NEW YORK – “It is likely that 2008 will be another challenging year” for the U.S. housing market, and especially for builders, Fitch Ratings said in an analysis released today.
Tighter loan standards and the disrupted U.S. mortgage market will extend the housing slump that already “has been sharper and somewhat longer lasting than the consensus expectations at the beginning of 2007,” the ratings service said.
As a result, Fitch concluded, “operational and financial pressures will persist and, perhaps, intensify for the public homebuilders,” as the housing glut continues and nervous consumers continue to defer purchase decisions.
Through the first half of 2007, builders’ revenue was down 28.8 percent, pre-tax profits are down 70 percent, home deliveries were down 27.3 percent and new orders were down 27.1 percent compared with the same period of 2006, Fitch said. Companies have reacted by paring staff, to 20 to 25 percent below the work force at the end of 2005, lowering debt to 14.5 percent below the highest level in 2006, and paring owned inventories by an average of 15.1 percent.
For 2007, the ratings company now predicts total housing starts will fall to 1.3 million nationwide, a 27.8-percent decline compared with 2006, with single-home starts falling 30.1 percent and multifamily starts falling 17.6 percent. New-home sales are expected to plunge 23.5 percent from their 2006 level, and existing-home sales to fall 10 percent.
“Production – as represented by housing starts (especially single family) – is expected to fall faster than sales (new orders), but unfortunately the supply of homes is expected to still be excessive entering 2008,” Fitch said in its report.
For 2008, “Fitch is tentatively forecasting a stronger economy … although still below historic trend line,” the report said. “Real GDP is forecast to grow 2.7 percent, paced by healthy exports (+6.4 percent), a rebound in investment (+2.8 percent) and still solid consumption (+2.6 percent). Inflation is expected to slow to 2 percent from 2.5 percent in 2007. Interest rates are expected to recede slightly.
The stronger overall economy “will aid the housing sector in 2008, but will probably not be robust enough to counter continuing negative buyer psychology and tight credit qualification standards,” Fitch said.
For builders, full-year revenue could fall an average 30 to 35 percent, while pre-tax profits (before real estate charges) plummet 75 to 80 percent. Price pressure is expected to persist or intensify. “Consequently, margins will remain under pressure and more land-value write downs are a distinct possibility.”
Additional information, including Fitch’s ratings of major builders, is available at www.fitchratings.com.
