Wednesday, September 07, 2005

Housing Bust Coming

After the storm hit NO, Michael Savage (relax, he is a part-time habit) interviewed an "energy expert" at the Wall Street Journal. The guy said that housing prices may not be affected by oil prices at all because the Fed will keep lower interest rates to sustain growth.

Ummm, I'm no economist but I very much beg to differ. Oil goes up. The cost of transporting commodities goes up (you know steel and wood and everything else). The cost of transporting goods goes up (doors and windows and toilets and glass and granite and you get the picture).

The costs of new home building continues to rise. The hurricanes in Florida last year caused that. Katrina blows that mess out of the water (pardon the pun).

The people who lost their homes in NO--50% are uninsured.The other 50% won't get in there to rebuild anytime soon, if they ever choose to.

The rental market is saturated everywhere. A huge percentage of people buying homes did so as investments the last year. Over 60% of people bought homes with interest-free loans in 2004.

Ever been upside down with a car because it loses value? Doesn't it suck? Now imagine being upside down in a house and trying to sell.

So, new home building will slow because people will hold on to cash--the Hurricane ups prices and makes everyone nervous. Existing home values in inflated and overextended climates will plummet.

Add to this, this from Paul J. Lim in his column Market Watch at U.S. News and World Report:
"Over the past 10 months, insider selling has reached peak levels at eight of 12 large publicly traded home-building companies, according to Richard Bernstein, chief U.S. strategist for Merill Lynch. And that's despite the fact that most Wall Street analysts have "buy" recommendations on those shares."
And this:
Within a year of the Internet bubble's bursting in 2000, there was record net insider selling at 14 of 20 large tech firms, Bernstein said. Could this be deja vu all over again?
Yes, it could! Sell your home builders stock. Run, run like the wind. And don't build a house right now. And stop your investment buying in houses, too.

Oh, and after hurricanes like Katrina, Mr. Lim sites Betsy and Camille as examples, stocks lost 14 and 20% of their value the next year.

Call your Investment Advisor today.
More blogs about the woodlands rita.