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Homebuilders Slip Despite Sales Report

An early rise in the group fizzled after the National Association of Realtors announced a rise in existing home sales

Shares of homebuilders got an initial boost after the Dec. 28 report showing rising sales of existing homes in November, but then headed south.

Sales of existing homes rose to a pace of 6.28 million units in November, up 0.6% compared to October and down 10.7% compared to the same period of 2005, the National Association of Realtors said Dec. 28. Analysts had expected an annual rate of 6.25 million units, according to Standard & Poor's (S&P like, is owned by The McGraw-Hill Companies).

Just a day earlier, on Dec. 27, shares of homebuilders got a boost from a report that new home sales rebounded 3.4% to a 1.047 million rate in November, stronger than expected, from an upwardly revised 1.013 million in October.

The housing market has been in a slump since early this year as the rates on lending began to rise slightly. The Federal Open Market Committee had held rates at record lows that made it cheap to borrow money in the late 1990s and early 2000s. The value of homes has in turn influenced consumer spending and the health of the overall economy. Now pundits continue debating about how long the recent housing slowdown will last and how quickly prices can fall in a correction.

The median home price sank to $218,000 in November, down 3.1% compared to the same month last year. The median home price had been $219,000 in October.

"We've entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down," said NAR chief economist David Lereah in a press release.

Total housing inventory levels fell 1% to 3.82 million existing homes available for sale in November.

"The data are better than expected," said Action Economics in a note Dec. 28.

After the news, investors initially bought homebuilder stocks, only to sell them again within hours later. Toll Brothers (TOL) shed 1.2% of its value to trade at $31.92, but it had hit a high earlier of $32.68. KB Home (KBH) sank 1.4% to $51.04, from a high of $52.19. D.R. Horton (DHI) dropped 1.3% to $26.23, from $41.66. Lennar Corp. (LEN) fell 0.8% to $52.19, from $52.99. Pulte Homes (PHM) gave up 1.6% of its value to $32.83, from $33.80. All were in the red on the New York Stock Exchange by nearly noon ET.

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