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Fast Money

No. 2 - Builders: A Basement Buy?


Make or Break Week For Beaten-Down Builder Stocks With New Data, Fed and Spring Building Season

This week investors find out whether the real estate market is on solid ground or ready to be condemned. The latest numbers on new homes come out tomorrow, the Federal Reserve will likely comment on the mortgage meltdown on Wednesday; and sales of existing homes and median home prices are released Friday. Has the sub-prime lending crisis spread into the mainstream housing market? Or, is now the time to take a chance and buy the beaten down housing stocks?

Today’s guest is Ara Hovnaian, the CEO of Hovnanian Enterprise (HOV).

Mr. Hovnanian says sub-prime weakness is certainly an issue for his company, because sub-prime buyers make up 14% of his business. 

He adds without a doubt the housing industry is in a recession, however he believes the market is nearing the bottom. Hovnanian does not see a “U” shaped recovery, instead he expects to see the market bounce along the bottom for a few quarters, before climbing again.

Eric Bolling adds the industry has to work through its inventory and asks if things will be better late this year or by 1Q of ’08.

Mr. Hovnaian expects to hit bottom soon, but doesn’t expect to see strength until the 3rd or 4th quarter of this year because a lot of re-sale inventory is glutting the market. He also says a lot of the slowdown has already been worked into the economy. 

Dylan asks if there’s been any spread of the sub-prime weakness into the more mainstream lenders.

Mr. Hovnaian says no.

Eric Bolling says the trade is to sell the calls and the puts and expect a flat line for a while.

Guy Adami says investors need to know when to buy these stocks and it’s not yet, but it's getting close. Inventory is a concern, but if investors wait for inventory to go through the system it will be too late.

Dylan asks how far in front of the recovery do the housing stocks trade?

Tim Strazzini says right now it’s hard to know. 

Questions? Comments?

Trader disclosure:
On MAR 19, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders Bolling Owns (CVX), Gold, Silver, Soybeans, is Short Corn. Strazzini owns (CHK), (EWG), (STM) GE is the parent company of CNBC.

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