Homebuilder, REIT shares tumble as recession spreads

Source: Reuters

Date :11/19/2008 2:48:42 PM

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.

By Helen Chernikoff

The benchmark MSCI U.S. REIT index was down 7.6 percent in midday trading compared with a 3.4 percent drop in the S&P 500 . Homebuilders shares, as measured by the Dow Jones U.S. Home Builders index , were off 6 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 were down even further, 10.7 percent at $42.19. Last week, No. 2 General Growth Properties Inc 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 looked cheap at $20," he said. "How do you feel about $16? Define cheap in this market."

Toll's shares were down about 6 percent at $16.31. Of the builders, Lennar Corp was posting the steepest declines, off 12.7 percent at $5.14. D.R. Horton Inc , the No. 1 U.S. builder, were down 9.3 percent at $5.04.

(Additional reporting by Al Yoon; Editing by Andre Grenon)

NEW YORK (Reuters)