Investors suffered an attack of bubble-phobia Tuesday morning, as news from across the red-hot housing sector came in a touch cooler than expected.

For starters, the booming housing market had a bigger hiccup than expected in July. The National Association of Realtors said sales of existing homes dropped 2.6% for the month to an annual rate of 7.16 million units, while mortgage rates inched higher. Economists had been expecting sales to slow to an annualized 7.25 million-unit rate, from June's revised rate of 7.35 million.

Even with the decline, existing home sales were the third-highest on record. Home sales and refinancings have been driving consumer spending, with low-rate loans inspiring shoppers to borrow to sustain their spending habits. Consumer spending continues to be the bright spot in an otherwise mixed economic picture.

But combined with some soft sales numbers from a number of big home furnishings retailers, Tuesday's news was enough to push stocks into negative territory. The Dow Jones Industrial Average dropped 71 to 10,498, while the S&P 500 was recently down 4.3 points to 1217. The S&P Retail Index, which has shed 5.6% so far in August, was down fractionally.

With bitter memories of the Internet bubble still fresh, market watchers have been warning of a housing bubble for about two years now as prices have continued to soar. Bulls have countered by pointing at demographic shifts and robust economic growth as evidence that the housing boom is real and here to stay. But a few longtime beneficiaries of the nation's love affair with home ownership were starting to show some signs of wear Tuesday.

Pier 1 ( PIR - Get Report) cut its forecast for the second quarter, saying it had to offer promotions and discounts to fight a decline in customer traffic. The seller of trendy home decor said same-store sales in August are below its projections and heading for a drop of 13% to 15%. It now expects second-quarter comp sales to decline about 8% to 9% from a year ago.

As a result, Pier 1 said it's planning for a loss of 12 cents to 14 cents a share in the quarter. Analysts polled by Thomson First Call were looking for a loss of 6 cents. Its shares were recently down 79 cents, or 5.7%, to $13.07.

Its high-end competitor, Williams-Sonoma ( WSM - Get Report) -- which also operates the Pottery Barn and West Elm Brands chains -- fared better, but not well enough to suit finicky investors. It posted a 12% same-store gain in the second quarter as expected and reiterated its guidance for the full year, but sales fell short of estimates.

Williams-Sonoma's revenue increased nearly 13% to $776.2 million from $689.6 million in the same quarter last year, but analysts were expecting sales to rise to $783 million. Its shares were recently down 97 cents, or 2.4%, to $39.76.

Elsewhere, La-Z-Boy ( LZB) shares were trading down 96 cents, or 6.9%, to $13.03 after the furniture manufacturer and retailer said high energy prices and rising interest rates were contributing to weak retail furniture demand.

The company expects second-quarter sales to decrease in the low single-digit range compared with $521 million it posted in the year-ago quarter. It also forecast second-quarter earnings in the range of 17 cents to 21 cents a share, below analysts' expectations.

On an individual basis, all the problems at these retailers can be explained away by ongoing competitive issues. Pier 1, which recently garnered the confidence of legendary investor Warren Buffett (he bought a 9% stake in the company), has been losing market share for several quarters now. And despite all the success of Williams-Sonoma, its Pottery Barn chain has been a lingering source of weakness for the stock.

To be sure, the bad news comes just a week after the two leading home goods chains, Home Depot ( HD - Get Report) and Lowe's ( LOW - Get Report), posted their usual strong numbers. The two have emerged as the retail industry's most dependable producers for Wall Street in recent years.

These companies held their ground in the recently reported second quarter, even as other big chains like Wal-Mart ( WMT - Get Report) and Gap ( GPS - Get Report) warned of weakening fundamentals.

Home Depot posted a 14% earnings gain on strong sales and raised its full-year earnings estimates. It also boosted its quarterly dividend and expanded its share buyback program. Lowe's also beat expectations, posting a 17% jump in second-quarter profit and offering strong earnings guidance for the rest of the year.

Those results, and particularly the optimistic projections, stood in sharp contrast with reports from retailers who lowered earnings guidance and expressed concerns about the economic recovery. In all, 19 retailers lowered expectations for the second half of 2005 last week.

So Tuesday's disappointments added to the steady drumbeat of warnings coming from the retail sector that the rest of the year may not be all it's cracked up to be. Still, Morningstar analyst Anthony Chukumba cautioned investors against overreacting.

"It's just a matter of time before the housing market starts to soften a bit from record levels, but still, the housing market is very robust compared to historical levels," Chukumba said. "Interest rates are increasing, but they're still very low by historical levels, and the housing market is still very strong by historical standards."