The two words produce a different reaction depending on who you talk to. Some, like Zillow (Z), believe America is on the verge of another bout of unaffordable housing. Others, like Trulia (TRLA), suggest housing prices in the U.S. are undervalued by 5% compared with long-term fundamentals. Investors interested in housing stocks need to know who’s right.
The problem is … that’s difficult to answer.
However, what is clear is that the homebuilding boom is petering out. According to Morningstar, residential construction stocks are down 6% over the past year through April 22 compared to a gain of 21% for the S&P 500. And while I personally see some opportunities in homebuilding stocks, the smart play might be to invest in housing stocks that don’t actually build homes, but instead supply products that go in them.