Charlie Stromeyer Jr

How to Short Homebuilders: Look for the Fastest Growers

I have never shorted real estate before and shorting homebuilders seems risky because of their low P/E ratios. However, David Lereah of NAR said that new home sales will decline through 2007.

The Fall 2006 Economic & Real Estate Trends Report at pmigroup.com says that CA and the Northeastern states are vulnerable to home price declines over the next two years. The housing futures at cme.com are also forecasting price declines for these two regions. It might be worth looking at homebuilders or other companies with major exposure to these two markets as potential short candidates.

If it is too late to short then these same companies might be good buy candidates for when the new homes market seems to have bottomed.