US homebuilders in H1 see healthy earnings and revenue growth, driven by rising home prices and limited housing supply, with strong revenue and EBITDA growth expected for next 12-18 months: S&P
August 30, 2013
– Rising home prices and a limited supply of homes for sale have contributed to healthy revenue and earnings growth for most U.S. homebuilders through the first half of 2013, according to a report released yesterday by Standard & Poor's Ratings Services titled U.S. Homebuilder Ratings Should Remain Stable Amid Stronger Demand And A Limited Supply. However, the report notes, despite Standard & Poor's expectations that revenue and EBITDA growth will remain strong over the next 12 to 18 months, improvement in credit metrics will likely be more measured as homebuilders continue to tap the debt markets to fund sizable land and inventory investments. As such, our base-case outlook for U.S. homebuilder credit quality for the remainder of 2013 and 2014 is generally stable.
We expect demand for new single-family homes to remain sufficiently robust to comfortably support 15% to 25% growth in sales volumes for most of the builders we rate even if market conditions soften from the first half of the year. We also expect that the strong growth in average selling prices most builders have experienced year to date will continue through the balance of 2013, fueled by a limited supply of new and existing homes for sale in many U.S. markets and a shift in the product mix to higher-price move-up and luxury homes. While some recent housing economic data (including July new home sales and a recent decline in mortgage applications) suggest that the pace of the U.S. housing recovery may be slowing, we believe our base-case forecast is realistic even in the face of these trends because we expect supply and demand for single-family housing to remain favorable for builders compared with historical levels through 2014. However, homebuilders that target primarily entry level and first-time homebuyers may be affected more by the rise in rates unless they are able to quickly adjust product type or pricing.
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