Market Report: Housing Bubble: There's a bottom? Where?

I think I’ve seen it all. Most stocks were down Tuesday as the Dow plunged more than 140 points -- except the homebuilders. That’s because bulls are propping them up with a baseless rumor that Toll Brothers is interested in buying Hovnanian. This comes a day after the Beazer cash infusion rumor. Both are false.

How many homebuilder rumors have turned out to be true over the last year? Less than 1%. They’re attempts to prop up stocks heading into option expiration.

Why should we long builders?

The National Association of Realtors just revised U.S. existing-home sales lower by 10.8%, thanks to credit market troubles. Existing-home sales prices are expected to drop 1.3% to a median price of $210,200. And new-home sales are expected to drop 23% to 805,000. That’s not good for builders with heavy glut on the books.

Where are builders bottoming out?

There were 223,538 foreclosure filings last month. That’s up from the 112,210 reported last September, as $1 trillion in resets begin hitting ARM holders.

Oh, and Beazer Homes will have to restate earnings from 2004 to 2006, and the interim periods of 2006 and 2007, which will also impact results from 1999 to 2003. The company’s mortgage subsidiary violated some U.S. Department of Housing and Urban Development regulations, and there are accounting errors on the books.

Moody’s lowered the ratings on Centex, Lennar and Pulte Homes to a “Ba1” rating and has a negative outlook on all. Even they don’t see a recovery until 2009.

From Taipan’s biggest housing bear, short the builders.

Ian