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Cramer is Wrong on Housing - Again

March 25, 2008 1:33 PM

Cramer’s call that we have or are seeing a bottom in housing is dead wrong. I said many, many months ago (almost a year, I think) on his and one of the Fast Money boys call to be long FNMA, etc. was dead wrong and FNMA has been brutally crushed since, to say the least. Let’s hope you were eating dinner and not watching that show… or you are probably eating generic tuna for dinner now. I would take that call and roll it up in a nice neat ball….and swish it.

The issue on housing is not like hitting a bottom on a stock and reversing. The issue is affordibility. In CA for instance, affordibility dipped below 10% or in that range, at one point. That means that ONLY 10% of the of the population could afford to pay the mortgage on the median priced home. The reason for this was the explosion of “exotic” mortgages that led to the “paper” housing boom. Prices were not supported by fundamentals and still aren’t. Historically, ALL housing booms were nearly 100% correlated with incomes. The only exception to that was the most recent boom that was “created” by changing the paper that determined prices - temporarily. SP Schiller housing index once again showed record declines in prices…..

I said a year ago housing and related stocks were going far lower, I said it again 6 months ago, and saying it again - NO bottom. Even in the very unlikely event that we have seen the bottom, to get excited about that sector you would have to see improvement. That isn’t happening anytime soon. If a recession worsens, it won’t happen at all. This is at least a 5 year problem I believe, possibly longer, not 1 year. The rally in this sector is short covering, nothing more. Those stocks are massively short and the easy money was made…so they are taking some off the table. It is as simple as that.

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