Builders Take a Fresh Beating

Updated from 11:27 a.m. EDT

Homebuilding-related stocks were slaughtered Tuesday amid more dismal news about the state of the U.S. housing market.

The latest bleakness came from builder material supplier USG Corp.(USG:NYSE), which slid 6.7% after posting a big drop in second-quarter earnings and saying "the housing recession is entering the second year of what is likely to be a multiyear downturn."

Countrywide Financial(CFC:NYSE) also spooked investors by saying defaults are rising across all mortgage categories. Shares of the lender tumbled 10.5% to $30.50.

After the market closed, homebuilder Centex(CTX:NYSE) reported a worse-than-expected loss for the quarter because of hefty land impairment charges.

Nearly every homebuilder stock closed at a fresh 52-week low Tuesday. Some of the most heavily shorted stocks got killed, proving that the possibility of looming short squeeze is not a good reason to invest in the sector, despite what some market watchers have suggested in recent months.

Tarragon Corp.(TARR:NYSE), a stock that short-sellers claim is facing a liquidity crisis, plunged 15.6% to $6.32. Beazer Homes(BZH:NYSE) tumbled 10.5% to $16.79 after the builder said the Securities and Exchange Commissionlaunched a formal investigation related to the company's mortgage-lending operation.

Meanwhile, a report from Reuters said the cost to insure the debt of U.S. home builders on Tuesday was trading at its highest level in at least five years.

The various news reports come amid a week of heavy housing data. The week will see earnings from major builders Ryland(RYL:NYSE), Pulte(PHM:NYSE), and D.R. Horton(DHI:NYSE) -- along with reports on existing-home sales from the National Association of Realtors and new-home sales data from the Census Bureau.

After the bell, Centex reported a loss from continuing operations of $131 million, or $1.08 a share, compared with profit of $172 million, or $1.37 a share, a year earlier.

The Dallas-based company's results were dragged down by $193 million of land impairment charges related to housing communities that can no longer be sold at a profit.

Analysts -- who usually build these charges into their estimates -- expected a loss of 16 cents a share, according to Thomson Financial.

Earlier, USG posted second-quarter earnings that missed analyst estimates because of sharp price cuts in its Sheetrock-branded wallboard, which is a major material used in new-home construction.

USG reported earnings of $56 million, or 56 cents a share, down from $176 million, or $3.03 a share, a year earlier. Analysts expected 65 cents per share of profit, according to Thomson Financial.

Sheetrock prices fell 14% in the quarter, which likely stemmed from the company's desire to keep plants running despite lower demand, Bank of America analyst Daniel Oppenheim wrote in a research note Tuesday.


Loading