Not saying they're dumb - but the cycles present strong forces that the builders can do little to change. I'm saying stock chasers are perhaps the dumb ones here. There's simply too much inventory out there, especially resale homes, to compete with - so even if there are less new homes, they can't do anything about competition with the surplus in the resale market.
wow pretty crazy chart here <img src="http://photos1.blogger.com/blogger/2825/754/1600/StartsEmploy1006.jpg">
John Mauldin presents an excellent bear case here: http://www.frontlinethoughts.com/article.asp?id=mwo111706 Unfortunately, it's too big to post so you may need to subscribe to his newsletter (which is free and worth the effort). Edit Just enter an email address on the site posted above to view the newsletter. Enjoy
Good points, I would like to add another large one - consumer spending. It would be interesting to obtain a sense of the proportion of consumer spending that is/was driven by debt, more specifically housing debt. Flat or decreasing housing prices means the end of consumers utilizing their houses as a bank account, and I personally suspect that this aspect of things will ultimately put a serious dent in consumer spending.
once housing prices come down like they have you can say goodbye to the atm machine they call a house. That is what has been fueling this economy for the last 5 years. 2/3 of the GDP is based on the consumer, once the consumer is tapped out where will they go and where will the economy head?????
Look my friend, fewer starts and permits obviously means builders will have less revenue somewhere down the road. At the same time it means that all other things being equal, there is less on the market, and therefore is a precondition for a stabilization of prices and/or rising prices. Rising prices ultimately attracts builders who increase permits and starts. That said, stock prices on builders are down for a reason. You're not telling anyone anything they don't know. You're telling them what they can read in the headlines of any newspaper of this country. Now ask yourself this, when is the last time anyone made any real money reading the headlines? You call it a "dumb market". But "dumb" is actually a guy on the wrong side of the market who thinks the only thing wrong is the "dumb market". Markets don't reflect the present, they anticipate the future. And in case you haven't noticed, the stocks of most homebuilders have stopped going down. OldTrader
And I am saying the market (generally speaking) is deluding itself and anticipating too little a decline in these companies' bottom lines. The fact that we're breaking all records in the strongest bull in quite a while is pure proof of that. The market as a general does not believe the impact of housing will be generally that detremental to the bottom line. The whole point of this thread is a general consensus of stark disagreement with that prevailing view. So me saying the 'market is dumb' is just different nomenclature for this same point. Just because home builders are adjusting and building less doesn't mean the issue is solved. If the cycle is deeper (which I am saying it is), then their adjustments will be reactions too late in the game - big losses will still be felt and revenues (in overshot areas especially) will dive even past current expectations. Furthermore, new homes compete with the resale market as well. So even if you decided to not provide any new homes for sale, there is still plenty of supply- and home builders can not simply control this. Like I said, the only way out of a housing crash is hyperinflation and low interest rates (including serious wage inflation). Devalue the dollar massively and suddenly no one will think twice about spending current prices on these overinflated markets. Its tough to massively devalue the dollar and simultaneously keep short term interest rates small enough to continue support of the HELOC based spending spiral we've fallen into.
It is getting damn ugly in housing. There is no way this isn't going to crush cyclicals, IMO. Furniture makers are already reeling. BRIC or no BRIC.