Bank Cuts Ratings of Homebuilders, Citing Slowing Market
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Bank of America cut its ratings on homebuilders including Toll Brothers and MDC Holdings, saying the housing market will see “significant slowing” into 2006.
Bank of America changed its outlook on the group to “cautious” after its October survey of real estate agents showed a fall-off in demand, slower price appreciation, and an increase in unsold homes, an analyst, Daniel Oppenheim said yesterday in a report. The firm had previously been “positive” on the homebuilders.
“Sales by investors and high overall inventory levels may exacerbate the slower housing market and lead to further pressure on home prices,” Mr. Oppenheim wrote.
The Standard & Poor’s Supercomposite Homebuilding Index of 16 residential builders initially fell as much as 2.5% after the report. The shares reversed course when the Commerce De partment reported that builders broke ground on 2.108 million housing units at an annual rate in September, an unexpected gain of 3.4% from August.
The index rose 28.03, or 3.6%, to 816.48 at 3:15 p.m. New York time.
Toll Brothers increased $1.53, or 4.1%, to $38.74, after falling as much as 3.4%. MDC Holdings, down as much as 4.5% earlier, gained $2.76, or $1.9%, to $70.39. NVR added $21.59, or 3.2%, to $701.59 after falling as much as 5.7%.
Bank of America lowered its rating on Hovnanian Enterprises, Ryland Group, and Toll to “neutral” from “buy,” and cut its rating on MDC to “sell” from “neutral.” It downgraded NVR to “sell” from “buy.”
The firm cut its 2006 earnings estimates on the group by an average of 4%. It now expects 11% growth in earnings per share next year.
The homebuilders index climbed 40% this year to a high of 1064.81 on July 20. It’s fallen 26% since. The index posted a 36% increase in 2004, after soaring 97% in 2003.
The median price of a new home in America probably will be $228,100 this year, 4.7% above last year’s $217,800 median price, according to a September 21 forecast by Fannie Mae, the largest American mortgage buyer. In 2004, the median price rose 14%.
Measured annually, the average rate in America for a 30-year fixed mortgage probably will fall to 5.78% in 2005, the lowest ever, and rise to 5.98% next year, Fannie Mae said. In 2004, the fourth consecutive year of record sales for both new and existing houses, the rate was 5.84%.
