A bullish prediction by Jim Cramer this morning focused on the following strengths:
We’re building fewer homes, so inventories have the chance to come down.
The recent housing-rescue bill authorized the Federal Housing Authority to put $300 billion toward getting homeowners out of difficult floating rate loans to the low fixed-rate kind.
Prices have come down enough to lure out the bargain shoppers, about an average of 7% year-over-year. Today’s S&P housing numbers showed declines of over 25% in some areas. That trend could continue.
At last the holdout markets have rolled over – think New York. When that happens, a recovery can happen.
If – and Cramer thinks this is a when – Fannie Mae [FNM 6.27 0.65 (+11.57%) ] and Freddie Mac [FRE 4.55 0.58 (+14.61%) ] are taken over by the government, mortgage rates will come down. They’ve been going up month to month recently.
The bulk of those teaser-rate loans – those that offer low rates for the first two years and then reset to much higher rates – will reset in the third quarter of this year because they peaked in the third quarter of 2006. That means there will be fewer foreclosures as a result because there will be few loans changing to those higher rates.
There’s a tremendous amount of household formation, 800,000 every year, Cramer said. Four million babies born each year, divorces, 2.5 million new citizen – they call create demand.
Immigration had been bringing in 1 million people a year, but that’s been cut back a bit. But both McCain and Obama are pro-naturalization, so that number could return to previous levels after November.
The horror shows that are the California, Florida and Arizona real estate markets are no longer bleeding into other areas. These heavy losses are being cordoned off, Cramer said, and different markets are evening out.
Lastly, even these horrible areas – Bradenton in Florida and the Central Valley in California – are bottoming. The first to fall is usually the first to return, Cramer said. He’s predicting that Miami and the Inland Empire are next.
Once that happens it will be the third quarter of 2009, and Cramer thinks he thesis will be apparent to everyone by then. So here’s the countdown: 309 days until June 30, 2009 – the deadline for a much-needed housing bottom.