Cramer Reverses Tune (shocker!) on Housing

Our friend Jim Cramer (who again is a brilliant investor but someone who changes his mind by the hour), was just a few weeks ago claiming there would be a shortage in housing by the end of the year 2008. After I picked myself off the floor, I just assumed he had a Kool Aid infusion that morning... meanwhile I kept taking my anti Kool Aid pills and kept writing about how "walkaways" are going to be INCREASING inventory [Jan 30: Still Too Early to Buy Homebuilders Other than For Short Term Trades]

But this (housing) was an epic bubble - and epic bubbles do not get solved in 18 months. Especially with all the foreclosures that are just now beginning. All those homes need new buyers too... along with all the homes that people will just walk away from since they are upside down on. So we are going to see a "great reversal" - many homes bought in 2005-2007 are just going to be right back on the market - they won't have to be sold to be put back on the market. Owners who abandoned them (walked away) or were forced out (foreclosure) will be the cause for them returning to the market.

Well Cramer has seen the light today.... (but note, he can change his mind and the next time housing stocks rally 15% he will most likely be talking about a home inventory shortage again) ;)

From his piece today

I also think that if something isn't done soon, we will begin to see a huge number of homes flow back into the mix as 2007 loans become walkaways.

So much for the great housing shortage of 2008... and I still think he underestimates all the walkaways from 2006 and 2005 still coming down the pike. No reason to struggle under a $2200, $2700, $3400, $3700 mortgage when you put little to nothing into the house and can get an apartment for 50 - 70% lower monthly rate. In many ways these government 'assistance' programs to keep people stuck in overpriced assets, is going to hurt them in the long run. Especially as the mortgages are of higher value than the underlying assets. But thats government for you - always full of bright solutions.

I do think this could be one of the government 'interventions' coming down to us in the next year - a push to force mortgage companies to re-assess properties to current market values and re-assign values to mortgages. i.e. if CA mortgage was made in 2006 when home was valued at $700K, with $700K mortgage... but in 2008 house is worth $475K, then government rides in and says you need to make the mortgage $475K. Seem implausible? As things degrade, I think nothing can be taken off the table.