We Want Sales of New Homes to Dry Up

Yippee! Purchases of new homes in the U.S. declined in May! That's what we want to see. We want to see builders continually losing share to existing homes, because we don't want new homes being added to inventory, especially when the inventory is made up of foreclosed homes. We want to see it because as much as the Fed wants rates lower, I do not believe we can get them back to well under 5% because of the improvement in the economy.

There is a gigantic tug of war playing out here between the homes being pumped out by Lennar (LEN - commentary - Trade Now) or Pulte (PHM - commentary - Trade Now) or Horton (DHI - commentary - Trade Now) and the homes owned by Bank of America (BAC - commentary - Trade Now) or Wells Fargo (WFC - commentary - Trade Now) or JPMorgan (JPM - commentary - Trade Now) -- repossessed homes that could really kill any recovery. The homebuilders cannot make the houses cheaply enough to compete against the foreclosed homes. That's terrific.

We've had two back-to-back increases of existing home sales -- a key prop to my call of a bottom in housing.

The builders are the enemy here. They have been the enemy since day one. We need to see bankruptcies and mergers if we are going to see appreciation in home prices, but stabilization is working right now because these new-home sales are so bad. We can't have the homebuilders be tempted. Oh, and remember all the stories that say the higher mortgage rates are killing the new homebuyers? Just do some calculations on the three-eighths-of-a-point climb vs. the $8,000 tax credit for first-time homebuyers. Then consider that rates are 20% lower than last year.

Again, that's why we are bottoming. That's why things are improving. It is vital that you read the data for what it is, not what the headline writers and editors tell you it is.

Random musings: I'm furious about this cover-up charge, furious. Ben Bernanke is many things, but a strong-armer of BofA? You have to be kidding. Talk about a deal that Ken Lewis wanted to do and stuck with...

At the time of publication, Cramer was long Wells Fargo and Bank of America.

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