Firch 2009 Homebuilder Outlook - New Construction Continues to Fall

New home construction and sales will fall further next year as U.S. homebuilders continue to face tough market conditions for at least another year, concludes Fitch Ratings in a report released Tuesday.

Next year, there is a 60 percent chance that total new home construction will fall by almost 13 percent from projected 2008 levels, new home sales by 7 percent and existing home sales by 3 percent, the credit ratings firm said in a 173-page report.

If the U.S. should enter a sharp recession, however, Fitch said the combination of home priced declines, job losses and weaker consumer confidence will likely result in lower housing starts, weaker new and existing home sales.

"If mortgage rates should again rise or credit terms tighten further, then our housing forecasts could turn even more pessimistic," analyst Robert Curran wrote in the report. "And of course, if the economy, possibly now in a modest recession, slides into a sharp recession, then the downturn would not only deepen, but could extend further into 2009 or even 2010."

As a result, the firm expects the homebuilding sector will face more intense operational and financial pressures next year.

Homebuilders have seen sales and profits tumble this year as falling home prices, tighter mortgage lending and competition from deeply discounted foreclosed properties have combined to sap demand for new homes.

While home prices have fallen in many markets that saw dramatic home appreciation during the housing boom, many would-be buyers have stayed on the sidelines because of uneasiness over the economy.

Fitch expects homebuilders will close 2008 with revenues down by 34 percent to 40 percent, on average.

The firm's outlook for the sector is "Negative."

Fitch expects housing weakness to persist into 2009, despite recent government initiatives like the $700 billion U.S. government bailout and other efforts to prop up the nation's financial sector.

Still, should the nation avoid a pronounced recession, Fitch said housing could begin to stabilize toward the end of next year.

In that scenario, the firm sees the demand for new homes bottoming out early in 2009 and then picking up later in the year.

Fitch said Texas, the Washington D.C. area and southeastern states, excluding Florida, could be among the first markets to see a recovery.