Homebuilding Upturn Expected Heading into Spring

Homebuilders will be busy heading into the spring homebuying season, which according to Fitch Ratings, is traditionally more upbeat than the rest of the year.

Fitch Ratings' latest edition of the 'Chalk Line' found that "steady order growth and strong backlogs" should support healthy financials for the U.S. homebuilding sector for the spring season.

"Low oil prices, robust employment growth, pent-up demand and steep rent increases should help support the housing upturn for at least the next six-to-12 months," said Managing Director and lead homebuilding analyst Robert Curran. "Additionally, the continued moderate easing in credit standards is enticing more first-time homebuyers to enter the market."

Residential construction was tricky in December 2015 as both housing starts and building permits posted disappointing numbers, but builder confidence remains elevated and year-end totals hit 2007 levels.

The U.S. Census Bureau and HUD reported Wednesday that  housing starts were at a seasonally adjusted annual rate of 1,149,000 in December, down 2.5 percent from the revised November estimate of 1,179,000. Year-over-year, starts are up 6.4 percent from the December 2014 rate of 1,080,000.

The Bureau and HUD also reported that single-family housing starts in December were at a rate of 768,000, 3.3 percent below the revised November figure of 794,000. Approximately 1,111,200 housing units were started in 2015, 10.8 percent higher than the 2014 figure of 1,003,300.

In addition to the the positive homebuilding numbers, new home sales improved about 14.6 percent, while existing home sales rose approximately 6.5 percent in 2015.

"Fall housing activity slowed, but remained stronger than a year ago. Demographics, pent-up demand, attractive affordability and housing valuations combined with a steady, albeit modest, easing in credit standards should support housing demand in 2016," Fitch stated. "Challenges remain, including rising mortgage rates following the Fed’s recent upping of short term interest rates."

Fitch expects "stable ratings for most issuers within the homebuilding sector during 2016, reflecting a continued, moderate cyclical improvement in overall construction activity. However, there is potential for a few positive outlooks and/or rating upgrades."

Click here to view the full report.