UK Home Building Sector Likely To Face Double-Dip Contraction : Fitch

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Fitch Ratings said in a report on Thursday that despite early signs of stabilizations in the UK housing market and improved company trading conditions in the second and third quarters, it is skeptical of medium term recovery prospects for home builders, underscoring the continued negative outlook for the sector.

"It is clear that conditions have improved for UK homebuilders since H109 and that major homebuilders have successfully navigated the recent severe downturn, but a quick and strong improvement in UK house market conditions is unlikely and there is still a significant possibility of a double-dip contraction", Fitch said.

Ewan Macaulay of Fitch Ratings noted that with ongoing fragile housing market conditions, expectations that working capital flows of home builders, which helped them to insulate against severe recessionary conditions, will begin reversing as the home builders begin land buying and ramping up their activity sites.

Moreover, the firm said a rise in interest rates, although not expected until 2011, to pose significant risks for the housing sector. Fitch continues to expect house prices to fall 30% from its October 2007 peak.

Meanwhile, the firm expects the under supply problem in the sector, with the expected level of new home starts in 2009 and 2010 falling well short of underlying demand, to partly counter the risks atleast in the short term.

(Market News Provided by RTTNews)