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Show A DAILY Sunday, August28, 2005 HERALD = THE WALL STE AT JOURNAL SUNDAY. WSJ.com/Sunday The Weekly Guide to Managing Your Money ©2005 Dow Jones & Company, Ine. All Rights Reserved. What’s Eating Home-Builder Stocks By Scott PATTERSON hatter about a housing bubC ble has hit a fever pitch in the news and around the water cooler. A day rarely passes without a headline warning about Check Credit At No Cost showed that the risk of falling prices has increased in 36 of the Crack in the Facade In a sign of possible trouble ahead for home builders, the Dow Jones Home Construction index* has fallen 11% in August,though it remains up 21% forthe yearso far. AN oN 1200 federal law goes into effect that allows individuals to get free copies 1100 of their credit reports, once @ year, from each of the three major credit- signsthat the frothy housing mar- ket is bubbling over—anda friend bragging about the windfall he pocketed flipping condos. Like termites in the floor- Neff points out, KB has been on a spending spree in the past few 1000 years, snapping up mom-and-pop boards, that housing-bubble buzz js nibbling awayat the shares of companies that make homes. The home builders in the Southeast, Chicago and Indianapolis, among stocks of builders such as Toll Brothers (TOL), KB Home (KBH) Source; WS) Market Data Group “Includes stocks of companies that build residential homes.or make mobile and prefabricated homes intended for use in one place, an annual rate of 7.16 million in also illustrates the dangers on the horizon for home builders. July, down from a revised pace of + On Aug. 5, the Labor Department reported that the U.S. economy added 207,000 jobs in July, a had expected sales to tick up by 0.6%. On Wednesday, however, the Commerce Departmentsaid newhome sales surged 6.5% in July to an annual pace of 1.41 million, a record high, rewarding homebuild- numberthat was muchbetter than economists had predicted. What's good news for the economy, hough, often means trouble for U.S. Treasurybonds, since investors seek the safety of bonds during economic slowdowns. Inves- 7.35 million in June. Economists ers with a nicerally. Sensing Opportunity That rally was sweet vindica- tors bailed out of bonds after the tion to somevalue-conscious investors, who've smelled a buying opportunity in the home-builder sec- tor. Indeed, home-building stocks are extremely chedp compared with most other, stocks. The Standard & Poor's HomeBuilding In- bond yields are a troubling sign for the housing market, since mortgage rates are tied to yields. Cheap rates have fueled today’s housing boom, and somefear that once they go away, the boom could dex has a price-to-earnings ratio of flameout. Homebuilders took anotherhit last week when the National Association of Realtors reported that sales of existing homesfell 2.6% to 7.6 for 2005, based on estimated since the early 1970s. Oil companies won't be allowed to charge morethan $2.74 fora gallon of regular unleaded, meaning gasoline B Selling Cars: U.S. auto makers have a Ic* riding on Thursday's mo: s figures for August. € discount” programs gave a big boost to sales earlier in the summer, but a midAugustupdate from Edmunds.com suggested the discounts may be starting to lose their appeal. Reading the Fed: Federal Reserve policy makersrelease the minutes of their jatest meeting on Tuesday. Investors will scrutinize their deliberationsfor any hintof | THE WALL STREET JOURNAL WillanFs Casey de he Amv eprisixe: Dinncton (203) 966-7001 mmpbell@dowjones.com Convonvre Hevnge verers: 200 Liberty Street ¥. 10281 Fon \ Seren SUBSCRIPTION 7-202 spots, it remains healthy in most parts of the country. “I'm buying becauseI think the homebuilders are so cheap, andI don’t think that the bubbleis national,” he says. Indeed, while most economists agree that certain regions have seen an unsustainablerise in hous- anywhere near a buyer’s market,” the study said. Bullish for Builders Such an outlook is decidedly bullish for most home builders. But investors need to be wary of companies that-may be overex- posed to areas where sales could trail off. Wachovia Capital Markets analyst Carl Reichardt recently downgraded Toll Brothers, FURTING WITH $68: Adjusted for inflation, crude oilhit its highest price in more than 22 years Thursday before slipping back to end the week at $66.13 a barrel. $70 regional bubbles. the Eastern states, Puerto Rico and Someof the smaller homebuilders could suffer from regional market downturns, however. Sam Lieber, manager of the Alpine U.S. Real Estate Fund, says Florida all U.S. territories in September. At that point, all consumers will have access to the reports from Expetian, Equifax and TransUnion. may hit a slow patch soon. That heavy presence in the Sunshine State, including Standard Pacific cial Website for requesting free reports—annuaicreditreport.com—or you can call 877-322-8228. (Don't contact the individual credit agen- (SPF), which, while no peewee, with a marketcap of$2.9 billion,is Still a third thesize of the big boys such as Toll Brothers and Putte Homes (PHM). accessed through the Federal Trade Commission's Web site at ftc.gov/freereports, which has a link to the correct Web site. could burn companies with a Ultimately, however, the housing market faces a formidable op- ponent: the Federal Reserve, which has beenraising short-term interest rates in an effort to restrain inflation. Since June 2004, the Fedhas lifted the federal-funds rate 10 times to 3.5%, and most forecasters expect it to increase rates several more times in 2005. “The Fed wants to slow the economy,” says Mark Zandi, chief But be sure to use