Builder forecast: Chilly start, followed by tough conditions

A just-released report on the homebuilding industry from Standard & Poor’s has predicted “tough conditions” and no major improvement over the remainder of the year in the U.S. homebuilding market.

"U.S. home builders got off to a very slow start in 2011 as winter storms contributed to a record low level of new home sales in February," said credit analyst James Fielding, a senior director in Standard & Poor's U.S. real estate companies group. "Our baseline scenario for the rest of the year includes a slight warm-up as the spring selling season progresses, but we don't expect to see significant improvement over a very weak 2010."

Fielding also noted it will be difficult for builders to keep their liquidity intact if they opt to attain market share via aggressive land purchases. Standard & Poor’s, a credit rating agency, expects issue increasingly negative rating outlooks for the U.S. homebuilding sector.

"In essence, we do not yet believe that key economic drivers of housing demand, such as consumer confidence, employment growth, and household formation, are supportive of a strong recovery in the homebuilding sector,"  Fielding said. "In fact, we currently don't anticipate upgrading any homebuilder in 2011, barring company-specific events such as a successful recapitalization."

Of the 15 builders Standard & Poor's rates, three are rated in the 'BBB' category, three are in the 'BB' category, seven are in the 'B' category, and two are in the 'CCC' category. Standard & Poor's hasn't changed any builder ratings this year, but it did downgrade KB Home, Lennar Corp., and PulteGroup Inc. during the second half of last year because new home sales dropped more than we had anticipated after the temporary tax credits for homebuyers expired.

For information about the full report, "U.S. homebuilders face a chilly start to the spring selling season," visit www.globalcreditportal.com.