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Markets Squeeze Banks, Homebuilding Companies

The Dow Jones Industrial Average swept clean Tuesday's historic gains with a 519.83-point nosedive Wednesday, reflecting widespread fears about contagious European debt, the impact of ""Standard & Poor's"":http://www.standardandpoors.com/home/en/us downgrades, and an economic slowdown worldwide. Signaling further distress for housing markets, banks with thick mortgage portfolios and homebuilding companies saw their stocks tumble in an investor stampede for the exits.

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Three major mortgage giants saw selloffs rout their Tuesday victories. After watching their stocks soar skyward by some 17 percent Tuesday, shares for ""Bank of America"":https://www.bankofamerica.com/ plummeted some 11 percent into the red Wednesday, closing at $6.77. ""JPMorgan Chase"":http://www.jpmorgan.com/pages/jpmorgan fell less dramatically, with shares falling 5.58 percent to close at $34.37. ""Wells Fargo's"":https://www.wellsfargo.com/ shares landed between the three at 7.67 percent and closed at $22.88 per share.

A sample of homebuilding companies fared marginally better. ""KBH Homes"":http://kbhhomes.com/ plunged 11.27-percent low, closing shares at $6.22. ""Lennar Corp."":http://www.lennar.com/ ended the day by falling 9.26 percent off-course, closing shares at $13.32, alongside ""Beazer Homes USA, Inc."":http://www.beazer.com/, which plummeted by nearly 12 percent to close at $1.62 per share. ""PulteGroup, Inc."":http://pultegroupinc.com/ dove by some 9.21 percent to tie off shares at $4.24. Dipping to a lesser extent, ""D.R. Horton, Inc."":http://www.drhorton.com/ achieved $9.18 per share by only dropping by some 3.90 percent, as ""Toll Brothers, Inc."":http://www.tollbrothers.com/homesearch/servlet/HomeSearch raced past at 6.46 percent to close shares at $15.64.

Following the Dow closely, the Nasdaq and S&P 500 plunged 101.47 points and 51.77 points, respectively. The ""CBOE Volatility Index"":http://data.cnbc.com/quotes/VIX, which tracks market fears and worries, rounded out the bad news for banks, homebuilding companies, and many others by jumping 22.62 percent Wednesday.

The bipolar stock market cycles back and forth at a bad time for the homebuilding industry in particular.

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In July a ""National Association of Home Builders"":http://www.nahb.org/default.aspx (NAHB) monthly index registered slight improvements in homebuilder confidence, which moved up two points to reach 15 ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a trend that stayed within a three-point zone over the past 10 months. Another NAHB index found remodeling activity, a key metric for economic health, falling to 43.9 percent over the second quarter this year.

""_The Wall Street Journal_"":http://blogs.wsj.com/developments/2011/08/09/home-builders-brace-for-post-downgrade-drop/?mod=google_news_blog reports that S&P's debt-ceiling downgrades, alongside weakening consumer confidence, continues to sink homebuilder earnings, with the latest reports seeming to fall hardest for Beazer Homes.

The _Journal_ quotes Beazer's CEO, Allan Merrill, as saying recently that he worries about ""people├â┬ó├óÔÇÜ┬¼├é┬ª [who] are not starting that eight-to-12 week [sales] process"" over concerns spurred by wider economic worries.

Mike Fratatoni, VP of research and economics at the ""Mortgage Bankers Association"":http://mbaa.org/default.htm, tells _MReport_ that the housing economy may continue to experience fallout from the zigzagging stocks and debt downgrades.

""This uncertainty is going to be harmful for the market, because people are just going to pause├â┬ó├óÔÇÜ┬¼├é┬ª and it will be very difficult for someone to buy a home,"" he says.

Doug Duncan, chief economist for ""Fannie Mae"":http://www.fanniemae.com/kb/index?page=home, says investors are wary about fallout from S&P's downgrades but see the spreading debt crisis in Europe as more consequential.

""The downgrade was simply an acknowledgement that the political process has not yet attacked the long-term fiscal questions of the country, but I don't think it is fundamentally about whether the potential of the U.S. economy is there to repay its obligations,"" he says.

The GSE downgrades ""will have an impact on how their obligations are viewed by the market,"" Duncan adds, ""but at present there hasn't been a lot of impact because Europe has flooded up and distracted folks"" from troubles in U.S. markets.

On Wednesday a ""_Washington Post_"":http://www.washingtonpost.com/world/europe/debt-woes-drag-down-european-markets-add-to-worries-over-italy-spain/2011/08/03/gIQAhX7RrI_story.html story attributed renewed selloffs stateside to signs that the European debt crisis will hit Italy and Spain, following downturns in Greece and Portugal.

Fratatoni waves away concerns about S&P's downgrades and events in foreign markets.

""As long as we can get back to some fairly steady job growth and reduce some unemployment in the country ... the underlying fundamentals of the U.S. economy"" will steer the housing sector back on track, he says.

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