We Need Some Homebuilders To Fail

We Need Some Homebuilders To Fail

By Jim Cramer | 17 October 2008

It's a crucial time for the homebuilders. Rates have spiked huge here. That was not in the cards for them. They are not set up for that. We still have not had a major bankruptcy of a homebuilder. That's one of the reasons why we have not seen the stoppage of homebuilding.

Look, let's be honest. We have no need for new homes in this country. None. We do not need Beazer (BZH), Centex (CTX), Horton (DHI), Hovnanian (HOV) or Pulte (PHM) to be building homes.

We can't get a bottom in homes as long as Lennar (LEN), Standard Pacific (SPF) and Ryland (RYL) can still build. But build they must to be able to stay in business and meet cash flow covenants. The darned banks keep these companies alive with endless forbearance because they don't want to take a hit. The bank/housing company nexus is killing any hope that housing prices can stabilize.

Because of their need to hang on and build, we are not able to work off the inventory. We can't. I hate to root for any company's bankruptcy. But we just aren't going to get to where we have to go, which is as close to no new housing starts as possible, in order to get to the bottom and no more house price depreciation.

These homebuilding stocks have now become the enemy. With rates up and them still pumping, we are going to have another big round of price depreciation. I reiterate that housing will bottom next year. Integral to my forecast are four things:

1. many homebuilders failing;


2. tax credits to get people to buy homes;


3. lower mortgage rates; and


4. a 25% decline in home pricing.

We need all four to happen. We just lost three. We will not have a bottom unless we get no. 1.

At the time of publication, Cramer had no positions in the stocks mentioned.

ߧ

Normxxx    
______________

The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.