Eight North American Homebuilder Outlooks Revised To Stable As Recession Forecast Pauses Positive Rating Momentum

NEW YORK (S&P Global Ratings) March 26, 2020--S&P Global Ratings said today it is revising the rating outlooks on eight U.S. and Canadian homebuilders to stable from positive (see ratings list below). These actions come after our economists signaled a "massive hit to global economic activity" from measures to slow the spread of the coronavirus pandemic. We now expect the decline of U.S. GDP in the second quarter will be "at least double" the 6% drop signaled just last week (see Global Economic Update, March 24: A Massive Hit To World Economic Growth, March 24, 2020).
For North American homebuilders, we expect social distancing and higher, even if short-lived, unemployment will stall positive new home sales and price momentum over the next several months. Job losses in the services sector should dampen entry level and first-time move-up home demand while the sharp drop in the stock market might delay luxury and active adult home sales. At the same time, social distancing should slow new home community foot traffic at all price points, at least through the end of the important spring selling season and perhaps longer.
There were no rating changes associated with these outlook revisions, and we don't expect a significant number of homebuilder downgrades over the next several months, if economic growth resumes in the second half of the year. Moreover, the builders listed below in the 'BB' category had significant buffer in their credit ratios coming into 2020 so we do not expect ratings downside risk for these companies without a higher likelihood for a weak economic scenario carrying into the 2021 selling season.
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