Is There a Light Yet for U.S. Home Builders?

RISMEDIA, Jan. 15, 2008-Continued housing pressures coupled with possible tightening of the conforming loan market segment paint a dismal 2008 for U.S. home builders, according to Fitch Ratings in the latest edition of ‘Chalk Line’.”Considerable inventories of new and existing homes for sale boosted by foreclosures will also exacerbate the already dismal forecast for housing this year,” said Fitch Ratings Managing Director and lead Homebuilding Analyst Robert Curran.

The housing contraction unexpectedly gained momentum in 2007 and looks to extend at least well into 2008. Affordability and wavering buyer confidence were the key issues in 2006, while significantly tighter mortgage standards (for subprime and Alt-A) and disrupted mortgage markets were the ‘other shoes to drop’ in 2007.

Typically home builders’ operating and financial performances (before non-recurring charges) were quite weak in the third quarter, a pattern that is likely to be replicated in fourth quarter-2007 (4Q’07) results. Deterioration in credit metrics continued in the third and fourth quarters, particularly for profit related metrics. Tangible net worth covenants have been and will be challenged.

Fitch will provide a recap of 3Q’07 as well as insights into the balance of 2007 and outlook for calendar 2008 during a teleconference to be held today at 11 a.m. ET. ‘U.S. Homebuilding: The Chalk Line – Quarterly Update: Winter 2007/2008′ is available on the Fitch Ratings Web site at www.fitchratings.com.

New features in this report include home builders’ quarterly growth trends and margin statistics for 3Q’07, excluding the impact of non-recurring, non-cash real estate charges, and information about third quarter and fiscal year-to-date option write-offs and land value write-downs. Past cyclical patterns of new home inventory expansions and contractions are examined. Definitions of new home and existing home sales and new residential construction are compared and the impact of cancellations on government statistics is discussed. The Treasury Department’s subprime plan is discussed and major presidential candidates positions for dealing with problems in the mortgage lending sector are presented, as is proposed national legislation. Finally, the economic and construction forecasts now include two possible scenarios for 2008.

For more information, visit www.fitchratings.com.