Taking a ‘Toll’ on the Housing Market
On Tuesday home building bellwether Toll Brothers (TOL) announced weaker-than-expected first quarter orders, while also telling The Street that it expected lower new home deliveries for the rest of 2006. The stock fell sharply on the news, as traders speculated that this could be the beginning of the end of the run in housing issues. Toll Brothers is now trading 30% below its 200-day moving average. If you were a trend follower, you would have sold this stock long ago, when it first fell below its 200-day average. That means you would have spared your nest egg a 30% hit!
More importantly, the Toll Brothers announcement is a sign that this housing slowdown is indeed for real, and that the housing bubble I’ve discussed so much on the radio show is indeed about to deflate. This could be the start of some real bad news on the economic front, because if the housing bubble either bursts, or merely starts to leak air, one of the biggest drivers of the U.S. economy will likely grind to a halt. Nobody knows for sure how to calculate this, but for the past several years borrowing on home equity has kept a constant flow of stimulus into the economy. But with interest rates rising (it now costs almost 7.5% to borrow against your home equity line) and home values beginning to decline, that spending spigot may soon be cut off.
This potential looming slowdown is why you must have a strategy in place to deal with market risk in your portfolio. If the housing market cools off sharply, we could see a growling bear in the market’s future. Combating the bear is a matter of preparation and risk management.
But having a risk management strategy in place is not limited to just your investments in the stock market. The strategy begins with making sure you’ve got your home financed properly. If you’ve got an interest-only loan, a negative amortization loan or a home equity line of credit, you’ve got to call home buying coach Josh Lewis for your FREE mortgage risk analysis. Josh will help you determine if you are prepared for combating the potential hazards of a busted housing bubble. Don’t hesitate any longer, call Josh now at 800.218.9217, or e-mail him at jlewis@stearns.com for your free housing bubble risk assessment.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
