On Thursday last week, the stock market ended with the second worst sell-off this year, with the Dow Jones Industrial Average dropping over 300 points, shaving 2.3 percent off the previous day, while the NASDAQ lost 1.8 percent. Things didn't improve Friday when world markets nose-dived, and the Dow fell another 100 points.

To say stocks got hammered by housing is an understatement. If you owned an index fund tied to the S & P or DOW, you lost 2.3 percent in one day on news that home sales are down and will continue to stay down longer than expected. By the end of the week, you lost 5.0 percent of your investment.

That's three times the loss in one week that housing is expected to lose for the entire year.

And you're worried that housing is in a tailspin? Maybe it's time to bail out of stocks, not housing.

Oh, I know. I know. Stocks can't be compared to housing, but tell that to the financial pundits who behave as if every house is equal to a share of Enron. Pointing the finger everywhere but themselves, builders are the luck-robbers du jour. The DOW fell just after builders reported home sales down another 6.6 percent in June.

They say equities investors got nervous over some bad housing news, particularly the drop in sales of new single-family homes to a seasonally adjusted annual sales rate of 834,000 units, according to estimates from the U.S. Census Bureau and the Department of Housing and Urban Development. Considering that builders were spewing out over 2 million homes in 2005 and another 1.8 million in 2006, the first year of the downturn, that's a significant drop.

But is it enough? Even the National Association of Home Builders admits that a sustainable, sellable number of new homes is about 1.8 million annually, so why is there a glut of homes? Because the builders have built above that level since 2003 . To bring down oversupply and keep Wall Street interested, they have to build about 1.6 million homes annually for the next two years, and that doesn't include the steroid version of housing -- the McMansion. They not only have to build the same number of homes or higher, they have to build the same circumference or higher to sustain or beat the record high square footage established in 2005.

Why? Stock holders demand ever-increasing results. That's why steroid use is rampant in sports, and why homes have been upsized to ridiculous levels. What's happened is that affordablity has been impacted, but it's not just the subprime mess at fault. Luxury homes simply make more money for the builder, and that's one of the biggest reasons why the first-time and low-income home buyer has finally been priced out of the market.

With close to 1.5 million new households forming through 2015, the supply and demand should be about equal, considering that new housing is also built to replace deteriorating or obsolete housing stock. But the National Association of Realtors says household formation is also down, presumably because of high housing costs. The positive growth in jobs means that household formation should be in the 1.2 to 1.5 million range, but for 2007, according to first quarter figures, the annually adjusted rate is coming in at an anemic 415,000 new households, says Lawrence Yun, senior economist for the NAR.

So, we're still overbuilding, but only by a small amount. The question is -- are we building the right products? Where are the all-inclusive communities for singles and small families? Why aren't there Del Webb-style retirement communities for urbanites? Why do we have so much "luxury," the most overused word in real estate? When every economic report bangs on the fact that housing has become unaffordable for many low-income and first-time buyers, which in turn stymies the move-up market, why can't we come up with attractive, affordable alternatives to starter homes with granite countertops?

When you look at the numbers, it's obvious that nationally speaking, builders are overbuilding to a saturated demographic, and that's what has produced a star-wars determination to top each other with bigger and better, instead of what mix of housing will benefit the community the most.

The knee-jerk reaction is when single-family homes don't sell, start building multi-family rentals. And that's not the answer.

In 2006, the U.S. Census found that households had reached an unprecedented change. For the first time ever, the number of married heads of household (48 percent) were outnumbered by single heads of households (52 percent.) Yet, if you look at what was built, most homes were designed for the nuclear family, married couples with children. Out of 1.8 million homes built, over 1.4 million were single-family.

Now before you say, singles like to buy homes with 3-4 bedrooms and 2,300 square feet, think about where most singles really live -- condos and apartments, and what was built for them in 2006 was a paltry 336,000 units.

Even with gross assumptions, the numbers don't add up -- three-fourths of all housing is built to appeal to less than 50 percent of the market.

So maybe builders do share some blame for the slowing economy, housing downturn and the stock market plunge.

It's time to rethink communities, building, and products. Maybe then, companies like D R Horton, Beazer, Centex, and other publicly-held companies which posted such terrifying losses will recover faster.

They'll be able to sell products to people who aren't buying or can't afford to buy now.