Mad Money: Housing Is Key to Saving Market

Now matter which area of the market is hurting, Cramer said during Wednesday’s show at the University of Iowa, it all comes back to housing.

Cramer was in the Hawkeye State for his latest Back to School Tour stop at Iowa’s Henry B. Tippie College of Business. He opened the show talking about the “parade of horribles” we’ve seen lately:

  • Best Buy said “seismic changes in consumer behavior have created the most difficult climate we have ever seen”
  • Treasury Secretary Henry Paulson announced he won’t be using the $700 billion granted him for toxic mortgages, focusing instead on consumer debt
  • AIG taking even more money from the federal government in order to stay alive
  • GM, Ford and Chrysler on the verge of collapse
  • Insurers like MetLife, Prudential and Principal Financial Group desperately needing to raise cash

The list goes on. But no matter what we’re talking about, Cramer thinks the epicenter of these problems is housing. Consumers who couldn’t afford a home took out a mortgage anyway – even GM got in on the action, lending money through its GMAC division. Banks and brokerages packed these subprime loans into bonds and sold them. AIG insured them. Then the housing market imploded and all these players took a hit.

Now, as the price of their homes decline, consumers have cut back spending. As the economy gets worse, employers cut jobs. And the government is then forced to rescue business after business to keep the whole system from collapsing. As a result, the stock market continues to drop.

The solution is to fix housing. So anytime you hear of a new plan or initiative to bring –much-needed stability to that sector, Cramer said you should be happy. Fannie Mae and Freddie Mac are going to make it easier for people to stay in their homes? Great. Such moves are the only way stocks will go higher and give your 401(k) the chance to recover.

We also need to stop new building, Cramer said. Banks should be forbidden from granting credit to homebuilders, at least for now. We have to get the supply down. And the government should offer a huge tax credit to anyone who buys a house. That’s another way to get some inventory off the market.

So until home prices even out, Cramer can only recommend his usual stable of stocks: accidental high-yielders like Caterpillar, companies trading at or near their cash like KBR and recession-resistant plays with good dividends like Kimberly-Clark and Clorox.

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