the years combined, can certainly see those lows. But if you are able to call the Citigroup crisis the banking bottom, at least in the Dow financials -- something that seems like a reasonable approximation -- and if you believe that Exxon's (NYSE: XOM) (Cramer's Take) stock is saying that oil isn't going far through $50, you just can't be as negative without missing opportunity.
We are still oversold, it is a big holiday weekend, we have real positive news in the most beleaguered sector; I simply don't believe the downturn can take out the November lows now that the biggest black hole -- Citigroup -- is filled.
Random musings: From the looks of the bad loan portfolio at Citi, I feel that someone like Bob Rubin is more culpable than Vikram Pandit, who got dealt a really bad hand. He didn't act with alacrity, but it does seem reasonable that the only thing the common lost is the dividend and not the massive dilution.
Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.
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Reader Comments (Page 1 of 1)
11-27-2008 @ 7:55AM
joe said...
If you can,t afford the down payment or the payments DO NOT BUY IT!
11-27-2008 @ 3:57PM
joe said...
Jim Cramer was touting Golman Sachs only 3 months ago! A year ago he swore we would not go into a recession. He makes for great entertainment but that's about it.
11-28-2008 @ 2:58AM
WorkingMom said...
In an ideal world, everyone would have a downpayment. However, we responsible people who put our 20% down 2 years ago, saved and invested our money have just sold due to relocation and lost all 20%. We were lucky to not have to short sell. Thankfully, we have great credit, a stable job, but no money.
With the costs of homes, losing most of our 401k, draining our savings during this crunch to cover what commissions now won't, and losing our equity, some of us responsible American's no longer have a downpayment. If the economy takes awhile to recover then it may be years before we can rebuild a downpayment. We can easily rebuilt our rainy day fund since we are used to working on commission but to rebuild beyond that will require a great economy.
I say get money to the people. Quit giving it to the banks to hoard. They aren't using it to ease lending, they are using it to ease their own minds. My only caveat is make them qualify. I say pass the 'fix housing first' initative but require guidelines of 'no stated income loans, full documentation, a credit score of 680 or higher and it must be a primary residence. Then I say regulate the home builders so that we don't over supply again.
Don't look for a rush to refi because of Paulson's latest move. The idea that there will be a rush shows just how out of touch wallstreet, media and Washington are with the average american. I am sure lots of calls were made but most are finding out that they can no longer qualify or they are upside down in their house and can't refi. The news said that if you have good credit and significant equity you can refi. I don't know many people who have either or both right now. My neighbors have a credit score of 800 and called Wednesday to refi and was told no because they now lack the equity even though they had originally put 15% down.
Average American's are hurting and the housing market won't be fixed until something directly for the people is done. It wasn't just subprime people that have been hammered by this. Some of these posts are so elitist.
11-30-2008 @ 9:40AM
RWLAPPRAISALS said...
THE VALUE OF YOUR HOME IS NOW THE "x" FACTOR. IT TAKES A REAL ESTATE APPRAISER TWICE AS LONG TO DO AN APPRAISAL. IF WE ARE WRONG WE ARE SUED. I AM RETIRING.
FAIR WELL TO THE LENDERS THAT CUT OFF OUR BUSINESS IF WE DID NOT "HIT" THERE NUMBER
11-28-2008 @ 10:45AM
john said...
The banks and mortgage companies are suppose to tell you if you can or cannot afford a loan. I know people are responsible for their actions, but people act on impusle at times. You have sales people telling them they can afford items they really cannot. The banks should of turned down alot of loans that were not only sub-prime types. The reason they did not, was because of greed. There are people out there, that had good credit, paid their bills on time and lived with in their means. But one wrong choice, which the people making these loans should of told them no you cannot afford it, are ruining their financial lives. God Bless you and your family.
11-28-2008 @ 10:50AM
tim said...
i dont see why housing matters so much. the job market to me is everything. you keep people working and if they want to they will stay in their house. they may be strapped for cash for a while but they will stay there. if the job market tanks even those who bought before the housing bubble started will be looking to get out of their home because the wont be able to afford it. so if the job market goes both pre and mid bubble buyers will be doomed.
12-01-2008 @ 3:42PM
shelly said...
I don't care who's saying what. Unless you have a good deal of money for a rainy day.
Now is NOT the time to buy a big ticket item. i.e. New home or vehicle.
12-19-2008 @ 7:04AM
aaron said...
i cant quite understand the reasoning of most folks. you know the buy high sell low crowd. people were scrambling to buy houses/stocks when they were expensive and getting more so daily.i fortunately sold high and am extremely excited that things are headed south. i just bought another house for 15k im up to 6 now.whats not to like about this market.im lovin it