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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Doughboy who wrote (14788)	11/3/2003 7:01:23 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 306849

i think the low PE on the builders reflects market skepticism over historically cyclical businesses. keep in mind that the current housing bubble is a national phenomenon, so strong earnings could disappear quickly in the event of a nationwide crash. still, the builders (and the overpriced housing market) have defied negative expectations for quite some time now--just as the Nasdaq bubble defied expectations until the last bear had gone home. i don't own any public builders, but i would take comfort from the fact that they are stealing market share from local builders and apparently can keep doing that for a while yet. but i still think they are cyclicals, with maybe an incremental windfall here due to "rationalization" of their processes as well as bubble-oriented financing for their customers. the low PE also reflects that the market doesn't care about fundamentals. the worse the stock, the better it has done, on average, this year. just look at how energy has underperformed the market, despite providing most of the earnings growth in the SPX. same could be said for dividends.

To: Doughboy who wrote (14788)	11/3/2003 7:06:31 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 306849

note that while everyone has been wringing their hands about a bubble the last two years, new home prices are still steadily climbing and selling at record volumes this is hardly proof that there is no housing bubble. in fact, it is to be expected. it is exactly what happened with the Nasdaq--people were calling it terribly overvalued in 1997, and in 1998, it seemed the tech stocks were going to get their just desserts...until Greenspan opened the spigots in the fall. then the Nasdaq doubled again from what were already the most overpriced levels in history. this sent all the bears home. it is in the nature of bubbles to go farther than most people think they can. but remember, the flipside also goes farther than most would think.

To: Doughboy who wrote (14788)	11/3/2003 12:05:50 PM
From: bentway	Read Replies (1) \| Respond to of 306849

It's hard for me to make sense of it, homebuilding IS booming, yet I'm convinced that homes in some of the highest priced areas are WAY overpriced, getting beyond what most people can reasonably afford, which seems like a bubble. Not only is homebuilding booming, but these are houses that are for the most part already sold. Most of us on this board expect a crash, but what will precipitate it? What's the timeframe? If the economy recovers and jobs start coming back, will housing price inflation just continue? Certainly not forever..

To: Doughboy who wrote (14788)	11/5/2003 10:26:01 PM
From: russwinter	Read Replies (1) \| Respond to of 306849

I come at the homebuilders from the perspective that we are in a massive credit induced housing mania headed for a bust, not just a down cycle. Still in the short run, I think Wall Street will price these companies to their contract backlog, as this quarter and perhaps the next are slam dunks in terms of construction. After that though it's already a little hazy. Note that the MBA purchase index of loan applications (a decent proxy of purchase activity) has fallen from an average of 414 per week in Sept to 385 per week in Oct (I split the 10/3 MBA report). Toll wouldn't comment on new October contracts in their call, just general market conditions, which are still fairly robust. I also noted that many if not most of the "excellent" markets are in financial sector areas like NT, CT, NJ. The others are in bubbleland like Calf, NV, AZ, where Robert Toll freely admitted folks were buying second homes "for investment". If buying a 600K home to keep in "mint condition" like some collectable isn't a mania, I don't know what is? Just an incredible misallocation of capital in the US economy, and a price will be paid for it. I think this housing bubble period will be compared to the TNT sector in 99-00 when it busts. $40 for TOL is unjustified in my mind, especially if the purchase index continues to soften, which it will with every BP increase in rates. Note the purchase index for the comparative period a year ago was 350-360. It averaged about 420 in the quarter just ended, and that popped their business 55%. They are going to be highly leveraged and conversely deleveraged to this index. Fourth quarter 2003 contracts of approximately $1.02 billion (1,757 homes), also the highest for any quarter in the Company's history, grew by 55% versus 2002's record fourth quarter of $656.6 million (1,205 homes). FYE 2003 contracts of approximately $3.49 billion (6,161 homes) rose 27% compared to 2002's FYE record of $2.75 billion (5,113 homes). Some good commentary on refi and purchase activity that repeats a lot of what I've said here. However, one thing that stands out is the overlay of inverse interest rates and refis. 6% today engenders a fraction of the activity of 6% a year or two ago: prudentbear.com. A little more expansion of the consumer credit bubble here: Message 19463209