For a couple of years now, would-be investors in homebuilding stocks have been waiting for a bottom. However, I suspect that we may not be much closer to a cyclical nadir than we were back in 2006.
As The Wall Street Journal observed at the end of last week, Texas-based builder D.R. Horton
In Horton's case, there seem to be plenty of losses to weigh against past gains. For instance, the company apparently unloaded a couple of thousand lots in Desert Hot Springs, Calif., for about $8 million. That's reportedly less than a tenth of the company's purchase price for the parcels.
Horton stated in June that it expects to receive tax refunds approaching $520 million during the next couple of years, but it isn't the only company taking advantage of this particular tax law. As 2007 wound down, Miami-based Lennar
The key here is that essentially all homebuilders have been pushed to use red ink in their quarterly releases for several quarters now, thanks to charges that were largely land-related. For instance, Pulte
While not all these charges involved land, it's likely that there will be more writedowns -- potentially some big ones -- in the offing for builders across the U.S. in the coming quarters. The result almost certainly will be a continuation of red ink at reporting time.
In the face of that, Foolish investors would be well advised to give the sector a wide berth until a loud and clear all-clear signal arrives.
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