Sector snap: Homebuilders drop as on economic data

The Commerce Department said construction of new homes last month rose unexpectedly. The gain came from a big increase in apartment construction, which can fluctuate strongly from month to month. Building of single-family homes continued to weaken.

Oil surged past $127 a barrel for the first time Friday raising concern higher energy costs will hamper consumer spending, which could delay an economic recovery.

The latest reading of consumer sentiment showed that many buyers are concerned about the economy. The Reuters/University of Michigan index fell to its lowest level in 28 years. Consumer spending accounts for nearly two-thirds of economic activity.

Wachovia analyst Carl Reichardt said the increase in construction generated additional capacity that "is not healthy for an industry with significant year-over-year declines in orders and weak sentiment."

Goldman Sachs analyst Chris Hussey noted that housing data is frequently revised, but said that if it is correct, the boost in construction could prove to be a false start that adds to bulging inventories, an inflated homeownership rate in the U.S., the prospect of very high foreclosures and high home vacancy rates.

In midday trading, most major homebuilder stocks were down between 1 percent and 4 percent. Lennar Corp. led the decliners, shedding 3.7 percent to $19.68. Centex Corp. fell 1.9 percent and KB Home fell 3.2 percent.