While the U.S. housing industry continues to stay positive, obstacles remain in the wake of the next decade, according to Moody’s Investors Service analysts.
In regards to land, companies that turned down inventories quickly and proficiently during the housing bust performed better through the crisis. Many of those must now replenish their supplies to handle the growth they see coming in the next few years, the credit rating agency said.
"Firms’ need to replenish their land inventories, to delever and obtain revolvers, as well as the availability of mortgages and the possible scaling back of government support," vice president and senior credit officer Joseph Snider of Moody’s Investors Service said.
Some U.S. homebuilders still lack revolving lines of credit as a result of the recent downturn. However, Moody's believes this will not affect company ratings as long as companies can handle growth expectations and remain level with cash.
"In answer to questions about firms' increased debt leverage from new land purchases, our position is that we can tolerate this as long as it not excessive and we do not expect it to be permanent," Snider said.
During the housing bubble, many builders bought remaining lots of land to build new homes. This has resulted in a scenario where companies cannot sell the lots with homes priced at values comparable to estimates set when the lots were first acquired.
The challenge still remains that a firms’ rapid growth could limit leverage. While the debt-to-capitalization ratios remain high, these can gradually be worked down as earnings top up depleted book net-worth positions.
"Management teams may soon have to choose between promoting stronger returns and improving their debt leverage, which is a choice that could affect their credit ratings," Snider said.
At the same time, there are trends showing support of the turnaround in the housing industry. PulteGroup received its highest third quarter earnings since Q306, increasing its land spend by $90 million to $1 billion.