Kunst

Comment Stream » BZH

Comment Stream
Filter comments by:
Highest rated Latest comments
Or filter by symbol:
AA AAPL AAUK AAWW AAXJ ABB ABI ABK ABX ACAS ACF ACH ACI ACTS ACWI ADC ADE ADM ADRE AEM AFK AGG AGQ AHBIF.PK AIG AIZ AKS ALO AMCN AMGN AMR AMSC AMZN AN ANF ANN ANR AOC APA APD APOL APWR ASH ATV AUY AVNX AXP AZC AZO BA BAC BAESY.PK BAP BBA BBH BBW BCE BCS BDH BDK BEC BEE BG BGP BGR BGU BHH BHP BIDU BIK BIL BK BKF BLK BMO BND BNZ BP BPL BRCD BRK.A BRK.B BRL BSV BTE BTU BVN BX BZF BZH C CAF CAG CAL CAM CBG CEE CEF CEG CELG... 
[+ show more]
  • Get Ready to Short Homebuilders
    We need to keep in mind that the new-home and resale-home markets are different. During the bubble, both shot up to the sky. The problem in the resale market is that an awful lot of people have little, no, or negative equity in their house, either because they bought in the last few years and prices have dropped, or because they refinanced up to the 80% level of a value that has since dropped. If you don't fall in either of those categories -- you bought a while ago and didn't go to the refi ATM -- then the only problem is that your house is worth a lot less than it might have been a few years ago. Not that big a deal, especially if you are buying another house in the same market conditions.

    Housebuilders have and had a different situation. A builder who started the process while the bubble was developing got a huge windfall when prices shot up. If Mr. Builder was planning to make and sell a house for say $200K, with a reasonable profit, all of a sudden he can sell the same house for $300K by the time it is finished. The increase is pretty much all profit. Now late in the bubble, he might have overcommitted and gotten burned by higher land or building costs, but the basic fact is that building costs never went up to the degree that house prices did.

    That leaves significant room for builders to come down in price to sell finished houses, since their costs are more akin to pre-boom times. Much of this is disguised by indirect price cuts -- free upgrades and such -- but the bottom line is that builders have a lot more room to drop prices than the underwater home owner, and less emotional attachment to excess profits that may have been "real" at one point but certainly are not now.

    A lot of home owners either can't sell for enough to pay off the mortgage, or are still so invested in what they thought their property was worth a few years ago, that they will not price their house so it will sell in this market. A lot of sales are by those who have to sell, due to death, divorce, job loss, relocation, etc. Many of the others are going to sit on their property until it "goes back up".

    Home builders have no such illusions. They will sell at market because carrying inventory costs them. The key question for the homebuilder stocks is whether they can build and sell new homes profitably under current conditions. Given high material (but not labor) costs, an overhang of inventory, and a shortage of buyers, it really doesn't look like a very promising proposition.

    It is hard to see how building and selling houses is going to be a good business for the next several years. Too much housing was built during the bubble, borrowing requirements have been tightened, consumers are stressed by high energy and food costs coupled with flat (or worse) incomes. Supply and demand, isn't that the fundamental issue? Too much supply, limited demand. How can that be a healthy business environment for builders?

    The House bailout bill won't change this much. Its intent is to keep people in their underwater houses and prevent foreclosures. It isn't going to do anything to bring more buyers into the market.

    With the unjustified run-up of builder stocks since the first of the year, I'd rather be short than long.
    May 16 14:21 pm |Rating: 0 0 |Link to Comment |View article
  • Housing Bulls' Indiscriminant Appetite May Cause Heartburn
    No problem, Hartwell. You buy the long side.
    Mar 03 00:41 am |Rating: 0 0 |Link to Comment |View article
  • Home Builders Surge, Overbought in Short Term; Top Play NVR
    Bottom line, there isn't much positive from any fundamental point of view in the housing/homebuilder arena. Two million empty houses, a major price correction that still has a long way to go, a weakening economy. Other than being "oversold", what is it that makes anyone think the housing industry will produce any profits over the next year or two?
    Feb 01 00:54 am |Rating: 0 0 |Link to Comment |View article

Kunst is a Top 100 Commentor

  • 774 Comments, 92 , 38
  • Total Comment Stream rating - = 54