Time to Buy 'Horrible' Homebuilders

Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com.

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Just when it appears the outlook for real estate could not possibly get worse, out comes a report showing that it is. Last week, we learned home prices are sinking in hot spots such as Florida at the highest rate in 25 years. On Monday, we learned that pending home sales nationwide are down 13% from a year ago. On Tuesday, we learned that mortgage borrowers are defaulting at rates not seen in decades -- and a major luxury homebuilder reported earnings down 40% amid a stunning wave of construction cancellations.

It's enough to make you think that the sky is falling, the earth is melting, our biggest investment is rotting below our feet and we're all going to have to crawl into heavily discounted caves to live out our shabby, depressed lives on food stamps.

Unless, of course, you are invested in the stocks of the companies that build homes, rather than in the homes themselves. In the perverse, circus-mirror world of Wall Street, the time to buy companies is when it seems business is terrible and will never improve. Like now.

Check it out: Just as homebuilders were reporting second-quarter results over the summer that were bad and getting worse, their stocks were bottoming and turning the corner. Shares of most of the major builders, such as KB Home(KBH Quote) and Centex(CTX Quote), are up 20% to 30% since Aug. 1, still have a great head of steam and are bloody cheap. When Toll Brothers(TOL Quote) reported a terrible third quarter Tuesday, the stock rose 3%.