Housing Woes Tank Stocks Again

Yet economic fundamentals show that investors may be pulling the plug too soon.

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Right now if the stock market were an open house, the real-estate agent would be sitting alone. The Dow industrials are down about 500 points since hitting 14,000 last Friday—including a huge drop today—mostly over concerns about the subprime mortgage market and whether problems there will spread to more borrowers and companies.

The big catalyst, of course, was comments from Countrywide Financial CEO Angelo Mozilo who said 1) the housing market won't turn around until 2009, and 2) borrowers with better credit records are starting to miss payments at a higher rate. (Widely followed economist Ed Yardeni called Mozilo's comments the "first piece of hard evidence that the subprime mess may be spreading.") And certainly not helping matters was today's news that new-home sales in June fell 6.6 percent and that the median home price was down 2.2 percent from a year ago.

Yet today's initial jobless claims report is yet another sign that the employment market remains strong, which helps bolster consumer spending in the face of the housing meltdown. Initial jobless claims in the week ending July 21 remained low at 301,000, down from 303,000 a week earlier. The four-week average was 308,500. Also, as economist Brian Wesbury of First Trust Advisors speculates, the housing data may be underestimating how many homes are being sold, since if a contract is signed on a house and later canceled, it won't be counted again as a new-home sale if another buyer is found.

But all eyes will be on Friday's gross domestic product report to see better what spillover effect the housing woes are having on economic growth and consumer spending.