Location. Location. Location.

The mantra of real estate is that nothing matters more than where a property is located.

Christopher Clemente, chairman and chief executive of Comstock Homebuilding Cos. of Reston, offers an added explanation for why investors snapped up Comstock's stock offering in June, when many were expecting the housing market to slow down.

"Job growth, job growth, job growth," says Clemente, whose company set out to sell 2.8 million shares and wound up selling almost 3.7 million.

Comstock concentrates on the Washington area market, which will generate about 88 percent of its sales this year. It builds single-family homes, townhouses and high-rise condos in Arlington, Fairfax, Loudoun, Prince William and Montgomery counties.

When he traveled to meet potential investors, Clemente said, "I felt like I was as much an ambassador of Washington and the Washington economy as an ambassador for Comstock Homebuilding Companies."

Investors wanted to know "what was going on in the Washington economy, the job growth. That was almost as important to everyone we talked to as our business plan."

Comstock, which was founded in 1985 and went public last December at $16 a share, raised about $88 million in a second offering in June, selling the additional stock for $23.90 a share.

Investor interest was so strong that the underwriters raised the size of the offering once and then sold an extra 15 percent as part of the overallotment that is built into most offerings. The overallotment included 280,000 shares sold by Clemente. After pocketing about $6.7 million on that sale, he remains the largest stockholder with 2.5 million shares.

After the June offering, the stock climbed as high as $29 a share, then fell in August along with most homebuilding stocks. It closed Friday at $21.27.

For all the talk of a "housing bubble," homebuilding stocks have been surprisingly strong performers, blowing away the rest of the market. While the Dow Jones industrial average has gained less than 2 percent over the last 12 months and the Standard & Poors 500 stock index is up about 9 percent, the S&P index of homebuilding stocks is ahead by 56 percent, and the hottest of the homebuilding stocks have doubled.

As of Aug. 31, shares of Pennsylvania-based Toll Brothers Inc. -- which targets the top of the market -- had gained 116 percent over the past year. At the other end of the market, KB Home of Los Angeles -- which builds for what analysts call "first-time and first move-up" buyers -- had a 118 percent total return.

The stock of NVR Inc. of Reston, the biggest home builder in the Washington region, is up 76 percent over the past 12 months. NVR does business up and down the East Coast, but generated 54 percent of its revenue last year in the Washington-Baltimore region.

You can't talk about Comstock without mentioning NVR. Clemente, 45, is the son-in-law of NVR Chairman Dwight C. Schar.

Size is one big difference in their operations. NVR's building and financing operations generated $4.25 billion in revenue last year. Comstock brought in about $96 million and -- fueled by the recent financings -- hopes to hit $1 billon by 2010.

There is also a difference in their approach to the business. Schar builds homes but generally shuns development of the land they're built on, having been burned by that side of the business in the past. Clemente stresses that Comstock is both a builder and a developer and will invest some of the cash raised by its stock offerings in development projects.

Homebuilding stocks peaked in July and took a hit in August. The S&P builder index has fallen 14 percent from its summer peak but has stabilized in the last few days. That hardly qualifies as a bursting bubble. A "correction" might be a more accurate description.

When the Federal Reserve began boosting rates in spring of 2004, it was widely predicted that the actions would put a damper on home buying, hurting homebuilding stocks and real estate investment trusts. Yet as the Fed methodically raised short-term interest rates by a quarter of a point every time it met over the past 15 months, real estate investment trust and homebuilding stocks continued to climb.

Why they did so is something of a mystery. Even Federal Reserve Chairman Alan Greenspan calls it a conundrum.

Part of the reason was that longer term interest rates -- which include mortgage rates and are set by the bond market -- did not follow the lead of the short term rates that are set by Greenspan and Co.

But in mid-summer, the bond market began to follow the old script, steadily boosting rates on 10-year Treasury bonds. Those bonds determine rates on 30-year fixed-rate mortgages because the average mortgage gets paid off in roughly that time frame.

As Treasuries rose, REIT and builder stocks slumped in early August. Both investments stabilized when the bond market, and mortgage rates, reversed course three weeks ago.

Mortgage rates have fallen for three weeks in a row and are expected to be down again this week, based on last week's bond market action. Now, Hurricane Katrina will slow the growth of the economy, bond traders believe, and that may prompt the Fed to hold off on raising rates.

Fed watchers in Washington don't buy that line of reasoning, but it is the prevailing wisdom on Wall Street. It's a key reason why the stock market advanced last week despite the spike in gasoline prices and the other economic fallout from Katrina.

Real estate experts argue that the relationship between interest rates and the health of their business isn't as simple as it may seem.

"Rates are going to go up at some point," says Clemente, "but I've sold houses when rates were 14 percent. It's job growth, job growth, job growth that matters."

Rising mortgage rates don't cramp the housing market the way they used to because the lending industry has created new products -- variable-rate mortgages, interest-only loans -- that dampen the impact of higher rates. "Monthly payments are more important than rates," Clemente says.

He says Comstock's strategy is to avoid the top and bottom ends of the market, which are more sensitive to interest rates. Even with new kinds of financing, some first-time buyers get priced out of the market when rates rise. And, as Washington real estate agents will tell you today, the top of the market cools off first.

When Clemente talks about aiming for the middle of the market, he doesn't mean cheap. Though the company is building $200,000 condos, the average selling price of Comstock's single-family homes this year is more than $600,000. At Round Hill, west of Leesburg, Comstock's homes hit the $800,000 mark. But to buyers watching their monthly payments, that's more affordable than the $1 million models going up down the road.

Analysts and economists will debate the relationship between interest rates and real estate forever. But at this point, Wall Street is solidly positive on homebuilders. The stocks of all but one of the the major builders are rated "buy" by a majority of the analysts who follow them.

Comstock's stock gets three "buy" recommendations and one "hold" rating, but those ratings need to be tasted with a grain of salt. All four firms that rate the stock were leaders of the underwriting group that managed the company's latest stock offering.