Sector snap: Homebuilders slide on bailout worries

Most major builders, including Lennar Corp., D.R. Horton Inc. and Pulte Homes Inc., declined in afternoon trading. The broader market, as measured by the Standard & Poor's 500 index, fell 2 percent.

The market remained jittery as investors awaited details on the government's plan to buy up to $700 billion in bad, mostly mortgage-related debt in a move aimed at unlocking the credit markets.

The root cause of the now year-old financial crisis is a five-year housing bubble that burst two years ago, leading to sinking home prices, an increase in mortgage defaults and, ultimately, bad debt on banks' balance sheets.

The government's plan is supposed to spur banks to lend again, which could make it easier for homeowners and would-be buyers to get loans that could prevent further mortgage defaults. That would put a bottom to the wave of foreclosures that is preventing the housing market from turning around.

The government's takeover of mortgage giants Fannie Mae and Freddie Mac two weeks ago has led to lower long-term mortgage rates. And recent housing sector data have indicated the bottom may be near.

But Deutsche Bank analyst Nishu Sood said in a note Friday that it is "too early to be optimistic on housing fundamentals."

The analyst expects home prices to fall further, prompting more foreclosures, especially in light of a spate of recent layoffs.

UBS analyst David Goldberg said the Treasury plan will likely add liquidity to the credit markets, but cautioned that it may take time before mortgage markets are fully functional again.

"We believe it will take time before the bailout produces results, especially in light of the complication surrounding the plan," he said in a note to investors Monday.