Teeka Tiwari

Is it Time to Buy Building Stocks Again?

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While the global markets focus on the domestic crisis in the investment banking segment -- notably with Bank of America's (BAC) takeover of Merrill Lynch (MER) and Lehman Bros.' (LEH) bankruptcy filing -- the problems in the housing market continue unabated.

Fannie (FNM) and Freddie (FRE) are knee-deep in the muck and are tightening lending standards at the absolute wrong time in the cycle. Even with explicit government guarantees, these guys are wrapped in a cloak of fear and doubt.

One of my top indicators that I look at is the S&P/Case-Schiller index. I like it because it tracks housing prices in the top metropolitan areas. These are the sections of the country that had the biggest gains and are now experiencing the biggest losses.

This is where the real pain is taking place and, when the dust settles, where a killing can be made during the next boom.

IMPLODED STOCKS SET TO EXPLODE AGAIN

Case-Schiller is showing a slowdown in housing declines but home prices are still off about 15% year over year. In Vegas and Miami it is far worse, with the average property down 28% over the last year!

I don't care how much money you have; a 28% hit is a shot to the gut.

It's not all gloom-and-doom though. Areas such as Charlotte, N.C., and Dallas have shown consecutive months of rising real estate prices!

But the guys really getting killed right now are the builders. New housing starts are down an astonishing 35% year-over-year. But a quick look at the building stocks tells a different story.

Rather than wallowing down at multi-year lows, they've shown some real life of late. Beazer Homes (BZH), MDC Holdings (MDC) and Meritage Homes (MTH) are still beaten up, but they are way above the bottoms they put in over the summer. (By the way, take a closer look at the relative performance of MTH; it has been astonishing!)