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Homebuilders lose 67% of value

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NEW YORK -- The worst housing slump in 70 years erased 67 percent from the market value of homebuilders in the Standard & Poor's 500 Index, turning the companies into small-cap stocks.

Centex Corp. (NYSE: CTX), the nation's biggest builder by sales, is valued at $2.62 billion, a quarter the size of the largest company in Russell Investment Group's Russell 2000 Index.

Home developers in the S&P 500 have a total market value of $16 billion, down from $49.2 billion at their peak in January 2006 and less than Kroger Co. (NYSE: KR), the biggest U.S. grocery chain.

"They went through the laundry and got shrunk," said Stephen Lieber, who oversees $11 billion as co-chief executive officer of Alpine Woods Investments in Purchase, N.Y. "It's gone beyond an inoperable business situation and turned into an economic crisis."

Record foreclosures and $312 billion of bank losses related to subprime mortgages slowed the U.S. economy last year. Property values in 20 U.S. metropolitan areas fell the most ever in February, according to the S&P/Case-Shiller home price survey released Monday.

D.R. Horton Inc. (NYSE: DHI), the second-biggest homebuilder, and Lennar Corp. (NYSE: LEN), the third largest, reported record losses in the past year as unsold homes forced companies to slash prices.

The 15 biggest publicly traded builders have written off $22.6 billion in land, joint ventures and other expenses since the beginning of 2006, according to New York-based S&P equity analyst Ken Leon.

'An aberration'

Centex reached a market value of $10 billion in July 2005 when new home sales peaked at an annual rate of 1.39 million units.

The Dallas-based company has since lost 74 percent of its market capitalization and sales of new homes have slowed to an annual pace of 526,000, the fewest since October 1991.

"The boom was an aberration," said Jonathan Vyorst, a N.Y.-based money manager at Paradigm Capital Management Inc., which oversees about $2 billion. "The homebuilders have a long way to go and the value of land on their balance sheets has to be reduced dramatically."

The shrinking size of the builders may mean their stocks will be dropped from indexes of the biggest U.S. companies, such as the S&P 500 or Russell 1000, and into the small-cap category.

The Russell 2000 has a median market value of $535 million, or about 95 percent less than the S&P 500's.

Index parameters

Russell Investment relies on market capitalization to choose companies during its annual selection, scheduled for June 27. S&P, in New York, releases changes on a rolling basis and combines market value with opinions from a committee of analysts to create stock indexes.

"If their market caps have fallen dramatically, our process will reflect that," said Steve Claiborne, spokesman for Tacoma, Wash.-based Russell. David Blitzer, chairman of the S&P committee that picks stocks, declined to comment.

Spokesmen for Centex, Lennar and Pulte Homes Inc. (NYSE: PHM) declined to comment. D.R. Horton and KB Home didn't return messages.

Twenty-seven companies in the Russell 2000, including Interactive Brokers Group Inc. (Nasdaq: IBKR) and SAIC Inc. (NYSE: SAI), have market values exceeding $3.1 billion, the median of the five biggest U.S. homebuilders.

Thirteen equities in the S&P SmallCap 600 are worth more than the average S&P 500 homebuilder stock.

Shares rebound

Interactive Brokers, which handles 14 percent of equity options traded worldwide, is the largest company in the Russell 2000 at $12.5 billion. SAIC, a computer services contractor for the defense industry, has a stock market value of $8.3 billion, making it the second biggest. The companies are based in Greenwich, Conn. and San Diego, respectively.

Bets that home sales will bounce back as government initiatives lower mortgage rates and slow foreclosures fueled a 14 percent gain in S&P 500 homebuilder stocks this year, compared with the S&P 500's 4.9 percent loss. The group's market value has gained 36 percent from a 4-year low of $11.8 billion in January.

The S&P/Case-Shiller home-price index dropped 12.7 percent from a year earlier, the most since record keeping began in 2001. The gauge has fallen every month since January 2007.

Lennar and Pulte, the fourth-largest homebuilder by sales, are still a fraction of their former size.

Lennar, headquartered in Miami, topped $10 billion in July 2005.

The company is now worth $3.1 billion after lower sales forced the business to cut home prices and fire workers.

Pulte, based in Bloomfield Hills, Mich., has a value of $3.7 billion after six consecutive quarters of losses. The seller of Del Webb-brand homes for retirees was as much as $12.1 billion three years ago.

D.R. Horton peaked at $13.1 billion in July 2005. Shares of the Fort Worth, Texas-based company tumbled 26 percent and 50 percent in the following two years.

KB Home is the smallest, with a market value of $1.8 billion. At its height three years ago, shares of the Los Angeles-based company were worth $8 billion.

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