Homebuilders Finally Nearing the Bottom

Capitulation on Wall Street will come long before the actual housing market itself starts recovering.

And we're surely not there, but we are certainly getting closer.

Consider the signs.

Now that the shares have collapsed in price, bulls are in desperately short supply on the Street. For those same five homebuilding stocks I tracked back in the spring of 2005, sell notes now outnumber buy notes.

And out of 63 published notes, just nine are buys. Nine.

I should add that few of these have been published in the last month.

Even Fidelity Investments' (FSHOX Quote)Housing & Construction (FSHOX) mutual fund has largely given up on the sector.

The fund has only three homebuilders in its top 10 holdings and none in its top five, according to its May 31 filings. The three are DR Horton, Pulte Homes and Lennar. Most of its biggest holdings are either turnaround stories like Home Depot (HD Quote) or commercially-oriented construction like Fluor(FLR Quote).

A few years ago the fund was loaded up to the gunwales with homebuilders.

When your specialist homebuilding fund pretty much gives up on homebuilders, it tells you something.

One of the few names still willing to own shares in the sector is Bill Miller at (LMVTX Quote)Legg Mason Value Trust (LMVTX). He has a great long-term record, though he has been suffering for being way too early into this sector; he was buying early last year.

Ouch.