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Will a Housing Slowdown Hurt Autos?

Stocks in this article: F GM DHI PHM XHB

NEW YORK ( TheStreet) -- When housing was surging into 2013, it provided a much needed boost to the economy. As housing improved, jobs in the field increased, contractors expanded their crews, and consumer confidence grew brighter.

The spillover effect was also felt in the auto market, where households finally had enough money to justify a new car and workers were able to buy new trucks for their businesses. As automakers improved on the back of solid housing demand, will a slide in housing be their demise?

Some serious questions have been raised about whether the Federal Reserve would cripple the housing market, as a byproduct of reducing quantitative easing, as mortgage rates have been rising.

Now obviously the Fed won't intentionally crumble one of the few pillars holding up the still fragile economy. After all, the Fed put years of work and trillions of dollars into boosting the economy. It's not going to blow all of that now. But is there any way for the Fed to unwind the stimulus program, without shooting itself in the foot?

In early May, the 30-year mortgage rate was 3.35%. In July, it reached 4.51%. Though that rate would have been a godsend a few years ago, it was an unexpected and rapid move higher in today's market.

The housing market is finally starting to pull itself out of the hole, and we don't want to watch it fall again. We've already seen stocks like PulteGroup (PHM) and D.R. Horton (DHI) fall 36.3% and 35.2% from their May highs.

Even more broadly, the SPDR Homebuilders ETF (XHB) has fallen 12.5% from its high in May. Assuming mortgage rates stay above 4.5%, will this be only a pause for housing demand, or will it actually crimp it? Also, when the Fed actually tapers, rather than simply talks about tapering, will rates shoot even higher? If so, by how much?

Although the current rates aren't unbearable from a historical context, the effect has been felt. New home sales tumbled to 394,000 in July, the lowest reading in nine months, missing estimates of 490,000.

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