Cramer on BloggingStocks: Real Estate Is Doing Better Than You Think

Posted Dec 24th 2009 9:30AM by Jim Cramer
Filed under: Market Matters, Housing, Cramer on BloggingStocks

From TheStreet.com Network

The Street.com's Jim Cramer says that AvalonBay, a builder of luxury apartment complexes, is building more.

If I were to be a short-seller, paying attention to the news flow, I think I would like to be a short-seller of higher-end residential real estate, because I would presume that people couldn't afford it. If they can't make their payments for their houses, they are going to hold out to fix their mortgage or they are going to abandon ship, but they are not going to go to a luxury apartment complex. They are going to go downscale, and the apartment complexes that cater to those who are well-off should be going begging.

I think I would want to short AvalonBay Communities (AVB) (Cramer's Take), which has 172 communities and 50,000 apartments in decimated areas such as Southern California, Northern California, the Midwest and the Pacific Northwest. It must be getting killed. How can it possibly pay those underlying mortgages and how can it grow, building new apartments? It must be a moribund, declining business.

Sure enough, the short interest ratio has been climbing steadily as others have figured out that this is a suitable target, given all that we have heard about what's happening in residential real estate.

And, voila, what do I see? AvalonBay up two points to a 52-week high. The stock is smoking, up 40%. The shorts have not only had to endure that insult but also the 4% injury of a stock dividend.

How can this be? How can this company be making so much money and doing so well?

Because things aren't that bad out there. People have money to rent luxury apartments. AvalonBay doesn't have ample apartments to rent because so many are filled, and that is why it is building nine new communities. Why would it have to build any if things are so bad? Again, because they are not that bad.

AvalonBay is the classic example of what happens when you listen to the "on the one hand, on the other" reporting. Things aren't so bad in real estate; in fact, they are much better than expected. Go to the company's Web site. Look where some of those communities are: the hardest-hit towns in Southern California, the left-for-dead properties. Just devastated.

Or are they?

When I said that housing bottomed months ago, I was trying to catch the wave of places such as AvalonBay. The stock was at $50 when I said that real estate had stabilized. Now it is at $85.

If I had stuck with caveats, with "on the one hand, on the other," I think that AvalonBay would have been a dynamite short.

Instead, I made a judgment. I stuck my neck out. That's what investing is about.

And you are literally getting slaughtered if you believed that all was lost in real estate and went after this very natural target. Investing is real hard. Shorting is even harder. Especially when you base it on misdirection and terrible interpretation of the data and an insistence that nothing has bottomed whatsoever.

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 stocks mentioned.

Tags: avb, featured, housing, jim cramer, JimCramer