Homebuilder, REIT shares tumble as recession spreads
NEW YORK (Reuters) - The shares of big U.S. homebuilders and real estate companies alike slumped on Wednesday as housing starts fell to a record low and concerns spread the commercial real estate market is going the way of residential.
The benchmark MSCI U.S. REIT index .RMZ was down 9.8 percent in midday trading compared with a 4.2 percent drop in the S&P 500 .SPX. Homebuilders shares, as measured by the Dow Jones U.S. Home Builders index .DJUSHB, were off about 8 percent.
In another sign of spreading fear, bonds backed by commercial real estate loans cratered for a second day on Wednesday as investors anticipate defaults on loans on such properties as office buildings, retail stores and hotels.
"The mall operators are really, really in trouble," said Kevin Quinn, a managing director of equity trading at Stanford Group Company. "There aren't even signs on the empty stores in the malls. They've been empty for a while, barren, tumbleweeds blowing through."
The shares of No. 1 U.S. mall owner Simon Property Group Inc (SPG.N) were down 10.9 percent at $42.08 in afternoon trading.
Option investors are expecting dramatic share price swings in Simon Property to continue as they put on fresh bearish positions by purchasing put options, conveying the right to sell the company's shares at a fixed price within a specified time period, said Joe Kinahan, chief derivatives strategist at Chicago-based online brokerage thinkorswim Group.
"They are the No. 1 mall owner in the U.S. and the vacancy rate is increasing as we head into a down market for retail stores this holiday season," Kinahan said. "There is further concern that vacancies will increase after the holiday season and the commercial property real estate market will start to feel the same price declines that the residential market has felt."
Last week, No. 2 General Growth Properties Inc GGP.N raised doubts it could continue as a going concern due to its potential inability to extend or refinance $1.13 billion in debt coming due on December 1. It also faces another $3.07 billion due next year.
On the homebuilder side, investors are revising the thesis that builder shares have been beaten down so far they can hardly go lower, Quinn said.
"Toll Brothers Inc (TOL.N) looked cheap at $20," he said. "How do you feel about $16? Define cheap in this market."
Toll's shares were down about 7.6 percent at $16.03. Lennar Corp (LEN.N) was off 15.2 percent at $4.99. D.R. Horton Inc (DHI.N), the No. 1 U.S. builder, were down about 11 percent at $4.97.
(Additional reporting by Al Yoon and Doris Frankel; Editing by Andre Grenon)
