Fitch: U.S. Homebuilders Not Out of the Woods Yet

Fitch Ratings

Though U.S. housing remains in a fairly severe, multi-year contraction, the sector appears to have seen the worst of it, with declines not as severe going forward, according to a report released by Fitch Ratings on Friday. “Various recent data such as sales of new and existing homes, trends in pending sales of existing homes, mortgage applications and housing affordability, are implying that demand for single family homes has begun to stabilize, albeit at low levels,” said Managing Director and lead homebuilding analyst Robert Curran. “For the moment, however, affordability issues, excess supply and poor buyer psychology still dominate, and the sector is not immune to a continued downturn should a recession develop before the current housing correction troughs.” For the most part, pubic homebuilders reported a decline in revenues and deliveries as well as lower margins and sharply weaker profitability in the September 2006 quarter. In general, return ratios were short of a year ago, while most companies’ credit ratios were somewhat weaker. Delivery comparisons are likely to be even less robust in the fourth quarter and margins and profits will be down sharply on a year-over-year basis. All homebuilders tracked reported better profits for calendar 2004 and 2005 (following record profits during each of the prior 6-to-12 years or more).

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3d rendering of a row of luxury townhouses along a street

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