Fitch: Homebuilders Aren’t Out of the Woods

Fitch Ratings said Friday that it expects the housing contraction to last through 2008 and into 2009, contrasting with expectations of some industry groups — most notably the National Association of Realtors — that expect the back half of this year to represent a rebound in key U.S. housing markets.

“Continued low mortgages rates, some improvement in affordability, proposed government support for beleaguered mortgage holders and the economic stimulus program may signal a possible step in the right direction for U.S. housing,” said managing director and lead homebuilding analyst Bob Curran.

“That said, a modest recession, declining home prices, tighter mortgage standards even for conventional loans, poor buyer psychology and record levels of new and existing homes for sale will continue to define the current environment for housing.”

Fitch said it is expecting very weak operating and financial performance in the upcoming first quarter 2008 earnings season, and noted that credit metrics continued to decline during the first quarter among key home builders.

“Tangible net worth covenants have been and will be challenged,” said Curran.

The rating agency is set to issue a full report on its expectations for builders, as well as a press conference next week. HW will report on the details as they become available.

For more information, visit http://www.fitchratings.com.