Here’s Why Homebuilder Stocks Got Knocked Down

Fitch Ratings announced today, “Home prices will likely remain soft over at least the next few quarters.” Fitch downgraded homebuilder stocks (NYSE:XHB) including Beazer (NYSE:BZH), KB Home (NYSE:KBH), and PulteGroup (NYSE:PHM). Investors also tossed D.R. Horton (NYSE:DHI) and Lennar (NYSE:LEN) on fears homebuilders could face more negative rating actions in the coming months.

Despite weak employment and consumer confidence, during the first half of this year homebuilder PulteGroup (NYSE:PHM) spent $640 million acquiring land and executing development activities. The company expects to spend nearly $1.1 billion on land and development this year, up from $980 million in 2010. Robert Curran, managing director and lead homebuilding analyst for Fitch, said analysts will be watching several key indicators closely — namely balance sheets, land deals, development, and liquidity. “Stagnant employment and declines in real income may also pile on the already formidable pressure homebuilders are feeling,” said Curran.

“Yet, on the more positive side, Toll Brothers (NYSE:TOL) posted a third-quarter profit of $42.1 million, or 25 cents a share, on revenue of $394.3 million. The luxury homebuilder earned $27.3 million, or 16 cents a share, for its year-ago fiscal third quarter,” according to Homewire.