More Pain On The Way

When someone intricately tied to housing says he expects prices to fall another 29% in 2009, he gets your (or at least my) attention. David Crowe of the National Association of Home Builders said it. Usually those in the industry try to give a bias in the positive direction, but maybe home builders, looking for a slice of the bailout pie, are slanting things in the other direction to garner government support.

Then again, he seems to have some support for his dismal forecast. I do expect more pain on the housing front this year and next with, hopefully, a rebound starting in late 2010 to early 2011, but another 29% drop in prices in 2009 was worse than I expected. We will see.

If housing continues this slump, as expected, there are a couple of things to watch out for. First, home builders will increasingly go belly up. I read a prediction today that, at least among small home builders, over 50% will go belly up. This is difficult to gage, to say the least. I have some neighbors who are home builders who are just trying to keep busy with other work for now and who will likely go back to it if demand returns. They are mostly general contractors and do not have a lot of permanent employees, which seems to be the norm in my area. In other parts of the country, home builders are bigger, more integrated, operations, which will undoubtedly have big problems. The trick for investors will be in picking the survivors. If you can do so, you are better than me. I am on the sidelines.

http://www.calculatedriskblog.com/2009/01/national-association-of-home-builders.html

Now for some (eventual) good news

It is inevitable that car sales will return in time. People need to get around and there is just so long that you can survive on maintenance. Eventually the math leads to buying another car. Well, Calculated Risk has some nice charts to suggest that this will indeed happen,and perhaps in the not too distant future. Temper you investing here as out of work people do not buy cars - they walk or take the bus - and there may be a bit of a new transportation dynamic underway with the whole new lower gas consumption/alternative fuel/green push we are seeing. Nonetheless, the car companies (that survive) will likely see a descent rebound in the next few years. You get to decide for yourself which will survive.

http://www.calculatedriskblog.com/2009/01/vehicle-sales.html