Can you have a bubble when everybody is openly talking about whether or not there's a bubble? I am, of course, talking about the housing market, where speculation and commentary ranges from "we're in a unprecedented bubble that will end in doom" to "what bubble?"

Whatever the fate of the housing market as a whole, the stock market has already taken some of the steam out of many homebuilding stocks. Whether you look at KB Home (NYSE:KBH), TollBrothers (NYSE:TOL), Lennar (NYSE:LEN), or today's topic, Hovnanian (NYSE:HOV), you see stocks below their mid-summer peaks.

Wall Street is of course a forward-looking entity, and recent stock declines may obscure the fact that present-day earnings are still pretty good. Revenue for Hovnanian climbed 26% in its fourth quarter as the dollar value of deliveries increased 35% versus a nearly 27% increase in the number of homes delivered. Net income also happened to increase about 24% from last year.

What I think most investors are going to pay attention to, though, are the somewhat cautious statements from management about the future of the homebuilding business. Management acknowledged that activity in previously hot areas such as California, Washington, D.C., and the Northeast is slowing down to a more normal level. What's more, it pointed out that it expects margins to begin shrinking a bit.

Oh, the horror!

Seriously, a return to normality does not mean, suggest, or presage a collapse in new building. It is possible that torrid new building activity could slow down to a more sustainable pace and still not necessarily lead to earnings disasters for the builders. Also, don't forget the potential impact of consolidation and market share gains -- companies like Hovnanian can grow faster than the market by squeezing out less efficient small operators.

I would hate to be holding a lot of mortgage paper today -- especially the risky stuff that was designed to get people into bigger and more expensive homes than they could have afforded in more sane times a few years back. If this whole housing episode is going to end ugly, I think the ugliness will be felt hardest in those low-quality mortgage originators and holders.

I'm not saying that I'm looking to buy homebuilder stocks like Hovnanian today. I'm also not saying that they are immune to big potential declines in new orders. Rather, I'm simply saying that the markets may have already marked down some of these stocks to a point where expectations seem pretty modest.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).