Fitch Ratings issued a negative outlook for several publicly traded homebuilders, including KB Home (KBH) and said housing is expected to remain soft through at least 2012. Fitch downgraded its issuer default rating for KB Home to B+ from BB-, saying KB Home’s liquidity position is likely to erode in the next 18 months. “With the recent softening in the economy and lowered economic growth expectations for 2011 and 2012, the environment may at best support a relatively modest recovery in housing  metrics over the next year and a half,” Fitch said Monday. The ratings agency had previously  forecast a somewhat more robust housing environment in 2011 and 2012. Fitch said the KB Home downgrades, which include a senior unsecured debt downgrade to B+ from BB- also reflect the company’s under performance relative to its peers in certain operational and financial categories during recent quarters, its over-exposure to the credit challenged entry-level market, and upcoming cash-flow pressures from the South Edge LLC bankruptcy, a joint venture in Las Vegas. “While KBH currently has adequate liquidity to fund working capital and debt service, this cushion is likely to erode in the next 12-18 months as the company continues to have operating losses, expends cash to replenish its land supply and pays about $226 million to satisfy its South Edge obligations,” Fitch said. At May 31, KB Home had unrestricted cash of $621.3 million. It expects the homebuilder to end fiscal 2011 with unrestricted cash of between $340 million to $370 million. Publicly traded homebuilders were generally unprofitable in the first and second quarters and revenue trailed year-ago levels. Fitch projects new single-family housing starts will drop 13.1% in 2011 following 5.8% growth in 2010. After falling 14.1% in 2010, new home sales are forecast to decrease about 7% in 2011. Fitch also downgraded the issuer default rating for Beazer Homes USA Inc. [[ BZH]],  to CCC from B-, citing similar concerns about the health of the housing market and the likelihood that Beazer’s ability to fund working capital will erode over the next 12 to 18 months. At June 30, 2011, Beazer had unrestricted cash of $274.6 million. Fitch expects Beazer to end fiscal 2011 with unrestricted cash of between $350 million to $400 million. IDR at Ryland Group Inc. [[ RYL]] was downgraded to  BB- from BB and the ratings outlook was revised to negative from stable. RYL ended the second quarter with $182.3 million of unrestricted cash. Fitch affirmed its stable outlook for luxury builder Toll Bros. (TOL). The move affirms the assertion by home building consultant John Burns that the company is showing remarkable discipline through challenging times. Fitch also noted that the homebuilders are expending cash to replenish their land supplies and tie up property at attractive prices. Many had scaled back land acquisitions after the housing crash. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.