Wall Street Advances After Big Drop in New Home Sales, Disappointing Earnings
On the surface, the advance appeared surprising after the Commerce Department reported sales of new homes in December fell by 4.7 percent and that 2007 new home sales plunged by a record 26.4 percent compared to 2006. But while the report at first exacerbated the market's concern that the housing and mortgage crises are causing a recession, it also raised hopes that the Fed might cut rates again by a wide margin to stoke the weakening U.S. economy.
"Anticipation of another Fed rate cut is the main magnet in the market today," said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc.
"If we do rally into a Fed rate cut, we have a lose-lose situation," Goldman said.
And traders who bet on the Fed's next move were pricing in a more than 80 percent chance of a half-point cut. "Any less than that could be a problem," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research.
- Income that cannot support the home purchase price except at ultra low teaser rates
- No savings
- Already impaired credit
- Pure speculative purchase; looking for a "payday"
- No inhibitions about bailing on a losing proposition
Not a good list! It is the great pile of these buyers that resulted in purely fantasy home sales numbers and price increases. It is the same buyers that will delay any recovery in housing for a very long time.
The funny thing is that only NOW will the buyers show any financial savvy and smarts. There is no reason at all to stay in a home that is taking a 50% haircut in price. It is a waste of time and money to try and wait out a housing bubble for possibly 10 years. At the cost of having troubled credit form a foreclosure, and the soon to be proposed (my opinion only at this time) release form all tax penalties from said foreclosure it only makes sense to dump the asset. Herd mentality is a powerful thing and a flurry of foreclosures may just become all the rage. Imagine block parties where a whole group of foreclosure family's live rent free for up to 8 months and throw wild parties with the extra cash that they are saving. Think it cannot happen? We will see.
I am including the following picture for use by all the "housing bottom" callers that were out in full force today:
Have a good night.