the one offi- cies). The official site can also be Also, check to make sure you're at the correct Website: Impostors are already popping up on the Web. Pop-up ads or emails you receive that claim to be the official Web site are likely scams. And keepin mind that the credit companies themselves mighttry to sell you other services that you might not necessarily need. Thefree credit report contains ern California, Florida and the hood-watch surveyfor July showed signsof a sharp slowdown in Washington, D.C., where Toll Brothers economist at Economy.com,a fore“The best wayto do thatis to slow well as other pertinent personal does a good deal of business. the housing market,” he says. That means “the Federal Reserve andfinancial information. But it doesn't include your credit score. is going to keepraising rates until Yourcredit score can be ordered through the site for an additional fee ranging from $4 to $8. Your Northeast, many think housing prices will stay stable nationwide. future. Harvard’s economists found that the inventory of new homes for sale today, measured Wachovia's survey also showed Market Risk Index recently casting firm in West Chester, Pa. the housing market cools.” Whetherthis cools the shares of home builders, however, remainsto be seen. Email: forum.sunday03@ws}.com paymenthistories, loan balances, whether you have been sued, ar- rested, or filed for bankruptcy, as credit score is an actual numeric measure of your creditworthiness used by lenders and others. By Tara Siegel Bernard Getting Going / By Hannah Clements Ar Dad’s Off, So His Daughter Takes Over Ifyou start hunting for a prom dress months in ad- “Getting Going” colum- nist Jonathan Clements is on vacation this week, vance, you will probably makea smart choice. Butif but the writer filling in for him may be the next best thing: his daughter. you are desperate to buy a new shirt for the dance nextweek, you will buy anything atvanyprice. some insightful comments to share, gleaned from be- when the campaign of interest-rate increases may cometo an end. LAST WEEK @ Stocks Give Up Ground: Federal Reserve Chairman Alan Greenspan said recent gains in stock and home prices reflect an increased willingnessby investors to acceptrisk, warningFriday that this shift could that time can help. As every kid eventually discov- finance columnist. look as good at home as theydo in the store. My ad- © Briefly: Merck said it may considersettling a small number of Vioxx cases, and plans to lookcare- fully at instances where patients took the painkiller for more than 18 months and had no otherrisk factors for heart attack or stroke... General Motors and Ford took another hit as Moody's downgraded the debt of both to junk status following similar moves by Standard and Poor's...News Corp.’s pian for a prime-time TV channel in China has unraveled amid a government crackdown on the media industry...The median price of an exist- ing home hit $218,000, 14.1% higher than last year. whether you should buy something, leave the store & empty handed,wait at least = three days and-see if you i still want it. Of course, the best way to get what you want and about money. 4 After all, my dadis alwaystalking aboutit, so I havelearned lot over the years— spendlittle is to bring your mom with you. “Sounds embarrassing” is your first make a big 16”I had last year. Such parties deal out of how you are such a good saver and how you don't Tepresent a wonderful way to wantto dip into your piggybank. The weird thing is, if you pretend you are responsible with Money and not much of a spender, your parents are likely children. My parents paid for the party, but I keptall the birthday cards containing $20 bills. As my dad noted glumly after make her more willing to drop the event, we broke even as a Right now, I have $3 in my wallet, $100 left on my to give you more money. Go figure. family—but some family-bonding time under your belt. prepaid spending card and a Here's somethingelse to con- [car Google Expands: Google introduced twoofferings, intensifying its rivalry with Yahoo and Microsoft. One is an instant-messaging service that lets users exchange text messages and makevoice calls on personal computers. The otherpresents Webusers with items such vice: Try the three-day Tule. If you aren't sure Mydadis taking a few days off, so I'm filling in this week. Sure, I am only 16 years old. But don’t worry, I know a thing or Dow Jones Industrial Average fell 1.5% for the week, putting it 3.6% in the red for the year so far. The Nasdaq Composite Index, home to is down 2.5% year to date. ers, most purchases never t's time for some I changeor,better still, maybe a few bucks. to a losing week for stocks. The many tech stocks,slipped 0.7% and There are other ways ing both a teenager and thechild of The Wall Street Journal's personal- including stuff Dad never meant to teach me. Examples? Here are five end badly for financial markets. Mr. Greenspan's comments contributed rate Credit ness and leaveit less exposed to Hannah Clements has JFMAMISA 2005 Sources: WS) Market Data Group fair and Accu- in part because his firm’s neighbor- sales. Private-mortgage insurer PMI Mortgage Insurance Co., a unit of PMI Group, said its U.S. IN THE MARKET Sete ing prices in places such as South- no sign of declining in the near as weatherand stock quotes, alongside whatever they are viewing. \ South Brunswick, Nd. OSS in his private account. (His favor- ites: KB Home and D.R. Horton.) Mr.Neff thinks that while the hous- there for a year or more—tocreate where sky-high prices are hurting sive gain of 207,000jobs. second-quarter gross domestic product. The advance estimate issued ast month was a solid 