Housing Market Sinks

According to today's report from Census Bureau, housing starts sank to an annual rate of 1.67 million last month from July's 1.77 million pace. That marked a 6% decline from July and a nearly 20% drop from a year earlier. The current level is the lowest since April 2003. It also marked the 6th time in the last seven months that starts have fallen from the previous month's level.

The nation saw an unprecedented building boom in 2004 and 2005, which topped with last year's record 2.07 million starts. This left the market with an oversupply that could take years to work through.

Many of the nation's largest home builders, including KB Home (KBH), Lennar (LEN), Pulte Homes (PHM), Toll Brothers (TOL) and Hovnanian (HOV), have been lowering guidance on home sales in recent weeks, reporting lower prices and excess supply of homes on the markets. All these stocks sank in similar fashion by 40-50% over the last few weeks. Their single-digit PE ratios look cheap but uncertainties in months ahead are clouding over them and it's better to avoid them until they sink further and find some other lower ground.