Report gloomy on housing slump

CHICAGO -- The housing slump will probably last until 2009 and home sales will take a "substantial hit" in the next several months as borrowers struggle to get mortgages, Moody's Investors Service said.

"The downturn is more severe and more protracted than we had expected," Joseph Snider, a senior credit officer at Moody's, said.

Home sales will be hurt by the lack of subprime and Alt-A mortgage lending and the difficulty borrowers with good credit are having in obtaining mortgages, Moody's said in report Monday. A glut of new and existing homes for sale is prompting potential buyers to wait for prices to fall before purchasing.

The Moody's forecast contrasts with the National Association of Home Builders, which expects housing to begin rebounding in mid-to-late 2008.

The worst housing market in 16 years has sent a Standard & Poor's measure of 16 U.S. home builders down 49 percent this year. The index fell 2.8 percent Monday.

Five of the largest home builders have reported combined losses of $1.85 billion and took charges of $2.9 billion to write down land values and abandon property options in their most recent quarters.

Beazer Homes USA, the builder under investigation by the FBI and securities regulators, has fallen the most of any company in the index. It's down 80 percent this year.

Moody's said that it has taken 38 negative ratings actions on the 22 home builders it rates over the past year and that more downgrades are possible. Builders may also begin violating credit agreements, and banks may tighten restrictions placed on companies.

"Tighter lending and credit standards, diminished consumer home-buying confidence, rising cancellation rates, and falling home prices -- especially in the most reliable strong real estate markets prior to 2006 -- have exacerbated the industry's woes and further deepened our year-long negative view," the report said.

A recovery for housing could be hastened should the Federal Reserve take "frequent and concerted action," the report said. Moody's said it doesn't expect that kind of action to occur unless the economy heads into a recession.

Snider said Moody's had estimated there might be a second-half housing recovery in 2008. That forecast has now "been pushed back some," he said.