Three Home Sales

Last week, a report from the National Association of Realtors said, "The housing boom has ended but sales will continue at historically healthy levels with price appreciation returning to normal patterns across much of the country."

The group is not alone in its sanguine assessment of current conditions. Over the past few months, I have heard the words "mild," "moderate" and "cooling" when describing the slowdown in housing prices. However, 12 months from now, this optimism could turn to wishful thinking as higher interest rates cripple this erstwhile pillar of the economy.

But the fallout is going to hit more than homeowner equity. Here are three stocks that this downturn will hurt the most, and should be sold on strength: Countrywide Financial (CFC - commentary - Cramer's Take), Lowe's Companies (LOW - commentary - Cramer's Take) and Target (TGT - commentary - Cramer's Take).

First, let's examine the increased costs of home ownership. Over the past five years, the median home price in the U.S. increased more than 11% annually as of year-end 2005, including a 13.6% rise last year, according to the Office of Federal Housing Enterprise Oversight (OFHEO). In San Francisco, the average price for a home is $718,000 and in the New York metro area, the average price is $472,000.

To put this into perspective, I used a mortgage calculator and entered data including the average home price, the mortgage rate and a 20% down payment to compare today's averages with the averages from three years ago.

In 2003, the average home price in the New York metro area was about $320,000, according to the National Association of Realtors, and the average 30-year fixed rate mortgage loan was 5.6%. With a 20% down payment, or the amount needed to avoid paying personal mortgage insurance (PMI), the monthly payment was $1,470.

Today, using the same calculator, but with today's average home price in the New York metro area ($472,000), the current 30-year fixed rate (6.6%) and 20% down, the monthly payment jumps about $1,000 to $2,410.

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In keeping with TSC's editorial policy, Frank Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research associate at TheStreet.com, where he works closely with Jim Cramer. Previously, he was the editor of The FXC Newsletter and senior research analyst for Greentree Financial.

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