Investment Plays For A Softer Market

Peter Coy


BusinessWeek's Tim Mullaney writes:

Tim Mullaney

How do you invest in the softening real estate market?

I don’t know what stocks I’d buy. I wouldn’t be racing to get shares of Realogy, which is the name of the planned spinoff of Cendant’s Real Estate unit, even though it’s got a huge position in a very large industry. Where’s the growth? But I dropped ZipRealty from my BW Web 20 model portfolio in February, and passed over Web broker-referral service I kept IAC, but I’m betting on its search engine rather than its real estate or LendingTree mortgage-referral sites in the short term. Even if the real estate market does OK, I wouldn’t want to wait around for Wall Street to decide the coast is clear. People are likely to be cautious for a good while.

I’m cautiously attracted to home builders. Is that nuts? Any big builder around now went through a firestorm in the early 1990s. Balance sheets at companies like Ryland and NVR are, I’d reckon, a whole lot tighter than when I was covering those companies in Baltimore 15 years ago. (My bias: I made a tiny bit of my rep predicting in 1990 NVR would go into Chapter 11. They did. Too bad I missed the part about that stratospheric rise after the parent of Ryan Homes came out of bankruptcy, which was one of those deals where 10 or 15 grand, bet boldly when things looked like Hades, could have funded your retirement by itself). They’re all off their highs – Toll Bros. most of all – but not in any cataclysmic way. If they do get whacked, jump in then and ride them up. Whatever the builders’ problems are, they’re cyclical rather than secular. Watch this space as I do a little research, or feel free to add your own in the comments box.