WC Whiner

Time to Start Looking Beyond the Housing Slump

Odd you included four of the top five homebuilders by market cap, but left out Centex, who just warned after hours. Their second fiscal quarter is going to come in about 50% below the already-reduced guidance they offered in late July. See their press release at phx.corporate-ir.net/p...;c=112195&ID=9...

Normally, homebuilders in troughs are analyzed by book values, since earnings drop so hard, like CTX's. In a normal trough, you buy homebuilders when their prices are at or below three-quarters of book value. The ISE homebuilder index sports a book multiple around 1.4 right now, and that discounts the chance of future writedowns.

Sure, the downside risk is lower now. The easy money on the short side has been made. Still, I see it unlikely the residential housing market has seen the end of its bad news. You won't see me go long until the data turn positive, or until book multiples get much cheaper. I don't like looking at 50% downsides if bad news flow continues.