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Fitch lowers outlook for home-building industry

Predicting that the U.S. housing downturn will be “more severe and longer lasting” than previously anticipated, Fitch Ratings has lowered its forecast of total housing starts for 2007 to 1.30 million, down from 1.46 million in the beginning of the summer. Compared to 2006, the revised number of housing starts is a 27.8 percent decline.

The global rating agency, headquartered in New York and London, issued a negative outlook for most publicly held U.S. home builders, including Centex, D.R. Horton, Hovnanian, KB Home, Lennar, M/I Homes, MDC Holdings, Meritage Homes, Ryland, Standard Pacific, Pulte, Tousa Homes and Toll Brothers. The only exception was NVR, a Reston, Va., home builder and mortgage banker, which received a “stable” rating. Fitch bases its ratings on a number of factors, including geographic and product diversification, projected credit metrics, inventory contraction, debt reduction, real estate write-downs and cash flow.

In an Aug. 30 teleconference, Fitch managing director Robert Curran outlined several possible scenarios for a housing sector turnaround, factoring in tighter credit standards for home buyers and disruptions in the secondary markets for mortgages. The most likely scenario, he said, would be a bottoming out of demand for new homes in early 2008, with a positive turn in the middle of the year and housing starts trending up in late 2008.

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