2008-01-08 19:30:17
More Gloomy News for the US Housing Market
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Not to be a "doom and gloomer" but the situation in the US housing market seemingly worsens by the day. Tuesday was no different as there were multiple pieces of bad news that sent the markets reeling.
First off, the stock of Countrywide Financial (CFC) continued to plummet after a New York Times article contended that Countrywide may have possibly forged documents to make it look like people owned them money when they were actually in bankruptcy protection. Then, rumors swirled around the New York Stock Exchange that the company may declare bankruptcy. Considering that Countrywide Financial is THE biggest mortgage lender in the United States, this is pretty substantial news. The company is coming off of a mammoth $1.2 billion dollars Q3 loss, but is still forecasting a profit in Q4. Analysts aren't so sure and are actively starting to trim expectations, with Lehman Brothers today reducing their Q4 earnings estimate from 36 cents per share to 20 cents. I would expect more of this from analysts as I just don't see the situation turning around in the short-term. Countrywide still has to deal with the problem of rising defaults and a switch to less profitable mortgages (those that conform to Fannie Mae and Freddie Mac guidelines.) Countrywide's stock is currently trading at $5.47, down from a 52 week high of $45.26.
One of the problems that Countrywide will face over the short-term is that I would expect some downgrades on their debt by rating agencies, which will make it more expensive for them to borrow money and pay back their debt.
On Tuesday, the National Association of Realtors said that pending home sales fell 2.6% in November after a couple of small gains.
Then, KB Home (KBH), a home builder, announced a huge Q4 loss and said that there are no signs that the housing market is stabilizing.
In addition to that news, the head of Fannie Mae said that the housing market would weaken through 2009 and wouldn't start to turn around until 2010 at the earliest. Even the president of the United States admitted that "It's going to take a while to work through this downturn." Not exactly encouraging words for someone who might be upside-down in mortgage debt, praying for a quick recovery in the markets.
One of the worst things that you can do in the middle of a prolonged downturn is "panic sell." It might be tempting to get whatever you can for your home right now, as you may fear that the decline has quite a ways to go, but that is usually the worst thing that you can do. A good rule of thumb is that when things seem the worst, that's the time to buy. If you are comfortable in your home and can afford your mortgage payments, then the best thing to do is ride this out, unless you get an offer that you can't refuse.
Filed under: Real Estate News | The Economic Meltdown
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