Real Estate Sales and House Prices
- Home Sales Forecast Lowered, Prices To Dip Temporarily (National Association of Realtors, September 7th): "Home sales during the rest of the year will be lower than earlier projections as the market works its way through an inventory and price imbalance, according to the National Association of Realtors. David Lereah, NAR’s chief economist, said the most obvious effect in the near term will be with home prices. “A year ago we had record home sales and tight supply with buyers bidding over the asking price,” he said. “This year sales are slowing, homes are plentiful and sellers are negotiating. Under these conditions, we’ll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory.” “This is a normal pattern during a market correction, but home prices should return to positive territory within a few months and annual appreciation will be slower than historic norms,” Lereah said. “Keep in mind that over time, home prices rise at the rate of inflation plus one-to-two percentage points – buyers in most of the country who plan to stay in their home for a normal period of homeownership can pretty well bank on those historic averages, but people who purchased last year with the intent of flipping are likely to get burned.” The national median existing-home price for all housing types is expected to grow 2.8 percent this year to $225,900, with the median new-home price rising only 0.2 percent to $241,400. New-home appreciation is dampened by builders offering incentives to reduce inventory. Existing-home sales are forecast to fall 7.6 percent to 6.54 million in 2006, the third best year after consecutive records in 2004 and 2005. New-home sales should to drop 16.1 percent this year to 1.08 million, the fourth highest on record. Housing starts are projected to decline 9.6 percent to 1.87 million in 2006."
- What's The Real Cause of Housing Softness? (Marc Gerstein in Seeking Alpha, September 7th): "The National Association of Realtors [NAR] Housing Affordability Index suggests... that homes in some parts of the United States have become so expensive, even a decline in interest rates won't help much... The overall decline in affordability, often discussed anecdotally and confirmed statistically by the Index, is significant in and of itself. More interesting, however, are the regional variations... it's clear that affordability problems in the West are so severe that they cannot be corrected by any plausible Fed-easing scenario and argue for a more-than-trivial decline in prices. The situation is less stark in the Northeast, but even there, it would seem to require home-prices to fall by more than the low-single-digit percent range assumed by the housing futures market. Declines of about 10 percent would seem necessary to move the Affordability Index to adequate, although still far from comfortable, levels."
- Property Prices are Cooling Fast in America, But Heating Up Elsewhere (The Economist, September 7th): "According to the Office of Federal Housing Enterprise Oversight [OFHEO], the average price of a house rose by only 1.2% in the second quarter, the smallest gain since 1999. The past year has seen the sharpest slowdown in the rate of growth since the series started in 1975. Even so, average prices are still up by 10.1% on a year ago. This is much stronger than the series published by the National Association of Realtors [NAR], which showed a rise of only 0.9% in the year to July. The OFHEO index is thought to be more reliable because it tracks price changes in successive sales of the same houses, and so unlike the NAR series is not distorted by a shift in the mix of sales to cheaper homes... House-price inflation is faster than a year ago in roughly half of the 20 countries we track... Apart from America, only Spain, Hong Kong and South Africa have seen big slowdowns. In ten of the countries, prices are rising at double-digit rates, compared with only seven countries last year. European housing markets—notably Denmark, Belgium, Ireland, France and Sweden—now dominate the top of the league. Anecdotal evidence suggests that even the German market is starting to wake up after more than a decade of flat or falling prices... Calculations by The Economist show that in Britain and Australia the ratios of prices to rents are respectively 55% and 70% above the long-term average... By the same gauge property is “overvalued” by 50% in America."
- Housing Market May be on Ice, but the Blame Market is Red Hot (Chicago Tribune, September 10th): "Sales of single-family homes in the Chicago area in July were down 18.6 percent from a year earlier, and condos were off 8.4 percent, according to the Illinois Association of Realtors. Nationally, sales of all types of homes were 11.2 percent lower in July than a year earlier... In the Chicago area alone more than 95,000 properties are on the Multiple Listing Service of Northern Illinois, fully 40 percent more than a year ago... Area sales prices were still on the plus side in July, with single-family home prices up 4.3 percent and condos selling for 6.1 percent more than a year ago, the Realtors said."
