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Bad to Worse for Builders

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AP

Sales of new homes plummeted 8.5 percent in March from the month before, prices made a fall not seen since 1970, dropping 13 percent year over year, and inventories of new homes hit an eleven-month supply.

We haven’t seen that kind of pace in 27 years.

It’s hard to believe that builders could get any more bad news, but... Moody’s Investors Service now says banks are about to make it more expensive for builders to get credit in 2008. I guess they need that like a hole in the ground.

Moody’s adds that home builders with lower ratings will be “particularly vulnerable” to difficulty with banks. That’s all about the company’s ability to repay debt. We all know that banks have shored up their lending standards after the crash in the subprime mortgage market, but many were hoping things would begin loosening up soon -- not the opposite.

Joseph Snider, a senior credit VP at Moody’s, says, “It is likely that banks will finally begin to hold home builders accountable for their failure to general cash, maintain adequate liquidity, and reduce outstanding debt.”

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