Home builders' shares soar as mortgage rates plunge

By Helen Chernikoff and Julie Haviv

NEW YORK (Reuters) - Shares of U.S. home builders rose on Thursday as the beleaguered sector, floundering amid a protracted downturn, extended a six-day rally spurred by the largest drop in interest rates on 30-year fixed-rate mortgages in 27 years.

This week's decline of 0.44 percentage point was the largest since the week of November 27, 1981, when the average 30-year fixed mortgage rate fell by 0.49 percentage point, data from home funding company Freddie Mac (FRE.P)(FRE.N) showed on Thursday.

In response, the Dow Jones U.S. Home Construction Index .DJUSHB jumped nearly 12 percent on Thursday when it reached its intraday high at 239.06. It is up about 40 percent since November 24, compared with a decline of 1.6 percent in the broader market as measured by the S&P 500 .SPX.

Beazer Homes USA (BZH.N), up 14.1 percent at $2.02, led the DJ home construction index up. Other big gainers included Hovnanian Enterprises (HOV.N), up 7.4 percent at $2.32, and Lennar Corp (LEN.N), up about 6 percent at $8.19.

Earlier in the session, major home builders' shares had scored double-digit percentage gains for the day. But they trimmed some of those increases as the S&P 500 fell 3.5 percent in the last hour of trading in a sell-off led by the energy sector and falling oil prices.

At about 3:30 p.m., the D.J. U.S. Home Construction Index was well off its session high, but still holding a healthy gain of 4.6 percent for the day.

Interest rates on the 30-year fixed-rate mortgage averaged 5.53 percent for the week ending December 3 -- down from the previous week's 5.97 percent, Freddie Mac said in its weekly Primary Mortgage Market Survey.

The 30-year fixed-rate mortgage has not been lower since Jan 24, 2008, when it was 5.48 percent.

Interest rates dropped dramatically after the Federal Reserve unveiled a plan last week to buy up to $500 billion of mortgage securities backed by government-sponsored enterprises, Fannie Mae (FNM.P)(FNM.N), Freddie Mac (FRE.P)(FRE.N) and Ginnie Mae.

The Fed also said it will buy up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

The U.S. housing market is suffering the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices.

Lower interest rates on mortgages could help buoy the hard-hit sector. They have already spurred a surge in applications for home purchase and refinancing loans.

J.P. Morgan analyst Michael Rehaut sees the bounce in home builders' shares as temporary, because "applications do not equal approvals. Credit remains extremely tight."

A sustained positive move in builders' shares will not happen until the market produces a fundamental driver, which is unlikely to happen anytime soon, given that the housing and macroeconomic environment has become even more challenging and prospects are increasing for a more severe economic recession compared with only 2 months ago, Rehaut said.

(Editing by Jan Paschal)