Is this the time to buy home builders?

**forestforever** Tue Jul 03, 2007 3:08 am

Is this the time to buy home builders?
A lot of them are well below the book value, but I am not sure if they are worth waiting because I don't have idea how to evaluate the impact of subprime problems. Are we anywhere near the bottom of the cycle, blast? Thanks!

Related interesting stocks: USG(guru's baby) , CFC(huge accumulation recently)

your comments are welcome.........

**blast_investor** Tue Jul 03, 2007 2:06 pm

Hi forestforever,

It is very hard to pinpoint a bottom. Home building related sectors are quite attractive in my opinion from long term point of view.

I am quite bullish on building material sector including USG stock.

But I would be still cautious on typical home builders. Many home builders have speculative land positions and liquidity problems, not as attractive as building related material sectors in general.

**forestforever** Wed Jul 04, 2007 2:25 am

Thank you very much, blast. But the more I study USG, the more I feel confused. I know a lot gurus are buying this stock, but its recent 1Q EPS missed the estimate due to the higher raw material cost, and I don't expect the raw material cost will be ever lower in the future. Never mention downturn of housing market.
Home builders are riskier, but I think they have more upside if Mr. Buffet is right about the housing market. Because a lot of them are below book value, and the land may be great asset instead of burden in the future. If the book value of these home builders is reliable, they may be taken private by private equity as well. You had a great point. So probably I should look for the builder with less debt/equity ratio and more cash in hands? What is the most important thing that I should watch out or be awared in their financial statistics and reports?

**Mosguy** Thu Jul 05, 2007 7:31 pm

The homebuilders caught my eye momentarily also. The low P/b looked attractive. But that metric gets shot to hell when the homebuilders have to write down the inventory on their books. There are easier value plays in my opinion.

Good Investing.
M.O.S. (margin of safety)

**blast_investor** Fri Jul 06, 2007 12:23 pm

land asset is double edged sword.

In theory, you would want land asset as potential future upside.

However, Many homebuilders have huge land position (or land options) with huge amount of debt.

When homebuilding downside stay longer, the huge debt position can bankcrupt the company, lots of liquidity dangers there.

Ideally, you would want a cheap company homebuilder with lots of land ownnership, but with no debt. This is almost impossible to find.

**forestforever** Sat Jul 07, 2007 7:47 pm

Thank you very much, Blast.

I studied a dozen of homebuiders. Indeed, good quality stocks with less debt all trade above book value.

It is very difficult to decide when we should buy home builders. The bottom may be right here or somewhere 25% lower. According to the historical data, this sector may sharply bounce back anytime soon. Especially because the interest is super low, and us dollar is super cheap nowadays. I am start buying 50% of my original volume, may add when the price goes lower.

blast_investor wrote: land asset is double edged sword.

In theory, you would want land asset as potential future upside.

However, Many homebuilders have huge land position (or land options) with huge amount of debt.

When homebuilding downside stay longer, the huge debt position can bankcrupt the company, lots of liquidity dangers there.

Ideally, you would want a cheap company homebuilder with lots of land ownnership, but with no debt. This is almost impossible to find.