America’s Real Estate Built On A Very Shaky Foundation
In a market like this, smart investors know that it’s not the best move to flee in fear. While the masses do that, a down market represents a great chance to buy quality stocks at bargain prices.
However, that doesn’t mean every sector is up for grabs. There are some you should just avoid like the plague.
Numero Uno on my list: Not financials, but homebuilders – especially with the latest batch of bad news today.
There’s seemingly no end to the rapid rate of home foreclosures in the U.S. Mortgage research firm RealtyTrac said January got off to a miserable start, with a 57% surge in foreclosures, compared with January 2007 and an 8% rise over December’s figures. It equated to one foreclosure for every 534 homes. In Florida’s Fort Myers area – the worst-performing metropolitan region – that figure jumped to one home in every 86.
A Sloppy Market Taking Its “Toll”
If you’re looking to do some bottom-fishing in the housing market, you might want to look elsewhere for bargains. Homebuilders are certainly cheap, but there’s no indication yet that they’re about to rebound. Don’t just take my word for it, though. Here’s what one of the biggest players in the sector says – Toll Brothers (NYSE: TOL) CEO Robert Toll: “The housing market remains very weak in most areas. Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel.”
That assertion was confirmed in Toll’s recent first-quarter earnings report, with the company absorbing a $96 million loss on revenues that sank 23%, as 28% of its customers canceled purchase contracts. The company also sucked up a $245.5 million write-down on poorly performing real estate developments. Had that not happened, the company would have actually earned $53.7 million, which tells you all you need to know about the current state of the market. Toll Brothers also blamed “ceaseless talk of a recession” for compounding its woes.
Martin
Tuesday, February 26, 2008 — by Martin Denholm, Managing Editor, Mt. Vernon Research
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