Slowdown Imperils Builders

If the housing market slows down, how will the homebuilders grow? The bulls say through acquisitions, but that makes the sector's future growth a lot less clear for investors.

The bulls' argument is that even if the housing market is set to slow down -- which certainly looks to be the case -- then public builders can use their lower cost of capital to muscle out the competition and buy whatever good private builders they can't force out of business.

It's a compelling proposition. Most private builders, beyond the very large ones, rely on higher-cost variable-rate bank financing, in which loans often are secured against individual plots of land. Large public builders, on the other hand, can issue multiyear, fixed-rate debt and pay lower, investment-grade rates. ...