Jim Cramer: The Dichotomy in Housing

NEW YORK ( Real Money) -- The dichotomy between the housing stocks and the stocks of companies that make goods that go into new homes is about as stark as I can remember. And the disparity is growing.

You take high-quality home-related stocks such as Masco ( MAS), up 25%; Home Depot ( HD), up 24%; and Lowe's ( LOW), up 38% for the year, and you compare them with homebuilders such as Pulte ( PHM), down 3%; Toll Brothers ( TOL), flat; Lennar ( LEN), down 9%; and DR Horton ( DHI), off 6%, and you might as well be talking about two, totally unrelated industries.

That's because they are two different industries. One's related to confidence, credit, cost of building homes and interest rates, and the other is just about pent-up demand to spend on a house you already own, knowing that your house is done going down in value.

I think that the confusion over these two parts of the housing story is what has kept a lot of people out of Whirlpool ( WHR), up 44%, or Masco or Fortune Brands ( FBHS), up 45%. Investors just don't believe that they aren't a tandem, that they aren't handcuffed.

It's still one more example of a changed market that people don't understand has occurred. The housing stocks haven't done much at all year. They didn't do much ahead of the interest-rate spike and they haven't done much since. I think that's because they are still expensive relative to earnings. They ran up so much going into the year that they will have to stay put and the fall will have to be a good selling season if they are even going to maintain their current price levels. I don't think it will turn out to be so because of the sequester, debt-ceiling and budget shutdown debacles.

But the housing-related stocks were standouts coming in to the year and then got hammered only with the sudden rate increase. Ever since, then they have slowly but surely come back as the 10-year drifted below the 2.5% level. I think these stocks are now, to a degree, vulnerable again if rates tick up to 2.75% -- as they appeared to be during the end of last week's session -- but that they are benefitting from a consumer that has a predilection for hard goods over soft goods. I don't see that changing anytime soon.

I expect the housing stocks to continue to perform poorly for the rest of the year, given the damaged psyche of the consumer thanks to Washingtonian bungling.

But I think consumer spending on his or her home is not going to let up, even as the stocks will go down based on a rate rise if it continues. I think the opportunity in the sector comes if rates go back up to 2.80% and the housing-related stocks get hit again. Then you have to pounce because the earnings will be unimpeded, even as the stocks say they should be. They won't be and that's why they are buys.

My favorite? It's Lowe's because the chain has gotten it together and closed the gap with Home Depot for the first time in decades. But Home Depot will be no slouch either, and I expect it to pause and go higher still.

But the homebuilders? I still see no reason to own them. Their multiples aren't so low, their sales prospects aren't so high that they can be considered either value or growth stocks. Only time or price can solve those issues, and that's something nobody wants to wait around for anymore, especially if there's no dividend protection or, for that matter, protection from Washington if you own these underperforming stocks going into 2014.

Editor's Note: This article was originally published at 7:15 a.m. EDT on Real Money on Nov. 4.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long Lowe's.

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