Homebuilders Finally Nearing the Bottom

Back in the spring of 2005, when the housing mania was just shy of its record peak, I wrote that Wall Street analysts covering the sector were nearly all bullish, even though the stocks by that stage had soared to silly multiples of their own net asset values.

Among the analysts covering the five big homebuilders -- Toll Brothers(TOL), Pulte Homes(PHA), DR Horton(DHI), Lennar (LEN) and KB Home(KBH) -- buy recommendations outnumbered sells by 14 to 1.

Fourteen to one.

And out of 68 published research notes, I could find just three urging clients to sell. Three.

As I warned at the time in a column for the Boston Herald, when the last bears give up, it's time to get nervous.

By now, the rest of America has finally woken up to what smart investors have known for at least two years: The housing bubble was the new Nasdaq bubble.

And the bust is going to be long, ugly and painful.

The question smart investors want to know the answer to now: When are we going to reach the opposite moment -- the glorious moment of capitulation?

That, of course, will be the moment to start buying homebuilding stocks. There are two exchange-traded funds that track the sector, the S&P Homebuilders SPDR (XHB) and the Home Construction iShares(ITB ).

You can usually tell when you get there, because all the bulls have finally turned bearish... or gone bust.