Fitch Expects 'Jaw-Toothed' Recovery
Fitch Ratings increased its projections for housing starts and home sales for the first time in three and a half years, but warned even though recent statistical and anecdotal information points to a bottom for US housing market, recovery will be up and down. “During the first 12-15 months off the bottom, the housing recovery may appear jaw-toothed as substantial foreclosures now in the pipeline surface as distressed sales, while meaningful new foreclosures arise from Alt-A and option adjustable-rate mortgage resets,” wrote managing director and lead US homebuilding analyst Bob Curran. According to its latest “Chalk Line” report, Fitch projects total housing starts will fall 36.7% to 570,000 and single-family volume declining 30.6% to 430,000 in 2009. In addition, it expects new home sales to decrease 21% to 383,000 and a 1.1% increase in existing home sales to nearly 5m. Previously, Fitch projected decreases of 43.3% for housing starts and 40.3% for single-family starts, as well as a 30% decline in new home sales and flat existing home sales. Factors that contributed to the change in forecast include a pent-up demand for new homes, increased affordability, builder cancellation rates returning to normal levels, reduced builder inventories and increased builder and consumer confidence. In addition, Fitch said stock prices for major public builders increased an industry average 7.7% from $43.17 on Dec. 31, 2008 to $46.51 on June 30, 2009. But Fitch also said the threat of increased foreclosures and mortgage delinquency rates, home price decline and the eventual expiration of the first-time homebuyer tax credit perpetuate its negative outlook on the housing sector and a concern over housing inventory levels. “However, it is not just an inventory problem ? there is also a negative psychology that remains relatively pervasive. For many, the expectation or fear is that home prices are vulnerable to further declines and buying now might be a mistake,” Curran wrote. “This psychology applies to all types of buyers but especially applies to trade-up and second-home buyers.” Write to Austin Kilgore.