Sector Snap: Homebuilders Tumble

NEW YORK (AP) — Homebuilder stocks slid Wednesday as Hovnanian Enterprises Inc. and Toll Brothers Inc. both posted losses in the second quarter and a report showed mortgage applications dropped last week as interest rates rose.

Late Tuesday, Red Bank, N.J.-based Hovnanian reported a smaller quarterly loss than a year ago, but sales fell by about half to $398 million and Toll Brothers on Wednesday also posted a narrower loss, even as its revenue fell by half to $398.3 million.

Consumers are buying new homes at a sluggish pace. Last week, the government said new home sales in April inched up only 0.3 percent from March. It would take 10 months to work through the supply of new homes on the market at that current sales pace. And the recent rise in long-term interest rates won't help.

"The industry still suffers from over three million too many vacant homes," wrote Stifel Nicolaus analyst Michael Widner in a note to investors Wednesday. Sales of used homes will take market share from new-home sales, he said.

Hovnanian is cutting prices aggressively, Credit Suisse analyst Daniel Oppenheim said in a note to investors Tuesday, leading to big write-downs on the value of its land.