Tighter Florida Mortgage Lending Standards Could Cut Into New Home Demand

Looking to buy a new home?

You may be in the minority in the near future.

The trouble in the Florida mortgage market could spread beyond the subprime sector, with tighter lending standards cutting demand for new homes by as much as 15% and further squeezing home-builder profits, according to an analyst following the industry.

“We expect lending standards to tighten further, based on our expectation of further [home] price declines in 2007,” wrote Banc of America Securities analyst Daniel Oppenheim in a Tuesday report. The analyst lowered his stock-price targets for the home-builder group by 15%, and also cut his profit estimates for several companies.

Oppenheim said mortgage-liquidity problems aren’t confined to just bad credit Florida home loans. The distress will cut 15% of new-home demand, while loans with low credit scores and high cumulative loan-to-value ratios “will end or tighten with many buyers choosing to remain as renters,” he wrote.

A big issue facing residential home builders is the oversupply of homes on the market after the speculative bubble. More home buyers are walking away from contracts, pushing builders’ cancellation rates well above historical norms.

The inventory glut combined with lower demand resulting from stricter lending standards “will lead to lower prices and likely exacerbate mortgage delinquencies and foreclosures,” Oppenheim said.

Lower Florida home prices will lead to more write-downs at the home builders, which are taking impairment charges on land as they slow their production machines, according to Oppenheim, who expects few builders to stay profitable in 2007.

SOURCE: MarketWatch