One of the most heavily shorted industries is the residential construction industry, thanks to the subprime-mortgage debacle, rising interest rates, overspeculation and a surplus of inventory for sale.

The short-sellers are hoping for a continued drop in the price of homebuilder stocks, but any sudden positive news, such as an interest-rate cut by the Federal Reserve, or even a rumor of one, could send the price of the stocks higher as short-sellers are forced to cover their positions.

For this reason, at Stockpickr we have put together the Short-Squeeze Housing Stocks, a list of heavily shorted names in the sector.

The second most shorted homebuilder is Brookfield Homes ( BHS), with a short ratio of 26 and more than 21% of the float sold short. The Virginia-based company specializes in luxury single-family and multifamily construction. The stock has a trailing price-to-earnings ratio of 5, but the company's revenue has dropped by more than 24% year over year.

The stock appears on Barron's Insider Purchases 6-25-07, making this list after CEO Ian Cockwell last month purchased 133,800 shares, or about $4 million worth of stock. This portfolio also lists a couple of other stocks with high short ratios, Ligand Pharmaceuticals ( LGND), with a short ratio of 15.8, and Terremark Worldwide ( TMRK), with a short ratio of 23.

Brookfield also appears in Insider Purchases and Buybacks X, a recent Stockpickr portfolio that also features Steelcase ( SCS), which has a short ratio of 17.

Want more? Check out TheStreet.com TV video. Gregg Greenberg discusses some heavily shorted homebuilder stocks that could be squeezed higher.

Next on the list is Avatar Holdings ( AVTR). The residential developer, which builds in Florida and Arizona, is No. 3 on our list. It has a short ratio of 22 with 15% of its share float shorted.

The stock has a trailing P/E of only 5. It appears in the Stockpickr portfolio of Small-Cap Value Stockpickr holdings, which also contains Nordic American Tanker Shipping ( NAT), a stock with a short ratio of 4.

Avatar is also part of Kenneth Fisher Strategy, a Stockpickr portfolio that includes another residential construction company, NVR ( NVR), which has a short ratio of 13.

WCI Communities ( WCI) also makes the list of heavily shorted homebuilders.

The stock, which has a short ratio of 14, does not appear to be cheap on paper. However, billionaire investor Carl Icahn recently filed to nominate 10 directors to replace WCI's board.

Icahn has said he believes WCI shares are undervalued and that he planned to talk with WCI's management to suggest how to "unlock" that value. Icahn owns 6.1 million shares, or 14.6% of the total shares outstanding. To view Icahn's entire holdings, including Motorola ( MOT) and Telik ( TELK), check out the Carl Icahn portfolio on Stockpickr.

And for all the names on the list of heavily shorted homebuilder stocks, including the No. 1 stock, check out the Short-Squeeze Housing Stocks portfolio on Stockpickr.com.

At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for The Financial Times and the author of Trade Like a Hedge Fund, Trade Like Warren Buffett and SuperCa$h. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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