The Downward Spiral Continues

Homebuilders: The Downward Spiral Continues [¹]

By Bank Credit Analyst | 27 September 2007

Homebuilding stocks have been stuck in a freefall and a turnaround in coming quarters is unlikely. Heightened concern about sub-prime loan defaults remains a key ingredient to the bear market in both sub-prime and housing stocks. Notably, sub-prime relative performance, has led homebuilding stocks in the past decade, and the current message is still negative. Meanwhile, Lennar posted a massive third-quarter loss Tuesday, highlighting that the industry still has the ability to surprise on the downside. It will take a substantial drop in interest rates, house prices, or a combination of the two, to bolster affordability sufficiently to clear excess housing stock. The latter is unlikely with lenders still in the early stages of tightening standards on mortgage loans and a still high level of home sales relative to the housing stock. Thus, while the industry has already been through a dreadful year, it is too soon to attempt any bottom fishing.

Normxxx    
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