Beazer Homes USAsaid Wednesday that rumors that sent down its stock down nearly 40% are "unfounded."
"We have become aware of rumors circulating in the market about Beazer Homes' liquidity and a prospective bankruptcy filing," the company said in a statement. "We do not know where these scurrilous and unfounded rumors started."
"For an accurate representation of the company's financial position, including the company's liquidity and near-term prospects, we encourage investors to refer to the company's recently released third quarter earnings release and the script of our conference call with analysts and investors," the company said.
Beazer shares fell to a 52-week low of $8.10 before bouncing off its lows.
The selloff of Beazer shares, which came amid widening credit concerns, sent ripples throughout the homebuilding sector. Among the stocks falling sharply were: WCI Communities, Hovnanian Enterprises, Meritage Homes, and KB Home.
Over the past few months, stocks in the homebuilding sector have hit multiyear lows, hurt by poor results and a bleak outlook for the housing market.
With the downward pressure Wednesday, the Dow Jones U.S. Home Construction Index, a barometer of the sector's performance, fell to fresh lows not seen since 2003.
With home sales plunging, homebuilders have been writing down the value of their unsold homes and the land they have bought for future development. The lower value is reflected in each builder's tangible book value -- what a company could get if forced to hold a fire sale.
Before Wednesday's selloff, the bulk of the builders' stocks were trading below the value of tangible book value.
According to Vince Farrell, managing director at Scotsman Capital Management, it is not unheard of see rumors spark widespread selling in a sector.
"So you start on one homebuilder, it spreads to the other cause you don't want to be the last guy trying to get out a small door," Farrell said. "But you need this to clean the bad blood out."
Beazer, which is one of the nation's largest homebuilders, said last week its line of credit had been cut in half. The company also announced last month that the Securities and Exchange Commission was conducting a formal investigation of the company's mortgage operations. An informal probe of the company had been revealed on May 3.