Business Wire
June 30, 2004

The prospects of a significant near term national housing correction prompted by a bursting home pricing bubble or potentially higher mortgage rates are overstated concerns, according to Fitch Ratings.
'Although broadly speaking, homes are still reasonably affordable in most markets (versus prior peak comparisons), home prices cannot indefinitely keep climbing much faster than peoples' incomes, as has been the case during the past few years in certain communities,' said Robert Curran, Senior Director, Fitch Ratings. 'However, the risk appears to be local rather than regional or national.'

Fitch has also become reasonably comfortable with the increasingly prominent usage of hybrid adjustable-rate mortgages (ARMs) after expressing concern that homeowners may be extending themselves to acquire homes. 'Much of the incremental ARMs, upon further analysis, appear to be sourced by buyers of upscale homes making a sophisticated financing decision rather than entry level buyers stretching to buy their home,' said Curran.

Though housing likely will not be as stimulative to the economy for the remainder of 2004, Fitch does not expect any meaningful deterioration either. Despite the continued stable trends, Fitch does note some challenges for the housing sector; how potentially increasing strain on the long-term federal budget may affect rental housing programs for low income households; and, the potential effect that proposed regulation changes may have on the ability of the government sponsored enterprises (GSEs) to fulfill their secondary mortgage market role.

These comments can be found in The Fitch report, 'U.S. Homebuilding/Construction: The Chalk Line - Quarterly Update', which will be available tomorrow on the Fitch Ratings web site at 'www.fitchratings.com in the 'Corporates' sector page under 'Special Reports'. New features to the latest edition of Chalk Line include the recently published homebuilder national rankings for 2003, major builders' positions in top 50 metropolitan markets based on newly released 2003 data, and historical long-term comparisons of incremental household formations juxtaposed with housing starts.

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