|Burning Down the House|
June 6, 2006 12:18 p.m.
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12:16 p.m.: Home-builder shares are taking a pounding today, with D.R. Horton down 7%, Pulte Homes down 5%, KB Home down nearly 5%, and Lennar off 3%. Wachovia downgraded the stocks this morning, saying it saw no catalyst to push them higher in the next four to six months.
But Wachovia obviously isn't the only force pushing down the builders. The bank upgraded MDC Holdings and expressed its love for Toll Brothers, but those shares are down as well. The Philadelphia Stock Exchange Housing Index is off by 3.8% today, and is now off nearly 19% for the year.
Generalized angst about interest rates is almost certainly contributing to builders' pain. What's also not helping today is a rather startling cri de coeur from the National Association of Realtors, which cut its forecast for new and preowned home sales this year. More interestingly, NAR chief economist David Lereah called for the Fed to stop this instant with interest-rate increases, warning the economy depends on a strong housing market.
But the Fed's rate increases still haven't had much of an effect on the long-term rates most critical to the housing market, independent economist Bob Brusca pointed out. The 10-year note is still yielding just 5%, and 30-year mortgage rates are still historically reasonable. In that light, Mr. Lereah's demand "smacks of desperation," Mr. Brusca says, and might cause enough alarm to make potential first-time home-buyers more likely to stay on the sidelines. "I would see this as a mistake [on Mr. Lereah's part] and not an indicator of bad things to happen," Mr. Brusca said, adding: "Except for home builders."