U.S. Building Industry Outlook Stable in 2012: Fitch

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Workers construct the roof of a house in Phoenix
Workers construct the roof of a house in Phoenix, Arizona, August 23, 2011. After years of economic turmoil, U.S. homebuilders should see modest gains and a stable outlook in 2012, according to a report from Fitch Ratings.

After years of economic turmoil, U.S. homebuilders should see modest gains with a stable outlook in 2012, according to a report from Fitch Ratings.

The agency expects mild improvements in construction, with a 6.7 percent increase in residential housing starts, new home sales growth of 5.6 percent and an existing home sales increase of 3 percent. Home improvement spending is projected to increase by 4 percent.

Commercial construction spending is expected to improve by 4 percent in expenditures, but lack of credit and weak fundamentals may deter growth.

Public construction is forecast to remain flat as state and city budget improvements are expected to be offset by the winding down of 2009 stimulus funding. Highway and bridge spending is expected to be restrained as states are reluctant to commit to long-term projects without a multiyear highway bill.

Prices for raw building materials are expected to remain high, but not increase. Liquidity among both builders and home products companies is expected to remain strong.

Homebuilders are forecast to see revenue growth of mid-single digits in 2012, based on more home sales. Home prices could decline modestly.

Revenue growth for home products companies is predicted to be restrained, with low to mid-single digit growth in 2012.

A decrease in new housing activity and a double-dip recession would negatively impact the industry outlook. Slowing demand in international markets could also hurt revenue. Also, high unemployment and weak consumer confidence could dampen a housing recovery.

While historically low mortgage rates have made homes more affordable, which may increase buyer urgency, a glut of foreclosures and associated distressed sales may hurt sales of new homes. Distressed sales trade with around 20 to 25 percent discounts compared to similar new homes.

Ratings for building companies will continue to vary by region and market, but Fitch expects overall stability.

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