Thanks for your take on the housing data, Bill. I'm expecting those buys will pay off for you as the HB market really looks like it wants an excuse to bid those stocks upward.

As I've probably made too clear already, however, I'm still very bearish on housing long-term. Yesterday's Housing Market Index (HMI) report showed an 11-year low in builder sentiment.

If you believe the Dow drops another 2000 points, and typically that adds major pressure to many stocks that can always go to extremes in both directions as TOL went relentlessly higher, then why not wait until the fall? Cheers mates,

re: ACCUMULATION ZONE. i know bill has written about this, and i read a piece somewhere on the site about it (but i don't remember where and the search function doesn't seem to find it). and recently bill mentioned that he would be writing more about it, but i haven't seen anything yet. can anyone direct me to this info? tx.

rach3,

The concept of accumulation/distribution zones is a common mantra of Bill's blog. Here's one (of many) excellent examples.

http://www.billcara.com/archives/2006/06/where_to_this_b.html

My feeling on the homebuilders is that yes, there's some downside risk if/when the broader market continues to sell off, but that they're a safer place to be than most--unless the Fed fails to achieve their soft landing and the housing market crashes hard.

The scary thing with regards to the housing market is the sheer volume of adjustable rate mortgages resetting in the next 18 months. I seem to recall reading that there were $2 trillion of ARMs outstanding in the US. With monthly payments resetting higher, and home prices decreasing, this is troubling.

Looking at Toll Brothers and the data from advfn.com, the stock is trading at a trailing 12 month P/E of 5.2, and has a five year P/E range of 4.7 to 12.3. In their Q2 earning report last month they guided FY06 EPS in the range of $4.69 to $5.16. At the low end, that would translate to a P/E of about 5.6 based on today's stock price, and a P/E of 5.1 if they hit the upper target.

Taking the 5 year low P/E of 4.7 and the lower $4.69 FY06 guidance number, produces a stock price of $22.04, which is ~10% lower than today's price.

On the upside, scares in the housing market are obviously discounted in the stock price already--to a degree. Going forward, the Fed will at some point pause and/or start decreasing rates, which should stabilize the housing market. I'm also inclined to think that if/when things do start selling off, _some_ of that money has to go somewhere, and low P/E stocks may well benefit from this--or at least hold up relatively well in comparison. If one allows for an expansion in the P/E to 10 in the next few years, and using the high number for FY06 guidance of $5.16, you get a doubling of today's share price.

Admittedly, that's a lot of assumptions based on management's guidance, and it's not unthinkable that earnings could deteriorate further. Personally, I'm inclined to hold off for now. Technically, the daily chart shows a nice MACD divergence with price action (higher MACD lows). Perhaps more significant, the 200 week moving average is less than a buck below the current price.

No tickee, no payee. The US and global economies are in stagflation, with most of GDP due to inflation. Unless oil prices collapse to around $30 US soon, the only way to stop this cancer is thru a recession. I live in the midwest, and I just don't see prices on anything going down. In fact, using the "service economy" without caution, allows the servers to gouge you to offset their cost of energy. I feel that if Bernanke eases anytime soon, more companies will be given the opportunity to raise prices. As far as housing, yeah I hear the train acomin', but it's not here yet. The foreclosure rate is not even close to 1% nationally, which is the average over the last 30 years, so we have a long way to go before the Fed eases, assuming they want to have any credibilty. I read yesterday that the Central Banks are going to increase their gold sales significantly over the next 3 months. And Fleckenstein says Bernanke is pumping up the money supply big time in recent weeks, so we shall have to see.

I read this article on the US housing market in Phoenix and how things are starting to unravel.

http://www.dallasnews.com/sharedcontent/dws/bus/stories/061806dnbizphoenix.9afb9e43.html

The fed has helped create some serious asset inflation in the states with the monetary policy of the last four years. If the money printing does not stop then the have and the have not gap will widen. Those with tons of cash are going to buy up fire sale real estate, while others lose their houses/net worth.

People will need to start resetting lifestyles and I think we will see the average Joe migrate from his McMansion to a less desirable home in a less desirable neighborhood. It may take a while but things need to shake out.

How exactly this affects the homebuilders it anyones guess. My guess is that there will be a lot of inventory available and the demand for McMansions will be soft causing prices decreases and/or demand for smaller more affordable housing.