Home Builders Likely to Remain Under Pressure, Report Says

As news of record-low builder sentiment and historic lows in new residential construction during Nov. are still being digested by investors, Fitch Ratings suggested earlier this week that things aren’t likely to improve much for builders during the coming year. With the U.S. economy in a severe recession and housing likely to deteriorate more sharply in 2009, U.S. homebuilders are facing even more operational and financial pressures, according to Fitch; the ratings agency took rating actions on its public U.S. homebuilder universe of 14 companies late last week, resulting in nine downgrades and five affirmations. Already weak consumer confidence has plummeted. Job losses have surged. The economy is clearly now in a sharp recession, too boot. As weak as housing has been, it yet can even deteriorate further, Fitch warned. The agency is projecting that the recession — which technically began in Dec. of 2007, according to the Business Cycle Dating Committee of the National Bureau of Economic Research — will extend well into 2009. And that means housing will continue to suffer, too, and builders along with it; while some of the stimulus measures under consideration might help soften a sharp blow, Fitch suggested that most metrics tied to housing — starts, new home sales, existing home sales — will worsen considerably from the agency’s prior forecast for next year. A trough in new home sales is not likely until the second half of 2009, if not later, the agency now expects; starts will bottom three-to-six months after new home sales, the agency said. Total housing starts are now forecast to come in at 910,000 in 2008, 33.1 percent lower than in 2007. Single family starts are expected to be 0.62 million, down 41.0 percent as compared to a year ago. Multi-family starts should decrease 6.5 percent to 290,000, Fitch estimated. New single family home sales should fall 37.2 percent to 487,000, while existing home sales ease 13.6 percent to 4.88 million. In 2009, total housing starts are projected to fall another 22 percent to 710,000, with single family volume declining 22.6 percent to 480,000. New home sales are forecast to decrease 16.0 percent to 409,000, while existing home sales slip 3.0% to 4.735 million. The forecast represents a considerably more pessimistic outlook for 2009 than Fitch had forecast just six months earlier; much of that has to do with a greater realization of the depth and length of a burgeoning U.S. recession. The agency is forecasting that real GDP will decrease 1.2 percent for all of 2009, while investment is expected to plunge 6.9 percent, as consumer spending and imports decline 0.6 percent and 3.2 percent, respectively. All of that feeds back into the U.S. housing market. The agency said that home prices have yet to reach their bottom, as well. The average single family new home price is expected to drop 6.5 percent in 2008, while the median new home price decreases 5.5 percent; during 2009, average and median single family new home prices are projected to fall 2 percent and 1 percent, respectively. Further pricing pressure, mixed with ever-weakening demand, is likely to push more than few home builders over the edge next year, Fitch warned. “Although some builders have been more proactive than others in reducing inventories and lowering debt levels, most, in retrospect, started relatively late during this cyclical downturn,” the agency said. Write to Paul Jackson at

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