Outlook for Home Builders Darkens: Fitch

With the credit markets seizing up once again and the U.S. government assuming an interventionist stance, continued weakness for U.S. home builders’ operating and financial performances is likely to be replicated in third-quarter 2008 results and through the remainder of 2008, according to a report released Friday afternoon by Fitch Ratings. Excessive default rates on mortgages have undermined the value of securities and related financial instruments held by many financial institutions, leading to a crisis in confidence in the financial sector, according to managing director and lead U.S. home building analyst Bob Curran. “Credit has become very difficult to access, which hurts all companies, especially home builders,” said Curran. “Of course, a lack of confidence has been an on-going problem for the housing sector as potential home buyers often have not been confident that current home prices will be sustained and thus have deferred purchase.” Deterioration in credit metrics continued in the second quarter of 2008, particularly for profit related and leverage metrics. Tangible net worth covenants have been and will be a covenant issue for some companies, Fitch said; builders continue to seek amendments from their bank groups, as a result. The rating agency said that it did not expect to see anything resembling stabilization in U.S. housing until later in 2009, after further home price erosion and a reduction in inventory had both taken place. “All things taken into account, during the balance of 2008 Fitch does not anticipate much of an improvement in demand as lower mortgage rates are countered by the cessation of the down payment assistance (DPA) programs, home prices decline further and more jobs are lost,” the Fitch analysts saidi in the report. For more information, visit http://www.fitchratings.com.