Has the Housing Market Turned? Nope, Say Tilson & Heins

In their latest column for Kiplinger’s, Whitney Tilson and John Heins — who were way ahead of the curve in predicting the housing crisis — say they don’t think the housing collapse is behind us.

“As much as we’d like to believe otherwise, we expect housing prices to resume their decline well into 2010,” the duo writes. “As a result, financial companies exposed to the housing sector will endure substantially higher-than-normal losses for several more years.”

While the problems caused by subprime loans are mostly behind us, Tilson and Heins say “the market for midprice and expensive homes, however, is frozen. Buyers are looking for bargains, but sellers are still focusing on the housing values of a few years back and refusing to sell at prices buyers are willing to pay. … While foreclosures of lower-priced homes are declining, they’re rising rapidly among homes in the higher ranges.”

Foreclosures would be worse if not for government intervention, they say, which is propping up prices. Tilson and Heins say that despite their concerns, they “are not predicting economic Armageddon, thanks mainly to massive government intervention.” But they say that it will take time to unwind the biggest asset bubble in history. “Thus, we see tepid growth and high unemployment for a number of years,” they write. “Of course, we hope we’re wrong, but this is the big-picture analysis we’re employing as we evaluate individual stocks.”

Tilson and Heins say they’ve trimmed more aggressive positions. They’ve also added some large-cap, cash-rich companies like eBay, Microsoft, Pfizer, and Yahoo, which they think will hold up well in a weak economy. Their least-favorite sectors: those that will suffer if, as they expect, the housing market declines later this year. Those sectors include homebuilders, bond insurers, and regional banks, they say.

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