The Housing Bust–Not So Easy Investing

Henny Sender notes in today’s WSJ that the long-awaited housing bust isn’t developing into a good investing there:

Playing the housing slowdown in financial markets is proving tougher than anyone expected.
Some obvious bets against housing haven’t been working out. Even though housing statistics are sinking, home-builder stocks have risen since July and demand for mortgage-backed securities has held up.
Just last week, the National Association of Realtors made the case for housing bears stronger by reporting that prices of existing homes had fallen for the first time in 11 years.
The Federal Reserve is working against the bears by pausing its campaign of short-term interest-rate rises.
If the Fed were to allow interest rates to get too high, that would raise mortgage costs and could tip the economy into a serious slowdown. That is why some investors believe the Fed might cut rates next time it meets. Long-term interest rates already are falling, which is holding down mortgage costs at a critical time.

New Century Financial (NEW) paid out a dividend of $1.85 a share in September. The company has raised its dividend by a nickel a share for the past several quarters.
To give you an idea of how negative the market is on housing, if we assume that New Century doesn’t cut its dividend, that means that the stock is indicating a dividend yield of close to 19%, which is the equivalent of 2,200 Dow points.

Posted by on October 2nd, 2006 at 9:22 am


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