Housing bottoms form when homebuilders finally stop building. They come when permits dry up. They come when foreclosures are so rife that they drive down the prices to affordable levels. Housing bottoms come when the homebuilders give up and merge. They come when mortgage rates go really low. They come when unemployment claims level out.
The bottom, well, is now. We are seeing a huge wave of buying of foreclosed homes in Northern and Southern California and in Florida. The numbers are too positive to think that these, the hardest-hit areas, aren't putting in long-term bottoms. Of course, where legacy housing is coming on, most notably in Florida and Las Vegas, where lenders like Corus Bank (NASDAQ: CORS) (Cramer's Take) abetted ridiculous levels of condominium construction, or New York, where the economy was on fire courtesy the brokers and the lawyers and the foreign tourists taking advantage of a cheap dollar, you are not going to get a bottom for a year. In New York's case, the building continued right through the layoffs because of tax advantages that ran out inopportunely right at the top. It will most likely be a tough market for a while.
The areas surrounding General Motors (NYSE: GM) (Cramer's Take) and Chrysler plants will also take some time, and I suspect that many houses will be razed in the end.
But when you stop new housing, it makes old housing much more valuable, so we are in the final throes of the debacle that got us here. This will make the public-private partnerships tempting for those who simply don't seem interested right now or haven't been able to raise the money yet, because the risk capital in the country has been so decimated.
The desire to avoid calling a housing bottom is so pronounced that it will obviously happen long before it is remarked upon, just like the recession that began in September 2007. It also means that the bottom in banks gets put in earlier, and I believe we have seen it. The bottom might be drawn out by capital raises -- witness fears of such capital increases in Bank of New York Mellon (NYSE: BK) (Cramer's Take) and State Street (NYSE: STT) (Cramer's Take) on Thursday.
And we know there are some big shotgun wedding to occur -- they haven't since the disastrous deals done in anticipation of selling bad properties to TARP by the likes of PNC (NYSE: PNC) (Cramer's Take) (National City), Bank of America (NYSE: BAC) (Cramer's Take) (Merrill Lynch, which had a considerable bad loan portfolio), Wells Fargo (NYSE: WFC) (Cramer's Take) (Wachovia, which every short believes will be the end of the bank, but I believe WFC will earn its way out of the jam through the yield curve and the bottom in California housing) and JPMorgan Chase (NYSE: JPM) (Cramer's Take) with Washington Mutual, which I believe is already being well-integrated making, the bank a huge buy (see Action Alerts PLUS).
The stubborn homeowners have almost all refused to merge -- thanks, Centex (NYSE: CTX) (Cramer's Take) -- and that will drag out the bottom until the summer, but I am quite confident that my once-reviled call that the housing bottom will come this summer now seems almost late! (Far better for my own personal attacking corner to focus on my alleged Bear Stearns call, but it looks as if even my own boo-birds were stunned at the viciousness of Jon Stewart attacking me for an array of things I didn't do nor will ever do, as readers and watchers of my show know. More on that over time.)
No matter, the markets should know better than to even contemplate selling off on bad permits and housing starts. How do people think housing bottoms, with loads of new construction and burgeoning inventories and higher rates?
Nope, just the opposite.
Soon you will hear people say, "I have to move and buy a home now." You will also hear people say, "The stock market's corrupt and dirty, thanks to the shorts and the absent regulators, so I might as well buy something substantial like a house, as they may never be this affordable again."
I agree with all of the sentiments above.
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 was long JPMorgan and Wells Fargo.
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Reader Comments (Page 1 of 1)
4-17-2009 @ 11:50AM
Iridium said...
Not even close to a bottom Jim. We may have reached a plataeu where the few who can afford houses are buying. They too will lose a lot of money in the near future.
The massive quantities of forclosed homes are not being bought by workers looking for a place to live. They are being bought by the thousands through foreign investors. Extremely wealthy people are buying up properties in all areas to rent out or hold for an eventual recovery. They are peventing real buyers from being able to own an affordable home.
