Wall Street is betting on home builders

Jill Barshay Apr 3, 2008
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Wall Street is betting on home builders

Jill Barshay Apr 3, 2008
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KAI RYSSDAL: The Senate’s still debating its fix for the housing industry. But the smart money on Wall Street has already bought in to better times. Our New York Bureau Chief Jill Barshay reports.


JILL BARSHAY: Even the stocks of the shakiest home builders rose 5 to 7 percent today. Parrish Glover tracks the industry at Morningstar. He says Wall Street is betting on home builders because Congress may take steps to prop up the housing market.

Parrish Glover: For an industry, where cash generation has been minimal, it’s absolutely huge.

The Senate is debating a $6 billion tax break aimed at home builders. The bill would also give Americans a $7,000 tax credit for buying a newly built home.

Paul Puryear is director of real estate research at Raymond James. He says if you think Wall Street is out of its mind, you’re right.

Paul Puryear: We are in a housing bust. There is no fundamental reason to buy these stocks. The fact that there’s been some strength in the stocks is all about anticipation.

Housing stocks are still down more than 50 percent from their highs a year ago, according to Morningstar’s Glover.

Glover: It’s not so much that Wall Street’s optimistic about home building, it’s — Wall Street is far less pessimistic. We were concerned that some of these companies would be filing for bankruptcy within a few months, and now it looks like they’ve gotten a little bit of a longer leash.

Indeed, Wall Street is banking on more losses. In order to qualify for Washington’s proposed tax break, builders have to report a loss this year.

In New York, I’m Jill Barshay for Marketplace.

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