What a Housing Bottom Looks Like

A housing bottom occurs when Toll Brothers (TOL - commentary - Trade Now) says that cancelations are much lower, but earnings are, too. A housing bottom occurs when the major homebuilders combine because they can't make any money. A housing bottom occurs when there is so little money to be made building a new home because existing homes are so cheap that there's no new building going on. A housing bottom occurs when an $8,000 tax credit for a $200,000 home all but forces renters to be first-time buyers, even with a 6% mortgage -- and we are not even there yet.

All of these things are what a bottom looks like, but people keep thinking that a maker of a $600,000 home is going to be able to call a bottom looking at his book. As much as I love Bob Toll, this whole move in housing is about increased affordability, and the houses made by Toll Brothers are simply not part of that equation. One could argue, by the way, that Hovnanian (HOV - commentary - Trade Now) is a more representative company by which to judge a bottom, unless you have seen its product portfolio, as I have, which his way too expensive in a lot of areas. I also hate that company's whining. Hovnanian want more government help. We don't need anything more right now other than the $8,000 credit extended to more than first-timers.

There are also misconceptions about what a housing bottom means by way of equal house price appreciation. That's just a loser view. We aren't going to get it. We are going to get a price in which people cannot save money by continuing to rent. That, again, is what a bottom is. I am taking heat for my call that housing will bottom at the end of the month. Of course, in my mind, the issue is whether I have missed the market bottom, especially after those pending home sales, which is probably the most important figure to follow and certainly more important than anything that Toll can say -- and, again, I like Toll very much!

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