Credit Suisse already sees evidence that the Spring is shaping up ugly for housing:
The Credit Suisse proprietary survey of real estate agents showed a decline in homebuyer traffic for March. Homebuyers are seemingly waiting for more signs of a stabilising market. Importantly, the majority of activity is still concentrated across distressed listings (lower priced existing homes), which are driving the price of newly constructed homes down. Unfortunately, falling prices do not bode well for underlying construction activity, where builder margins are thin. The Credit Suisse house price index improved for the month of March, albeit still reflecting falling prices on a sequential basis. Further price reductions are anticipated throughout April as prices for non-distressed and new homes are lowered to compete with foreclosed property prices.
With homebuilders remaining extremely price conscious we expect a response in the form of: 1) A reduction in the size of new homes (lower material intensity); 2) More multi-unit dwellings (lower material intensity); 3) Further discounting on new homes, reducing builders incentives to take on new projects (margins already thin); and 4) Fewer and cheaper inclusions (e.g vinyl, timber siding). Combined, these factors highlight the downside risk to consensus FY12F US housing activity forecasts and resultant earnings impact for both JHX and BLD. Credit Suisse forecasts US housing starts of 620k and 725k for FY11-12F. We continue to see downside risk to these forecasts.
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