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Housing Starts Plunge; Stocks Decline

Housing starts plunge in May as the expiration of the federal homebuyer tax credit takes life out of the residential housing market.

(Housing starts story updated for decline in homebuilder stocks)

WASHINGTON D.C. (

TheStreet

) -- Housing starts dropped 10% in May, and building permits were down just short of 6%.

The expiration of the federal homebuyer tax credit was expected to weaken the U.S. housing market's recent performance. However, the 10% decline in housing starts was the largest decline since March 2009, and the building permit drop of 6% brought it to a one-year low.

Housing starts dropped from a revised April level of 659,000 to 593,000 in May.

Single family housing starts was the biggest decline, down more than 17% in May -- 468,000 versus a level of 565,000 in April.

The report confirmed the widely anticipated stall in the housing recovery brought on by the end of the federal homebuyer tax credit. With foreclosures still high and employment gains still slow, a true housing market recovery may be further off, even if a bottom has been reached in the market.

Recent research reports have suggested that while it may be some time before the housing stocks are "buys," the situation has stabilized for many of these companies, and they will begin to come out of defensive postures. The weak housing starts number also followed a retail sales report last Friday, which was led down by a plunge in the sale of building materials, and led to a minor selloff in housing stocks.

On Wednesday, shares of the U.S. homebuilders were trading down.

KBHome

(KBH) - Get Report

,

D.R. Horton

(DHI) - Get Report

,

M.D.C. Holdings

(MDC) - Get Report

,

Toll Brothers

TST Recommends

(TOL) - Get Report

and

Ryland Group

(RYL)

were all down in Wednesday morning trading.

Lennar

(LEN) - Get Report

and

PulteGroup

(PHM) - Get Report

were down as well.

The losses in the homebuilding stocks were larger than the broad equity markets decline, but were not major for a sector that has traded with high volatility through the worst of the housing crisis.

-- Reported by Eric Rosenbaum in New York.

RELATED STORIES:

>>Homebuilder Stock Losers: KB, Pulte

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