Let the Rate Panic Play Out

 | May 30, 2013 | 4:22 PM EDT
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Housing's being crushed. These homebuilders are funny stocks, though. They never change direction intraday. Once they are launched, they just keep going that same direction until the bell.

Not kidding.

But I think they are buys. Here's why: There is a rate panic. There's a belief that mortgage rates are going to skyrocket.

But I simply don't believe they have the ability to do so. And I don't think that they are going to hurt the affordability much because even though housing is up year over year and is very strong in some very hard hit cities (with the exception of a couple of regions), it is still well off 2006's peaks.

The stocks are much more sensitive to rates than the businesses are, so you have to let the panic play out.

The numbers from RealtyTrac today show a rapid and dramatic decline in shadow inventory. At the same time, the homebuilders have the possibility of building far more homes than they are currently putting up and there's very little competition because spec developers still can't get any loans to speak of. The actual raw costs to a home have come down during this period, not up.

So, yes, this one variable, the rate, has gone up, but not so much that anyone who was going to buy a house isn't going to do so.

More important, though, is the FICO score that is needed to buy a home has started to come down. I am hearing that people can get mortgages if they have a 710 FICO, still high but not as ridiculous as a few months ago. When you get more job growth, you get more potential homebuyers. If you don't get more job growth, rates will come back down and you will wish you were a buyer.

We like Weyerhaeuser (WY) here, which is just getting slaughtered as part of the relentless decline that can't be stemmed in a given day.

But I think that WY and Toll Brothers (TOL) are the two that would be terrific to grab when the panic subsides. Just understand that you can't call the bottom in these.

They have to bottom first because they all trade like falling knives, and you don't want to be a butcher block.

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