By Dan Fitzpatrick RealMoney.com Contributor 4/12/2007 8:16 AM EDT
The decline of the homebuilding stocks has been widely publicized, although many people thought the stocks had bottomed last July. Some stocks are still above the July low; others have dropped below those levels. However, there just isn't any reason for these stocks to stop going down. The market is finally starting to buy into the idea that the Federal Open Market Committee just might not be dropping interest rates (which are still at historic lows) anytime soon. And some of the biggest beneficiaries of lowered rates are the homebuilders.
Also, despite the declining prices, these stocks seem to be getting more expensive. Because earnings are dropping faster than the price, the price-to-earnings ratios are expanding a bit.
My thesis is straightforward on this group: Even though the easiest money has been made on the short side of the trade, there is just no reason for these stocks to start catching bids.
Still, the homebuilders are not universally hated either; they still may look attractive to some value-oriented money managers. Just yesterday, the National Association of Realtors finally came clean and lowered projections for both sales and sales prices.