Since the Federal Reserve announced a surprise -- panic? -- inter-meeting cut in interest rates last Tuesday, one of the best performing stock market groups has been the homebuilders. Once again, equity investors have proved just how ignorant they are about what is really going on.
In fact, one constant throughout this whole crisis has been how utterly clueless this group is when it comes to grasping the broader implications of the bursting of history's biggest property and credit bubbles, the numerous macroeconomic threats posed by banks' (and other financial institutions') rapidly deteriorating balance sheets, and the irrelevance of traditional policy responses when the key concern is too much credit and not enough solvency.
Still, no market goes in a straight line, so even the worst ones have their occasional moments in the sun as they make their way towards zero. Yet it's worth keeping in mind that with reports like the following from the Wall Street Journal, "Foreclosure Filings Surged 75% In '07 as Subprime Mess Grew," and continuing evidence that housing starts, new and existing home sales, median prices, vacancy rates, builder sentiment and credit conditions remain far removed from market-clearing levels, homebuilders' shares almost certainly have plenty of downside left -- and more than a few bankruptcies ahead -- before it's time for investors to start thinking about catching the falling knives.
Foreclosure filings soared 75% in 2007 from a year earlier as credit trouble and falling home values fell on homeowners, a foreclosure-listing service said.
There were 2.2 million foreclosure filings last year. More than 1% of all U.S. households were in some stage of foreclosure during the year, up from 0.58% in 2006, RealtyTrac said.
In December, foreclosure filings zoomed 97% from a year earlier, giving the fourth quarter the highest quarterly total since RealtyTrac, Irvine, Calif., began issuing its report in January 2005.
RealtyTrac Chief Executive James J. Saccacio said that for the year, properties in some stage of foreclosure increased 79%. That statistic, he noted, indicates "some properties may have just entered the initial stage of foreclosure in 2007 and could be going through the rest of the foreclosure process in 2008 unless lender and government intervention efforts begin to gain more traction."
Nevada had the nation's highest foreclosure rate for the year, with 3.4% of its households in some stage of foreclosure -- more than three times the national average. Trailing Nevada were Florida, Michigan, California, Colorado, Ohio, Georgia, Arizona, Illinois and Indiana.
California had the highest number of foreclosure filings. Florida ranked second, followed by Ohio, Texas, Michigan, Georgia, Illinois, Colorado, Arizona and Nevada.
Amid the subprime-mortgage debacle, lenders have tightened standards, making it tougher for individuals to obtain credit. In November, Mr. Saccacio said that "given the number of loans due to reset through the middle of 2008 and the continuing weakness in home sales, we would expect foreclosure activity to remain high and even increase over the next year in many markets."
The fundamental mindset that underpins today's hyper-speculative markets is quite resilient and this article is just more proof. Tenaciously resilient like the ego defenses of a confirmed drunkard. We'll know when the drunk has gotten religion when nobody gives a good goddamn how many foreclosures there were at any given time in any given shithole on the face of the entire planet because they're sick, sick to death of the memories of all that money that went to heaven and left them behind in the stinking hell they suspect they had a hand in making. I'm talking about the kind of revulsion that hammers into shape the social norms and mores of a generation or two.
I once heard the co-manager of IVESCO's now long-gone Industrial Income Fund say, or maybe it was a boast, that he could make money in an up market and that he could make money in a down market but the only market he couldn't chisel out a living from was when no one was trading at all. He then told of the markets in the thirties and even into the forties when on the floor of exchanges all over the country people stood around like bored whores two days before the fleet arrives.
Its hard to imagine in these days of frenzied, unimaginable trading volume a coming time of enough room on the floor of the NYSE to play some frisbee but I truly think we may just get there yet.
Posted by: Snappy Tom | January 30, 2008 at 12:02 AM