Here's Your Answer!

Implications: I believe there is more pain to go in the housing market including serious defaults where home and land prices will implode.  I believe you won’t see the turn until 2008 and even then not until the latter half.  And I think the turn will stabilize at a lower overall construction number since we will be building more and more house at higher price levels to handle only the upper reaches of demand.

Analysis:

Acquisitions take place in up-markets to supply expansion capital to those whose progress is impeded by lack of capital.  In down markets, the sales cure financial ills, mainly insolvency, before defaults wipe out the stakeholders.  If you think we have hit the turn, you might enter now.  If there is more pain to go, wait until you see the bottom.  You’re not going to hit the absolute bottom, so you might as well go when you think you’re 10% from the bottom if you can stand the investor second-guessing as the market retreats further before it elevates.  Better do it, then, though, because once the existing shareowners see the upside, you’ll pay more if you can get it at all.

If unforeseen matters prove my forecast to be inaccurate, you might be missing an opportunity now when share prices are 40% off the high and most news is dark.  Calculate the risk of now versus later with the thought that the market will stabilize and inventories will work off - it’s only a matter of time.  You may not want to enter if you think my implosion theory will bankrupt the average overextended builder and all will be lost in bankruptcy.  If you think my pessimistic outlook is overcooked and that the fundamentals whichever ones you deem most important are positive, your entry path may be immediate.  I see more risk that you will be wrong and I wouldn’t do it – but that’s what makes a ballgame.