Housing Analyst Fears Credit Crunch, Supply Jump

Homebuilding stocks took a hit Monday, as traders digested a report on the industry from veteran homebuilding analyst Ivy Zellman at Credit Suisse.

Among Zellman's comments:

- 40% of the mortgage market (the subprime and Alt-A market) is at risk of fallout from tightening credit and increased regulatory scrutiny.
- The rebound in housing demand is "premature."
- Orders for homes have not materially increased, compared to the fourth quarter.
- February has not seen typical seasonal improvement.
- She is reducing earnings estimates for many of her builders.

The concerns in the mortgage market are particularly troubling to her: Zellman estimates the impact to originations of 21%, or an approximate decline of 236,000 new home sales from December's annual pace, to 887,000 units.

Another comment from Zellman's report:
"We remind investors that the headwinds from deteriorating credit will impact supply and pricing conditions, as well as incremental demand. With delinquency and foreclosure rates continuing to rise, we believe this will result in more supply hitting the market throughout the year. In addition, we estimate that current inventory figures released by the NAR [National Association of Realtors] could ultimately be 20% higher, when homes currently in the foreclosure pipeline hit the resale market."