Zacks Investment Ideas feature highlights: KB Home, PulteGroup, ProShares Short Real Estate and UltraShort Real Estate ProShares (KBH, PHM, REK, SRS)

Today, Zacks Investment Ideas feature highlights Features: KB Home (NYSE: KBH), PulteGroup, Inc. (NYSE: PHM), ProShares Short Real Estate (NYSE: REK) and UltraShort Real Estate ProShares (NYSE: SRS).

Protect Your Nest Egg: Short Housing

Unless you have been living under a rock for the past 2 years, you may have heard that housing and real estate have weakened dramatically. And while some are in denial, there is a very strong case for things to get worse.

Look at your mortgage. You are 100% long housing at the value of your mortgage plus your down payment. When you factor in real estate exposure, most investors are dangerously undiversified.

Nobody likes to hear that their biggest, most illiquid investment may not go on to provide the return they hoped. In fact it could be posting a loss for the foreseeable future. But, there are ways you can hedge or even profit from a weak housing market.

Why We Haven’t Bottomed

Houses are now selling like a stock that just went ex-dividend following the expiration of the $8,000 tax credit. I hate clichés, but it truly is a buyer’s market. So, now that buyers are not getting that stimulus money, sellers are going to have to fill that gap by dropping their prices.

Additionally, those who could afford to buy already have. And with an unemployment rate hovering between 9% and 10% for the next couple years, the number of new buyers will likely be weak for at least that long.

Just How Bad is it?

Even if this is the bottom, it is still ugly out there and wont improve for some time. The latest new homes number came out at an annual rate of 333,000, a number that means nothing to most, but lets put that into context.

If that estimate is correct we will see an 11% decline. At the peak in 2005, there were almost 1.3 million new homes sold. Since 1963 we have never been under 400,000, until 2009. So, this is the worst year on record, and it’s not even close.

So What Can I Do?

Get short. By shorting stocks, buying put options or trading ETFs that trade inversely with the industry you can hedge against a decline in your own home, or even profit.

Here are a few ideas:

KB Home (NYSE: KBH) is a national home builder, designing individual homes and communities. The company builds attached and detached single-family homes, condos and town homes.

Estimates are plunging. The Zacks Consensus Estimate for fiscal 2010 has been on a steady decline all year, and is now down to a $1.40 loss, from a 93 cent loss 3 months ago. The downward revisions have pushed KBH to a Zacks #4 Rank (Sell).

Analysts are expecting KBH to get back into the black next year, but at this rate that may not last. Forecasts for 2011 are now averaging just a 6 cent profit, down 90% from the 61 cents 3 months ago.

PulteGroup, Inc. (NYSE: PHM) is also a national homebuilder marked with a Zacks #4 Rank (Sell). Pulte’s estimates are not falling as fast as KBH’s, but are being hit none the less.

The full-year consensus for 2010 is down 6 cents to a 4 cents loss in the past month. Next year’s estimates are off 4 cents to a 35 cent profit. While the magnitude of the revisions is smaller, the agreement among analysts is unanimous.

ProShares Short Real Estate (NYSE: REK) looks to return the inverse of the Dow Jones U.S. Real Estate index. This is ETF will allow you to take on short exposure in accounts that may not let you trade on margin or buy options. For the more aggressive trader there is UltraShort Real Estate ProShares (NYSE: SRS), which aims to double the inverse of the same index.

Ignorance is Not Bliss

The housing environment is a lot like going to the doctor. People will avoid taking a serious look at the issues because they are afraid of what they will here. However, ignoring the facts won’t make them go away. You are much better off taking the reality of housing and using it to your advantage.

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