Last year’s slowdown in the U.S. housing market is likely to worsen in 2023, Fitch Ratings said this week, as greater volatility in mortgage rates is expected to weaken buyer demand and builder sentiment.
Fitch has scaled back its expectations for several key aspects of the housing sector. For 2023, it predicts a 20.0% drop in housing starts, compared to the previous forecast of -11.9% and the 2.9% drop from last year.
With housing starts and building permits both unexpectedly up 9.8% in February from a month ago, Fitch believes further increases in mortgage rate levels and volatility will weigh likely on “housing starts for the rest of the year” given its longer upside outlook. interest rate.
That said, homebuilders are expected to post a median sales decline of 16% to 18% for 2023, according to Fitch’s forecast, “due to reduced home deliveries and slightly lower home prices, offset partly by a higher number of communities”.
The credit ratings provider also forecasts that most automakers will see their EBITDA margins fall by up to 800 basis points “as lower operating leverage and higher incentives are only partially offset by lower costs of certain construction products such as wood”. Fitch has put MDC Holdings (NYSE: MDC) in the spotlight as weak new order activity in the second half of 2022 is expected to result in lower sales and more severe margin compression than peers.
Among other key performance indicators for the housing sector, Fitch expects single-family housing starts to fall 20.0% from -11.9% in the previous view and -10.9% in 2022; sales of new homes will fall by 7.1% against -7.0% in the previous view and -16.8% in 2022; and existing home sales will decline 15% from -9.0% before and -17.9% last year.
Home builder stocks: DR Horton (NYSE: DHI), Knowledge Base Home (NYSE: KBH), PulteGroup(New York Stock Exchange: PHM), Toll Brothers (NYSE: TOL), Lenar (NYSE: LEN), Beazer Homes USA (NYSE: BZH), NVR (NYSE: NVR), Meritage Houses (NYSE: MTH), Taylor Morrison House (NYSE: TMHC) and Tri Pointe Houses (NYSE: TPH).
SA contributor Leo Nelissen viewed LEN this week as a lockdown as a number of headwinds, including contraction in new orders, persist but are expected to ease going forward.
Fitch’s expectation of higher rates for longer comes even after the twin failures of Silicon Valley Bank and Signature Bank last week prompted historic rises in Treasuries and money market securities. In other words, the banking turmoil and lingering worries about the health of the banking sector have fueled speculation about less aggressive monetary policy going forward.