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Fitch softens outlook for homebuilders

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Fitch Ratings believes homebuilders could face negative rating actions in the coming months as the economy slugs through a weak recovery. Fitch analysts issued the negative rating warning at a time when weak employment and consumer confidence are pummeling the housing market, keeping homebuyers on the sidelines. Robert Curran, managing director and lead homebuilding analyst for Fitch, said for the first time in a long time, housing "is not fulfilling its role as a key impetus to the early stages of an economic recovery." Curran said the pressures have already prompted Fitch to downgrade Beazer (BZH), KB Home (KB) and Pulte (PHM) in recent weeks. "The outlook does not look promising either with home prices likely to remain soft over at least the next few quarters," said Curran. "Stagnant employment and declines in real income may also pile on the already formidable pressure homebuilders are feeling." Curran said analysts will be watching several key indicators closely—namely balance sheets, land deals, development and liquidity. Yet, on the more positive side, Toll Brothers (TOL) posted a third-quarter profit of $42.1 million, or 25 cents a share, on revenue of $394.3 million. The luxury homebuilder earned $27.3 million, or 16 cents a share, for its year-ago fiscal third quarter. In the first half, homebuilder PulteGroup (PHM) spent $640 million acquiring land and executing development activities. The company expects to spend nearly $1.1 billion on land and development this year, up from $980 million in 2010. Write to Kerri Panchuk.

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