Fitch: Sharper Than Expected Declines for U.S. Homebuilders at the Half First-quarter orders, net of cancellations were typically lower year-over-year and the use of selling incentives has expanded
RISMEDIA, July 10, 2006—While Fitch Ratings continues to project a soft landing for the U.S. homebuilding sector in the intermediate term, recent new home sales data and major builders' orders, net of cancellations, have registered sharper declines than expected, according to Fitch in its latest edition of 'Chalk Line'.
'While the economy has rebounded early in 2006, increasing credit costs and the higher energy prices will take their toll, and revenue and profit growth among the major homebuilders should slow and most often mildly decline during the second half of 2006,' said Managing Director and lead Homebuilding analyst Bob Curran. 'Despite steady Fed increases in short-term rates, which are likely to continue in the near term, U.S. interest rates remain below the historic norm and housing activity in the aggregate has continued moderately above trend.'
Public homebuilders on the whole continued to report very healthy first quarter revenue gains and, although margins (principally pretax) came under pressure for most builders, pretax and net profits were typically well above year earlier levels. However, first quarter orders, net of cancellations, were typically lower year-over-year and the use of selling incentives has expanded. Builders' operational and financial performances are likely to be much less robust during the remainder of 2006.
Fitch believes that the public homebuilders as a group are capable of further growing market share, moderating profit erosion and maintaining current credit metrics in the near term, so long as they maintain discipline as to land purchases and stock repurchase.
Fitch will provide a sector recap of the first six months of 2006, as well as insights into what to expect going forward, during a teleconference to be held on July 11, 2006 at 11:00 a.m. ET (separate press release to follow). The Fitch report, 'U.S. Homebuilding: The Chalk Line - Quarterly Update: Summer 2006' is available on the Fitch ratings web site at www.fitchratings.com in the 'Corporate’ sector page under 'Special Reports'.
New features in this report include commentary about the interrelationship between employment trends (including construction employment), the economy and housing; data on construction compensation trends; and a historical and current depiction of lot positions by homebuilder (important information to monitor in a weakening housing market). |
