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Lenders, Builders Rise as Rates Dive

With the 10-year note's yield going below 4%, some see another refinancing round.
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Homebuilding and mortgage stocks surged Tuesday as the yield on the benchmark 10-year note fell below 4% for the first time in more than two months, igniting expectations for a short-term refinancing rush.

Stocks of homebuilders


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KB Home

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Toll Brothers

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were all moving higher, while mortgage-financing companies

Countrywide Financial

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Wells Fargo

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Bank of America

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were gaining ground on the notion that homebuyers will rush to lock in lower rates.

"Anyone who missed the refinancing rage and saw rates move back above 4% will take advantage of this," said Ed Groshans, specialty finance analyst at Moors Cabot. "There will be a rekindling of the refi boom."

Treasury bond prices were higher following a Conference Board report showing consumer confidence fell to the lowest level since March amid job-market concerns. The 10-year note was gaining 1 4/32, pushing its yield down to 3.94% in late afternoon trading in New York. The last time the yield closed below 4% was on July 17.

Investors were also buying Treasuries after Japan's government sold a record amount of yen to curb the currency's recent gains against the dollar. The Bank of Japan, the largest holder of Treasuries, usually buys U.S. government bonds with the dollars it obtains in these sales.

But lower rates weren't the sole reason for the optimism with real estate related stocks.

"Even a move up in rates wouldn't really dampen demand for homes unless it were extreme," said Larry Horan, director of research at Parker/Hunter. "The sector's monthly statistics continue to be at record levels, with positive surprises coming out of a few in the group."

In fact, one of the highlights of the group Tuesday was mortgage-finance company Countrywide Financial, which gained $1.63, or 2.1%, to $79.15.

"They've been gaining market share and their diversified business is giving it even more support," said Groshans.

The analyst noted investors had been cautious about the stock despite positive news coming from the company, but that "people are getting comfortable that their banking business is growing, with a projection of $100 billion in assets under the bank's arm and another $1.5 trillion in its mortgage origination portfolio by 2008."