The Home Front Takes a Hit
Slowdown in the Housing Market
by Jon Birger, FORTUNE

(FORTUNE Magazine) - The long-feared housing slowdown has arrived. But does that mean stocks that thrived on the real estate boom will come crashing down? It isn't looking that way yet. FORTUNE assembled a mini index of eight issues, and we found few signs of irrational exuberance.

Investors seem to have anticipated the end of the craze: As a group, our eight housing stocks have returned only 1% over the past 12 months, vs. 11% for the S&P 500 index. As a result, they are cheaper than the market (average P/E of 14, vs. 17 for the S&P 500), even though they boast superior projected 2006 earnings growth (10% vs. 6%). Maybe that's what has attracted value hawks like Bill Miller (who's bought Centex (Research) and Pulte (Research)) and Warren Buffett (Home Depot (Research)).

Are they onto something? Perhaps. But risks remain. The inventory of homes for sale rose 21% from January 2005 to January 2006, and in California, homebuilder Centex has had to resort to gimmicky one-day sales--"Save $150,000 on a Centex home, 12 hours only!"--to unload inventory. Higher interest rates mean less refi business for Washington Mutual (Research) and Countrywide (Research) and fewer opportunities for homeowners to upgrade. As Lehman Brothers analyst Steven Fockens recently wrote of flooring company Mohawk (Research), "With housing turnover finally softening, we'd expect related spending, including flooring, to follow suit." Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.