The outlook for U.S. homebuilders is cautiously optimistic as the firms slog through an economy with weak employment levels, competition from foreclosures, tighter loan underwriting guidelines and changing consumer habits, Standard & Poor's Ratings Services said in a research note Tuesday.
S&P said the credit quality outlook for U.S. homebuilding firms is stable, but could turn negative if companies that have preserved their liquidity levels in the segment are unable to sustain profits over a long period of time.
"We currently anticipate a modest uptick this year and more robust growth in 2013," said credit analyst Susan Madison with S&P. "Despite the rough road behind us, we believe single-family housing starts and sales have likely troughed, and most rated builders are gaining market share–albeit of a much smaller pie."
The S&P report says while rated builders have adequate liquidity positions, "the bumpy road is not all in the review mirror yet," and sustaining profitability in a competitive landscape is a key to long-term success.
The analyst note concluded that 15 out of 16 builders rated by S&P have speculative-grade ratings.
"We maintain stable outlooks on two-thirds of the homebuilders we rate, an indication that most ratings should hold steady this year," Madison added. "We have negative outlooks on the other companies, however, highlighting the material risks facing the sector. While we expect most rated builders to be modestly profitable in 2012, we expect credit metrics to remain very elevated through the balance of the year."