Stocks take a hit as housing's recovery is postponed (again)

The stock market gave back a hefty chunk of its July rally today as fresh data pointed to more economic pain.

That housing-market turnaround Wall Street wants so badly? It still looks like it’s somewhere on the far horizon, the latest home-sales report suggests.

Or just ask Calabasas-based builder Ryland Group, which saw its shares plummet almost 20% today after the company’s dismal second-quarter loss report late Wednesday.

The Dow Jones industrial average slumped 283.10 points, or 2.4%, to 11,349.28, the biggest decline since the index tumbled 358 points on June 26.

The market sell-off, led by financial and builder stocks, took back 42% of the Dow’s 670-point rebound since it reached a two-year low on July 15.

It was a broad-based decline: The Standard & Poor’s 500 index fell 29.65 points, or 2.3%, to 1,252.54; the Nasdaq composite dropped 45.77 points, or 2%, to 2,280.11.

Investors got several jolts today from the housing sector. First, the National Assn. of Realtors said existing-home sales slid a larger-than-expected 2.6% in June from May, to an annualized rate of 4.86 million units -- the lowest in a decade.

In a separate report, the Census Bureau estimated that 18.6 million homes, apartments and condos now are vacant, up 7.2% from a year earlier.

Ryland’s loss of $242 million after write-offs, and red ink reported by rival Pulte Homes, put further pressure on builders’ stocks. Ryland dived $5.07, or 19.1%, to $21.43, wiping out all of its July rebound. Pulte was off $1.78, or 13.9%, to $11.03.

Finally, mortgage-finance giant Freddie Mac reported that mortgage rates have surged over the last week, in large part because of market jitters over the financial health of Freddie itself, and sister Fannie Mae. The average 30-year home loan rate jumped to 6.63% this week, the highest in nearly a year and up from 6.26% last week. Imagine what that’s doing to potential home buyers.

Wall Street knows there’s a rescue package for the housing market (and for Freddie and Fannie) awaiting Senate approval and President Bush’s signature. But that didn’t seem to give sellers any pause.

Still, given the market’s sharp rebound over the last week, some pullback was inevitable. Nimble traders have made a lot of money on paper in the last few days -- particularly in financial shares. So once stock prices turned down, you’d expect to see a rush to cash in.

And there was: Bank of America Corp. dropped $2.80, or 8.4%, to $30.64. But it had rocketed from $18.52 on July 15 to $33.44 on Wednesday, an 80% rise in six sessions.

Merrill Lynch & Co. dived $4.77, or 14.1%, to $29.04, after soaring from $24.69 on July 15 to $33.81 on Wednesday.

Photo: A foreclosed home in Shaker Hts., Ohio. Tony Dejak/Associated Press

Comments

[John Burgeson]

The GOP push for decontrol and tax breaks eventually leads to economic chaos. Remember the massive bank bailouts needed when Reagan was president? This round of bad news is a lot worse, because home foreclosures and high fuel costs are added to the mix. Bush, Cheney and McCain have almost no grasp of the task at hand -- unless that task has something to do with taking care of their many wealthy friends.

[martscan]

Well, at least we can all take solace in the fact that today's short selling of the financials' creme de la creme was done with borrowed stock in hand. Its a pity Billionaire Socialism only covers the multi-billionaire "in" group of Wall Street fat cats...not that the phony 'short selling curbs' are anything but showtime. Just ask Downey's CEO.