I looked at a home for rent that was owned by someone in Germany. Why would I rent a home and pay someone in another country? This is insane. Wealthy people buying homes to use as investment opportunities is not a sign of a healthy market. It sounds just like th ebubble doesn't it.
The real reason why we are not even close to a housing bottom is that homes are still not even close to being affordable for Genration Y. The late half of Gen X is haveing a hard time affording homes. It is a fact that the boomer generation is moving on. The generation behind them need to be able to afford the same level in living to support the home prices set by the boomers. That simply is not the case.
In areas where you think housing would be the most affordable you stil have homes that are priced too high. Homes that are $150k have sat on the market for over a year with no offers. Homes that are in a good suburb. They are sitting because they are really worth $125 but the owners are too stubborn to admit that and take the loss. Instead they will just sit on the house forever.
Interest rates, although at the lowest level since 1970, are still far too high in relation to the money supply going to the banks. The rate for a 30 year fixed loan should be 3.5% or lower. This would make houses far more affordable without causing home values to drop. The banks are too greedy to let that happen though,
Then the final reason why we haven't reached a bottom, jobs. Without good paying jobs we will keep falling until foreclosures make up 50% or more of houses on the market. Prices in many areas are still above the pre-bubble level. How can you call a bottom when the only way we were abel to sell homes at the inflated price was to bout people in them that couldn't afford the home in the first place.
Traders have been too quick to call a bottom in every aspect. The core problems with the economy are still getting worse. Oh and saying that the homebuilders have been slow to merge. That is a good thing. Why is competition so evil in your eyes. Every merger creates more weakness in the economy.
4-17-2009 @ 12:15PM
Badabing said...
The bottom? A 1500sf, 50 year old home in the San Francisco Bay Area in still around 600K- I know, I live in one. 85% of the people out there can't qualify to buy it. "Waves" of foreclosures being bought up in California? Many sit empty in my area, and those bought up are bought by investors who will wait for the values to go up. They will wait a long time. Until the working American can afford to make the payments and get qualified for a loan- which is gettin more difficult as the banks tighten up- prices will continue to drop, which is a natural course when things were overpriced to begin with. Jim- clean up your crystal ball. Its dirty and your not seeing things right.
4-17-2009 @ 4:50PM
mike said...
Why not legalize the raffle of realty listed homes and use each states Lotto to sell the tickets. The realtor controls this action so all state laws are met. Is it time for this? All who owe on property will get paid. Humm, wonder where the politicians heads are. Too concerned with their own bank accounts.
4-18-2009 @ 7:52AM
J W said...
Not even close to a bottom in US real estate. Foreign investors who once came here no longer view US as "safe" due to many issues, among them the foreclosure process and bankruptcy laws. It is a matter of affordibility, economics, and legal procedure and they want no part of it. And if anyone who has a semblance of their sanity remaining, they are not buying homes but renting, as they do not have their money tied up in illiquid real estate investments and are not sucked dry by increasing insurances and property taxes. The next wave of occupants for housing will be renters....mobile and with cash and liquid investments. Re enter the era of corporate housing.
4-19-2009 @ 9:18AM
cabo79 said...
I agree with Jim but only in some areas, I just got back from FL and the prices are going back to normal. But still very few Bank auctions. The banks are approaching home owners who are upside down and behind on their mortgages and are offering them 4.5% and extended term to keep them in the house. But until the banks auction off their reposesed homes and dead housing projects we are not going to see the bottom.
4-28-2009 @ 11:15PM
glesh said...
We are not near the bottom and not many builders I know will merge. They will be broke with a few exceptions. To start up building with todays regulation will not be easy once shut down. Even Cramer and Paulson would be in trouble without the Government saving the banks. Stocks would be worthless in most cases. Housing like stocks went far overpriced due to speculation and easy money with low interest.. They will find their true affordable value.