Don't bet the ranch on home builders

— -- Q: Why are home builders' stocks doing so poorly, and are they going to recover any time soon?

A: Home builders' stocks are at the epicenter of the housing and subprime mortgage bust that's roiling financial markets.

Rising inventories of unsold homes plus the fact some consumers with poor credit will be unable to borrow, are creating real problems for the home builders. The' stocks clearly show just how bad investors expect the problems to be. Some of the home builders' stock losses rival the debacles of dot-com stocks.

Just to give you a taste, here's how far several leading home builders were off their highs as of mid-August:

All those stocks subsequently came back a bit. And, indeed, some investors think the sell-off is overdon. After all, people will still need homes after the dust settles. The trouble is, picking a bottom in an industry that's in freefall is treacherous to say the least. Investors who boght home builder stocks last year, thinking the worst had passed, have suffered tremendous losses.

Some investors may think it's wise to invest in home builders, on the bet some of these companies may be buying undeveloped land at big discounts. Again, though, it's too soon for that. Until some builders go belly up, it's unlikely they'll start selling assets at fire sale prices. And historically speaking, home builders have been terrible at timing market cycles. They tend to overbuild during boom times and retrench too much during busts.

Matt Krantz is a financial markets reporter at USA TODAY. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com.