In the typical Hollywood movie script, there are three acts.
In the first, we are introduced to the characters and the world in which they live. In the second act, our protagonist is slammed by a conflict he or she must overcome (my boyfriend’s moving out of town and I don’t know if we can go the distance, my whole family was killed by neo-nazis and I’m out for justice, if I don’t win this educational decathlon my dad won’t let me inherit the hotel company he built, etc.). But then in the third act, more times than not, the good guys win and everything either goes back to normal or gets even better than it started.
But the economic cycle obeys no such cliches. We don’t overcome conflicts neatly or on a set schedule. Trends in both directions persist for longer than they should, the topping process is messy and the cleanup after the fall is even messier.
That’s housing, gang. A messy top and an even messier cleanup. I continue to believe that the bottom is falling into place price-wise in many markets and that the long slough ahead will be a correction through time. I also believe that the big opportunity is in the companies that provide the remodeling products – the only way to move foreclosures of the magnitude we need to is to repaint, re-carpet, re-roof, re-kitchen, re-ventilate etc. The stocks of $HD, $SHW, $VAL and $LOW are telling you that this is happening now on a massive scale.
Here are today’s disappointing home price stats from Case-Shiller (via Bloomberg):
Residential real estate prices dropped more than forecast in the year ended October, showing a broad-based decline that indicates the U.S. housing market continues to be weighed down by foreclosures.
The S&P/Case-Shiller index of property values in 20 cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said today. The median forecast of 27 economists in a Bloomberg News survey projected a 3.2 percent decrease.
The real-estate market is bracing for another wave of foreclosures that may keep pressure on home prices, indicating any housing recovery will take time to develop. Nonetheless, rising builder confidence, a pickup in construction and fewer unsold new properties for sale are among signs the industry that triggered the last recession is steadying.
Unsmooth, lumpy, uneven, frustrating, too slow, shadow inventory, etc. No one should expect this process to be easy.
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