In addition to buying and selling hosues, I follow the general real estae market very closely and have rcently started to buy home builder stocks - I am slowing adding to my holdings of the ITB iShares index which trades at around 18 to 20 now - this is down from a high of 45.
This is high risk stuff but I beleive that the hosuing stocks have been so beaten down thier downside is very low.
I do beleive that housing prices probably have another 10-15% to fall on average before this cycle ends. I bet there will be more bankruptcies among homebuilders before all of this is done.
When the cycle is done I thick we see many of the following signs:
- Surviving builders trade at 50-75% of written-down book value.
- Earnings are negative, but no longer getting worse.
- Early value investors will have given up on the sector.
- Old standards will return for loan underwriting.
- Financial magazines will talk about prudence in borrowing against residential real estate, and how it is not a “one way ticket” to riches.
- Inventory levels decline 20% from their peak levels
This is an interesting additional way to play the real etate market
Thanks
Mike
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