Investors looking to profit from U.S. housing stocks will have to be patient.

Even though they have sunk to multiyear lows, strategists speaking at the Reuters Investment Outlook 2008 Summit said they still aren't worth the risk.

They warn the housing slump is far from over and that the ongoing credit crisis would hinder any sort of a recovery.

It's a bit premature to go and buy them, said Milton Ezrati, senior economist and market strategist at Lord Abbett & Co. There is still bad news out there.

Fallout from the credit squeeze, according to the strategists, threatens to make it a lot harder for would-be borrowers to get favorable financing, particularly with rates on millions of adjustable-rate mortgages set to rise in the years ahead.

We're still so new in the housing credit-related crunch that it's still going to be the one to watch, said Bob Doll, global chief equities investment officer at BlackRock Inc.

There were a lot of false bottoms in energy and technology stocks when they cratered in the past. It took four to five years (to see a turnaround). The housing industry could be similar. A recovery will be years in the making.

Bill Gross, the manager of the world's biggest bond fund, said to stabilize the U.S. housing market, the Fed will need to cut its benchmark funds rate to around 3 percent and will need to get the 30-year home mortgage rate for prime borrowers down to around 5 percent, from current levels around 6 percent.

RATES RIDDLE

On Tuesday, the Fed cut its target rate by 25 basis points to 4.25 percent. The Fed has now cut the fed funds rate by a full percent since mid-September.

Ultimately you need to bring down the mortgage rate, said Gross, who is chief investment officer of PIMCO, or Pacific Investment Management Co.

If housing has to become 25/35 percent more affordable in order to put a floor under housing ... then some combination of

housing prices going down and mortgage rates going down sometimes produces that magic level.

Gross added that we are assuming housing prices hit bottom of the cycle down 15 percent total.

Jim O'Shaughnessy, chairman and chief executive officer of O'Shaughnessy Asset Management, which oversees about $11 billion in assets, said as long as there was a growing glut of unsold homes, housing stocks weren't worth the risk.

It is going to take a while for the existing inventory (of houses) to be sold out. He said he expects home prices to continue to fall. This is not a short-term deal.

The downturn was reminiscent of housing slump that occurred in New England in the early 1990s, he added.

With the Dow Jones home construction index .DJUSHB down more than 50 percent on the year, Tom Metzold, portfolio manager of Eaton Vance National Municipals Fund, said investors would have to be very discriminating.

He said he preferred such plays as KB Home, the No. 5 U.S. home builder, and top luxury home builder Toll Brothers.

I think right now you buy good quality home builders, he said, because the bigger companies have some balance sheet staying power.

The real estate market is going to recover but it's not going to be in 6 months or 12 months from now.

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