Cramer Makes His Bed

Despite all the overwhelming evidence to the contrary, CNBC's Jim Cramer has officially called a bottom to the housing market.

Residential real estate has finally found a floor, Cramer told viewers on Tuesday. The sector’s long, steep descent is all but over. He had predicted this day would come by the end of June, and he was right – with just two weeks to spare.

How can Cramer be so sure? New housing data reported today showed a dramatic change for the better, especially in some of the hardest-hit areas in the US. That news, along with much lower prices and the working off of inventory, validate his prediction, made last August, that housing would stabilize this month, ending its multiyear declines.

That housing data link up there (showing that housing starts did jump significantly) includes this cautionary analysis:

"It's a sign that housing is stabilizing, but it's too early to say that we've seen the bottom. We'd probably need to see several months of stronger sales and better housing starts to give a convincing signal that we're going to see a housing recovery," said Gary Thayer, senior economist at Wells Fargo Advisors in St. Louis.

Cramer of course is going for it. He has to, he has been predicting a housing bottom in June 2009 for 10 months now.

But here's the reality of the situation:

• Unemployment will most likely increase to above 10% very soon, with the U-6 pushing 18, possibly 20%.
• The second wave of forclosures caused by unemployment and resetting ARMs is already underway.
• Increased pressure on banks will come from the ongoing commercial real estate collapse.

All these will combine for a perfect storm in the second half of the year and into 2010. Housing prices will continue to fall, not stabilize. Buying into a recovery right now, especially a strong recovery, is a lethal mistake. More havoc will continue to spread across the country...and if housing starts are truly on the way back up, the supply of unsold homes on the market will only continue to increase.

That means housing prices have to fall. I said back in May that housing starts had to continue to fall under May's record lows, not rebound from them.

Cramer's not only wrong, but he should be fired. I'll keep revisiting this one to see how badly Cramer's call has failed.

[UPDATE] CalcRisk is a lot nicer than I am about it, but still says Cramer's wrong, mixing up the low in housing starts (which this probably is) with the low in prices (which it most certainly is not).