Sector Snap: Homebuilder shares sink on Fed plans

Homebuilder shares plunge on fears Fed's plans could lead to higher mortgage rates

Associated Press

Shares of a number of homebuilders sank Thursday on fears that the Federal Reserve's plans to dial back its bond purchases could spell trouble for the housing market, as the move could drive mortgage rates higher.

Homebuilder's stocks had been rising recently as steady hiring and low mortgage rates encouraged more people to buy homes. And with fewer homes on the market and increased demand, home prices also have been on the rise.

Illustrating the improving market, the National Association of Realtors said Thursday that U.S. sales of previously occupied homes surpassed the 5 million mark in May, the first time that's happened in 3 ½ years.

However, Chairman Ben Bernanke's comments Thursday that the Fed will likely cut its bond purchases later this year proved to be more than enough to darken that picture.

The Fed has been buying $85 billion worth of Treasury and mortgage bonds a month since late last year. The purchases pushed long-term interest rates to historic lows, making mortgages and other loans cheaper. If the Fed winds down its bond purchases, mortgage rates will likely rise, because they tend to follow the yield on the 10-year Treasury note.

Here's how some homebuilders are faring by midday Thursday:

Lennar Corp. fell $2.52, or 6.7 percent, to $35.33.

D.R. Horton Inc. dropped $1.60, or 6.8 percent, to $21.84.

Hovnanian Enterprises Inc. fell 29 cents, or 4.7 percent, to $5.93.

KB Home gave up $1.11, or 5.3 percent ,to $20.06

Toll Brothers Inc. dropped $1.49, or 4.5 percent, to $31.65.

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