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Why is everyone so shocked that only 300,000 new homes were purchased in May? Why are people so stunned that we are at the lowest number of new homes purchased since the 1960s, and that the numbers collapsed 33%?
Let's think about this. First, so much went wrong in this country during the month of May -- the endless oil spill, the terrible employment numbers, the flash crash, and the worst May in 40 years of stock market history -- that the national psyche's just been trashed here. House purchases are deeply related to wealth and wealth effect, and these factors crushed consumer confidence. Just crushed it.
Second, there had to be some huge dropoff with the expiration of the first-time homebuyer credit, didn't there? Most people go into buying a house well ahead of when they close on it. The nation was conditioned to believe that there would be no extension to the credit for delayed closing. A colossal percentage of new-home sales are from new homebuyers. What kind of an idiot would wait to buy something in May if they could buy it in April, when they know the price is going up in May? People are rational. An average home that costs $165,000 with an $8,000 rebate is a heck of a lot better than a home that costs $166,000 with no rebate. (Oh yeah, for the constant naysayers: The price of homes is going higher, not lower, and has been doing so for some time now -- nationally since February and regionally, in the hardest-hit areas, since last year.)
Think of it like this: What if I told you that you could buy Apple in April at $268 or in May at $282 ... how stupid would you feel if you didn't close on the Apple buy in April?
You would feel foolish. You would feel like an idiot.
Same logic with a house.
More important, can we take a moment and think about these estimates that the economists continue to get wrong? To me,
what is shocking, not the actual decline in the numbers. Instead of freaking out about decline in the numbers -- which I just explained is logical -- we should be freaking out about how anyone listens to these so-called experts. Their projections have been so ridiculously wrong, why should we take them seriously? Where do they come up with these estimates?
I am someone who knows the stock market and does a great deal of work in the home world, having worked in the home-buying and -selling business for many years. My estimates for both these numbers, the existing-home sales and the new-home sales, were radically lower than what we got from the "experts" because of where we are in this economy and because of how stimulated the market was by the home-buying credit.
What I was surprised by, though, is that home prices are still increasing, despite the inventory overhang. I am also surprised that the absolute inventory of new homes was only 213,000 this month, a level not seen since 1970. These numbers aren't talked about.
Yes, I wish housing were stronger. But who cares about my wishes? Yes, I care about more people being put to work by housing than have been. I especially wish that the Congress hadn't given such tax breaks to the homebuilders. They are still pumping out too many homes, and that's a true negative to the possibility that house price appreciation of more than a percent or two is on the cards. But the idea that we are going see great numbers immediately after the credit and in this economy is pretty fanciful. And stupid.
I am a huge believer longer term in the housing business and the possibility of a housing shortage in 2012, simply because we are putting up very few homes -- as many as we were building when the U.S. had half the people that now live here.
chief Ben Bernanke is going to keep rates low as long as employment is sluggish and this housing market is anemic. Inevitably, the household formation in this country will overwhelm the number of homes that are for sale, given the massive home mortgage modifications and the ability of banks to keep houses off the markets until there is more price appreciation. They have that much capital.
But the doom and gloom have created price declines in stocks that I am now warming up to as housing plays that I have hitherto hated. I see
plummeting from $28 to $21 since the credit expired; or
, which makes cabinets, crashing from $54 to $42 in just a handful of days; or
, which doesn't have much first-time home-buying, which has gone from $23 to $17. I know that Toll's been saying things are light. However, this stock traded at this level when things were truly hideous, and Toll's a stronger, better company now with a killer balance sheet.
The pessimism, created by economists engaged in shoddy prognosticating with models devoid of rigor, is creating values that to me are getting eye-popping. Maybe that's the real takeaway.
At the time of publication, Cramer had no positions in the stocks mentioned.
Jim Cramer, co-founder and chairman of TheStreet.com, writes daily market commentary for TheStreet.com's RealMoney and runs the charitable trust portfolio,
. He also participates in video segments on TheStreet.com TV and serves as host of CNBC's "Mad Money" television program.
Mr. Cramer graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. He worked as a journalist at the Tallahassee Democrat and the Los Angeles Herald Examiner, covering everything from sports to homicide before moving to New York to help start American Lawyer magazine. After a three-year stint, Mr. Cramer entered Harvard Law School and received his J.D. in 1984. Instead of practicing law, however, he joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While he worked at his fund, Mr. Cramer helped start Smart Money for Dow Jones and then, in 1996, he co-founded TheStreet.com, of which he is chairman and where he has served as a columnist and contributor since. In 2000, Mr. Cramer retired from active money management to embrace media full time, including radio and television.
Mr. Cramer is the author of "
," "You Got Screwed," "Jim Cramer's Real Money," "Jim Cramer's Mad Money," "Jim Cramer's Stay Mad for Life" and, most recently, "Jim Cramer's Getting Back to Even." He has written for Time magazine and New York magazine and has been featured on CBS' 60 Minutes, NBC's Nightly News with Brian Williams, Meet the Press, Today, The Tonight Show, Late Night and MSNBC's Morning Joe.