Builders' Rally Masks Lingering Questions

Despite all the doom and gloom that abounds in the residential and commercial real estate markets, homebuilders and REIT stocks have been two of the best-performing sectors this year, with both beating the S&P 500's dismal decline.

A possible windfall tax benefit to U.S. homebuilders, along with massive covering by short-sellers, is propelling the sector of late. REITs have also been benefiting from a short-covering rally that was probably overdue, since the sector has been punished too hard on fears of a commercial property meltdown.

However, investors should be careful about blindly buying either sector today. While there has been some positive news for both camps, the stocks are getting rather rich values. The high volatility of these sectors can also make for painful corrections and false rallies at times. ...