- Housing Slump Harsher than Predicted (News-Press.com, September 10th): "...The resulting slump, thus far, is being felt mainly on the East and West coasts and in Florida, where home prices had soared beyond the average working family's ability to pay. In California's San Diego County, the median home-sale price was $487,000 in July, down 1.8 percent from a year earlier, according to DataQuick Information Systems, a research firm in San Diego. Prices in the Northern Virginia counties of Fairfax and Arlington and in nearby towns, near Washington, averaged $537,731 in July, down 3.9 percent from a year earlier, according to the Northern Virginia Association of Realtors. In some other parts of the country, notably Texas and the Seattle area, local housing markets remain robust. Texas' low housing costs are attracting new residents and investors, while Seattle's strong job market and shortage of homes have kept prices rising."
- Housing Market Still Strong (Clarion Ledger, September 9th): "Mississippi's housing market remains strong despite a study that shows Americans are not purchasing homes. Several real estate experts around the state say rebuilding from Hurricane Katrina contributed to the numbers but is not the only factor. Economic growth and jobs are others, said Cheryl Bullock of the Jackson Association of Realtors, which records sales for Hinds, Madison and Rankin counties... She said housing prices on the Coast have climbed 5 percent to 35 percent because of the shortage of livable spaces caused by Katrina's destruction."
- Home Sales Up, Prices Fall (The Real Estate Report, September 9th): "The median price for re-sale single-family homes in San Diego County dropped for the third month in a row, down 0.8% in August from the month before. Year-over-year, the median price lost 1.7%. The average price for homes was up 0.7%, year-over-year. Home sales reversed course in August, after falling two months in a row, by gaining 1% from July. Year-over-year, sales were down 32.7%."
- Home Prices in Region Decline in 2nd Quarter (Pittsburgh Tribune-Review, September 10th): "A new government report seems to indicate an easing of home prices in the Pittsburgh area. Prices during the 2006 second quarter in the region dropped 0.24 percent, according to the report issued by the Office of Federal Housing Enterprise in Washington. That's down from an increase of 1.86 percent in the year's first quarter."
- Bubble Bath (NY Post, September 7th): "The real-estate bubble appears to be bursting, or at least deflating, for Eddie Murphy's "Bubble Hill" property in New Jersey. The comedian, who originally listed the nearby Englewood Cliffs property for $30 million (making it New Jersey's most expensive home) in December 2004, has whittled it down to $22 million. In August 2005, we reported that Murphy lowered the price of the 32-room, 25,000-square-foot Colonial on 5 gated acres by $3 million, just after his wife, Nicole, filed for divorce."
- A Humbling Lesson for Realtors' President (Washington Post, September 9th): "The president of the National Association of Realtors, Thomas M. Stevens of Vienna, admits he didn't follow his agents' advice when the real estate market started to cool. That, he says, is why his old house in Great Falls has now been on the market for a year at the price of $1.45 million... he noted, in his defense: "Who knew last September how long this down trend was going to continue," after so many years of climbing upward?"
Real Estate Investing and Sentiment
- The Housing Bubble: Buy for Cash Flow, Or Else... (Mathieu Lagarde in Seeking Alpha, September 10th): "Something is wrong, really wrong, when real estate is not being bought for cash flow but for a quick price increase. It's when you know you have a bubble that will burst sooner or later."
- Texas Lags Big States in Real Estate Agents (North Texas e-News, September 11th): "Texas has 100,000 active real estate licensees. California has four times that number of active licensees. Florida has twice as many, and New York has 50 percent more. The number of active Texas real estate licensees peaked at nearly 154,600 in 1986. Then came the real estate bust, and by 1997, the total had dropped to fewer than 81,200... In 1986, Florida led the nation with 19.5 real estate agents for every 1,000 residents. By 2000, the Sunshine State was down to 9.4 agents per 1,000 — substantially fewer than the peak but still twice as many per 1,000 citizens as Texas. The agent-to-resident ratio in California, Florida and New York has been going up since 2001. The California ratio is up 30 percent, Florida 20 percent and New York 26 percent. The Texas ratio is up 5 percent since 2000. Maryland holds the record for the fewest real estate agents with one per 1,000 residents in 1990. Massachusetts holds the record for the greatest saturation of real estate agents per 1,000 residents — 37.8 in 1992."
Mortgates and Real Estate Lending
- Why Are Foreclosures at a 52-Year High? (WKYT27, September 8th): "In Nashville's Davidson county foreclosures are up 52% from last year. Hurricane Katrina made this bad situation even worse. Louisiana has just become the number one state for foreclosures by percentage of the population. But Katrina will impact homeowners who never saw a drop of rain. Because of the enormous losses incurred by insurance companies in Florida, on August 10, 2006 USAA, the insurer of more than 280,000 people in Florida, asked the state for a 40% increase in premiums across the state. This follows an average 8% increase earlier this year. This means as interest rates rise and ARM's increase, insurance premiums are also going to increase dramatically for some homeowners. This, coupled with increased fuel costs are draining Americans of a lot their disposable income, has made foreclosures rates the highest in more than fifty years."
