Homebuilder stocks fall on new home sales report

NEW YORK

Shares of homebuilders fell Friday after the government said sales of U.S. new homes fell in February for the second straight month, and builder KB Home reported disappointing earnings and said orders fell for new homes.

Shares of homebuilders are closely tied to the health of the housing market. A wave of foreclosures in recent years has flooded the market with homes for sale. That has sharply cut demand for new housing, and depressed the revenue of homebuilding companies.

The Commerce Department said Friday that new-home sales dropped 1.6 percent last month to a seasonally adjusted annual rate of 313,000 homes. Sales have fallen nearly 7 percent since December.

The report was a reminder that the housing market remains weak despite improvements in recent months. While a mild winter and three months of strong job growth have lifted sales of existing homes, those conditions haven't benefited the new-home market. The current pace is less than half the 700,000 that economists consider to be healthy.

The release of KB Home's first-quarter earnings seemed to underscore the weakness, and shares of the company tumbled 10 percent in morning trading before retracing some lost ground. By midday, KB Home shares were down 64 cents, or 5.7 percent, to $10.60.

Los Angeles-based KB Home said net orders fell 8 percent to 1,197 during the quarter as more customers canceled their contracts. The cancellation rate rose to 36 percent from 29 percent in the months leading up to spring, traditionally the peak season for home sales.

For the three months ended Feb. 29, KB posted a net loss of $45.8 million, or 59 cents per share. That was a far narrower loss than the loss of $114.5 million, or $1.49 per share, the company reported in the same quarter the year before.

But analysts, on average, expected a loss of just 24 cents per share, according to FactSet.

Friday's decline in homebuilder stocks comes after months of gains, even if the improvement has been halting.

Evidence of a slow recovery in the housing market has bolstered KB Home's shares, for example. The stock has roughly doubled since October, when shares traded for just $5.27. Shares of other homebuilders have followed suit. But many investors remain worried that the housing recovery could falter.

In midday trading, a number of homebuilder stocks were lower but were trading above their worst levels of the day.

Lennar Corp. slipped 32 cents to $25.80; Toll Brothers Inc. slipped 12 cents to $23.68; M/I Homes Inc. fell 7 cents to $12.33, and Beazer Homes USA Inc. dipped 10 cents, or nearly 3 percent, to $3.44.

Also, D.R. Horton Inc. fell 11 cents to $15.31 while Hovnanian Enterprises Inc. slipped 4 cents, or 1.5 percent, to $2.67.