True, and the housing stocks have already gotten absolutely crushed, therefore, they're unlikely to go a hell of a lot lower. KBH, for example, has a forward P/E of 8 and its book value per share is $37.65, which isn't far below what it's trading at. These housing companies aren't vaporizing and completely going out of business. I'd keep an eye on them over the next several months looking for them to retrace some of their losses. Although, they're probably not going to do much of anything for a while.
If it were legal I'd make a wager with you: I'd wager the housing stocks will soon (within 9 months) revisit their 2004 levels - and that's after they were literally split into 4 to 8 times as many shares. They were all under $15.
But he does make a valid point especially considering their book values adding some support. Btw, KBH has a book value of $32 right now. The question remains, however, is how marked up are their inventories? If they value their inventories on pre-correction prices (and we haven't seen -anything- yet), then that is a substantial weakness in to the book value calculation. Whatever happens, this next quarterly report out of KBH should reveal something interesting enough to move the entire sector.
Of course it's possible they could go lower. My main point is - why short something that's already so beaten up? Find something that's breaking down now and short that. Most of the short money's already been made in housing stocks. Why make things tougher than need be? TOL - book value $21, share price $29 KBH - book value $37, share price $46 DHI - book value $20, share price $25 etcetera, etcetera....
I agree the short money has been made. No question about it. A good portion of these companies' book value is based on the current valuations of buildable lots they control, which calls into question the whole valuation methodology. My family is in the development business, and residential lots in areas of oversupply such as Florida are subject to volatile swings in price. I think there's a lot of slack in those books.
Toll Brothers hit $29 as of Dec 04. KBH was at $50 at the same time. Both above where they are now, and before some gargantuan splits.
You said they were all under $15.....I'll bet you my house they won't get there in 9 months. It's beautiful in SoCal year round, and you have a panoramic view, including the ocean.
That's a good point about the valuation of buildable lots, although I think it's unlikely that they will be assessed low enough to really crush the book value for these companies. It will be interesting to see how that ultimately plays out but, yes, I'd be looking elsewhere for short ideas and just skip the housing stocks for right now.