Housing market softens = good for stocks

The people I know in the business are starting to cry the blues because the real estate gravy train seems to have left the station. Whereas before, any fool with a real estate license could make money in real estate, the market has peaked. I sold at the peak (or near it) earlier this year in Northeastern Westchester County, New York (that's the horsey part), knowing that this was coming.

Small investors, burned by the stock market in Great Dot Com Bust, put their money into amateur real estate ventures -- like a house or two on spec with an insanely low, interest-only variable rate mortgages. Those folks who purchased houses for speculation are now locked in at ever increasing rates. Amateur speculators -- people that bought tech stocks like JDS Uniphase at $170 without knowing what the company did -- are in trouble and will have to unload their spec houses, probably at a loss.

With The Fed tightening ever so slowly but surely, the housing market is starting soften. This from Bloomberg:

Nov. 8 (Bloomberg) -- Toll Brothers Inc., the largest U.S. builder of luxury homes, reduced next year's sales forecast, saying the housing market is weakening after a five-year boom. Its shares fell 14 percent, the most in seven years.

The sales forecast was cut by a range of 3.8 percent to 6.9 percent because of ``some softening of demand'' and delays in opening new communities, the Horsham, Pennsylvania-based company said today in a statement. The shares of rivals including Pulte Homes Inc. and D.R. Horton Inc. fell about 9 percent.

Interest rates are rising, making mortgages more costly and curbing home sales, which have hit highs each year since 2001. The housing market has accounted for 50 percent of U.S. economic growth and more than half of private payroll jobs created in that period, Merrill Lynch & Co. estimated earlier this year.

Big institutional money has been in commodities for a while -- witness the spectacular rise in crude prices without underlying demand pressures. But even that is starting ease. That money will need to find a home soon -- probably the stock market or into REITs.

Look for more this. Results are two fold:

1) Housing markets stabilize in pricing as more inventory comes on the market (real estate agents rejoice, somebody's got to sell those spec houses -- albiet for less coin than the original purchase price);
2) Excess cash goes back into the market, fueling a modest rise in the stock market (look for 11K by the end of the year with more to follow).

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