Homebuilder shares fall on foreclosure report

Shares of the nation's homebuilders slid Thursday afternoon after a report showed May home foreclosure rates remained at elevated levels, causing one analyst to speculate that surging unemployment and rising interest rates could cripple chances of a quick housing recovery.

U.S. home foreclosure filings fell 6 percent in May from April, according to a report released by Irvine, Calif.-based RealtyTrac. Still, the firm said more than 321,000 households received at least one foreclosure-related notice last month, 18 percent more than the same period last year.

The news sent homebuilder stocks down across the board.

Bloomfield Hills, Mich.-based Pulte Homes Inc. dropped 48 cents, or 5.1 percent, to $8.93 in afternoon trading. Shares of Centex Corp., based in Dallas, fell 42 cents, or 4.7 percent, to $8.59. Miami-based Lennar Corp. shed 41 cents, or 4.7 percent, to $8.25 in afternoon trading.

Shares of builders Toll Brothers Inc., KB Home, MDC Holdings Inc. and M/I Homes Inc. also declined.

David Urani, an analyst with Wall Street Strategies, said investors reacted negatively to the foreclosure filings, even though the figures declined from April.

"Let's remember that this is the third biggest month of foreclosures filings in history, behind the past two months," he said. "So even though it fell by 6 percent, we're still at 321,000 (homes) here and that's a big number."

He also said that rising unemployment, especially in places such as New York and Michigan, and higher mortgage rates could dampen hopes of a fast recovery.

Mortgage applications have dropped recently, and fewer consumers are looking to refinance, he said. On a seasonally adjusted basis, the pace of mortgage loan activity decreased 7.2 percent last week, according to the Mortgage Bankers Association.

A glut of home supply and continuing downward pressure on prices could also make the coming months difficult for homebuilders, Urani said.

"It's kind of a reminder that, even though we're seeing these sales increases lately, there's still a big time foreclosure problem out there," he said. "I think that's snapping people back to reality a bit."