Tuesday, January 20, 2009

Housing Has Bottomed? Doubtful

I said in an earlier post that the economy is not getting better anytime soon. There have been many people saying housing has bottomed, the economy has bottomed, and that the credit markets have improved as banks have started lending again. I do not want to seem like a pessimist, but it is important for investors and those whose jobs are at risk to know the health of the economy.

A recent post at nakedcapitalism blog provided a few articles showing how banks have now stopped lending to home builders. This is important for you to be aware of because if banks have just now stopped lending, clearly housing has not bottomed. Also, the credit markets have not thawed yet, there are still shutting down lending. With credit markets still frozen, the economy will not be growing anytime soon because no business can get the money they need in order to grow. With home builders now unable to get loans, you should see a large wave of bankruptcies.

If you are looking to invest in companies tied into home building because you think the housing sector has bottomed, steer away. These companies will only see their problems amplified, not only can they not sell homes, they cannot get the funds to keep themselves alive. This will also, without a doubt, increase unemployment numbers as builders look to layoffs in order to cut costs. There is still a lot of time before housing picks up.

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