A dramatic slide in housing starts last month and a fifth interest rate hike by the Federal Reserve on Tuesday have left Wall Street bears in no doubt that homebuilders' best days are over.

But the pessimists have been wrong for a long time.

Indeed, the Philadelphia Housing Index has doubled over the past two years as calls for a sharp slowdown proved to be unfounded. The group has climbed 27% this year and is up 18% since TheStreet.com wrote a bullish article on the sector in March .

"Somehow, the bears continue to miss the point that this is a consolidating industry, that the big guys continue to get market share from the little guy," said Ron Muhlenkamp, founder and president of the Muhlenkamp fund.

Large builders now control more than 20% of the market, up from just 5% in 1991, and analysts say that could rise to 50% going forward.

Muhlenkamp said the strength of the housing market has actually surprised him this year and he has been calling for starts to flatten out. Still, he thinks sales will continue to grow at a healthy pace over the next few years.

Shares of homebuilders fell Thursday after the Commerce Department said housing starts plunged 13.1% in November to an annualized rate of 1.77 million units. That was the steepest decline in 10 years and the lowest level since May 2003. Building permits, a gauge of future activity, also declined to 1.99 million units.

"While we have noted the potential for a housing slowdown for some time ... the magnitude of the November decline is surprising," said Goldman Sachs economist Bill Dudley.

Both single and multifamily starts were down, and all four major regions of the country posted similarly steep declines, he said.

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