Sector Wrap: Homebuilders Drop

The data came a day after Freddie Mac set aside $1.2 billion to account for bad home loans, pushing the nation's No. 2 mortgage buyer to its biggest quarterly loss. The Federal Reserve also warned that tighter credit markets are making it more difficult for people to get home loans.

Taken together, the scene is bleak for builders who are already grappling with a glut of inventory: bad home loans mean more defaults, which will thrust houses onto an already crowded market at a time when sales of existing homes are falling. To entice buyers, prices will have to fall further until demand picks up, but demand is being crimped by tighter lending standards, caused by the spike in bad loans.

Pulte Homes Inc. was hit hardest Wednesday, falling $1.09, or 10.3 percent, to $9.51. It went as low at $9 earlier in the session, easily setting a 52-week low.

Pulte is active in Florida, California and Nevada, three of the states with the biggest decline in existing home sales. These areas were also the greatest benefactors during the five-year boom that propelled housing prices to record levels.

D.R. Horton Inc. and Lennar Corp., two of the largest builders by volume, slipped by about 4 percent on similar exposure to the hardest-hit regions.

Luxury home builders Toll Brothers Inc. and Hovnanian Enterprises Inc. also slid by about 5 percent each. Most of their customers are existing homeowners who sell their houses to upgrade to bigger properties.

Meanwhile, the broader market swooned Wednesday on heightened concerns that the housing market's troubles will push the economy into a recession.