Crane-counting. That's a new game that I play with my family as we drive through downtown Miami. There are so many high-rise condominium buildings sprouting up -- most of them in inexplicable places far removed from the beaches and nightlife hubs -- that the one who guesses the highest number of construction cranes always winds up winning.

If you live near a major metropolitan city, you might want to try this game, too. My tip? Aim high, my friend.

There's little doubt that this will all end badly. Construction costs are soaring to the point at which developers are charging $300 per square foot for new digs in neighborhoods that couldn't afford those prices, even before rising mortgage rates ate away at what was left of the borrowed buck's buying power.

The only thing cheaper than unwanted metropolitan condos in the future will be the mechanical cranes that have gone silent.

It's not just me, right? You feel it, too, don't you?

More than just a Miami vice
Last week, I rented a home just two minutes from the entrance to Disney World. We already own a small place just down the road but wanted to invite a few family friends over to infiltrate the massive six-bedroom estate, on what was once undeveloped land but is now a sprawling complex that Pulte Homes (NYSE:PHM) is erecting. We had a great time, but you know it's not a good sign when a new development is trying to sell its second phase of new homes in a community where the number of "For Sale" signs and real estate agent-led open houses is exceeding the number of houses that were delivered just months ago.

Right next to the development, KB Home (NYSE:KBH) is building rows of townhouses. "Interest list is forming," read the sign out front. If the interest list was genuinely drawing a lot of interest, the developer probably wouldn't have had paid folks to stand out by the heavily driven U.S.-192 with big "KB Home" placards, a mile away from the actual project.

Across the street? Land has been leveled with a big Centex (NYSE:CTX) billboard promoting an upcoming townhouse community.

Pulte? KB Home? Centex? When three of the country's largest developers are crowding an area, I begin to worry. It's great for the construction industry in the near term, but I'm left with the same two questions that haunt me when I see a sea of cranes dotting the Miami skyline: Who is going to live there? And where are they going to move from?

Miami is an exciting city. Orlando is a hub for families. I get that. Meanwhile, there are rural areas and entire states, like Ohio, that haven't participated in the explosion of home prices that I have seen in my own state of Florida. Things still don't balance out in the end.

Just down the street from the Kissimmee build-out, run-down motor lodges that failed miserably as hotels are trying to reposition themselves as condo hotels. Developers are upgrading the amenities. Sure. The problem is that they're trying to sell studio efficiencies for $125,000 or more in areas that struggled to fill rooms for $30-$40 a night in the past.

Did I mention that my wife and I paid less than that for a cozy three-bedroom villa with room to spare in a lively resort community just a few years ago?

Folks want second homes. They want vacation properties. That was the catalyst for a lot of this construction. It's practically the basis for the condo hotel, or "condotel," revolution. But that was an easier sell when interest rates were dirt cheap and refinancing your primary home to bankroll a second property made sense.

These days, the math doesn't work. The same folks who flooded sites such as HouseValues (NASDAQ:SOLD) to see what their home was worth or rang up refinance specialists such as Countrywide (NYSE:CFC) are now hunkering down.

Remember when (NASDAQ:RATE) was a traffic magnet, with condo-flippers nailing rock-bottom mortgage rates? Bankrate still draws a crowd, only it's the ever-growing money market rates that are proving to be the candy that everybody wants.

A sensible investing strategy
If you think my next morsel of advice is to short the bejeezus out of housing stocks, you're mistaken. The weakness is already reflected in the shares. Remember that Orlando juggernaut triangle I found myself in? Let's see how the three companies have been faring since peaking late last year.

% Off 52-Week High
KB Home53.9%

The dives have been deep. KB shares could double and would still be short of where they were at this time a year ago. Back in December, I called out fellow builder Toll Brothers (NYSE:TOL) as one of three stocks to sell in 2006. That stock is 38.5% lower today. That's good bear money if you can swing it, but I wouldn't be comfortable talking down Toll Brothers at today's prices.

Yes, it's going to get even darker for the industry. What investors need to remember is that during the housing boom, many of these players made the most of their time in the spotlight by fortifying their balance sheets and bracing for the eventual downturn.

All four of those real estate developers are now looking to post lower earnings next year, but even if you base your valuation on the dimmer future, the companies are trading at forward-profit multiples of 7 or less.

I would love a little more visibility on how the industry will look two years from now. Uncertainty and the inevitable crash will clearly sting. So I'm not comfortable buying into the sector at this juncture, either. I'm just advising against shorting it, because there really are some quality companies here.

I may not have a clue as to who will be moving into the many skyscrapers going up in my city, but I do know too many deep-value investors who will likely move into the housing stocks if those shares continue to head lower.

Play this game right, and the next game of crane-counting will involve you, in early retirement, counting the number of long-necked bird cranes flapping about on the beach.

HouseValues is aMotley Fool Hidden Gemsrecommendation, and Bankrate is a former pick for the Rule Breakers newsletter.

Longtime Fool contributor Rick Munarriz refinanced his home twice a few years ago before finally paying it off earlier this year. His Kissimmee condo is in the Villas at Island Club resort. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.