Here's Why Housing Will Bottom Soon

In the wake of the great employment number and the new Fed actions to relieve credit problems, we have to ask ourselves what it means for the real economy. I think these moves by the Fed and the employment not falling off a cliff mean one thing: Housing will bottom soon.

We need that, because we are still in big trouble on house price depreciation. But maybe the banks were right to hang on -- you can see it in the Centex (CTX - commentary - Cramer's Take) quarter, one of the biggest homebuilders. Centex should have been shut down. Go read that conference call. The losses are incredible. But the banks didn't pull the plug. And that's a big reason this housing crisis refuses to go away ... but it could start going away now.

Centex's gigantic hit demonstrates that the banks are still in huge foregiveness mode. They would rather string things out as long as possible than get stuck holding paper from a bankrupt company. Ultimately I question this strategy, as these housing companies show no sign of turning around whatsoever, even if their stocks bottomed a long time ago. However, this employment number and Fed actions make the banks' decisions less problematic.

And there was something really amazing about the Centex quarter. Despite what the housing companies have said over and over, when they cut prices -- seriously cut prices, knock down homes in inventory by 30% or more -- they move.

That, perhaps, is the real takeaway of why we might be reaching a bottom in housing.

It has been long-standing gospel that price breaking doesn't matter. That there are simply too many homes because demand is not there. This Centex quarter shows that that whole rap is nonsense. The amount of inventory moved off of CTX's balance sheet is amazing. They are a much slimmer company able to deal much better with less debt and more capital.

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