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Moody's predicts tougher times for some homebuilders

Homebuilders with good liquidity can expect double-digit growth rates in 2012.

Not that the housing market is particularly robust, but larger companies are taking market share from less-prepared homebuilders, according to a report from Moody's Investors Service.

Homebuilders MDC Holdings (MDC), Toll Brothers (TOL), D.R. Horton (DHI) and Lennar (LEN) will likely grow at a rate above the 7% expectation Moody's holds for the industry. Hovnanian Enterprises (HOV), Beazer Homes (BZH) and Orleans Homebuilders could struggle, the report states.

"Given recent builder commentary, we believe builders implementing pricing actions through a combination of price increases and incentive reductions can emerge as one of the single most important trends this earnings season," said Stephen Kim, homebuilder analyst at Barclays Capital.

The outlook for homebuilding remains stable, with revenue set to continue to grow on stronger deliveries during the next 12 to 18 months. Increased foreclosure rates will grow supply and depress home prices, on the downside.

"Although homebuilder revenues are expected to rise by more than 10% in 2012 on the back of bigger volumes, Moody's still maintains a stable outlook," said Moody's Credit Analyst Joseph Snider. "Pressures from a rise in foreclosures and declining house prices will dampen homebuilder operating profits even as homebuilders sell more units."

Housing starts dropped 5.8% in March from February, according to the Commerce Department, but rose 10.3% from a year earlier. Building permits also jumped 4.5% month-to-month.

jgaffney@housingwire.com

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