For the Homebuilders of USA Foreclosures Pose the Greatest Risk

October 9th, 2009 | Tags: Foreclosures

foreclosure

Although experts are opining that the crisis in the housing market has nearly reached its nadir for many homebuilders in USA foreclosures continue to remain the biggest risk. The pressure is likely to continue through 2010 with more supply coming in from the foreclosure category.

Recently Standard & Poor said about the foreclosure situation that this “is the biggest downside risk in the near term” for the home builders of the country. At a conference analyst James Fielding of S&P said, “Their biggest competitor is Foreclosure Inc; that’s really what’s weighing on prices. It’s one of primary reasons that we are not ready to call a bottom in terms of credit quality for this cycle. While the overall housing market may be nearing a bottom, we think there’s still some downside for ratings for some of these companies.”

Nearly a third of the builders of residential houses and companies dealing with building materials that are rated by S&P are in the category marked CCC – it being lowest above that of default. This indicates the “the tremendous stress in the nation’s housing and construction market” explained Fielding.

The slump in the housing market has been one of the prime causes for the recession that started from December 2007. In recent months there are signs that recession is easing but foreclosures continue to harangue the economy with record numbers. This has dampened optimism. Nearly 3.4 million houses will slip into foreclosure before 2009 draws to an end. Last year the number was 2.3 million according to the findings of RealtyTrac.

Construction activity in multi-family units picked up in August but construction starts on single family houses, this being the biggest category in the housing sector, fell by 3%. To add to the woes the employment scenario continues to be grim. This has led to a fall in demand for housing. Starts on single family constructions would in all probability continue to remain well below the traditional average of nearly 1.1 million.

It is apprehended that for the forthcoming many months the prices of residential houses will continue to remain volatile. S&P predicts that the median new house price will fall from $204,000 of this current year to $196,000 in 20010.

When the bust kicked off some house builders were able to sell off and make some cash but many got stuck in the credit freeze. The housing market is recovering because of drastic discounts being offered but the economy continues to remain pale.

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