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.
My theory is that mega billion market cap homebuilding stocks is a flawed business model. Homebuilding is about being nimble. Finding a cheap peace of land with good location, location, location. This is tough to do replicate on a huge scale when you need to sell 15,000 homes/year to support your $5 billion market cap. In a normal market it is tough for each of these co's to try to find 100+ communitiies each year that will even work. It only worked on a huge scale during the boom/bubble. Prior to the boom home builders were $1 billion companies or less. I'm thinking the returns will be super low for these large builders and eventually they will wind up just returning capital to shareholders or have very low ROE's. Homebuilding isn't a long term business model. Its a 9 months- 2 year business model, afterwhich the project is completed and you start from scratch with a new project. It isn't meant to be a $5-10 billion business. Few hundred million equity is probably optimum. Homebuilding stocks will never really ever go anywhere again. They will just trade up and down. But never will there be great rise from the current ashes.