Home Builders Risk Mass Cancellations
The Kansas City Star has an editorial on China policy that quickly turns to housing. "The benefits to U.S. exporters from a modest rise in the Chinese currency would most likely be small, while the effect of higher interest rates could be larger."
"If that were to happen, the effect could be acute in the housing market. Investors in housing stocks have been nervous for some time, happy to see ever-higher profits but worried that the good times must end someday and fearful that they could be left holding the bag when that happens."
Then a bond analyst reveals just how sensitive speculators are. "When things were at their worst in Las Vegas, Pulte was seeing cancellations of home purchases that amounted to 75 percent of new sales. 'The risk of similar, and perhaps more prolonged, regional downturns should not be ignored,' Kathleen Shanley wrote in a note to clients."
"Shanley points out that Pulte's inventory of land is concentrated in areas where home prices have been rising rapidly and that the company's cash flow is negative, even as profits soar, because of all the land it is buying. Pulte has been borrowing money even as it buys back stock at high prices."