Jim Cramer: Prosperity vs. Recession, and the D.R. Horton Journey

Surprise! You have awesome demand, demand all over the country, demand you cannot meet and have no hope to do so.

That's the read I got from the conference call and earnings report from D.R. Horton (DHI) , the biggest homebuilder in the United States and the largest constructor for first-time home buyers.

Normally the company would be jubilant with the level of demand they are seeing. Not this time. They simply didn't see it coming and are turning away buyers who, obviously, because of inventory, there is no way to go. This is particularly clear in Texas of all places, the epicenter of the variant epidemic and the stubborn ant-vaxers who stand by their decision to get sick given the inability of our bodies to arrest the scourge without jabs from Pfizer (PFE) or Moderna (MRNA) .

The call is eye opening for a couple of reasons. Throughout it there is a theme of supply chain issues but in the nitty gritty you hear it's about simple things like appliances and windows. You have to understand, given Horton's buying clout, that it must be horrendous for the smaller players.

Second, unlike the disaster of 2007, these buyers are of excellent credit and aren't flippers but livers. They have no desire to make a profit on two or three or 10 homes with low documentation. The down payments are bountiful and the loan to value pristine and where you would want it for safety purposes.

Third, there's a huge estimation problem and it is emblematic of the entire country.

Our companies are very smart. Much smarter than they used to be before the Great Recession. Horton doesn't want to build on spec if it can avoid it. But the company doesn't want to sell a home without windows or appliances, both called out on their call.

How do you assure that doesn't happen? Well, you estimate what you need ahead of time. And were those estimates mase? Near the height of the pandemic. There was simply no reason to believe that we would have any cessation of the pandemic. Who would believe that Moderna and Pfizer could so quickly produce a durable vaccine? That meant the entire food chain of the homes went crazy not just because the arresting of COVID-19 but because many companies adopted a hybrid work model which meant a sudden spike in home demand, THE EXACT OPPOSITE of what Horton - and everyone else - expected.

The combination has led to higher prices for homes, but not excessively higher and with rates so low the affordability is still pretty good or you wouldn't see big waiting lists across the country.

But just put yourself in the shoes of these executives. They are seeing a sudden and irrational surge in COVID. I am sure every executive at this company is vaccinated because they can't afford not to be. Wall Streeters would not trust your company. Again, how can they estimate what's needed.

The result, despite the calm demeanor of the people who run Horton, is chaos as the largest homebuilder gets first pick on supplies and the others just scramble to get things done.

So, what's going to happen? If the Fed raises rates it could slow things down. But it would not create more workers. I think that it's all about 2022 now and whether every company is going to be caught with too much inventory if the views of Wall Street - no more hybrid - take over. It's more about too much inventory in the future not too little right now. That's why, when the Fed meets this week, it is vital that, despite all of the non-homebuilding Wall Street and hedge fund seers, they keep rates the same. It's too dicey otherwise. Why not err on the side of prosperity than recession? That's the real takeaway of the Horton journey in 2021.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.