http://www.fool.com/investing/general/2007/06/11/housings-new-world-of-cautious-lending.aspx
David Lee Smith
June 11, 2007
About
60 days ago, I mentioned to my Foolish friends that my wife and I had
put our Florida home on the market in favor of relocating to the
Carolinas. At the time, I noted that the Southwestern part of the
Sunshine State, where we were trying to attract a buyer, was
essentially the epicenter of U.S. housing weakness. As a result, we
expected a long siege among the ranks of those with "for sale" signs
adorning their front yards. But lo and behold, we received a contract on our home the day it hit
the market. We're therefore in the latter stages of arranging for a
mortgage in our new location. Our loan-to-value ratio will be less than
40%, meaning that we won't encroach upon the now famous -- or perhaps
infamous -- world of subprime loans. Yet despite having excellent
credit, we're being confronted with more mortgage-granting hurdles than
has been the case with any of our prior homes, most of which carried
80% or higher mortgages.
Toll Brothers (NYSE: TOL)
CEO Bob Toll was spot-on last month when he observed that subprime woes
are affecting the entire housing "food chain." Indeed, I believe that,
somewhat quietly, there has been a material strengthening in U.S.
mortgage-lending standards for all borrowers. And while that
strengthening clearly is justified, it just as clearly will slow the
recovery of the housing sector. That takeaway also would seem logical from a Monday Wall Street Journal article about Sheila Bair, the aggressive and still relatively new chairperson of what the Journal
called "the once-sleepy Federal Deposit Insurance Corp.," the entity
that oversees federally regulated banks. Apparently, Bair urged
Congress earlier this year to hold Wall Street investors and mortgage
service companies accountable for the expanding subprime quagmire. Such
blame placement makes those in the mortgage "food chain" even more
circumspect than they have been. It also seems that housing's lift-off is anything but imminent. Last week, Meritage Homes (NYSE: MTH) joined other builders such as Pulte (NYSE: PHM), Hovnanian (NYSE: HOV),
and Toll in declaring that the future had become too murky to permit
the issuance of financial guidance for this year. At the same time, an
economist from the typically rose-colored-glasses-adorned National
Association of Realtors noted during the week that home sales "probably
will fluctuate in a narrow range in the short run, but gradually trend
upward." That, my Foolish friends, is tantamount to doom and gloom for
the Realtors' group. I've stated that I believe Fools can make money by very slowly
building positions in the better builders and exercising considerable
investor patience. I continue to believe that approach will work, but
with each passing week, the words "slowly" and "patience" gain
additional currency. Building on related Foolishness:
Meritage Homes is a
Stock Advisor
selection. Find out why with a free 30-day trial.
Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your questions or comments. The Motley Fool does have a disclosure policy.
