Conditions are tough for U.S. homebuilders, perhaps more difficult than at any time since the Great Depression. New home sales are less than one-quarter of their 2005 peak, and home prices have been falling again. Conversely, factors that weigh on the homebuilding sector, such as more restrictive mortgage standards and high foreclosure rates, are boosting demand for apartment units. With multifamily supply in check, vacancies are falling and rents are rising. Standard & Poor’s Ratings Services’ ratings on multifamily REITs should hold steady in this environment.
However, we expect our ratings on U.S. homebuilders to remain under pressure through the balance of the year. The severity of the nation’s housing correction is well documented. New home sales averaged about 300,000 units on an annualized basis in the first quarter of 2011, down 78% from a 1.4-million-unit pace at the cyclical peak in the summer of 2005. Home prices, according to the S&P/Case-Shiller Home Price Index, have fallen 32% since they peaked in the spring of 2006. We think prices may drop another 4% before bottoming out in the second quarter of 2011. We expect prices to firm in the second half and demand to pick up modestly, though a robust recovery appears unlikely through 2012.
For the full report, “Multifamily REITs Are Gaining
Ground At Homebuilders’ Expense” click here: