Builders fall into red again

NEW YORK (MarketWatch) -- Shares of U.S. homebuilders weakened Tuesday after negative government and corporate data, as analysts fretted that oversupply issues and fallout from subprime loan woes could dog the sector.

Fresh data from the homebuilding sector before the market opened showed a steep drop in profits from a major builder, this time Miami- based Lennar (LEN) .

Shortly after stocks began trading, Standard & Poor's and MacroMarkets LLC released the January Case-Shiller price indexes. These showed U.S. home prices continued to fall in January, with prices in 10 major cities now down 0.7% year-over-year. It was the first year-over-year negative reading since 1996.

And, if that was not enough, the Federal Reserve is concerned that borrowers of subprime mortgage loans may face "more difficulty" in the next one to two years, a Fed official said Tuesday.

In particular, those borrowers with recently originated adjustable-rate mortgages are likely to experience more delinquencies and foreclosures, said Sandra Braunstein, the director of the Fed's division of consumer and community affairs.

Lennar (LEN) shares fell about 0.1%, with declines moderated by the fact that the company's backlog of unsold homes contracted a bit in the most recent quarter.

In the broader sector, The Philadelphia Housing Sector Index (HGX) fell about 1.5%.

"At this point, we're still worried about subprime issues and the economy, and believe, at least in the near-term, that the stocks will go lower much like they did last spring," Morgan Stanley analysts wrote in a press release Tuesday.

Many are concerned that problems with subprime loans, made to people with weak credit ratings or with lax qualifying standards, could hurt the homebuilding sector.

Lennar's CEO Stuart Miller put the issues in a nutshell Tuesday, saying in a prepared statement, "the housing market continues to demonstrate overall weakness. While some markets are performing better than others, the typically stronger spring selling season has not yet materialized. These soft market conditions have been exacerbated by the well-publicized problems in the subprime lending market."

It is likely that other leading industry executives will echo Miller's comments when several of them outline their businesses later this week at a conference in Las Vegas.

Miami-based Lennar became the second builder in recent days to report a sharp drop in profit, joining KB Home (KBH) , which reported Monday.

Along with the industry conference later this week, data and headlines are likely to drive the home sector in the coming weeks, absent clear signs of an improvement.

After Lennar's earnings Tuesday, the next data due out will come on April 3 when pending homes sales are reported.

Morgan analysts are suggesting clients key on D.R. Horton's (DHI) earnings as the next real meaningful data point with ability to move the sector. That company is expected to report during the week of April 9.

The company's report should provide, "some insight into March trends," they said.

Looking out about a month, more than a half dozen major homebuilders including Beazer (BZH) , Centex (CTX) , Meritage (MTH) , Ryland (RYL) and Pulte (PHM) will likely post earnings during the week of April 23. All those stocks fell Tuesday.

That same week, existing and new home sales are due to be reported.

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