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I knew it’d be an interesting Friday the 13th when I got to my car and found a flat tire. I knew it’d be more interesting when the spare was flat, too. Yep, it’d be one of those days. But the day isn’t a total wash… not with ridiculous Buffett rumors making the rounds.
Say the rumor mills, Buffett may be interested in taking stake in Hovnanian, jetting homebuilder stocks for the day. That would mean that Buffett believes there’s value in homebuilders. But there is no value in homebuilder stocks right now… not with foreclosures up 87% year over year… not with glut forcing down housing prices… not with a startling continuation of housing contraction… not with money continuing to flow out of homebuilders.
According to RealtyTrac, there were 164,644 foreclosure filings reported in the June 2007 report. While that was down 7% month over month, it’s still up 87% year over year. And it’s only expected to get worse. Says the Mortgage Bankers’ Association, $1.1 trillion to $1.5 trillion of ARM mortgages could reset this year and next.
Once those resets take effect, some homeowners could speculatively see 10% to 20% increases in monthly payments. If they hold a $200,000 mortgage for example, the reset would add another $200 to $250 a month – a fee that many stretched homebuilders will be uncomfortable with.
In our opinion, it’s just another bad rumor making the rounds ahead of next week’s July 18, 2007 reports from housing starts and building permits. And we’re not the only ones who think so. According to Greg Palmer, head of equity trading at Pacific Crest Securities, as quoted by Bloomberg.com, “It’s just another junk rumor on a Friday.”
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