To: russwinter who wrote (14850 ) 11/6/2003 2:47:30 AM From: Doughboy Read Replies (1) | Respond to Good points all about the Homebuilders. A couple of responses: 1) I think the housing market has hit an incredibly virtuous cycle right now. Normally the recession/economy would sock it to the homebuilders, but for the fact that the Fed had vast flexibility to lower interest rates (read, low inflation) and so the cut in rates basically matched step-for-step the rising housing market. In the end, I don't think the mortgage payment as a % of income has moved appreciably over the last few years. $20000 in annual payments buys a lot of house when the interest rate is down at 5.25%. 2) I agree with you about Toll; they build at the high end so are much more dependent on the stock market, bonuses etc. that drive the half-million dollar home market. That's basically why I traded in my Toll investment for an investment in Centex, which I believe is less volatile but no less profitable. Toll has a higher risk profile. That said, I think the recovery of the stock market at the very time of rising interest rates may shift the market back toward the high end. The interest-rate sensitive first-time homebuyers are going to be priced out of the market with a 150 basis point rise in the 30 yr rate. Whereas, the exec buying a house with stock gains is less interest rate sensitive, typically. I'll stick with Centex for now (it's been on an incredible run for the last six months), but I'd look for Toll or Hovnanian in mid to late 2004. As far as I can tell, what you called the bubble markets--AZ,NV,CA are sustained by good fundamentals (at least where Toll is building) so I'm not so worried. With the backlog that these companies have built up, the pick-up in the economy and the stock market I believe is going to be like a second wind.
