Risky Business

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 40 of 83

the latest ORIGINATION Or ig i nat ion s e r v ic i ng a na ly t ic s The housing recovery may come to a halt as the inventory of developed lots dwindles. T he housing recovery may be fast approaching a wall as well-located finished building lots become scarce, Fitch Ratings says in a recent analysis. While the ratings agency acknowledged that "a majority of market data reflects a strengthening housing market" (citing increases in existing home sales, healthy job growth, and a pickup in housing starts and permits in February), a lack of finished lots in desirable locations over the next year could hinder residential construction and disrupt the market's progress. In its report, Fitch pointed out that"[f]inished lots that are already graded and have infrastructure in place are becoming scarce, as development activity during the recent downturn was limited." "We do think there will be more development, and a catch-up period will take place. But we do feel that there may be shortages in certain geographies in the intermediate term," Fitch explained. "We believe it is imperative that builders continue to manage their balance sheets, keeping land and development spending at reasonable levels relative to housing demand." With developed lots becoming harder to find, the agency says raw and semi-developed land should represent an increased share of total real estate expenditures. Fitch believes the "irregular flow of appropriately priced developed land from banks and other sources tends to support this strategy." The release from the ratings agency also warns that a possible combination of higher interest rates and home prices could constrain affordability for buyers, affecting the pace of recovery. "Additionally, if home prices were to rise rapidly and mortgage rates sharply increase, that could also potentially impede progress," Fitch said. "While lower borrowing rates have helped spur homebuying and refinancings, a pronounced increase could deter that." The M Report | 39 se c on da r y m a r k e t Recovery Faces New Hurdle

Articles in this issue

Archives of this issue

view archives of TheMReport - Risky Business