Wednesday, December 23, 2009

New Home Sales Numbers

The monthly new home sales numbers were released a few moments ago and they came in "shockingly" low.

Market observers will shake this off as a one-off month before we resume back to home building happiness. I view it as a snapshot of what is to come.

I am involved in negotiations with some of the larger banks in the country with some of their smaller land deals. The real estate firm I work with uses creative strategies to try and help deal with some of their toxic positions.

In most of the land deals I see cross my computer screen today, the lots to build on need to be priced at $20,000 or below in order to make the deals work. That means they are essentially giving the land away in order to remove it from their books.

In some of these deals it is still not possible for builders to make a profit, with the land costs at zero!

The real estate market will reach a point in the future where the cost to build a new home will be above the price of a similar home in foreclosure or short sale right across the street. Those homes will provide the new market price.

It is at this point home building operations will shut down. These stocks do not represent the shorting opportunity they did back in 2006, but they are certainly not buying opportunities today. Many will shut their doors completely as we move forward.

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