MARKET PEAK: The market for home builder stocks topped out in July and dropped about 24 percent by mid-November.
MARKET PEAK: The market for home builder stocks topped out in July and dropped about 24 percent by mid-November.

THE WILD SWING UPWARD FOR HOME BUILDER stocks has come to an end.

The negative news just kept coming for the public home builders late last year. In mid-October, NVR's stock fell 10 percent one day after the company posted quarterly earnings that missed Wall Street's expectations.

Then, a few weeks later in early November, luxury home builder Toll Brothers cut its sales forecast for 2006, sending its stock price down 14 percent. Toll's news rattled investors: Pulte Homes' stock slid 8.9 percent that day, and KB Home's fell 5.5 percent.

Another sign that the hot market for home builder stocks could slow in 2006 was that the average rate on 30-year, fixed-rate mortgages climbed to 6.4 percent for the week ending Nov. 10. A year earlier, 30-year fixed rates on home mortgages had been 5.7 percent.

“Things are very volatile right now,” says Ivy Zelman, an analyst for Credit Suisse First Boston. “All the fundamentals are slowing. We see pricing power waning, investors [fleeing], inventory rising, cancellation rates increasing, and traffic and sales slowing.” She adds that continued strong demand for housing, stable pricing power, and slower interest rate increases could send stocks up again, but the slightest bad news could send them tumbling.