UPDATE: Credit Suisse Downgrades Home Builders Amid 'Lackluster Demand'

In a note released Wednesday, Credit Suisse analyst Daniel Oppenheim detailed how a slowing demand in the overall housing market will affect home builders. To start his analysis, Oppenheim cited the firm's Monthly Survey of Real Estate Agents which indicated "continued weakness in demand" and lower buyer traffic both sequentially and year-over-year. According to the survey, the February buyer traffic index fell to 36 from 38 in January an 65 in the previous year at this time. Looking to 2014 and 2015, Oppenheim expects absorption rates on average to remain "choppy" in the first half 2014 with slight improvements in 2015. Despite absorption being less than optimal, Oppenheim estimates orders to grow by 10 percent in 2014 and 15 percent in 2015 based on growth in community count. In addition to community growth, Oppenheim sees home builders offering incentives to help manage volume amid "lackluster" demand. Finally turning to margins, home builders are expected to see an increase of up to 70 bps in 2014 due to early cycle land purchases. However moving into 2015 Oppenheim expects reduced pricing power and high cost land to drive a margin decline of 30 bps. Based on his analysis of the Home-building sector Oppenheim has made the following downgrades and adjustments

• Plute Group PHM downgraded from Outperform to Neutral; fiscal year 1E EPS estimate lowered to $0.91 from $0.95.
• Toll Brothers TOL downgraded from Outperform to Neutral; fiscal year 1E EPS estimate raised to $1.53 from $1.52
• William Lyon Homes WLH downgraded from Outperform to Neutral; price target raised from $28 to $30

In a possible reaction to the Credit Suisse release all three stocks were trading down between 1-3 percent at last check.