Home starts and sales running at half speed: S&P
Standard & Poor's expects about 320,000 new home sales and 470,000 housing starts this year — about half the historical average. James Fielding, a senior housing director at S&P, made that assessment in a video posted on the ratings agency website. This performance is running at half the historical average, he said. Fielding added that times are especially challenging for homebuilders. U.S. homebuilders got off to a slow start in 2011, as severe winter storms significantly hindered sales, S&P said. However, the inclement weather may have been the least of the sector's problems, as many players face heavy debt loads, fierce competition from existing, distressed homes on the market, and a sluggish economic recovery. "We think in this environment it is going to be very difficult for homebuilders to be profitable," Fielding said, adding that ratings upgrades in the sector are unlikely unless the companies can recapitalize. Some homebuilders are employing strategies that will likely help the firms profit, or keep liquidity flowing such as reducing debt, and cutting overhead so that even at low volume they can break even. He mentioned D.R. Horton (DHI), Toll Brothers (TOL)and KB Home (KBH) as companies employing various strategies to boost profits. Some are also in a better position because of ancillary businesses, such as Lennar Home's (LEN) Rialto Capital Management, Fielding said. Other, Fielding warned, hold "in our view, unsustainable debt loads and are vulnerable to default," he added, naming homebuilders K. Hovnanian (HOV) and William Lyon. Fielding clarified that these are only assumptions and referred to only negative action in the investment ratings of the homebuilders. But, considering Standard & Poor's is not expecting a significant turnaround in the nation's economy for this year and next, Fielding does not see a change in housing outlook. Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.