US Home Sales Not Likely To Recover Next Year

Source : The Straits Times, September 12, 2007

Moody's says slump may last till 2009 as buyers struggle to get mortgages

(NEW YORK) The US housing slump will probably last until 2009 and home sales will take a 'substantial hit' in the next several months as borrowers struggle to get mortgages, Moody's Investors Service said.

'The downturn is more severe and more protracted than we had expected,' Joseph Snider, a credit officer at Moody's, said. Home sales will be hurt by the lack of sub-prime and Alt-A mortgage lending and the difficulty borrowers with good credit are having obtaining mortgages, Moody's said on Monday.

A glut of new and existing homes for sale is prompting potential buyers to wait for prices to fall before purchasing.

The Moody's forecast contrasts with the National Association of Home Builders, which expects housing to begin rebounding in mid-to-late 2008. It also came as Federal Reserve Bank of San Francisco president Janet Yellen said the economy is under 'downward pressure' from turmoil in credit and housing markets.

The worst housing market in 16 years has sent a Standard & Poor's measure of 16 US homebuilders down 49 per cent this year.

Moody's said on Monday it has taken 38 negative ratings actions on the 22 US homebuilders it rates over the past year and more downgrades are possible. Builders may also begin violating credit agreements and banks may tighten restrictions placed on companies.

'Tighter lending and credit standards, diminished consumer home-buying confidence, rising cancellation rates, and falling home prices - especially in the most reliable strong real estate markets prior to 2006 - have exacerbated the industry's woes and further deepened our year-long negative view,' the report said.

A recovery for housing could be hastened should the Federal Reserve take 'frequent and concerted action', the report said. Moody's said it doesn't expect that kind of action to occur unless the economy heads into a recession.

Mr Snider said that Moody's had estimated there might be a second-half housing recovery in 2008. That forecast has now 'been pushed back some', he said.

Meanwhile, Fannie Mae and Freddie Mac, the biggest sources of money for US home loans, adopted rules intended to discourage the funding of high-risk sub-prime mortgages, the Office of Federal Housing Enterprise Oversight said.

The rules require Fannie Mae and Freddie Mac to buy home loans from originators that 'help prevent abuses' in mortgage lending, Ofheo said on Monday.

The two companies can only purchase home loans after verification of the borrowers' income and ability to adjust to higher interest rates, according to the guidelines. -- Bloomberg