Real Estate
U.S. homebuilding to remain economic 'stimulant' into 2005
By Fitch
Dec 2, 2004

Although still very healthy by historic standards, U.S. homebuilding metrics should be somewhat less robust during the balance of 2004 and possibly into 2005, according to Fitch Ratings.

A key support to the economy during the 2001 through 2003 period, the U.S. homebuilding sector has been a powerful stimulant so far in 2004, with new peaks likely to be realized for this cycle in housing starts and new and existing home sales.

'While it appears quite unlikely that housing will deteriorate meaningfully during the next year or so, housing demand is unlikely to improve much over the next twelve to fifteen months,' said Robert P. Curran, Senior Director and primary Homebuilding analyst, Fitch Ratings.

'A stock market rally for the remainder of this year, however, may further spur higher income households to improve their housing accommodations.'

From a credit perspective, public homebuilders will likely maintain their financial ratio prudence well into next year, with many companies improving their credit statistics during the first half of 2004.

'Homebuilders in general are keenly focused on at least maintaining, if not, improving their debt ratings and have a large amount of discretion in managing their capital structures,' said Curran.

There have been concerns of late that sharp increases in adjustable-rate mortgage (ARM) usage and speculative (spec) housing levels may be signs of deteriorating credit worthiness for the homebuilding sector, though Fitch does not see either issue as a legitimate threat.

A significant percentage of the ARM usage increase has come from affluent homebuyers looking for more cost-efficiency, while large homebuilders are more cautious about building spec housing, in part due to a shortage of lots in many markets.

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