It wasn't a good week for housing-related speedsters. Shares of Zillow (NASDAQ:ZG), Trulia (UNKNOWN:TRLA.DL), and Lumber Liquidators (NYSE:LL) all posted double-digit percentage losses on the week, tumbling between 13% and 15% along the way.
There wasn't any material news out of the Lumber Liquidators camp. The leading hardwood flooring retailer took a hit on Friday after noted worrywart Whitney Tilson made a bearish presentation on the stock at an investor conference. He argued that allegations that surfaced recently -- claiming that Lumber Liquidators was buying cheap and illegal timber from protected forests overseas -- could make its margins suspect.
There was even less direct news to drive Zillow and Trulia lower, but the popular residential real estate portals are cooling off after scintillating runs. Both stocks have more than doubled this year even after last week's drops.
Valuations have rarely been cheap for Zillow or Trulia in their brief public lives. They have largely benefited from a rebound in the housing market that has stirred up interest in potential home buyers as well as those looking to sell. Rising real estate prices are getting more people out of underwater mortgages -- 1.4 million in this most recent quarter alone, according to a Zillow report -- and that's something that is naturally also helping Lumber Liquidators. You don't invest in new hardwood planks or laminates if you think the investment will get washed up in foreclosure.
However, there's also a dark side to this spike in property values, and that comes in the form of gnawing away at housing affordability. The National Association of Realtors reported last week that pending home sales declined for the fifth consecutive month in October. With mortgage rates likely heading higher in the future, it's easy to see why some economists think that the housing rally could be in for a breather here.
The good news here is that analysts still see all three companies growing at healthy clips next year. They see Lumber Liquidators, Zillow, and Trulia growing their top lines 16%, 44%, and 71%, respectively. Wall Street also sees profitability expanding at all three companies. There will be challenges, especially if there's more to Tilson's bearish argument on Lumber Liquidators or if consumers turn their backs on the real estate portals. However, for now this appears to be little more than a switch correction to three of the market's hotter stocks. Given their strong foundations, they should all bounce back.