Wednesday, April 23, 2008

Homebuilders feel the Heat!

A quick "Moody's" warning. I discussed this a couple days ago. Buying homebuilders right now is suicidal! This is just my opinion but please read:

Moody's via AP:

"NEW YORK (AP) -- Banks are likely to make it more expensive and difficult for struggling homebuilders to get credit in 2008, Moody's Investors Service said Wednesday.
The ratings agency said homebuilders will also have trouble getting banks to amend existing lending agreements if the companies violate terms -- something likely to increase as the housing sector continues to contract.

Banks have become much less likely to automatically waive compliance with covenants," said Joseph Snider, vice president of senior credit at Moody's. That "could lead to forced acceleration of debt repayments and consequent bankruptcy filings."

Moody's said homebuilders that have lower ratings will be "particularly vulnerable" to tougher stances by banks. Ratings indicate a company's ability to repay debt. They are also used to set the terms of borrowing

"It is likely that banks will finally begin to hold homebuilders accountable for their failure to generate cash, maintain adequate liquidity, and reduce outstanding debt," Snider said."

My take:

If you bought these builders at the so called "bottom" and made a few bucks then now might be the time to lighten your positions. The bottom is falling out folks and I will repeat my advice about homebuilders: Do your homework and look at their balance sheets!!!

I personally would not touch any of these stocks but thats just my opinion. Expect the builders to take a hit tomorrow. Many of them will declare BK down the road as the banks start to step on their throat.

Be careful out there in the investment world!! There are many desperate people on Wall St. looking for a sucker. Buyer beware!

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