Sales of new and existing homes in the U.S. will drop this year as a lack of confidence among buyers endures at least through the middle of the year, Fitch Ratings analysts said.
“Fitch expects the housing weakness to persist well into 2007,” said Robert Curran, a managing director and lead home-building analyst at Fitch. “Should a recession develop before the current housing correction troughs, not a high-probability scenario, then the downturn could easily extend another year beyond our forecast.”
Fitch expects new single-family home sales to fall 7.5 percent in 2007 and existing-home sales to drop 7 percent.
New-home sales started to decline in July 2005 after five boom years as the price gains made houses less affordable to consumers and mortgage rates rose. An increase in new and existing homes for sale also hurt the market as consumers looking to buy a new house had difficulty selling their existing homes.
“The excess of supply continues to be troubling,” Curran said.
The decline projected by Fitch for existing-home sales exceeds a Jan. 10 estimate by the National Association of Realtors. The Chicago-based trade group forecast existing-home sales to slip 1.2 percent to 6.42 million in 2007 from an estimated 6.5 million in 2006.
It expects new-home sales to fall from an estimated 1.06 million in 2006 to 957,000 this year, a decline of 9.7 percent.
Still, Fitch said that a recent increase in existing and new-home sales and a rise in mortgage applications are among the signals that demand for single-family houses may be close to a bottom.
“Various recent data imply that demand for single-family homes has begun to stabilize,” Curran said.
Some economists and trade groups expect the housing market to pick up as mortgage rates remain relatively low.
U.S. housing demand will be boosted by low mortgage rates during the so-called “spring selling season” that ends in June, according to a forecast by lending giant Freddie Mac.
The average U.S. rate for a 30-year fixed mortgage probably will be 6.2 percent in the first and second quarters of 2007, the McLean, Va.-based company said. For the year, the rate will be 6.3 percent, below 2006’s 6.4 percent, Freddie Mac said.
The weak housing market has hurt results at U.S. home builders, whose sales and profit have fallen sharply. Fort Worth, Texas-based D.R. Horton Inc., the largest U.S. home builder by revenue, said its fiscal first-quarter profit fell 65 percent as spending on sales incentives increased and customers canceled orders.
Net income declined to $109.7 million, or 35 cents a share, in the three months ended Dec. 31, from $310.1 million, or 98 cents, a year earlier.
Revenue slid 1.4 percent to $2.8 billion and Chairman Donald Horton said in the statement that “conditions in the home-building industry remain challenging.”
Profit at home builders plunged last year as the biggest slump in home sales in 15 years left a glut of properties on the market.
On Jan. 2, Miami-based Lennar Corp., the fourth-largest home builder by revenue, reported its first quarterly loss in at least a decade after it wrote down property investments.
Subsequently, Lennar said profit may rise this year, helped by a robust economy.
Provided the “current environment of strong employment, low interest rates and a healthy economy continues,” Lennar will meet or exceed 2006 earnings, Chief Executive Officer Stuart Miller said. The company earned $594 million, or $3.69 a share, in fiscal 2006.
Centex Corp., the third-largest U.S. home builder, reported a fiscal third-quarter loss as it booked $450 million to write down the value of land and abandon some land options.
The net loss was $228 million, or $1.90 a share, for the fiscal third quarter ended Dec. 31, compared with net income of $329 million, or $2.49 a share, a year earlier, Dallas-based Centex said. Revenue fell 6.8 percent to $3.28 billion.
Centex is among three home construction companies that have reported $1.3 billion in charges to write down land and walk away from contracts to purchase new tracts as the housing market faltered.
Also, KB Home, the fifth-biggest builder, said it plans to record $343 million of land-related costs because of the slump.
KB Home said it will have a $255 million expense to reflect the reduced value of land and another $88 million charge to walk away from land options.
