Home building industry experts worry that the recent stock market slump may dampen consumers' interest in buying homes.

Though the equity market rout has caused interest rates to fall, making housing more affordable, it also threatens to erode consumer confidence and personal wealth, they said.

"Until now we've been viewing the housing sector as a sort of net beneficiary of the foreign-sector mess," said David Seiders, chief economist at the National Association of Home Builders. "The tone of things really is different now in the last couple of weeks. We are worried about a more serious stock market correction than we had been expecting."

Even before the latest crisis erupted in Russia and the stock market tanked last month, the trade group had been expecting the housing market to peak around midyear, Mr. Seiders said. The group expects single-family housing starts to total 1.231 million this year, up nearly 8% from last year, but to fall almost 5%, to 1.172 million, in 1999.

Last week Peter Dannenbaum, an analyst at Morgan Stanley Dean Witter, cut his ratings on home builders Lennar Corp., Pulte Corp., and MDC Holdings, arguing that the current housing boom is unsustainable.

In a research note to clients, he noted that so far this year, housing starts are up 9%, at 1.25 million, well over "what is generally viewed as the demographically sustainable pace of 1.1 million starts" per year.

Demand for housing "may remain at robust levels near-term," Mr. Dannenbaum said, but activity is likely to decline 5% in the next two years, he said.

Lower interest rates"will not be enough to drive continued growth" in the housing market, he said, adding that he was "increasingly nervous" about other indicators that drive housing activity, such as employment growth and consumer confidence.

The stock market correction was "the final straw" that led Mr. Dannenbaum to downgrade the three home builders, he said. Baby boomers moving up into more expensive homes have fueled much of the recent housing boom, he said, and their decisions "have undoubtedly been influenced by seemingly ever-rising 401(k) and mutual fund accounts."

Still, others were optimistic. Dennis Cronk, first vice president at the National Association of Realtors, said that as a result of the recent stock market selloff, "there has been more interest in shifting investment to real estate out of the more volatile stock market."

Robert Curran, analyst at Merrill Lynch & Co., said the correction might not necessarily prevent consumers from buying homes.

"If they've been active in the stock market during this cycle, they've made a lot of money at this point in time even with the retrenchment," he said. "It's more an issue of what it does to their psyche rather than their capability to buy housing."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.