Beware of Housing "Experts"

How bad is the U.S. housing market? Personally, I think it's so bad that a further worsening has become inevitable. Let's look at a few metrics, after which I hope you'll agree with my perhaps strange logic.

  • On Wednesday, McGraw-Hill's (NYSE: MHP  ) Standard & Poor's unit released a report indicating that home prices not only fell for the 10th consecutive month, but also posted the largest decline in more than a decade and a half. The month's 6.7% drop was a record for the index, exceeding the previous record decline of 6.3% set in April 1991.
  • On Thursday, The Wall Street Journal noted a warning by economists at Goldman Sachs (NYSE: GS  ) that single-family housing starts, which have plummeted by 55% from their peak less than two years ago, may drop by another 40% next year.
  • Also on Thursday, the Mortgage Banker's Association announced that the volume of mortgage applications dropped by 7.6% during the week ended Dec. 21. While I'd generally give grain-of-salt treatment to any housing sales or mortgage statistic generated so close to the holiday, I nevertheless feel that this drop should at least be noted.
  • SMR Research, a major New Jersey-based business research firm, has released a 275-page forecast of home foreclosure activity for 2008. The firm projects a 22% hike in that rate, and says that "a continued fall in home values could cause an even larger increase."

When I look at these figures, and also factor in the currently inflated inventory of homes for sale across the nation, it's difficult to imagine how SMR's "even larger increase" can fail to materialize. Of course, Goldman Sachs' caveat about a possible yet-to-come drop in starts would do wonders for inventories, but at what price for big builders such as Centex (NYSE: CTX  ) , Lennar (NYSE: LEN  ) , Pulte (NYSE: PHM  ) , and Beazer (NYSE: BZH  ) ?

I'm concerned that in an otherwise solid analysis of the home-price slide, the Journal included a prediction by an economics professor that new home prices "are likely to start recovering in the first half of 2008 because builders are aggressively chopping prices to clear inventories."

My view is that, amidst the current U.S. housing quagmire, Abe Lincoln couldn't have chopped prices fast enough to begin an upward movement by the first half of 2008. Similarly, I hope my Foolish friends will turn a deaf ear to the parade of investment "experts" who are touting homebuilding more and more as an attractive sector for 2008.

For related Foolishness:

Help us in our goal to give every young person around the globe a financial education! Learn more about the new direction of Foolanthropy, now in its second decade, here.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 557461, ~/Articles/ArticleHandler.aspx, 12/22/2014 7:49:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement