Housing Bubble and House Prices Tracker

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 |  Includes: CFC, FHN, FMT, HRB, IMPM, LEND, WMIH
by: David Jackson

We're delighted to offer a new service from Seeking Alpha -- a summary of articles and data points on the housing market. It's part of Seeking Alpha's coverage of the real estate market and homebuilder stocks. You can get this coverage sent to your blackberry or desktop email by signing up for our no-spam free email subscription service. Please let us know whether you find this useful and how we can improve it, and email recommendations for articles to include to: Submit [at] SeekingAlpha [dot com].

Demand and House Prices

  • Aug Home Data Weak; Market Wonders If Stocks Reflect Downturn (Morningstar, August 29th): According to a Banc of America Real Estate Agent survey released Tuesday, "consumer sentiment toward buying a home soured in August" and "prices fell sequentially for the 11th consecutive month. Prices tumbled in 82% of the markets surveyed. In July, only 79% of the surveyed markets fell... the use of incentives continued to rise, hitting record levels... The amount of inventory rose in all markets, except Austin, in August. The inventory of existing homes for sale reached 3.86 million in August, up from 2.15 million in January 2005. The latest inventory level would take 7.3 months to sell at the current pace, and Banc of America analyst Dan Oppenheim expects this inventory supply could reach nine months before next spring... Raymond James analyst Rick Murray said... homebuilding stocks are currently trading at about 1.2 times book value, which is "far above where valuations have troughed in past cycles." During the housing crash of the late 1980s and early 1990s, valuations fell to 0.6 times book value."
  • Condo Developer Stops Work, Citing Suddenly Softer Market (Philly.com, August 29th): Philadelphia condominium developer Louis A Cicalese has frozen plans to build the $119 million, 30-story Marina View Towers, stating that "It has suddenly become a buyers' market". Buyers had reserved 60 out of 197 units at $300,000 to $2 million, and will receive refunds. Other developers are pressing ahead with projects but report worsening market conditions.
  • East Hawaii Has Plenty of Homes for Sale, Fewer Buyers (Hawaii Tribuine Herald): East Hawaii is suffering from a glut of houses for sale, including speculative houses built in Hawaiian Paradise Park where 380 lots are on the market including five houses in a one mile stretch. A $900,000 property had to be discounted 14 percent to $770,000 before someone made an offer; the final selling price was not disclosed. When asked if house prices have bottomed, Hawaii real estate agent Henry "Hank" Correa Jr., owner of Hank Correa Realty said "I think it's early", and reports that a real estate agent colleague from Phoenix, Arizona told him that the city had 48,000 rental units for sale, up from 7,000 a few years ago.
  • Sellers, Builders Hit By Big Apple Downturn (New York Post, August 28th): A condo development at 55 Berry in Williamsburg is reportedly throwing in the towel and switching from sales to rentals after posting numerous price reductions. House price compression is also impacting the high-end of the market: NBC "Dateline" anchor Stone Phillips dropped the price of his co-op just off Central Park West by over $1 million to $4.45 million before it sold earlier this month; it was listed last fall for $5.5 million. Britney Spears listed her NoLita apartment for $5.5 million in 2004, but agreed to sell it a few weeks ago for about $4.45 million. Star Jones has just taken her Yorkville triplex apartment off the market after it sat for over a year and a half, with a last asking price of $2.25 million, down over $300,000 from her original price.
  • Big Inventory of Unsold Homes (Daily News, August 28th): The inventory of unsold homes in Southern California rose in June by 171 percent year over year to the highest level since 1990, according to a report that will be released by the Real Estate Research Council at California State Polytechnic University, Pomona. "The most distress is in San Diego County, where a record 6,927 properties were on the market at the end of June. Eighty-four percent are attached units, probably most of them condominiums... Southern California now accounts for 3 percent of the unsold new home inventory in the U.S. and 14 percent in the West... the same day the California Building Industry Association released a report showing that construction activity took a big drop between June and July, and is 15.9 percent under the year-ago level during the year's first seven months. Overall housing starts last month, as measured by the number of building permits issued, fell 43 percent from June. Nevertheless, the Sacramento-based association said the industry is still on track to bring 180,000 units to market this year."
  • The Boom Is Over; Housing Market Seeks Balance Of Supply And Demand (DNRonline, August 30th): "Home sales were down 5.9 percent in July and down 1.7 percent in the first seven months of the year, according to [Harrisonburg-Rockingham Association of Realtors] statistics released last week. Other parts of the state [Virginia] have taken severe hits. In Winchester, home sales were down nearly 30 percent for the first seven months of the year. In the Dulles area, that number is 36 percent."
  • As the Housing Market Changes, Builders Court Presale Investors (RealEstateJournal.com, August 28th): "Along the coast [of South Carolina], which includes Myrtle Beach, July sales of new and existing homes were off 42.7% from the same period last year, according to the South Carolina Association of Realtors... The median sales price of new and existing coastal South Carolina properties was up 17.1% over last year, but Vienna, Va., economist Tom Lawler calls that a "wacky number" because high-end home sales have not fallen as fast as lower-end sales, skewing the median price higher."

