Any investor who believes that home builders will lead a recovery has no understanding of economics. If this is you, you should avoid the home building sector as you will lose your shirt. Home builders could NEVER lead any type of economic recovery. Home builders can only grow after a strong, growing economy with loose credit has been established, where their profits are driven by a buying frenzy. Home builders can not grow in a vacuum! HOME BUILDERS CANNOT GROW IN A VACUUM. This will be the worst performing sector in our economy for at least the next 5 years. It doesn't matter if Obama manages to grant some tax credit (RYL's $1 million possible gain won't make a dent in their nearly $800 million debt, growing by the day). It doesn't matter if foreclosures are slowed. Foreclosures are still growing and anything Congress does might slow the rate of growth only. Don't forget that data shows there are many more foreclosures ahead of us than are behind us. And resetting subprimes don't even peak until 2011. In 2009 house prices are expected to drop anywhere from 3% in the southeast to 15% in the northeast and west. Unemployment is expected to rise in 2009, no matter how much Obama increases the deficit by. All the bailouts and Washington spending are lining banker pockets, but will only make the overall economy worse. The massive credit and subprime bubble that fueled new home purchases is gone. We won't see anything like it for at least 1-2 generations. Also keep in mind that home builders must build and sell homes to make a profit. Right now they aren't even building their product, and they aren't selling inventory, and their inventory costs money to keep and is dropping in value. Many home builders will go bankrupt. A few will survive, and in years may begin to make a modest profit. But if you told me I could buy RYL today for only $1, but I had to hold it for 2 years, I don't think I would take the risk. RYL, according to the recent analyst news, will probably be one of the ones to go bankrupt. But if they manage to survive the next year or 2, they will probably trade in the $1-$3 range for a few years, with a long term play of maybe $5-$7 in say 10 years, provided there is an economic recovery during that time. But even the mainstream, and even Obama agrees that the economy will get worse during 2009, and they are all praying for it to bottom in 2010. If you buy this stock, your only chance of making a profit is that there are others with no understanding of this sector, who are buying on blind hope after you. It has to be kind of like a Ponzi scheme. For every sucker that buys, 2 more suckers will need to buy later to keep this thing going. Unless you can envision endless new subdivisions suddenly being built with buyers lined up with their subprime loans like we had earlier this decade, I would stay away from this and other home builders.
All bad news are priced in the market allready.DO not fight the FED and last the trend is your friend. Trust me, I learned this the hard way. You make a lot of sense, but the market is not about making sense it is about making money not later but now.
There is a lot more bad news to come. This market has been in a bear market rally which is going to run out of steam before too long, if it already hasn't. Buying this piece of crap after it has already rallied back 100% of its' lows is crazy. If anythinf stay on the sidelines but definitly don't buy, unless you're a total fool.
Well said. I told everyone to short the builders 2 years ago and had to listen to all the foolish arguments of why they were going up, not! Then I told people to short financials. Again all these ridiculous reasons why they were going up, not. To see these fools buy this piece of garbage is amazing.