Debt Free

Fears from the mortgage industry's problems begin to spill over into other businesses affected by the mortgage industry, and it's become apparent by taking a peek at the stock prices of some of the biggest names in the building and home improvement sectors. Stocks of some other companies heavily tied to the mortgage industry seemed to be far less affected however. This means you can't just blindly take it that all financial, and more specifically mortgage and home related equities, are going to drop because of this mess.

You can see by looking at the stock price charts of the heavily building industry related home improvement centers. Notice how they move almost in lock step of late, mostly trending down, however there is some movement that looks like short term recovery. Notice how the bank that is most heavily mortgage related, Wells Fargo, actually moves down the least of the three banks in the chart, but that all 3 banks and Home Depot actually move basically together, although the banks have showed a bit of a bounce back in the last couple of days.

Stocks of some building supply and other companies that focus more on the remodeling side of the construction business may recover, as some people who would have moved into new, larger homes decide to remodel instead. Large, tract home builders don't buy their products from Home Depot and Lowes, while many smaller builders, such as those that specialize in remodeling projects, frequently shop there.

In the next screen, notice that Fannie Mae (FNM) is actually posting a nice gain for the year and that the vertical scale must be expanded to accommodate the price drop experienced by embattled Countrywide Financial Corp (CFC). Adding in Capital One (COF), who yesterday announced they'd be taking an $860 million loss to rid themselves of the risk created by their recently acquired GreenPoint Mortgage division, shows the magnitude of the recent drop experienced by Countrywide, the nation's largest mortgage company.

When Countrywide (CFC) is superimposed against stocks from 3 of the country's largest home builders, Centex (CTX), DR Horton (DHI) and Pulte Homes Inc. (PHM) you can see that although the home builders have moved down almost in unison, Countrywide has fared much worse.

 

Does that mean there are no opportunities left in the sector? No, it doesn't. There are always opportunities. People still need places to live and the money to buy them. As noted before, there may be a mini remodeling boom as fewer people buy new homes. A $50,000 HELOC will allow a nice little addition and kitchen remodel. Don't look for a big jump among appliance manufacturer's though. As the housing market slows, the an increase in kitchen remodels will probably never make up for the number of new, high end appliances installed by the big home builders.

There are also millions of folks out there who represent great credit risks, despite what many of the banks and investors would have you believe. Lending to these people is still a very solid, profitable business. Much of the problems the market is experiencing today is of it's own making (mortgages that should have never been made) and some of it is driven by fear and hype, the record number of foreclosures notwithstanding.