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Builders unscathed by rising loan limits

Lone Star state comes out on top

Despite the Federal Housing Administration (FHA) reducing the maximum loan limits for mortgages written in certain parts of the country, the adjustment has had little real impact on home builders.

"For the markets with higher limits, we view that as an incremental positive for housing turnover in that specific city, but we do not view the change as a significant enough catalyst for a ratings or EPS change to any of our coverage names," said Jay McCanless, an analyst with Sterne Agee, who specializes in major homebuilders.

Dallas, Houston and Austin all received an increase in lending limits with lower limits for the remaining markets impacted by the decision, boding well for the Lone Star state.

According to McCanless, if there is a positive impact from loan limit changes for builders, he believes Taylor Morrison (TMHC) could see the biggest benefit since approximately 48% of TMHC’s neighborhoods are in Texas with no presence in San Antonio.

The rest of the builders' success is tied directly to their presence in the Dallas, Houston, Minneapolis and Austin markets.

Only one neighborhood in North Carolina posted customer-financing issues related to the new limits, and in general, the company representatives indicated their buyers were not affected or had already been shifted into another mortgage product, Sterne Agee found.

"The larger public builders will continue to have superior access to capital markets and well-positioned land, enabling them to exploit the on-going cyclical housing expansion," Fitch Ratings noted in its own report this week.

According the latest National Association of Realtors report, in all of 2013, there were 5.09 million home sales, up 9.1% from 2012: the strongest performance since 2006.

But despite a seasonal slow down during the winter months, builders and the overall housing market are heading into a solid spring selling season, Fitch Ratings said.

"Housing demand moderated during the past few quarters. The reasons for the movement were numerous, from reaction to sharply higher home prices and interest rates, tight credit standards, uncertainty because of the well-publicized government shutdown and Congressional battles over the budget and debt limits," Fitch Ratings added. 

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