Post by Sparky on Apr 23, 2007 22:02:53 GMT -8
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US new home market may take til 2009 to rebound-S&P
By Ilaina Jonas
NEW YORK, April 23 (Reuters) - Recovery of the U.S. market for new homes could take another year if trouble in the adjustable-rate subprime mortgage market spreads to other types of residential lending, credit-rating agency Standard & Poor's said on Monday.
"We do not expect to see a recovery for most rated home builders until 2008, under the best of circumstances," the rating agency said in a research note. "In fact, a rebound could easily slide into 2009 if a subprime contagion spreads to the Alt-A and prime products."
Rating agency Moody's raised its forecast on Friday for losses on risky subprime loans originated in 2006 to between 6 percent and 8 percent of the loan principal. In March, Moody's had forecast losses of 5.5 percent to 6 percent.
Moody's said that given the increase in delinquencies and defaults, it believes there will likely be an increase in the use of loan modifications as an alternative to foreclosure sales.
So far, lending problems generally have been limited to the smaller subprime adjustable-rate mortgage subset of the subprime segment. Subprime borrowers are often people with weak credit histories.
Home builders originated about 70 percent of the loans used to buy their properties. Of that 70 percent, 5 percent to 20 percent were subprime. Third-party brokers accounted for the remaining 30 percent of mortgage originations.
Twenty-five percent of new homes are built by large U.S. companies, such as D.R. Horton Inc. <DHI.N> and Pulte Homes Inc. <PHM.N>.
S&P said that heightened media attention to bankruptcies of some subprime lenders and rising subprime foreclosures have spooked home buyers. And creditors are concerned that buyer wariness may exacerbate an already sharp decline in the overall U.S. housing market.
Problems could spread to Alt-A market and prime borrowers. Alt-A loans, also called low-doc or no-doc loans, are made to borrowers without getting documentation to prove a borrower's income or ability to repay the mortgage. Prime borrowers have proven good credit and credit histories.
Tighter lending requirements could strangle the already weak demand for homes, drive up the supply of homes for sale while driving down prices and pressure the overall U.S. economy, S&P said.
"As a result, pricing pressures and the need to increase sales incentive would continue to hurt builder margins," S&P said.
S&P said that so far the Great Lakes states, reeling from turmoil in the auto industry, have been particularly hard hit by subprime mortgage problems.
According to First American CoreLogic, which provides mortgage risk management, during the second quarter the Detroit-Livonia-Dearborn Michigan market was among the top five riskiest for residential mortgage loan delinquencies due to fraud propensity and collateral risk, housing prices, and the local market economy health,
Other very risky markets were Memphis, Tennessee; Warren-Troy-Farmington Hills, Michigan; Youngstown-Warren- -Boardman, Pennsylvania; and Dayton, Ohio, CoreLogic said.
S&P said the good news was that large home builders were not active in those areas, focusing instead on markets where prices kept rising. But S&P said defaults in once hot markets such as San Diego could rise if housing prices in those areas start declining. San Diego is particularly vulnerable because of the prevalence of "creative financing," S&P Chief Economist David Wyss said.
S&P said many expect the subprime market to stabilize by the end of the year, but the rating agency said interest rates and employment would determine the timeline.
When the market for new homes improves, home builders likely will not see it in their bottom lines for six to 12 months later because of the lag between taking an order and closing on the sale on a completed house, S&P said.
JP Morgan Securities analyst Michael Rehaut wrote in a note on Monday that for the 30-day period ended April 10, short interest in home builder stocks (those who expect those stocks to decline) increased to a new high of 18 percent.
Short interest rose the most in Beazer Homes USA <BZH.N>, KB Home <KBH.N>, and Hovnanian Enterprises <HOV.N>, builders that JP Morgan suspects have the greatest exposure to the subprime market, according to Rehaut's note.
S&P said it had not taken any rating actions on home builders solely because of the subprime issue. However, it said rising foreclosure rates and tightening consumer credit raise additional red flags regarding a cyclical housing downturn that was already deeper and broader than previously anticipated.
The rating agency said the duration of the downturn would be determined by how well the economy and job growth hold up over the next year.
