Sector Snap: Homebuilders give up gains
Homebuilder shares dive, giving up gains immediately following Fed's $1.2B liquidity moves
Friday March 20, 2009, 11:15 am EDT
Buzz up! Print Related:Centex Corporation, DR Horton Inc., Fannie Mae
NEW YORK (AP) -- Shares of homebuilders dove Friday, mostly giving up their sharp gains from the past two days following the federal government's efforts to drive down mortgage rates and kick-start a housing recovery.
Related Quotes
Symbol Price Change
CTX 7.42 -0.41
DHI 8.40 -0.47
FNM 0.70 -0.27
FRE 0.74 -0.27
HOV 1.23 -0.16
{"s" : "ctx,dhi,fnm,fre,hov","k" : "c10,l10,p20,t10","o" : "","j" : ""} The Federal Reserve on Wednesday announced that it would buy up to $1.25 trillion in mortgage-backed securities -- doubling its efforts -- as well as $200 billion of debt issued by mortgage finance companies Fannie Mae and Freddie Mac and $300 billion in long-term Treasurys.
"If the Fed's action succeeds in driving primary mortgage rates closer to 4 percent, this could accelerate the housing recovery to 2010, not 2011 or 2012," wrote Morgan Keegan analyst Robert Patten in a research note to investors on Friday.
"It is clear that the Federal Reserve will employ all available tools to promote an economic and housing recovery," he said.
Rates on 30-year fixed-rate mortgages slid to a record low of 4.94 percent on Thursday, according to financial publisher HSH Associates, which has kept records since 1979.
However, lower mortgage rates will not rectify the housing market's "structural problems," said Citi Investment Research analyst Josh Levin on Wednesday. Falling interest rates may prompt homeowners to sell their homes and buy new houses, but the "excess supply" of housing stays the same, Levin said. Current renters need to start buying homes, and he does not see many "qualified" potential home buyers out there.
"We continue to hear from homebuilders about the inability of potential buyers to source even the minimum 3.5 percent down payment necessary for a (Federal Housing Administration)-insured loan," Levin said.
Of those renters who are qualified to buy a home, many are hesitant to take on new debt as unemployment rates zoom higher, even as home prices continue to fall.
Credit Suisse analyst Daniel Oppenheim said Tuesday, before the Fed's announcement, that buyers are still having "commitment issues," and the backlog of foreclosures on the market and increased home construction by homebuilders will only add to oversupply of housing.
After leaping higher immediately following the Fed's moves, homebuilder stocks are mostly giving up gains on Friday.
Shares of Hovnanian Enterprises Inc. lost 15 cents, or 11.5 percent, to $1.23 in morning trading Friday, while Toll Brothers Inc. fell 69 cents, or 3.9 percent, to $17.22.
Shares of DR Horton shed 48 cents, or 5.4 percent, to $8.40; Centex Corp. sank 39 cents, or 5 percent, to $7.44; Pulte Homes declined 47 cents, or 4.7 percent, to $9.84; and KB Home was down 4.2 percent at $11.29.
All were below or nearly flat with their prices as of market close on Tuesday after racking up big gains immediately following the Fed's moves.
Lennar Corp. edged 1.4 percent lower to $8.37 -- more than a cent off its peak of $9.74 after the Fed's announcement.
News 
Market Data 
Discover 
AI