3.4% annualgrowth rate, but the numbers are often revised. on sharesof several homebuilders said new-homeconstruction shows event for the stock and bond mar: fent, measure of economic growth: by more than a third—and stay housing bust, of course, the earnings half of the equation would shrivel, pushing the ratio higher. Among those who think the home builders are a bargain is monthly employmentreport, a big | Measuring Output: On Wednesday comes.a broader, but less cur- retired, says he’s been loading up signs oftrouble in certain areas in California, said Mr. Reichardt, © Counting Jobs: Friday brings the gust's data matches July's impres- “Giventhis small backlog, new- home sales would haveto retreat of the Nation’s Housing: 2005,” researchers at Harvard University's Joint Center for Housing Studies could sell for about $2.86 after retailers add their markup. Prices on Maui topped $3 a gallon last week. kets as job growth is a major indi cator of the economy's strength. Stock investors will be hoping Au- near its lowestlevel ever. with a P/Eof 16 for the Standard & Poor's 500-stock index, a broad benchmark of stocks. During a earnings,- E thefirst such move in the U.S. against the pace of homesales,is funds of all time. Mr. Neff, now Inits recent report, “The State THIS WEEK onthe wholesale price of gasoline will take effect in Hawaii Thursday, oneof the best-performing mutual compared operating INVESTOR’S CALENDAR @ Capping Gasoline Prices: Caps John Neff, the former managerof Vanguard Group's Windsor Fund, ing market maybe a tad frothy in report, sending their yields sharplyhigher, as yields move inverselyto price. Those jumping yields drove a nail through the heart of home builders on Wall Street. Higher Tim Foley Jones HomeConstruction Index, a benchmark for home-builder stocks, has declined 11% this ee agencies. tule, TIP OF THE WEEK Transactions Act, was rolled out across the U.S.in the past year, and culminates with the addition of otherplaces, to diversify its busi- and D.R, Horton (DHI) have spipaled lower in August. The Dow month, thoughit’s still up a solid 21° for the year. The trigger for the August decline may come asa surprise. It ake advantage of a chance to obtain a free copy of your credit report. Beginning Thursday, Sept, 1, a things every kid ought to know about money. Alternatively, month until I receive my quar- . Sider. To my dad,$20 is nothing. terly allowance. Myfinancial sitTo me,it’s a small fortune. The uation is grim. Being an expert logical conclusion: If my dad is transfer wealth from parents to he was out of tainly don’t live in one of the opt for the steady $6 or $8 an maybe little unhappier. But I ingretail jobs at the mall or at Unfortunately, if your dad is the personal-finance columnist for The Wall Street Journal,it's hard to outfox him financially. Luckily, family doesn’t endthere. he puts it, “knowing the enemy is extremely important.” To succeed,it’s essential to corner your parents when they are in a good mood andto figure out which parent is most likely to cave. It also helps if you can convince your parents that you plan to spend the money in some worthy way. For example, saying you need the money to buy a new computer game won'tcut it. But whatif you reposition the computer game as “educational software”? Stretching the truth isn’t necessarily a bad thing. hour that they can get by workthe local ice cream parlor. In reality, you are much bet- age 16, goes to high school in My suggestion: Keep uncles, aunts and grandparents fully up to date on impending celebrations, such as your birthday or your high-school graduation. In fact, be sure to invite those relatives in California to all the big events. There's no way they'll ac- tually come, But they will certainly feel guilty enough to send a check. Best of all are “coming of age” parties, suchas the “sweet Metuchen is a middleclass town of 13,000 with both modest homes and huge Vic- ily's overall happiness, he should give me more money. He Metuchen,N.J., where I live. As 5 What if your family turnsout to be a financial disappointment? Most teenagers committed to improving our fam- Extending the Family Endresult: You go home with a bag full of new clothes and It’s All Relative. Never Work Retail andall, I've learned that when the easier option, but it does take skill. Brendan Gilmartin, money on you. pocket. you are strapped for cash, there are two options: Get a job or extract it from your family. Hitting up family is clearly will bereally, really happy. thought. A few hours shopping with Mom, however, will not only make her happy, but also ter off pond odd jobs. Take Sam Shampain, age 16, whowill be a senior this year at MetuchenHigh School. On snow days, he gets up at the crack of dawn. By 9 a.1m,, hehas lined up four shoveling jobs. Ninety minutes later, he has himself $90. As he points out, “you would have to scoop a lot of ice cream to makethat sort of money.” With Mom torian houses. And, no, we cerhugeVictorians. That brings me to my last Tule for managing. money. No matter how much you save, there will always be a kid with more money than you. You will probably clear tables for three years in order to buy a hunk-ofjunk car. Two months later, your friend gets a Mercedes for her birthday. You think, “Why am I friends with this person?” But think about this: There is probably someone whoisjealousof all the stuff you have. Now,if only you could figure out whoit is. My mother has always said you should never go grocery shopping when you're hungry, or you will end up buy- ing all kinds of junky food to satisfy your craving.It is the same thing with the shopping mall. es Hannah's father, Jonathan Clem- |