Fitch lowers outlook for home-building industry
Predicting that the U.S. housing downturn will be “more severe and longer lasting” than previously anticipated, Fitch Ratings has lowered its forecast of total housing starts for 2007 to 1.30 million, down from 1.46 million in the beginning of the summer. Compared to 2006, the revised number of housing starts is a 27.8 percent decline.
The global rating agency, headquartered in New York and London, issued a negative outlook for most publicly held U.S. home builders, including Centex, D.R. Horton, Hovnanian, KB Home, Lennar, M/I Homes, MDC Holdings, Meritage Homes, Ryland, Standard Pacific, Pulte, Tousa Homes and Toll Brothers. The only exception was NVR, a Reston, Va., home builder and mortgage banker, which received a “stable” rating. Fitch bases its ratings on a number of factors, including geographic and product diversification, projected credit metrics, inventory contraction, debt reduction, real estate write-downs and cash flow.
In an Aug. 30 teleconference, Fitch managing director Robert Curran outlined several possible scenarios for a housing sector turnaround, factoring in tighter credit standards for home buyers and disruptions in the secondary markets for mortgages. The most likely scenario, he said, would be a bottoming out of demand for new homes in early 2008, with a positive turn in the middle of the year and housing starts trending up in late 2008.
Sears sees income fall in the second quarter
Sears Holdings reported sales of $12.2 billion, down 4.7 percent from $12.8 billion last year. The company recorded net income of $176 million, down 40.1 percent from $294 million last year.
The lower results reflect lower operating results at Sears stores in the United States and Kmart stores, the company said in a statement. Sears Canada partially offset the poor performance, the company said.
“We are disappointed with our second quarter results,” said Aylwin Lewis, CEO of Sears Holdings. “In response, we are enhancing our marketing message to more clearly articulate the advantages of our products and service offerings.”
Sears’ domestic comparable-store sales fell 4.3 percent in the quarter, while comparable-store sales fell 3.8 percent at Kmart stores, leading to a decline in total domestic comparable-store sales of 4.1 percent.
Additionally, the company announced it has opened a new 782,000-square-foot direct delivery facility in Pendergrass, Ga. to serve the Alabama, Florida, Georgia, North Carolina, Tennessee and Kentucky markets.
Based in Hoffman Estates, Ill., Sears Holdings operates approximately 3,800 full-line and specialty retail stores in the United States and Canada.
M/I Homes amends credit agreement
Columbus, Ohio-based home builder M/I Homes said it has renegotiated the terms of a credit agreement with JP Morgan Chase, allowing the home builder to borrow $500,000 under its credit line, down from a credit line of $650,000.
As part of the agreement, M/I Homes can lower its interest coverage ratio, according to the company’s filing with the Securities and Exchange Commission, which could result in lower interest payments.
M/I Homes most recently reported a second quarter loss of $42.6 million, compared with profit of $18.3 million in the same period last year. The company was hit with $72.1 million in charges, mostly related to abandoning land option contracts.
Additionally, the company saw the number of homes delivered in the second quarter fall 24 percent, from 987 homes last year to 755. New contracts were down 10 percent to 688 from 764 last year.
M/I Homes builds single-family homes in Ohio, Illinois, Indiana, Florida, North Carolina, Delaware, Virginia, Maryland and Washington D.C.