Shares of homebuilders slide on new home sales

NEW YORK (AP) — Shares of homebuilders slid Wednesday as new home sales dropped for the first time in five months.

The Commerce Department said sales slid 3.6 percent in September to 402,000 from 417,000 in August, well below the 440,000 analysts had forecast.

The report reflects contracts to buy homes, not completed sales. Buyers may be nervous they won't be able to complete the deal before the Nov. 30 deadline to take advantage of a tax credit of up to $8,000 for first-time buyers.

Deutsche Bank analyst Nishu Sood wrote in a note to investors that the disappointing numbers may strengthen the argument that a tax credit extension is necessary.

"Overall, we think that today's weak number supports our contention that based on waning government stimulus the housing recovery could end up being W-shaped," Sood said.

The figures on new home sales are a better gauge of housing demand than Tuesday's report that home prices rose for a third straight month, Sood said, because those numbers were distorted due to rising foreclosures.

Shares of homebuilders were lower in afternoon trading. Hovnanian Enterprises Inc. slid 41 cents, or 9.5 percent, to close at $3.89; Lennar Corp.'s stock dropped $1.02, or 7.5 percent, to $12.63;Meritage Homes Corp. fell 71 cents, or 3.7 percent, to $18.59; and shares of MDC Holdings Inc. shed 90 cents, or 2.6 percent, to $33.64.

Pulte Homes Inc. lost 48 cents, or 5 percent, to close at $9.10 and KB Home's shares tumbled $1.09, or 7.2 percent, to finish at $14.02. Toll Bros. fell 99 cents, or 5.5 percent, to $16.95, while DR Horton Inc. lost 69 cents, or 5.8 percent, to end at $11.12 and Ryland Group Inc. edged down $1.39, or 6.9 percent, to $18.66.