Sure Cramer has some good instincts sometimes, but he is also often wrong. Most of his reasons sound pretty ridiculous, like #1,#4,#6,#7. And if house prices come more in line with history, i.e. drop for a few more years, then even #5,#8,#9, and #10 don’t mean anything. A bounce is certainly accepted, but usually bubbles and vertically performing stocks come ultimately back to where they broke out, i.e. 2001 prices. For TOL I think that was a $10 price. Taking just 2003 earnings with a P/E of 10 would be a $17 price, which wouldn’t be unrealistic either. But a lot higher than $27.5, no way, IMHO.

Cramer VS. A Monkey

Stock prices are based on projected future earnings, while home prices are more in the present. The stocks you listed have all fallen fairly significantly in the past 6 months, indicating the market has priced in at least some slowdown.

I agree the worst is probably behind those stocks at this point. And I’m sure they will bounce back at some point. I would need better psychic power to know exactly when though.

So yeah, homesale prices still have a long ways to fall, especially in San Diego. But homebuilder stocks may have already bottomed. I wouldn’t rush out and buy them today, but they’re worth keeping an eye on.

Nor_LA-Temcu-SD-Guy

Or let me put it another way, I bought a 3500 SF Track Home for a little less than 300K in 2002 in Temecula, Had a Deck off the Master, a nice court yard, even a OK sunset view.
Which I thought was a reasonable deal

I am looking to up grade when an if the Housing market crashes. But, there is no way in hell I am going to pay 800K (+ the Tax and High HOA) for a Track home. (unless I am on the water of course).

Can’t see why anyone else would or how normal people can come close to really affording (20% down 30-year fixed) 800K anyway.

I don’t know if they are being starved but I was up at Davidson’s project in La Costa Oaks a couple weeks ago and they seemed pretty stressed. Davidson is a high end award winning regional track builder without the deep pockets of the nationals. They released a phase in April and had only sold 1 or 2 homes. They said they had another phase to release but couldnt do so until they sold some of what they had. They were pretty much begging for offers and said they were very flexible for quick closes and as is sales (i.e. no flooring installed prior to COE). They usually build a great product but this one has lousy floorplans. If they have the same situation going on at a few other projects in SD they could find themselves in real trouble. I’m wondering whether they are starting to get calls from the bankers.

Just kidding about the “track” builder;)

Before buying any one of these stocks, take a very careful look at debt, bond ratings, and assess what would happen if the value of their hard assets (land/inventory) were to fall 30%.

You need to read the balance sheets very, very carefully, and think about St. Joe’s situation before buying into this “quality” line. They are going to find it harder and harder to sustain funding. The only reason to buy one of these is for hard assets that total more than stock price, but I haven’t seen one where applying the logical deflator results in a very good book value.

Don’t forget, these guys have been buying and building in the “hot” markets which now will see the largest drops.

In GA, my area was never bubbly. It profited slightly, and that’s all. Well, land bought at auction here about a year ago is now being auctioned off at 50% less.

One chartist's opinion:

http://hipegg.blogspot.com/2006/09/lennar-collapsing.html

Disclosure: I own some LEN puts ($40 strike) that expire in Jan07.