Time to BUY homebuilder stocks?

During this latest downturn building stocks are down by 70% -- often trading for values below book value (although book value has been hard to determine due to issues such as ongoing impairments and off-balance sheet holdings).

However, writing in the Wall Street Journal, Brent Arends provides a case that now may be the time to stock up on builders -- assuming of course, that you've got a strong stomach and like roller coasters:

One of the wisest investors I know has been busy … buying U.S. homebuilders.

The Gray Bear, as I call him, is a publicity-shy portfolio manager in London with a wonderful track record going back to the crash of 1973. He was buying gold at $255 an ounce back in 1999, when nobody wanted to know, and Japanese equities near the bottom a few years later. (He also sold Japan in 2005, when everyone else piled in).

His latest big contrarian bet, on the stricken homebuilding sector, has a simple rationale. It's a durable asset class that has already fallen more than 70% from the peak. On the stock market, in other words, the crash is nearly over.

"U.S. homebuilding stocks seem an attractive asset class on a, say, three-five year view," he wrote in a recent note to clients. It's "a reasonable asset class (they will go on building houses) which is down over 70%. To the best recollection of my (endless) studies 70% off the top gives a massively positive probability of substantial profit within 3 years."

Yes, but what about future impairments, the credit crunch and a the 78 million boomers on the cusp of selling their homes in large quantities and outnumbering buyers?

Yes, the real estate crisis could play itself out on Main Street for another year, two, or even more.

But that alone doesn't make homebuilding shares on Wall Street a poor investment. It simply depends on the price you pay for them...

Of course sales may fall and book values be written down. You can even consider it likely. But that's why you want to buy shares cheap. That would account for these discounts.

Perhaps. I wonder what former stock analyst "Poison" Ivy Zelman would say?