Tuesday, June 16, 2009
(Cont'd from above)...

Jim (cont'd):   

The end to house price depreciation in the vast majority of areas in this country... especially the important ones... California, Nevada, Arizona and Florida... has at last arrived!

Do you remember last August, I made a prediction... and that prediction was that housing would bottom by June 30th... June 30th of this year... based on increasing household formation, falling home prices (affordability), the working off of inventory, as the homebuilders cut back on new construction. And the fact that the Fed would lower rates to far below what I was talking about at the time...

Well, for months, I was ridiculed for this call. In fact, in some circles, it hasn't even stopped... and not the standard stuff like I'm some kind of shill or Bozo the Clown figure... or even when people say my stock picks are "crimes against humanity"... I mean, this was even nastier... nastier, despite the fact that, the year before in 2007, I told you that I thought you would lose money if you bought a house in the next 18 months... in fact, I guaranteed it... and, believe me, my job was under a lot of pressure for doing so.

But, today, this sign (calendar watch for his projected "housing bottom") comes down...

Why am I taking it down?...

Because this morning, we saw an explosion in new housing starts and new housing permits around the country, even in the worst hit areas... and this is what I was waiting for. We know that inventories, at last, have gotten too low... so low that the homebuilders have sensed that we have come to the end of the long national housing nightmare.

Let me tick off some stats to back up what I'm talking about, that confirm my view...

May housing starts... 532,000 versus only 485,000 consensus. That is, by the way, a gigantic variance and up an astounding 17% from just last month.

Even better... starts in the South and the West - what have been the two worst areas in the country - climbed an amazing 16.8% and 28.6%, respectively.

Building permits... the ultimate predictor of the future... moved up very, very strongly.

These are amazing stats that signify that this (pointing to his housing calendar sign) is done...

When you see a staggeringly large and new building that we got in these two hard-hit areas... when you see that new housing permits are up for three straight months... you cannot wait to sound the "all clear"... it doesn't happen. The homebuilders certainly won't... they are too busy pushing for more tax credits for home buyers... something that President Obama simply won't give them.

The analysts won't do it... they're not going to ring the bell; most of them are based in New York City, where housing was last to fall. Sadly, it will be last to bottom... and it isn't here yet.

Okay, let's talk about what a bottom actually feels like, versus what you've heard in the news... the bottom that we now have in almost every region of this country...

You get a bottom when you get a gigantic increase in the number of homes sold and, in many of the areas of the country, the sales are up 10 times what they were last year, and you get no further price depreciation, with those blowout sales numbers. We've had that for three straight months now. That's enough to declare victory.

Remember, unlike what other people have been talking about, I have not, and have never talked about, house price appreciation. This whole countdown to a housing bottom was about house price stabilization... that your house - the vast majority of homes in this country - are done losing their value. That's important, because many people confuse the two, and I have never said that house prices will start rallying from here... They will just cease going down in value. They are not going to rally from here... they are just going to cease to go down in value.

That also means I am not talking about buying any homebuilding stocks on this... which is, again, a false conclusion. They may be building more now, but that's because they finally sense that they can get rid of the land that they have been hoarding... that they've been financing... by putting some homes on them that that will be virtually profitless to sell. That's okay.

These numbers today, by the way, put to rest the ridiculous canard that rates have moved up too far, too fast, to keep housing going. They're better than last year.

Affordability, low rates, one-time tax credit for first-time buyers... it's all there. I also don't buy the worry that, look out... there will be more inventory than ever, now that they are building, and foreclosures keep hitting the market... The homebuilders are not suicidal... they would not build homes if they expected to lose money! They understand the foreclosure issues better than anyone... It's their homes that they built, in developments that they own, that are in the epicenter of the foreclosures. They would only build homes because they know they could sell them.

The banks are not suicidal. They now have the capacity and the capital on hand to hold back foreclosed homes from the market. They're not going to flood the market. Remember the $85 billion they just raised?... That was, in part, so that they could hold onto other real estate owned... for better times.

What can you do with this housing bottom call?...

I think you can buy the banks... the banks with the most mortgage exposure. That's Wells Fargo (WFC*), that's JPMorgan Chase (JPM*) and, most important, Bank of America (BAC*)... both because of Bank of America and Countrywide (mortgage company that they acquired last year). That's the troika that I have been buying for my charitable trust, ActionAlertsPlus.com because, like noted guru, Katy Perry, it's time to shut up and put your money where your mouth is... although I wake up in Jersey, not Vegas...

These banks have been hurt badly by weakened housing, either through mortgage portfolios or actual defaults. You should now see those defaults peaking, beginning next month.

So why didn't the market rally on these numbers?...

Because people are as blind to the bottom as they were to the top... and because the market is still working off its big run back to more sustainable levels, as I had discussed on last night's show. But, when it comes to housing, you have to understand that you can't wait until some bell goes off. You can't wait until some homebuilder analyst or some banker gives you an "all clear"... You're never going to hear that sound (as he rings a bell)... other than on this show.

Here's the bottom line...

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The Bottom Line!:     I am telling you as someone who called the housing top three years ago... who guaranteed losses if you bought a home two years ago... and who one year ago predicted that the bottom would be here on the last day of June... that it is time to declare victory. Buy the banks... and yes, while I'm at it... go buy some property too. I'm doing it. Shouldn't you?

[verbatim recap]

[end of segment]

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