By Daniel Walker Guido. Historically, housing stock prices and consumer confidence fall after military actions or major disasters a recent study by Credit Suisse First Boston found.

The unique study, headed by Ivy Zelman, home building analyst for Credit Suisse First Boston, looks back at key events over the past 25 years to determine if there is some sort of pattern that investors can follow in the days, weeks, and months ahead. "Over this period, we believe the most correlated event [to the terrorist acts against the United States on September 11] was Iraq's invasion of Kuwait and the U.S. response to that in 1990," Zelman says.

In a scant three months following the 1990 invasion, consumer confidence plunged 40 points to 61. The day after the invasion the Standard and Poor's 500 Index fell 1.9 percent and 13.5 percent three months later. The Dow Jones Index also dropped 1.9 percent the day after and then 14.5 percent three months later.

The study points out that home building stocks were "significant under performers." Fortunately, most home building stocks have further to fall this time than they did back during the Gulf War. Their valuations are, by almost all counts, higher now than they were in August 1990, Zelman explains. Her study reveals that home builder stocks were trading at 1.4 times book value in mid-September 2001, compared to 0.9 in the month prior to the Gulf War.

The study also found that the building product stock index decreased 2.1 percent the day after the start of the Gulf War, and continued to fall; declining 34.6 percent in three months. "The home builder stock index fell 5.1 percent the day after and 49.8 percent three months later," Zelman reports.

However, some "significant differences in economic variables," were found by Zelman's study. For instance, the 30-year mortgage rate in mid-September this year was more than 300 basis points lower than any period in 1990. The federal funds rate was 350 basis points lower than the lowest point in 1990, and the unemployment rate in mid-September was lower than in 1990.

But, Zelman cautions, "Lower rates may not be enough to bolster the housing market through the potential economic fallout brought about by recent events."

She concludes her study by advising clients that the tragic events on September 11 will most likely result in intense pressure on home building stocks for the foreseeable future. "Therefore," Zelman warns, "we would remain cautious and recommend investors stay on the sidelines for housing-related stocks until confidence is reinstated for our nation."