Fitch sees homebuilding healthy in 2003 but concerned about lending

By Ronda Fears

Nashville, Tenn., Oct. 18 - Housing in the U.S. should continue to be healthy in 2003 and homebuilders will continue to benefit from that trend, according to a report by Fitch Ratings, but the rating agency is concerned that liberal lending standards of recent years could become more of a problem if the economy dips again.

"The 1990s produced surprising results in the homebuilding sector because of underestimation of demographic trends and better than expected housing affordability, largely due to low mortgage rates," said Fitch senior director Robert Curran in the report released Friday.

"In the first decade of the new millennium, demographics should continue to be positive, low mortgage rates will keep housing affordable and these two trends will keep homebuilders in good standing."

Acquisition activity, which was already high in the homebuilding sector, has gained further momentum. Fitch is scrutinizing the willingness and ability of builders to maintain discipline with their balance sheets despite the lure of acquisition.

"With the possible exception of companies that have made recent, sizable acquisitions, the builders profiled in this report have excellent liquidity - often higher than at both year-end 2001 or June 30, 2001," said Robert Curran.

"Typically these builders have substantial, if not completely unused, revolver capacity and cash."

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