August 24, 2010 / 2:29 PM / 9 years ago

Homebuilder shares reverse losses

NEW YORK (Reuters) - Shares of big U.S. homebuilders reversed earlier losses during midday trading on Tuesday after investors concluded the stocks had fallen enough to become attractive short-term buys.

The PHLX housing index .HGX , which contains homebuilders and others in residential construction, fell more than 3 percent at its session low, but was up 0.2 percent at midday.

“There’s not much for the shorts to do here,” said John Schlitz, chief U.S. market technician at Instinet in New York.

Shares of D.R. Horton Inc (DHI.N), the largest U.S. builder, were up 2.7 percent at $10.25 while shares of the No. 3 builder, Lennar Corp (LEN.N), were up 1.1 percent at $12.86 per share.

Luxury homebuilder Toll Brothers Inc’s (TOL.N) shares were up 1 percent at $16.37. Wall Street anticipates a loss of 14 cents per share when Toll reports its fiscal third-quarter results on Wednesday.

But the long-term demand for new homes and their builders remains bleak.

Homebuilder share prices had initially fallen on Tuesday after the National Association of Realtors said sales of used homes dropped a record 27.2 percent from June to an annual rate of 3.83 million units.

Single-family supply reached a record 11.9 months in July, according to a client note from Credit Suisse analyst Dan Oppenheim. Lower home prices will follow, Oppenheim said.

“You could argue we don’t need a single home built in this country because we have tons of vacant homes,” said Jody Kahn, of John Burns Real Estate Consulting, which is based in Irvine, California and advises homebuilders. “We don’t have enough demand right now to be sustaining a dozen public builders.”

For a graphic click: link.reuters.com/bam86n

“The most worrying feature of the recent housing data is the absence of evidence of any underlying improvement in sales,” wrote Nigel Fault, IHS Global Insight’s Chief Economist. “All of the action earlier this year appears to have been driven by the tax credit.”

Reporting by Helen Chernikoff, editing by Gerald E. McCormick, Phil Berlowitz

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