Homebuilder Shares Fall after Citgroup Downgrade

New York, NY, July 3, 2007--Shares in homebuilders fell Monday after a Citigroup analyst downgraded the sector, saying orders are likely to fall through the year because of a glut of homes on the market.

Analyst Stephen Kim downgraded to "Hold" the shares of D.R. Horton Inc., Hovnanian Enterprises Inc., KB Home, Lennar Corp., Pulte Home Inc., Toll Brothers Inc. and Ryland Homes Inc. Each stock was off by more than 1 percent Monday.

Builders have been forced to cut prices to move existing inventory. Buyers have become reluctant to commit to pay for an asset that may lose value, forcing prices down even further.

Many analysts expected the two-year slump to end this summer, but Kim said the continuing slide in orders for new homes will delay any recovery for another six months, at least.

"It is becoming increasingly likely that order trends may remain in negative territory through year-end," Kim wrote. He said prices will need to fall further before the excess inventory is sold. That will keep stock prices in a narrow range until investors become more certain that a housing recovery is near.

Kim did say the sector will recover and the stocks will rise -- just over a longer time period than previously thought.

"While we are adjusting our target prices and ratings to reflect a considerably less optimistic near-term forecast, we stress the primary change in our stance is with respect to timing," he wrote. "We continue to believe the homebuilding stocks are undervalued relative to their longer-term fundamentals."

Kim kept "Buy" ratings on Centex Corp., MDC Holdings Inc., Meritage Homes Corp. and Standard Pacific Corp., saying those stocks are "mispriced relative to the group."