Using KBHome as the benchmark stock. When and at what price do you believe the homebuilders will bottom? Throw your price target out. Based upon what happened to KBH in the early 90s, I say that it will revisit the old 2000-2001 pricings in the low teens. This wont come overnight and there will be pops up&down along the way. I say it will reach this price target between 2008-2011. It will be a slow drawn out process. In the late 80s, KBHome turned up suddenly and went to 2 to 10 dollars in short time. Then it turned right around and revisited 2 dollars. Now let me tell you the good news. The good news is that when KBH does finally bottom it will make a great investment. Look at how the price rebounded in the early 90s from the 2s. It might also signal that its time to return to the housing market when we do finally see the turn. When the bottom does come, then there will be such a height of panic and depression much similiar to how people felt about the stock market in 2002-2003. Only when people have finally decided to give up on the housing dream then thats when it will be time to buy a house once more.
I wanted to make a quick note about the homebuilders in general. There was a rally between the summer and now. It appears that rally is over. Its the typical "reaction rally" that occurs when a stock or index falls from a peak. At some point it hits a bottom and then turns up to retrace about 1/2 of the original decline. This pattern, however, is most always a continuation pattern and not a reversal. For example, the Nasdaq seemed to hit a low and made a reaction rally in late 2001 only to find an even lower low in late 2002-early 2003. One of my friends told me that things seemed to be turning up in late 2006 and that she was looking for a home. I was shaking my head and thinking that the hardest lesson is yet to come in the homebuilding process. Some of those houses in Florida or California might be cut to half their value by 2010 as was the case in the early 90s. I will be a buyer of a house and KBHome then, but now is not the time to be a buyer of either.
I'd give it a year or two. This housing decline isn't going to reverse to where they will want to be building anytime soon.
the home builders will drop into the low single digits . remember when some of the energy stocks did in 2002 . bgp