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Moody’s Predicts Bright Days Ahead for Homebuilders

Despite some heavy risks hanging over the industry, ""Moody's"":http://www.moodys.com/ is projecting a positive future for the nation's homebuilders, the agency revealed.


Moody's has been optimistic about the homebuilding industry as of late, raising its outlook for homebuilders from ""stable"" to ""positive"" in September for the first time since 2006. In its most recent quarterly industry outlook, the agency predicted boosted home sales over the next 12 to 18 months, citing customer demand, strong affordability, and historically low mortgage rates.

As inventory continues to fall, homebuilders are expected to see significant revenue growth ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô more than 10 percent in 2012 and 2013, with industry gross margins approaching 20 percent on average in 2013.

""A number of factors within the industry have contributed to heightened demand for new homes,"" wrote Joseph Snider, lead analyst. ""For years, homebuilders have built too few homes to keep up with the pace of new household formation. As a result, today's inventory levels of completed and unsold new homes have fallen to historic lows.""


Meanwhile, slow but steady improvements in the economy have some customers concerned that waiting too much longer to buy a house may result in a missed opportunity to save money, Snider continued.

Moody's also pointed out that larger publicly rated homebuilders are already reaping the benefits of the housing upturn. Some firms have already reported gross margins in excess of 20 percent, including ""Toll Brothers"":http://www.tollbrothers.com/, ""Lennar"":http://www.lennar.com/, and ""Standard Pacific"":http://www.standardpacifichomes.com/, and their margins are only expected to improve.

While current trends are strong, the homebuilding industry is still tied to risks outside its influence. Macroeconomic indicators are still mixed, and weak consumer confidence coupled with weak ""non-existent"" income growth may spell trouble.

On a larger scale, Europe's potential slide in recession, as well as the United States' approaching fiscal cliff, could cause major setbacks in the market. Moody's also pointed to the possibility of escalating conflicts in the Middle East or the Korean Peninsula that could have a ""far-reaching economic impact.""

For now, though, Snider has reasons to be optimistic.

""For all of these risks, 2012 will mark the first year since the downturn began that the homebuilding industry makes a net positive contribution to the still-struggling US economy,"" he said.

""Amid weak employment, stagnant incomes and fragile consumer confidence, the economy continues awaiting better macroeconomic drivers for a more robust recovery. The real vitality in the homebuilding sector through 2013 might come from potential homebuyers' sentiment that new home prices, home affordability, and mortgage rates cannot improve much from here.""


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