- Housing Market Sinking, But Mortage Rates Still Near Historic Lows (Tim Iacono in Seeking Alpha, September 10th): "The most disturbing fact regarding the nation's teetering housing market - where the imbalances between dramatically rising inventory and slowing sales have built such momentum in recent months that prices are now in severe danger of broad declines - is that traditional mortgage rates are still near historic lows... One aspect of the OFHEO report that gets little attention is the effect of home improvements on the home price data. With somewhere around a half trillion dollars of equity being "extracted" each year, and a goodly portion of that amount going into home improvements of some sort, just how much of the price increase could be logically negated by improvements that have been occurring at rates not seen since cave men began drawing pictures on walls?"
Macro Impact, and Will a Housing Crash Cause a Recession?
- Risk of U.S. Recession Growing: HSBC (Reuters, September 8th): "Investment bank HSBC has revised downward its forecast for 2007 economic growth and cautioned that the risk of an outright recession is growing as a retreat in housing threatens household balance sheets... They now see gross domestic product expanding just 1.9 percent next year, down from an earlier forecast of 2.6 percent and from an expected rate of growth around 3.5 percent for 2006."
- Wall Street Warily Watches Main Street (WSJ, September 10th): "In recent years, mortgage refinancing gave many people more cash to spend, but the climb in interest rates has now slowed refinancings. Meanwhile, interest rates on many aggressive mortgages, such as several types of adjustable-rate loans, are scheduled to rise in the next two years, putting pressure on consumers already dealing with heavy debt. Higher prices for gasoline and home heating also are taking a toll on pocketbooks and wallets. As a result, many investment professionals are concerned about the stocks of companies that cater to the so-called discretionary spending of consumers. The Dow Jones Wilshire U.S. Retail Index is down 5.4% since its recent peak in May, while the Dow Jones Wilshire U.S. Consumer Services Index, with stocks such as Whirlpool and Liz Claiborne, is down 4.7% from its own May high."
- WSJ Economist Survey -- Housing Slowdown to Continue; Recession a Possibility (Eli Hoffman in Seeking Alpha, September 8th): "In a recent survey of 52 economists, most believe cooling in the housing market will extend into next year. Housing forecasts: Many predict no change, or even a decline, in home prices next year. The average prediction for next year was a 0.43% increase in housing prices, well below the 2.7% forecasted CPI inflation measure. The last time housing trailed inflation was in 1996."
- A Housing Correction -- or a Bust? (Jim Jubak in MSN Money, September 8th): "I can see the housing market muddling through with something like Lereah's 5% to 10% correction in the hottest markets -- but only if the economy runs at 2.5% or better in 2007, interest rates stay at current levels and inflation doesn't kick up again. I think there's a stronger likelihood of a deeper correction... I'd be inclined to sell real estate now if I had any to sell, wait to buy real estate if I wanted to add some at bargain prices to my portfolio, sell riskier winners so that I'd have more rather than less cash in January 2007 and keep my eye out for defensive equity plays that would be attractive to anyone arriving late to the pessimists' camp. That's the strategy I'd like to have in place in early 2007. In the shorter term, I'd play the seasonal rally..."
- Housing Crisis: Housing Bubble or Lending Bubble? (Oliver Schwindler in Seeking Alpha, September 7th): "The increase in home prices cannot be explained by fundamental factors, such as rising incomes and population growth... Most importantly, there has been no significant increase in rents, which would be expected if the run-up in house prices were explained by the fundamentals of the housing market. Rents and home sale prices have always moved closely together, since families can freely switch between renting and owning depending on the relative prices, and landlords can sell off rental property if home sale prices rise substantially relative to rents. Rents had increased somewhat more rapidly than the overall rate of inflation from 1998 to 2002, and are currently rising again. However, these small increases in rents compared to the large increases in home prices, could indicate that the run-up in house prices is not being driven by fundamental factors in the housing market."
