Real Estate Sales and House Prices
- In New York, $5 Billion For a Housing Complex? (WSJ, August 31st): "MetLife Inc. (MET) plans to sell a 110-building portfolio that is one of Manhattan's last bastions of affordable housing for as much as $5 billion... Paying that much for the adjacent residential complexes of Stuyvesant Town and Peter Cooper Village would result in initial returns as low as 2.5% on the property -- or slightly more than 3% if the 1940s-vintage apartments go for $4 billion. In Manhattan in the past six months, apartment buildings have been selling for closer to 5% yields... to win bank or investor financing for a project with such low returns, the buyer would have to pay up to half of the price tag in cash... If the portfolio were to be sold, the buyer is expected to convert the units into market-rate apartments or condominiums... State and city rent rules say that a vacant regulated apartment can be raised to market rates when its monthly rent, as allowed by government-approved rent increases, exceeds $2,000.
- Home Builder's New Incentive: A Flexible Price (Washington Post, August 30th): "...a luxury home builder in Rockville has begun resorting to the kind of tactic usually reserved for screaming electronics discounters -- the Lowest Price Guarantee. To ease buyers' worries about declining prices, Mid-Atlantic Builders will adjust its sales contract if the price it is charging for one of its houses falls from the time a customer signs an agreement to 45 days before settlement."
- Is the Housing Market Worse Than It Seems? (Index Universe's Matt Hougan in Seeking Alpha, August 30th): "The newspapers are full of stories about falling prices and rising inventories... And yet, as we've reported before, housing statistics and indexes tell a different story. The Commerce department said recently that the national median home sales price rose 0.3 percent in July, even as the number of new homes sold fell over 21 percent. The National Association of Realtors said that prices rose by 0.9 percent. The new housing price indexes say the same thing... Could the indexes and data be lying? As it turns out, the answer might be yes. An article in Saturday’s New York Times points out a fundamental and increasing important flaw in the housing data that might explain the difference between my perception and the indexed reality. According to the Times, there has been a huge rise in the use of “incentives” to sell homes - incentives that do not show up in the official selling price."
- Chicago Housing Market (Bubble Meter, August 29th): "According to the OFHEO 1Q 2006 Report the 5 year price appreciation for homes in the Chicago area was 51% and the one year rate stood at 10.5%. Chicago's price appreciation rate is strong but not stratospheric like many metro areas in California or Florida. Like many other parts of the country job and wage growth over the past five years has been anemic... The Chicago area economy has been stronger than in other large Midwestern cities like Cleveland or Detroit... price appreciation rate is quite varied depending on the neighborhood and type of property. Chicago-area sales of existing homes and condos fell 14.5 percent in July compared to the same month last year, but median prices rose 2.6 percent, according to the Illinois Association of Realtors. Nevertheless, single-family home sales in the Chicago area fell by 18.6 percent in July compared to last year at this time. Even with the Chicago-area single-family home sales falling, median prices rose 4.2 percent, to $285,000."
Real Estate Investing Sentiment
- Investors Worried Real Estate Situation Will Get Worse (Gallup, August 28th): "These most recent data simply confirm the widely held perception -- noted by Gallup last month -- that housing activity has slowed significantly in 2006... the August UBS/Gallup Index of Investor Optimism poll shows investors are worried that the real estate markets are continuing to deteriorate. The new poll also shows that investor optimism continued its steady seven month decline, reaching a new low point for the year in August... 7 in 10 investors believe conditions in the residential real estate market nationwide are getting worse, not better -- up from 63% in June."
Mortgates and Real Estate Lending
- Press Release - Weekly Application Survey (Mortgage Bankers Association, August 30th): "The Market Composite Index, a measure of mortgage loan application volume, was 556.5, a decrease of 0.9 percent on a seasonally adjusted basis from 561.5 one week earlier. On an unadjusted basis, the Index decreased 2.3 percent compared with the previous week and was down 22.4 percent compared with the same week one year earlier. The seasonally-adjusted Purchase Index decreased by 1.6 percent to 375.9 from 382.2 the previous week and the Refinance Index increased slightly to 1609.2 from 1608.5 one week earlier. The Purchase Index is at its lowest level since November 2003... The four week moving average for the seasonally-adjusted Market Index is up 1.3 percent to 558.1 from 550.9. The four week moving average is down slightly to 383.2 from 383.3 for the Purchase Index, while this average is up 3.1 percent to 1580.8 from 1532.8 for the Refinance Index. The refinance share of mortgage activity increased to 41.5 percent of total applications from 40.6 percent the previous week. The adjustable-rate mortgage [ARM] share of activity increased to 26.8 percent of total applications from 26.4 percent the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 6.39 percent from 6.38 percent, with points increasing to 1.03 from 0.98 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 6.06 percent from 6.04 percent, with points decreasing to 1.06 from 1.12 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for one-year ARMs increased to 5.97 percent from 5.91 percent, with points increasing to 0.91 from 0.82 (including the origination fee) for 80 percent LTV loans."
- 'Exotic' Mortgages Seen Losing Their Allure (MSNBC, August 30th): ""Nationwide, approximately $400 billion of [home-purchase adjustable-rate mortgages] are scheduled to reset at some point in 2006," said Frank Nothaft, chief economist with Freddie Mac in McLean, Va. "A significant number of homeowners will face some adjustments." In fact, the ARMs with scheduled payment increases this year work out to about 5 percent of all single-family debt outstanding in the country now, he said."
- KB Home Cuts Holdings as Market Cools (LA Times, August 30th): "KB Home (KBH) has started pruning its land portfolio in Southern California... [it] said Tuesday that it had sold its 49% stake in the massive Anaverde master-planned community in the Antelope Valley to the majority owner, Empire Cos. of Ontario... The deal gives privately held Empire 100% ownership of the nearly 2,000-acre housing development in West Palmdale where the first 1,400 homes of a planned 5,200 are under construction by KB and other building companies. Terms of the transaction weren't disclosed... KB is still one of the largest builders and landholders in the Antelope Valley, where it is building at least 14 subdivisions in addition to those at Anaverde... In the first six months of 2006, new-home sales in the Antelope Valley fell to 1,307, down 41% from the 2,222 sold in the year-earlier period.... Yet builders obtained permits to add 11,851 additional houses, up from 8,478 the year before."
- Builders Slow Down Dramatically (The Californian, August 29th): "Builders received permits to build 2,051 houses and 106 apartment and condominium units in Riverside County last month, according to the California Building Industry Association. Compared to the 3,426 units started in July 2005, that represents a drop of 37 percent, the largest such decline in at least five years. Across California, builders started 11,121 new houses, condominiums and apartment units, a 43 percent decline from 2005..."
- Toll Brothers Comments on Lower-Priced Homes in a Soft Real Estate Market (Miriam Metzinger in Seeking Alpha, August 30th): "Robert Toll, CEO Toll Brothers: "When you get somebody to one of these communities who can't afford, you do the old Sid Stone thing, roll up your sleeves and say you want more for your money, you say you're not satisfied, I am going to give you a map to get to the Martinsburg communities of Toll Brothers. So we saw an opportunity to create some synergy by developing a little further out. That's what the Martinsburg operation represents."
Macro Impact of Housing Market
- Costco Warns, Joining the Retailer 'Lowered Outlook Club' (Robert Zenilman in Seeking Alpha, August 31st): Costco (COST) is joining the list of mid/high end retailers who are lowering their forecasts. Costco now expects to earn $0.68-$0.71/share for the current quarter (ending Sunday, September 3), and $2.23-$2.26/share for the current fiscal year. Analysts had been expecting quarterly earnings of $0.77/share, and $2.33 for the fiscal year... Costco provided reasons for the reduced outlook, specifically mentioning weaker than expected furniture sales (fallout from a weaker housing market?), markdowns on consumer electronics, and costly returns of high end televisions and lower gasoline margins."
- Costco Conference Call to Discuss Earnings Miss (WSJ/Thomson Transcript, August 30th): "Richard Galanti, Costco CFO: The two main areas of reduction in margin were hard lines margins principally electronics and the return in the salvage costs associated therewith; slightly higher markdowns and some other big-ticket discretionary items like furniture where we saw a few million dollars of reduced margin expectation. I think that is consistent with what we are seeing in the big ticket economy ...the furniture kind of surprised us. The fact that we had the markdowns in furniture this year were perhaps an indication that there is a slowdown on that type of product, perhaps $1000 bar is something that is discretionary when people are pinched a little bit. So we were a little surprised by the markdowns there and the fact that we didn't blow through the goods because we hadn't planned that big an increase on it."
- Yep, There’s a Housing Slowdown -- And Business Spending's Not Picking Up the Slack (William Trent in Seeking Alpha, August 30th): "...this... chart from this morning’s GDP Release... shows the direct contribution to GDP growth (i.e. the 2.9% headline number in today’s release) that was contributed by growth in residential fixed investment... Keep in mind, this shows only the direct impact on housing construction itself. The total effect will include mortgage brokerage, real estate brokerage and any impact on consumer spending."
- Will Market History Repeat Itself? (Phil Davis in Seeking Alpha, August 31st): "Will the housing slowdown kill the economy? ...It is possible that Bernanke, obviously a student of history, learned his lesson and timed his pause a little better than Greenspan did in 1995... While it would be nice to avoid the pain and just move higher, a failure to make our technicals at this point (almost exactly the same point as we were at in 1994) should make us very cautious in the short term, but I'm excited about the potential to go bargain hunting this winter in case history repeats itself! What happened to the homebuilders? Well, I'm sorry to say that they rallied too as it turns out a rebounding economy burns off excess inventory pretty quickly."
Hedging Your House Price By Shorting Stocks
- E.W. Scripps Company: An Unconventional Bursting Housing Bubble Play (Paul Kedrosky in Seeking Alpha, August 30th): "Most people investing around the popping housing bubble have been doing it directly, via the homebuilders themselves. Some investors are beginning to play with the CME real estate futures... but there are other options. One possibility is via the housing bubble media. An entire home improvement media has appeared around the housing bubble, with such programs playing seemingly non-stop, both on regularly network television, as well as on niche cable channels, like HGTV. With the preceding in mind, I have been idly looking at the E.W. Scripps Company (SSP)..."
Web Site of the Day
Chicago Mercantile Exchange Housing Futures and Options: "CME Housing products provide opportunities for protection in down markets, and extend to the housing industry the same financial tools that previous CME innovations have brought to agriculture and finance. By providing a means of hedging exposure to home prices, they can diffuse the potential impact of sustained declines in housing prices."