Homebuilders on Sale: Should You Be Buying?
Investors were quick to begin selling shares in the homebuilding segment once interest rates began rising. Despite these companies' record profits, and strong demand for homes nationwide, investors have sent homebuilders as a group -- as measured by the S&P Homebuilders Select Industry Index (NYSEMKT: SPSIHO) down nearly 40% since the start of the year. That's given the group some of the lowest P/E ratios in the S&P 500, with some homebuilders even trading near book value. Those low price-to-book numbers could offer investors an opportunity to snap up these companies on sale.
The drop in the homebuilders is a response to mortgage rates reaching nearly 6%, which has many believing that the red-hot housing market is due to cool. And while that might be true, the selling has assumed things will get as bad as they did in the 2008 subprime mortgage crisis. However, this time things are different.
For example, the 2008 crisis was just that -- a crisis caused by demand for mortgage derivative products that fueled lending to unqualified buyers. This time around, any softness in the housing market comes directly from the Federal Reserve's plan to raise interest rates methodically and cool inflation. One side effect is the rise in mortgage rates, but unlike in 2008, demand for housing remains strong.
Source Fool.com
