Are Homebuilding Stocks Overvalued?

Free Market News Network argues those:

who have not studied the history of the homebuilding stocks tend to forget that the homebuilding industry is a very cyclical sector. The relatively low PEs (relative to the S&P 500, that is) that you are seeing today may actually skyrocket when the industry turns (where earnings can literally disappear overnight). Please note that I am now discussing the homebuilding industry independent of the direction of the U.S. long bond going forward. With the speculative forth in the real estate markets and with the proliferation of the adjustable-rate mortgage markets, this author believes that we are due for at least a mid-cycle slowdown (if not a top) in the homebuilding industry and in housing price appreciation in the most speculative areas of the United States. Sure, the homebuilding stocks are very oversold in the short-run – but despite the most recent decline in the most popular homebuilding stocks, they are still only at the most recent April to May 2005 lows – suggesting that over the period of the next 12 to 24 months, prices still have a lot of room to fall, assuming that we are now in a mid-cycle slowdown.

Check out the charts in this piece.