U.S. housing's pain could be stock, bonds' long-term gain

Discussion in 'Wall St. News' started by S2007S, Feb 1, 2007.

  1. S2007S


    This article says that the weakness in housing could be bullish for stocks and bonds. Is this guy joking, has he not seen what has happened in the last 7 months. They also talk about how this rally can be sustained by interest rate cuts....ha

    Full article Below...............

    The U.S. housing market is in a recession and it still might not have hit rock bottom, but in a few months that weakness could turn out to be bullish for both stocks and bonds.

    Sure it's miserable now for home builders, construction, lumber and home furnishing businesses. But the collapse in the house prices is going to help lower inflation pressures and that will allow the U.S. Federal Reserve Board to lower interest rates. It's just a matter of time, most economists still believe.

    Just look at the jump in U.S. stock markets yesterday, after the Fed boosted optimism of expectations of a "soft landing" by suggesting that the rout in the U.S. housing market has moderated.

    "There's still a significant number of new homes being built, and vacancy rates for residential properties are starting to soar," said Michael Gregory, a senior economist with BMO Nesbitt Burns.

    As a result, the actual rents and the owners-equivalent rent (a theoretical calculation of what home owners would expect if they rented out their own houses), which account for 38 per cent of the consumer price index, should decline over time, Mr. Gregory said.

    But don't look for lower inflation with today's release of the core personal consumption expenditure price deflator (PCE) data, the Fed's preferred measure of inflation. It is forecast to be 2.3 per cent on a year-over-year basis in December, compared with 2.2 per cent in November, according to a survey of economists by Bloomberg. That is still above the 2-per-cent upper end of the Fed's comfort zone.

    "We have stayed with the view that you will probably get another chance to buy the cyclical stocks," said Clancy Ethans, senior vice-president and chief investment officer for Richardson Partners Financial, which has $6.2-billion under management for high-wealth clients. "The Fed rate hikes take time to filter through the system. I wouldn't buy them yet, as we continue to believe the [U.S.] economy will weaken."

    And don't be fooled by the recent bounce in home building stocks, said BCA Research in a report yesterday. The shares of subprime mortgage lenders continue to plunge in relative performance, "which suggests that the marginal new buyer is no longer seeking, or is unable to receive, credit." That is disconcerting because it will prolong the oversupply, it said.

    For a sustained rally, there will need to be interest rate cuts. At current levels bond yields are really no challenge to stocks.

    'There's still a significant number of new homes being built, and vacancy rates for residential properties are starting to soar.'

  2. yes, the housing sector looks awful. Hey, wait a second. Housing stocks are flying higher and have been since July. What does the market know that the average elitetrader.com perma-bear doesn't. BAWAHAHAHAHAHAHAHAHAHA
  3. Maybe it's having the same delusions before the NAZ was cut by two thirds?
  4. yes, of course, keep selling it
  5. The point I'm making is that it's implicit in your statement that the market is an accurate predictor of future events (i.e. because housing stocks are up, the worst is over).

    If that were true, no single stock would ever decline, nor would any market or index.
  6. S2007S



    bylo is right, just because homebuilders are trading higher doesnt mean the end of the housing market decline is done with. TOL is nearing a 52 week high, how this is possible I have no clue. All of these homebuilders are cutting forecasts and see no signs of the housing market coming back anytime soon.

    Remember $1.5-$2 Trillion worth of ARMS are resetting by the end of 2007, if the housing market gets by without a problem over the next 12 months, I will turn somewhat bullish on the group, but until then this sector doesnt deserve any of the gains its enjoying. Sorry. Still see 15-25% drop in the housing stocks and 10% drop in housing prices by the middle to end of 2007.
  7. What's the appreciation rate for median price of homes in the US for 2007? Are they forecasting low single digits like they did in 2006? Their forecasts were pretty good the past few years.
  8. Exactly. This is a technical "dead cat bounce". We've all seen it before. Weak shorts getting out early. Strong shorts are still in the game though. Let's remember ol Doug Kass of Seabreeze Partners who was short 2 YEARs ago and took quite a lot of "heat" before reaping some huge rewards.