Builders: A Sure Thing!

It doesn't happen often that the market conditions present a "sure" money maker - home builders now are as sure short as it can ever be!
Here is 7 reasons why:

1. Unsold inventory of homes is rising with no signs of improvement, exacerbated by stricter lending criteria by mortgage lenders and rising foreclosures that competes with new construction for a few available qualified buyers.

2. Weak economy, rising unemployment, spent out consumers squeezed hard by high gas prices, higher down payment requirements and still too high property prices place many potential buyers out of the real estate market.

3. Home sales continue to deteriorate. As reported this morning (4/22/08) by National Association of Realtors home resales fell 2% in February and inventory of unsold homes have risen 1% representing a 9.9 month supply at the pace of sales in March.

4. Many of the builders have loans that will mature and due for refinancing over the next two years and some of them may not be able to "roll" them.

5. On the top of all that home builders are finding them-self between the rock and hard place of inflation. Rising cost of labor and building materials against collapsing revenues spells trouble for profit margins! What profit margins?

6. Despite all of the above Home Builders stocks have risen year to date as much as 60% from the bottom in January making their valuations based on the current and next year estimates astronomically expensive...

7. The insiders are actively selling their stocks at fraction of the value of 2006 and 2007 taking advantage of the bounce from the low। Who knows the state of the business better than insiders? Insiders know that the glut of unsold homes and tighter credit standards are not helping buyers and hurting sellers।

- When high stock price combined with weak and further deteriorating fundamentals - the stock price will follow the fundamentals!

The easiest way to take advantage of this rare situation, is to short US Home Construction iShares "ITB$20.70" or short individual builders such as Ryland Group "RYL$34.00", Pulte Homes "PHM$14.06" and others.

In my long and hard earned experience, real estate cycles NEVER turn quickly. They are always long, they last for decades and this is one of the worst kind.
- I am shorting builders! You place your bets!