By Ellis Mnyandu
NEW YORK (Reuters) - Investors looking to profit from U.S. housing stocks will have to be patient.
Even though they have sunk to multiyear lows, strategists speaking at the Reuters Investment Outlook 2008 Summit said they still aren't worth the risk.
They warn the housing slump is far from over and that the ongoing credit crisis would hinder any sort of a recovery.
"It's a bit premature to go and buy them," said Milton Ezrati, senior economist and market strategist at Lord Abbett & Co. "There is still bad news out there."
Fallout from the credit squeeze, according to the strategists, threatens to make it a lot harder for would-be borrowers to get favorable financing, particularly with rates on millions of adjustable-rate mortgages set to rise in the years ahead.
"We're still so new in the housing credit-related crunch that it's still going to be the one to watch," said Bob Doll, global chief equities investment officer at BlackRock Inc.
"There were a lot of false bottoms in energy and technology stocks when they cratered in the past. It took four to five years (to see a turnaround). The housing industry could be similar. A recovery will be years in the making."
Bill Gross, the manager of the world's biggest bond fund, said to stabilize the U.S. housing market, the Fed will need to cut its benchmark funds rate to around 3 percent and will need to get the 30-year home mortgage rate for prime borrowers down to around 5 percent, from current levels around 6 percent.
RATES RIDDLE
On Tuesday, the Fed cut its target rate by 25 basis points to 4.25 percent. The Fed has now cut the fed funds rate by a full percent since mid-September.
"Ultimately you need to bring down the mortgage rate," said Gross, who is chief investment officer of PIMCO, or Pacific Investment Management Co.
"If housing has to become 25/35 percent more affordable in order to put a floor under housing ... then some combination of
housing prices going down and mortgage rates going down sometimes produces that magic level."
Gross added that "we are assuming housing prices hit bottom of the cycle down 15 percent total."
Jim O'Shaughnessy, chairman and chief executive officer of O'Shaughnessy Asset Management, which oversees about $11 billion in assets, said as long as there was a growing glut of unsold homes, housing stocks weren't worth the risk. Continued...
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