September 17, 2006 at 10:00 PM #7536h82rentParticipant
Here is an excerpt from Friday’s Jim Cramer’s Mad Money show. He focused on the fact that home stocks were done going down. I know that STOCK prices might not correlate to HOME SALES prices, but he’s predicting an upturn in stock prices. I’ve actually have made a good return in 2006, following some of his recommendations. What do you all think? And if you agree with him that home builder stock prices will go up, why or why wouldn’t the home prices go up too? Just throwing it out there for thoughtful comment – in terms of both home stock prices and home sales prices. Here’s the excerpt by Cramer…
I’m drawing a line in the sand! This is the point where I believe Centex (CTX), Lennar (LEN), Toll Bros. (TOL), and KB Homes (KBH) are done going down! That’s right. Cramer says the home builders have bottomed.
I’ve got 10 reasons why I believe the homebuilders are done going down and ready to come back up!…
Reason #1: Home builders have bottomed; their stocks just aren’t declining.
Reason #2: Analysts have been defending them forever. I think the downgrades are over.
Reason #3: Interest rates have peaked.
Reason #4: Employment is improving.
Reason #5: Raw costs are declining.
Reason #6: The stocks are priced for perfection.
Reason #7: Buying a home is still the single best investment you can make, both because you can deduct the interest payments from your taxes, and because it’s a great way to build equity. Every night, I tell you to buy stocks. First, if you can afford it though, you should buy a house.
Reason #8: The homebuilders are making money.
Reason #9: Homebuilders sell close to book value.
Reason #10: The mainstream media has caught on to this story.
The bottom line: The flag’s been planted! The line has been drawn! They shouldn’t go any lower! And they deserve to be trading a lot higher.September 17, 2006 at 10:45 PM #35631rseiserParticipant
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.September 17, 2006 at 11:10 PM #35632waiting hawkParticipant
He was telling people to BUY Cisco in 2000 at around $95 a share. I think the ending was something around $2.00?September 18, 2006 at 4:46 AM #35648September 18, 2006 at 6:25 AM #35652
He completely missed the tech bubble. Tech stocks and housing are such obvious bubbles, that anybody who is not recognizing either one is not worty of my time. Don’t listen to Cramer. The homebuilers, and housing prices, have a long way to fall. Nothing goes up or down in a straight line, so the temporary rallies do not indicate a reversal.September 18, 2006 at 7:32 AM #35658poorgradstudentParticipant
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.September 18, 2006 at 7:52 AM #35659The-ShovelerParticipant
Who can afford a n 800K (+High HOA and TAX’s) Track Home anyway ???September 18, 2006 at 8:19 AM #35662The-ShovelerParticipant
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.September 18, 2006 at 1:05 PM #35702CAwiremanParticipant
On the note of Building companies and Capital.
Although its hearsay, I’ve heard from a banking friend that Banks aren’t giving money to building companies because that fear that its throwing good money after bad.
This makes sense and I believe it to be true (whether it is or not, another story…)
So, if this is true and banks are starving the builders, then the stocks at some point should resume the downward trend.September 18, 2006 at 1:27 PM #35706sdrealtorParticipant
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;)September 18, 2006 at 2:14 PM #35709
Realtor Jim Klinge says Davidson builds superior properties, and superior properties will not lose more than 5-10% during this downturn. “…. a few examples of superior properties to keep an eye on….Tracts built by Davdison Communities. Typically tracts fall into inferior-properties category, because you’re married to the comps – if there are a couple of low sales of your same model, you’re sunk. But if there was one builder who can beat the odds, it’s Davidson. ”
Jim has great info on his blog, like the comment that tract homes fall faster because you’re married to the comps, or his post about how to spruce up your home because buyers expect a perfect house, or his explanation that you make your money when you buy so avoid power lines or a backyard that people can look down on or being in a flight path. I love his blog.
But that doesn’t mean I agree with his prediction of where the market is headed. The question is: what was the price of the properties he considers “superior”, back in 1999? If we increase those prices by 3-5% annually out to today, what would be the value of those homes? How much do they need to fall to get to that? Also, if superior properties hold their value better, does that mean they are *always* a multiple of 25-35x annual rent, rather than the 8-10x annual rent that has been explained to me? In other words, do “superior properties” defy fundamental analysis today and in the past?
BTW, there are 4 foreclosures on Hospital Way and Highland Dr, and 22 preforeclosures in zip code 92008, 2 foreclosures and 11 preforeclosures in 92010.September 18, 2006 at 3:35 PM #35717MaxedOutMamaParticipant
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.September 18, 2006 at 3:39 PM #35718
MaxedOutMama, I had not thought of this before, but you’re absolutely right! Once they properly write down their assets, their book value could well shrink 50-70%. So will their stock.September 18, 2006 at 4:53 PM #35729luParticipant
One chartist's opinion:
Disclosure: I own some LEN puts ($40 strike) that expire in Jan07.September 18, 2006 at 5:05 PM #35735sdrealtorParticipant
Davidson does build a superior product but they came to the party too late with their latest project in La Costa oaks and the designs are aweful. All of the other builders sold out long ago there. They started late and missed the good times. I dont know Jim but he seems very knolwedgable and I would tend to agree with him more than not about what he says. Just think he missed the mark on this one.
BTW There is no Hospital Way in Carlsbad it is Hosp Way and they are the least expensive condos in Carlsbad. They were condo conversions a few years ago. Many if not all were sold as subsidized affordable housing. Certainly not a barometer for the overall market in 92008.
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