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Strained housing inventory buoys homebuilders: Fitch

As a by-product of a moderately growing economy, employment gains and consumer confidence, housing is expected to further improve well into 2013, according to Fitch Ratings outlook on U.S. Housing and Homebuilders.

 

However, the bigger forecast for the year is an expected decline in foreclosures, resulting in fewer underwater mortgages, meaning home price appreciation will lead to fewer defaults and help keep people in their homes. New home construction and pricing will benefit from restrained levels of existing inventory. Thus, home prices are expected to continue the current rise by single digits. 

"Housing should benefit from a slowly expanding economy in 2013," said managing director Robert Curran of Fitch Ratings. "The by-products of a growing economy will include improving employment and consumer confidence, both of which will buoy future prospects for the builders."

Strong new home construction activity is expected to be the key driver in construction spending for next year, according to the Fitch outlook on U.S. Building and Home Products and Services.

Total housing starts are expected to improve by 16.7%, while new home sales advance 22% and existing home sales improve by about 7%.

Over the past few years, a significant number of private homebuilders halted business and those still functioning are typically strapped for capital. 

Private homebuilders tend to rely on bank credit lines as well as private equity to fund land purchases and home construction, Fitch Ratings said. 

In comparison, large public builders have substantial cash and access to the public capital markets.

However, builders face competition from existing home sales, particularly distressed sales.

In recent years, distressed sales have account for 30% to 35% of total sales. Currently, distressed sales account for about 24%.

Foreclosures have mainly contributed to the distressed sales pipeline, which declined sharply last year as well as this year so far, as the average foreclosure timeline grew longer.

"The longer timelines were largely the result of lenders continuing to sort through the fallout from the foreclosure robosigning scandal that came to light in late 2010 and from legal delays," the report said.

The big five lenders involved in the national mortgage settlement saw their combined notice of default filings (NOD) and notices of trustee sale (NTS) decline 41% when comparing November filings to a year earlier, RealtyTrac said on Dec. 14.

In 2013, foreclosures are likely to further moderate as home prices continue to rise and fewer mortgages are underwater.

The 30-year fixed mortgage rate could average about 20 basis points or 30 basis points higher in 2013 compared to 2012. Even so, the rate would remain quite low by historic standards at about 3.9%.

"Mortgage rates are expected to increase perhaps just enough to create more of a sense of buyer urgency, but not enough to significantly decrease affordability," the report stated. 

cmlynski@housingwire.com

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