Operating conditions for U.S. homebuilders have improved over the past six months, and the sector's overall credit quality has steadied as a result, according to a new report published by Standard & Poor's Ratings Services. The new report cites a cautiously stable outlook for the sector overall, but acknowledges that trends could backpedal later this year if the baseline residential construction forecast doesn't materialize.
Conditions in the U.S. housing sector remain challenging, but Standard & Poor's has seen evidence that macroeconomic conditions are strengthening, and any improvements in the housing sector will be measured off of a very low base. The housing sector is currently giving mixed signals regarding its direction, but Standard & Poor's believes production levels are improving while pricing is bouncing along the bottom.
“We anticipate a modest uptick in new single-family home deliveries this year, which will be followed by more robust growth in 2013,” said credit analyst Susan Madison. “We also expect the average selling price for new homes to be relatively flat on a year-over-year basis.”
Standard & Poor's currently maintains stable outlooks on 60 percent of the homebuilding companies it rates, an indication that ratings should hold steady over the next year under its baseline forecast scenario. However, the company did note that ratings on some of the larger homebuilders could take a hit next year if a firm recovery does not take hold and its pessimistic scenario comes to pass.
“We do expect the recovery in housing to be slow and uneven, and the performance of individual home builders may not directly correspond with that of the overall sector,” Madison said. “For example, builders with well-located and cost-efficient platforms, along with sufficient liquidity to support higher growth trajectories, will most likely improve faster than the others. Comparatively, companies with less liquidity, weaker profitability, more material near-term debt maturities, or those contending with operational missteps, will likely lag the peer group.”