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The Play on Housing’s Next Move

Did last week bring signs of a move in housing?

Both Home Depot and Lowe’s spiked, Cramer said Monday, which is often a sign that homes sales are on the rise. Plus, there was the record pending home sales number we got on Thursday.

If these indicators are legit, Cramer thinks it’s time to find out who owns “the most unencumbered homes,” as he put it. Those that, as prices go higher, are free to trade.

Unfortunately for the homebuilders, they just don’t have enough inventory to capitalize on the moment. And most of the banks hold damaged portfolios with foreclosure problems. Except one, that is.

Wells Fargo may have dropped its lending standards like everyone else during the housing boom, but not as low as everyone else. This has left the company in a much better position now, as Wells is known for having underwritten the fewest no-doc loans. Also, while the huge legacy portfolio it received from the Wachovia and Golden West acquisitions carries some tough terms for the bank, the portfolio as a whole should be worth a great deal if home prices rise.

Cramer pointed out that Wells is also lending—he called it the most aggressive lender in the US right now. Taking advantage of the new market share that came with those acquisitions, WFC has expanded its home-lending business.

“That means it has the legacy inventory and the underwriting capacity to really go to work,” Cramer said, “when the public realizes that [mortgage] rates are done going down.”

Once that realization hits, it should spark some home buying, which translates into more business for Wells. Cramer thinks the change should happen quickly, and therefore investors should move now to buy WFC.

“It’s time to buy Warren Buffett’s favorite bank,” Cramer said. “It’s time to buy Wells Fargo.”

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