August 4, 2008 / 10:33 PM / in 9 years

Moody's sees more severe housing downturn

NEW YORK (Reuters) - The U.S. housing downturn is likely to be even longer and more severe in light of recent financial problems at key U.S. mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N, Moody’s Investors Service said on Monday.

The rating company said it had expected home sales to hit bottom this summer, for construction to turn around by year’s end and for house prices to stabilize next summer.

“This now seems optimistic,” Moody’s said in a report. “Fannie and Freddie’s problems add to the threat that a negative feedback loop will form, with price declines inducing more foreclosures, which induce further price declines.”

Fannie Mae and Freddie Mac shares collapsed last month on concerns the U.S. mortgage market giants would need more capital because of mortgage-related losses, prompting the U.S. Treasury and Congress to extend government support to them.

Further home price declines would worsen the angst in financial markets one year after the credit crisis started and further weaken the economy, Moody’s said in a new report on home-building industry.

The rating company published the report the day home builder WCI Communities Inc WCI.N filed for Chapter 11 bankruptcy protection after failing to obtain financing to stay afloat.

Moody’s said it expects to see more defaults among home builders that have deeply speculative ratings, while higher rated companies will face tighter and more expensive credit facilities.

It has taken 11 negative rating actions since April, when the last report on the home builders was published.

“The traditionally strong spring selling season was a complete bust for home builders and offered no new clues about when the market might bottom out,” Joseph Snider, Moody’s vice president and senior credit officer, said in the report.

Reporting by Anastasija Johnson; Editing by Jan Paschal

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