Homebuilder Stocks, and Hedging Your House Price By Shorting Stocks
- St. Joe To Cease Building Homes in Florida As National Housing Market Goes From Bad to Worse (Jonathan Liss in Seeking Alpha, September 10th): "St. Joe Co. (JOE) said it will pull out of home building in Florida but will remain in the business of developing its vast land holdings in northwestern Florida into planned communities. The company also expects to reduce its work force of 1,230 full-time employees by about 10%. A St. Joe spokesman said large specialist homebuilders can erect homes more efficiently than St. Joe. The shift in strategy will allow St. Joe to focus on its expertise in planning and obtaining regulatory approvals for communities, he said. The move comes as a result of a recent sales glut in Florida that has forced builders to offer bigger discounts to prospective buyers. In general, it was a tough week for the biggest U.S. home builders, as one company after another slashed earnings guidance to deal with the widespread downturn in the housing market. Lennar Corp. (LEN), warned Friday that earnings in its fiscal third quarter, which ended Aug. 31, would be much lower than analysts on Wall Street were anticipating... However, Lennar reported only a 5% decline in orders, which is significantly better than its peers."
- Lennar Cuts Forecast Amid Tough Housing Market (Reuters, September 8th): "Lennar Corp. (LEN) on Friday became the fifth major U.S. home builder in little more than a month to cut its financial outlook due to a deteriorating housing market, sending its shares down about 2.4 percent. Lennar, the No. 3 U.S. home builder, said it now expects to post a profit of $1.25 to $1.35 per share in the fiscal third quarter ended August 31, down from its prior estimate of $1.90 to $1.95 a share. Analysts polled by Reuters Estimates, on average, looked for $1.81 a share."
- A Long Play on a Worsening Real Estate Market: Drew Industries (Value Investor Insight in Seeking Alpha, September 8th): "Drew sells component parts – like windows, doors, chassis and axles – to manufacturers of recreational vehicles and manufactured homes. They do business with almost all manufacturers and probably have 50% market share in both businesses... We now think higher interest rates will refocus many low-end buyers’ attention on the relative affordability of manufactured housing. Lending to the industry is now much stronger and default rates are way down. In fact, terms have gotten so rigid that legitimate potential buyers – who generally have lower FICO scores – can’t get loans. We expect that all to adjust as time goes on. Clayton Homes is the biggest player in the industry and you can imagine one reason Berkshire Hathaway bought it was for the opportunity to lend money to that business can double for them in the next few years."
- Be Suspicious of any Market Strength -- Especially in the Homebuilders (David Fry in Seeking Alpha, September 8th): "Hovnanian (HOV) loses less money than expected and we have a very heavy volume rally in the Homebuilders’ ETF (XHB)... I’m suspicious of the rally in XHB [the homebuilder stocks ETF] and the Consumer Discretionary SPDR ETF (XLY), while other important market sectors struggle. It seems a “managed” market.
- Countrywide Financial: The Price is Right, The Market Isn't (Erik Dellith in Seeking Alpha, September 7th): "Shares of Countrywide Financial Corp. (CFC) have slumped about 8 percent over the last three months, as concerns over rising interest rates and a slowing housing market have hit the nation's largest mortgage lender... Although it appears that the Fed may be done raising rates for now, this lag still means that the hikes from March, May and June may have yet to really hit home - and home buying."
- Real Estate 'Loss Protection' for New Clorox CEO (Michelle Leader of Footnoted.org in Seeking Alpha, September 7th): "Two weeks ago, I noted... how a few top executives were managing to protect themselves from the downturn in the real estate market. While the trend is still pretty new, it appears to be catching on pretty quickly, at least according to this 8-K filed by The Clorox Co (CLX) late yesterday. Under a deal that brings Coca-Cola’s (KO) North American president Donald Knauss to the CEO spot at Clorox, the company will provide the new executive with a $50,000 "loss protection" on the sale of his home in Atlanta..."
Web Site of the Day
HomeSales.gov lists homes for sale by the U.S. Government -- often homes that were bought with loans guaranteed by the Federal Housing Administration or Department of Veterans Affairs and subsequently went into foreclosure.
You wouldn't guess this from the site, which states only that "These previously owned homes are for sale by public auction or other method depending on the property. Anyone can buy a home for sale by the U.S. Government, but you must work with a real estate agent, broker or servicing representative to submit an offer or bid. Currently the U.S. Departments of Housing and Urban Development [HUD], Agriculture (USDA/Rural Development), and Veterans Affairs [VA] have homes listed on this site."
Buyers who are planning to use a property listed on the site for homeowner occupancy have preference over investors and commerical buyers for the first 45 days of any listing.
Sign up for Seeking Alpha's coverage of the housing market and stocks, including the Housing Bubble and Real Estate Market Tracker by email here (free, no-spam guarantee).