“Nest egg made of 2-by-4s”

From BusinessWeek:

Can Wall Street Withstand Weak Housing?

If your nest egg is made of 2-by-4s and you’re watching the real estate slowdown with a mixture of fear and nausea, then this article is for you.

The question: If real estate tanks, will stocks follow? Or will the market ignore housing? Or maybe—just maybe—will a decline in housing trigger a rise in stocks? It’s something you really ought to think about if you’re trying to figure out where to put your money.
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It makes some sense that a housing slump would be bad for stocks. First, there’s the direct effect on jobs in construction, real estate brokering, mortgage lending, and so on. Goldman Sachs estimates that housing and related industries account for nearly 10 million jobs (payroll and nonpayroll combined).

Second, consumer spending has been buoyed by the housing boom. People spent more freely because they felt wealthier and because they turned their homes into piggy banks through home equity loans, cash-out refinancing, and other means. Take away jobs and consumer spending, and it’s no wonder that many experts expect a housing slump to hurt stocks.
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But not everyone is convinced that housing will crush stocks. Why? Some figure that the housing slump won’t be severe or prolonged. Robert DiClemente of Citigroup argues that the adjustment to a slower rate of sales is well under way. He says that the issuance of building permits is actually 10% below the rate of new-home sales. This process “will clear the overhang of houses within the next six to nine months,” DiClemente predicts in a recent research note. The headline on his report: “Down But Not Out.”

Others say it’s too soon to declare the stock market dead because of housing. “Summing it up, I’m in the camp that says I don’t know and the jury is still out,” says Jeffrey Saut, equity strategist for Raymond James Financial.

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