Recovery of the U.S. market for new homes could take another year if trouble in the adjustable-rate subprime mortgage market spreads to other types of residential lending, credit-rating agency Standard & Poor’s said on Monday.
“We do not expect to see a recovery for most rated home builders until 2008, under the best of circumstances,” the rating agency said in a research note. “In fact, a rebound could easily slide into 2009 if a subprime contagion spreads to the Alt-A and prime products.”
Rating agency Moody’s raised its forecast on Friday for losses on risky subprime loans originated in 2006 to between 6 percent and 8 percent of the loan principal. In March, Moody’s had forecast losses of 5.5 percent to 6 percent.
S&P said that heightened media attention to bankruptcies of some subprime lenders and rising subprime foreclosures have spooked home buyers. And creditors are concerned that buyer wariness may exacerbate an already sharp decline in the overall U.S. housing market.
Problems could spread to Alt-A market and prime borrowers. Alt-A loans, also called low-doc or no-doc loans, are made to borrowers without getting documentation to prove a borrower’s income or ability to repay the mortgage. Prime borrowers have proven good credit and credit histories.
Tighter lending requirements could strangle the already weak demand for homes, drive up the supply of homes for sale while driving down prices and pressure the overall U.S. economy, S&P said.
The rating agency said the duration of the downturn would be determined by how well the economy and job growth hold up over the next year.