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"Cut Prices, Sell Homes"

By Jim Cramer
RealMoney.com Columnist
5/14/2008 9:49 AM EDT


"Was the most important moment on Bob Toll's conference call yesterday, that traffic is terrible? Was it that the price of homes has been cut dramatically? Was it all the new "F" ratings from around the country?




No, I think it was that the Bradenton, Fla., area is now the strongest in Toll's nationwide reach. That's because, finally, all the spec houses that his company and every other company built have been chopped in price and moved.

There are so many reasons that housing is so bad at a time when we should have some demand just innately from household formation. We shut down the immigrants, began to demand down payments -- keeping people in homes -- and we lost the speculators who bought more than one, causing a foreclosure glut.

But I think the biggest thing that has dogged the industry is the lack of bankruptcies of homebuilders. The banks didn't demand payments, everybody gets forbearance, and we end up with this ridiculous continual building to meet cash flow even as the houses are making no money for the homebuilders.

They are their own worst enemy.

There were so many speculative houses built by ALL of these homebuilders, and so many of them refused to break price that we ended up with this standing inventory no one really wanted that is only now finally being cut in price and moved. That was the other big takeaway from the Toll (TOL - commentary - Cramer's Take) call: There is a price where homes move, and we are there.

Now I know that the headlines are gloomy, and I know that only Bradenton is good and lots of other areas are getting bad, but at least we know there can be a solution: Cut prices, and buyers come out.

Unfortunately, the homebuilders are still putting up lots of spec homes even though they claim they aren't, and they are still finishing big projects because the infrastructure is in and they have to.

We have a constant pumping of supply and a huge cessation in demand.

But when price gets cut, the glut ends. That's the real point that Toll made, and believe me, he made it obliquely because he could not have been more bearish otherwise. "

(in www.realmoney.com)