Housing 'Recovery' Built on Wishful Thinking

This column was originally published on RealMoney on Jan. 17 at 11:06 a.m. ET. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

Lately I have been getting a lot of requests for an update on the homebuilders. Over the past year or so, I have written about this industry group more than I want to remember and have had a pretty good handle on the health of the industry.

For example, last September I wrote a piece about the inevitability of the recent rash of writedowns in asset values. Prior to that article, I observed that the prolonged bull market has created a lot of high-ranking executives with absolutely no experience in managing a downturn in housing demand. I haven't seen anything that prompts reconsideration of that view.

I just haven't bought into the notion that the housing industry has bottomed. The market anticipates future developments, and I've heard the same sentiment over and over again: The market will improve in late 2007. I don't believe that. I think that the widespread optimism for a late-2007 recovery is a big pile of wishful thinking. But I do believe that this optimism will be enough to buoy the stocks into the latter part of the year, at which time the market will realize that it was a bit too optimistic. ...