Mortgages and Lending

  • Mortgage Market Begins to See Cracks As Subprime-Loan Problems Emerge (WSJ, August 30th): It's not surprising that repayment problems and defaults are rising for sub-prime lenders as mortgage rates rise with interest rates. Three sub-prime lenders reporeted deteriorating customer credit quality: last week H&R Block (NYSE:HRB) announced a reserve to cover defaults in its Option One Mortgage business, and sub-prime lenders Impac Mortgage (NYSEMKT:IMH) and Accredited Home Lenders (LEND) are facing deteriorating repayment schedules. But signs are emerging that higher-quality borrowers may also face problems in coming months. Counrywide Financial (CFC), which has customers across the credit spectrum, also reported a deterioration, as did regional bank lender Fremont General (FMT). And First Horizon National (NYSE:FHN), which has only 5% sub-prime customers, said it would miss analyst estimates for the current quarter due to a rapid decline in mortgage volumes, though it isn't seeing credit problems. Investment banks, which purchase blocks of mortgage loans, are increasingly rejecting loans that suffer from early payment default or administrative problems. In a recent SEC filing, Washington Mutual (NYSE:WM) admitted that it had overestimated customers' credit quality when underwriting $43 billion of Option ARMs (adjustable rate mortgages). Option ARMs allow borrowers to make early payments below the interest due that month, and are not offered to sub-prime borrowers. $30 billion of the loans are still outstanding.
  • As Exotic Loans Reset, Popularity Persists (Voice of San Diego, August 28th): "In the first five months of this year, 67.8 percent of the purchased and refinanced mortgages in San Diego were either interest-only or negative-amortization loans, according to First American Loan Performance... Last year, 68.8 percent of local mortgages [nationally] were exotic loans. In 2004, these types of loans made up 57.7 percent of the pie. Only a quarter of mortgages were interest-only or negative-amortization in 2003, and only 11 percent were exotic in 2002... Amy Crews Cutts, deputy chief economist for national mortgage giant Freddie Mac, estimates 2 million families nationwide face scheduled resets in 2006, and 2.7 million families' loans are schedule to reset next year. However, only about a quarter of those loans will actually reset, she said -- the other 75 percent will likely refinance or get out of the home."

Homebuilders

  • Builders May Be Near Liquidity Crisis (Dallas News, August 28th): PIMCO bond manager Mark Kiesel says that if builders can't get out of their land commitments, they'll have to take on debt via lines of credit or accessing the bond market. He says he's currently steering clear of homebuilders' bonds.

Macro Impact of Housing Market

  • US Housing Market 'In Freefall' (in2perspective, August 29th): "Capital [Economics] believe that 30% of all the jobs created since the end of the last recession in 2001 (1.4 million) have been in sectors related to the US housing market boom. With the boom over, Capital calculates that 73,000 jobs a month will be lost [next year]."
  • Despite Housing Weakness, Cashouts to Jump in 2006 (Chad Brand on Seeking Alpha, August 29th): "Given that we know the housing market is slowing dramatically and interest rates have been on the rise for a while now, it may be surprising to many that Americans are expected to draw $257 billion out of their homes in 2006, up $13 billion versus 2005 levels, according to Freddie Mac. This likely helps to partly explain why the consumer has yet to fall of a cliff despite housing market woes."
  • Growth in Other Economic Sectors to Offset Housing Slowdown (Rob Black on Seeking Alpha, August 29th): "There is general agreement that the housing market is likely to weaken further. The housing slowdown makes sense given the major run-up in prices and transactions and the rise in interest rates. However, other areas of the economy are showing enough strength to offset the housing slowdown – continued growth in consumption (July data due August 31), business equipment orders (17.5% annualized three-month growth through July), non-residential construction, and industrial production."

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