US new home market may take til 2009 to rebound-S&P
By Ilaina Jonas
NEW YORK, April 23 (Reuters) - Recovery of the U.S. market for new homes could take another year if trouble in the adjustable-rate subprime mortgage market spreads to other types of residential lending, credit-rating agency Standard & Poor's said on Monday.
"We do not expect to see a recovery for most rated home builders until 2008, under the best of circumstances," the rating agency said in a research note. "In fact, a rebound could easily slide into 2009 if a subprime contagion spreads to the Alt-A and prime products."
Rating agency Moody's raised its forecast on Friday for losses on risky subprime loans originated in 2006 to between 6 percent and 8 percent of the loan principal. In March, Moody's had forecast losses of 5.5 percent to 6 percent.
Moody's said that given the increase in delinquencies and defaults, it believes there will likely be an increase in the use of loan modifications as an alternative to foreclosure sales.
So far, lending problems generally have been limited to the smaller subprime adjustable-rate mortgage subset of the subprime segment. Subprime borrowers are often people with weak credit histories.
Home builders originated about 70 percent of the loans used to buy their properties. Of that 70 percent, 5 percent to 20 percent were subprime. Third-party brokers accounted for the remaining 30 percent of mortgage originations.
Twenty-five percent of new homes are built by large U.S. companies, such as D.R. Horton Inc. <DHI.N> and Pulte Homes Inc. <PHM.N>.
S&P said that heightened media attention to bankruptcies of some subprime lenders and rising subprime foreclosures have spooked home buyers. And creditors are concerned that buyer wariness may exacerbate an already sharp decline in the overall U.S. housing market.
Problems could spread to Alt-A market and prime borrowers. Alt-A loans, also called low-doc or no-doc loans, are made to borrowers without getting documentation to prove a borrower's income or ability to repay the mortgage. Prime borrowers have proven good credit and credit histories.
Tighter lending requirements could strangle the already weak demand for homes, drive up the supply of homes for sale while driving down prices and pressure the overall U.S. economy, S&P said.
"As a result, pricing pressures and the need to increase sales incentive would continue to hurt builder margins," S&P said.
S&P said that so far the Great Lakes states, reeling from turmoil in the auto industry, have been particularly hard hit by subprime mortgage problems.
According to First American CoreLogic, which provides mortgage risk management, during the second quarter the Detroit-Livonia-Dearborn Michigan market was among the top five riskiest for residential mortgage loan delinquencies due to fraud propensity and collateral risk, housing prices, and the local market economy health,
Other very risky markets were Memphis, Tennessee; Warren-Troy-Farmington Hills, Michigan; Youngstown-Warren- -Boardman, Pennsylvania; and Dayton, Ohio, CoreLogic said.
S&P said the good news was that large home builders were not active in those areas, focusing instead on markets where prices kept rising. But S&P said defaults in once hot markets such as San Diego could rise if housing prices in those areas start declining. San Diego is particularly vulnerable because of the prevalence of "creative financing," S&P Chief Economist David Wyss said.
S&P said many expect the subprime market to stabilize by the end of the year, but the rating agency said interest rates and employment would determine the timeline.
When the market for new homes improves, home builders likely will not see it in their bottom lines for six to 12 months later because of the lag between taking an order and closing on the sale on a completed house, S&P said.
JP Morgan Securities analyst Michael Rehaut wrote in a note on Monday that for the 30-day period ended April 10, short interest in home builder stocks (those who expect those stocks to decline) increased to a new high of 18 percent.
Short interest rose the most in Beazer Homes USA <BZH.N>, KB Home <KBH.N>, and Hovnanian Enterprises <HOV.N>, builders that JP Morgan suspects have the greatest exposure to the subprime market, according to Rehaut's note.
S&P said it had not taken any rating actions on home builders solely because of the subprime issue. However, it said rising foreclosure rates and tightening consumer credit raise additional red flags regarding a cyclical housing downturn that was already deeper and broader than previously anticipated.
The rating agency said the duration of the downturn would be determined by how well the economy and job growth hold up over the next year.