Thursday, November 01, 2007

Housing Bottom?

Is the Bottom Near for Housing?

.......There's a lot of money to be made in picking the tops and bottoms of cycles. But it's an extremely difficult exercise, and even a minor error in timing can lead to severe losses.

With that said, I'd like to examine some possible events that could signal that the bottom of the housing and credit cycle is near.

Off with their heads!During a crisis, the public needs someone to blame. Ivan Boesky, Ken Lay, and Bernie Ebbers are some of the toppled titans who have been the focus of public ire. It's part of the cathartic experience to dispatch those deemed responsible and to start fresh with a new era.

At many major banks, we can see that the catharsis has begun. The CEOs of Citigroup, Bear Stearns, and Merrill Lynch have fired underlings they deemed accountable for the crises. And in the case of Merrill Lynch, CEO Stan O'Neal politely retired today, leaving a big void.

However, analysts, shareholders, and the general public don't seem satisfied. They seem to want to fry bigger fish in an attempt to close the books on the current era of the housing bubble.

Berkshire Hathaway enters the frayIn an interview with Fox Business News, Berkshire Hathaway (NYSE:
BRK-A) (NYSE: BRK-B) Chairman Warren Buffett said he hasn't bought any homebuilder shares yet because he doesn't think they're underpriced. No doubt Buffett is paying very close attention to the industry and may be simply waiting for his price.

In fact, the four largest homebuilders -- D.R. Horton (NYSE: DHI), Pulte (NYSE: PHM), Centex (NYSE: CTX), and Lennar (NYSE: LEN) -- sport a combined $15 billion market cap. If you assume the shares of those homebuilders will slide another 20%, then the price tag would fall to $12 billion, plus a takeout premium. That's very doable for Berkshire and its $40 billion cash hoard.

In addition, if Berkshire were to buy several major homebuilders, it could be taken as a self-fulfilling prophecy that the end of the housing slump is near. Although the top 10 homebuilders have only a combined 23% market share, according to an article by the Dallas Morning News, markets are extremely local.......

By Emil Lee - Motley Fool

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