Housing bust may not bottom till 2010: Moody's

NEW YORK (Reuters) - The U.S. housing market bust may not bottom until 2010, later than previously thought, and more home builders may fail before the housing market recovers, Moody's Investors Service said in a new report.

Upheaval in the financial markets is making credit harder to get, both for home builders and consumers, raising the risk of more job losses, mortgage delinquencies and foreclosures, Moody's said.

"The crisis in the U.S. financial system makes clear that the troubles in the housing market and the broader economy will likely worsen before they improve," Moody's said.

The housing market is struggling through its worst period since the Great Depression after subprime borrowers, those with a high risk profile, defaulted on mortgages, triggering a slide in home prices and glut of unsold homes.

While some housing indicators may bottom out around the end of this year, "we don't expect the overall housing market to show any significant improvement until at least 2010," Moody's said.

Previously, the credit rating agency had called for the housing market to bottom around mid-2009.

The exact timing of a turnaround could depend on the outcome of a $700 billion financial system bailout plan pending in Congress, Moody's said. The U.S. House of Representatives defeated the plan on Monday, but President George W. Bush gave assurances on Tuesday that the plan was not dead.

Home builders will need to write down land holdings to distressed market values, pay down debt, or rebuild their equity and cash positions, Moody's said.

"Absent these steps -- or despite them -- we believe that some home builders will not survive," Moody's said. Even some survivors will be poorly positioned to take advantage of a home building recovery, which now appears to be farther down the road.

Home builders have already written down the value of their land, options and joint ventures by $25.5 billion from March 2006 to June 2008, Moody's said.

As land values fall, lots go unused and losses drag on, more home builders will likely violate terms of their loan agreements over the next year, Moody's said.

Some home builders have already amended their credit agreements three or four times, and banks will take an increasingly tough stance as concerns mount about their own balance sheets, the rating agency said.

(Reporting by Dena Aubin, Editing by Chizu Nomiyama)