Thursday, July 28, 2005

Shorting Home Builders Is Not Very Original

If you read the various blogs, housing forums and stock message boards, many of the housing bears suggest selling short the stock of house builders, such as Hovnanian, Toll Brothers and Pulte Homes. On the surface, this seems like a pretty smart way to make money from the eventual fall in real estate prices. However, I believe that the expected fall in house prices is pretty well reflected in the prices of many of these stocks anyway. As an industry, the stocks of the home builders are already trading at a very low multiple to earnings of about 11 times. This low multiple suggests that the market already thinks that the earnings of these company’s will fall or only grow at a very slow pace.

4 Comments:

Anonymous Anonymous said...

yeah I tried buying puts in TOL a couple of weeks ago and quickly bailed out with a small loss- I've given up trying to read the homebuilding market.

Thursday, July 28, 2005 7:27:00 PM  
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