Back in November I looked at whether it was yet time to buy home builders. Home builders were starting to look like good value, but my research was inconclusive and I didn’t buy. There has been considerable volatility in most of the home builders since then, but glancing at the charts I see most names are trading at around the same price as they were in early November.

Is now the time to be looking to buy home builders?

Reports have suggested that since November the value of homes in the US has stopped exploding.

The S&P/Case-Shiller Home Price Indices are updated quarterly on the last Tuesday of the quarter for the previous quarter. The Q4 2008 results were published on 24 February, the chart below shows the updated data.

The Case-Shiller Home Price Index highlights the massive bubble and recent deflation.

While we have 12 more weeks to wait for the Q1 2009 update the S&P does publish monthly housing data with a two month lag on the last Tuesday of the month. The recent data  shows the third largest monthly fall in housing prices since the decline began in mid 2006. The index fell 4.16 in January, a close third to the previous highs of -4.28 and -4.72 set respectively in January and February 2008. Those figures are all more than twice the average of -2.00 since the housing decline began.   

Time for a Fresh Look at Home Builders

So how do the home builders stack up now?

* 5th November 2008 date for Nov.08 data, 2nd April 2009 for Apr.09 , Data from Yahoo Finance.

** The average Price/Book Ratio is 0.87 when Hovnanian is excluded. 

I have not yet spent a lot of time looking into this data, as I wanted to share it first. Though from a quick glance MDC Holding appears to be in a strong position.

I repeat what I said back in November.

• The current ratio for builders is inflated by their holding of inventory as short term assets.
• If we are anywhere near the bottom in housing then home builders are looking attractive. Remember prices will turn up six to nine months ahead of an eventual bottom in housing, so we only have to be close now to get a cigar.
• I [still] haven’t devised my approach to home builders yet. Should I buy strength for lower risk and reward or a basket of dogs for higher risk and reward? First up I’ll check ETF’s for builders and then I want to do is dive deeper in to the specific builders. I also want to see how much book value each builder and the group in total has written off.

Home Builder watchlist.

Homebuilders ETFs

• iShares Dow Jones U.S. Home Construction (ITB) often called the best “pure play” ETF for residential home builders. 
• SPDR S&P Homebuilders ETF (XHB) 
• PowerShares Dynamic Building & Construction Portfolio (PKB) Down 50%.

Related posts:

1. Housing tipped for price implosion
2. Exelixis Swings for a home run
3. Homebuilders – Time to Buy?