Real Estate Sales and House Prices
- Eight Major California Home Markets See Drop in Prices (News Channel 3, Ocober 17th): "A real estate research firm says eight major markets in California saw home prices decline in September from the same month last year. According to DataQuick Information Systems, statewide, the median price paid for new and resale houses and condominiums in September was 466-thousand dollars. That's up just two-point-four percent from 455-thousand in the year-ago period and down one-point-three percent from August. Six of the eight counties to see declines are located in the San Francisco Bay area. Sonoma County saw the steepest drop at seven-point-seven percent."
- Home Prices, Sales Fall (MarinIJ.com, October 18th): "The median price of existing single-family homes in Marin County fell 3.3 percent from September 2005 to September 2006, even as single-family prices rose 1.1 percent in the Bay Area overall... Marin's single-family home median was $869,000 last month, down from $899,000 in September 2005, according to DataQuick Information Systems, based in La Jolla. Across the nine-county Bay Area, the September-to-September median for single-family homes rose from $646,000 to $653,000. Marin's decline was even more pronounced when compared with August, when the median single-family home price was $920,000. But DataQuick noted that an August-to-September drop is a seasonal commonality."
- S.J. Home Sales Hit 'Soft Landing' (RecordNet.com, October 18th): "A new quarterly study shows that new-home sales in San Joaquin County took a nearly 33 percent dive from the third quarter of last year to the recent third quarter, but prices slipped 2.3 percent.The San Joaquin County housing market had a five-year-plus run of price escalation that ranged between 25 percent and 40 percent annually throughout the county."
- Five-Year Rally in Home Prices Ends in Ventura County (SanLuisObispo, October 16th): ""I still think the fundamentals are there to keep prices from falling," said economist Bill Watkins, director of the University of California at Santa Barbara Economic Forecast Project. The growth rate that sent home prices into the stratosphere was not sustainable forever, Watkins said, but the sudden drop in sales that has plagued California’s summer selling season probably has more to do with consumer mood."They heard so much about a bubble that they are sitting out," he said. With the potential for economic weakness in the first quarter next year, Watkins said the malaise could last another 12 to 18 months. He expects that prices will hold flat during that time, but it wouldn’t be surprising for a few more negative numbers to show."
- No 'Stabilization' in the Housing Market (Barry Ritholtz in Seeking Alpha, October 18th): "Stabilization? You mean after 8 consecutive months of free fall, we see a tiny blip up? I fail to see what these spinmeisters are so breathless about... Here's an excerpt from NAHB: "October 17, 2006 - Breaking a string of eight consecutive monthly declines, the National Association of Home Builders/Wells Fargo Housing Market Index, which gauges builder sentiment in the single-family housing market, posted a modest one-point gain to stabilize at a level of 31 in October...".
- Housing: What Does "Return to Mean" Really Mean? (Tim Iacono in Seeking Alpha, October 18th): "the prospects for homeowners could potentially be worse... in addition to there being a tendency to revert to the mean, there is also a tendency to overshoot during the process. This is what happens when an entire nation sours on the idea of owning something - think common stocks in 2002, and maybe real estate sometime in the years ahead. On the bright side, it's always possible that things will be different this time."
- "What, Me Worry?": Home Price Decline is News to Many Americans (Tim Iacono in Seeking Alpha, October 16th): "This is going to be a long slow process - opinions about something as dear as real estate are slow to change. This is painfully obvious when reviewing a recent survey in Barron's where it is learned that more than 90 percent of the people surveyed still think that home prices only go in one direction - up. More than three-fourths of those polled saw their home's value rising over the next few years. More importantly, almost half believe the gain will be more than five percent per year and almost a third believe future gains will top ten percent annually."
Real Estate Investing and Sentiment
- As Housing Bubble Collapses, Developers and Sellers Cut Prices, Await Deals and Pray for a Rally in '07 (Newsday.com, October 18th): "...the incentives are growing. Builder Alec Ornstein, a partner in Ornstein Leyton Co. in Garden City, is offering buyers an upgraded kitchen or, in some cases, a year of paid real estate taxes. Steven Klar, an East Meadow developer, is throwing in a Mercedes with some of his homes..."
- Housing Confidence at Low Point (InmanNews, October 18th): "The University of Michigan's monthly survey of consumers in September showed that home-buying attitudes were at the lowest level since 1990, with consumers citing concerns over potential future price decreases and increases in mortgage interest rates... consumer confidence in home buying measured by his university's surveys started to decline in early 2005, and current confidence levels are the lowest recorded since 1990..."
Mortgates and Real Estate Lending
- Housing Correction Just Getting Started (New York Sun, October 17th): "Mortgage lenders have required less information about borrowers and less regular payments on loans than ever before. As an example, 62% of non-agency loans made last year had low or no income verification, up from 24% in 1998. Also,52% of such loans made in 2005 had zero or negative amortization requirements. In 1998 there were no such loans. Standards have become so lax that the Comptroller of the Currency issued new lending guidelines last month, which require greater reserves against non-traditional loans and greater disclosure by borrowers. These new standards are slowly filtering through the system and will likely lead to a tightening of credit in the mortgage markets. Indeed, ISI reports that last week New Century, a sub-prime lender in California, announced that it is tightening its requirements. Little wonder.Apparently 88% of its loans are sub prime; 17% of loans are interest only, and 42% are stated income, meaning there has been little background check done on the applicants."
- The Coming Credit Crunch: What's in Your Wallet? (Chicago Tribune, October 15th): "Mortgage foreclosures are on the upswing from historic lows, says Bob Visini, a spokesperson for First American LoanPerformance, a mortgage data company in San Francisco. There also is a significant increase in late mortgage payments among sub-prime borrowers, generally those with credit scores below 680 on a scale of 300 to 850. Nationwide, just over 10 percent of sub-prime borrowers are at least 30 days late on their mortgage payments... According to First American LoanPerformance, interest-only mortgages made up nearly 20 percent of all new loans in the Chicago area in 2005 and 2006, and option mortgages accounted for another 4 to 5 percent."
- Incentives Prop up Home Sales Across Nation (Fayetteville Online, October 17th): "Gonzalo Sotelo, a licensed real estate agent in Salinas, Calif., said that three times in the last few months, buyers’ agents approached him about securing cash back at closing without informing the lender. In the most expensive proposition, an agent from the nearby San Francisco Bay Area proposed having a home with a $539,000 asking price reappraised and sold at $600,000, with Sotelo’s client paying back $60,000 in cash to the buyer. Sotelo, of Prudential California Realty, said he turned down the deal and hasn’t heard from the agent since. The type of offer Sotelo received prompted his boss, Jose Palma, to devote a recent staff meeting to a discussion of how to avoid potentially fraudulent deals, since giving cash back without telling the lender creates legal liabilities for the broker and seller."
Macro Impact, and Will a Housing Crash Cause a Recession?
- The U.S. Housing Bust: Excess Investment and its Discontents (Online Journal, October 17th): "As companies such as Lennar cut their costs, there is a ripple effect in sectors of the economy linked to the rise and fall of home prices and sales. This tightening trend can spur employers to cut the benefits, hours and jobs of employees in a gendered and racialized labor market. Now and before, employers and investors make the diverse U.S. working class pay for over-investment with reduced living standards. In this way, a market economy tries to create conditions of new, profitable outlets for investment capital, such as the hiring of younger and cheaper workers without health care and retirement pensions. This is one hell of a brutal way to organize a modern society."
Housing Related Stocks, and Hedging Your House Price By Shorting Stocks
- Move Inc. Losing Market Share, HouseValues Gaining? (David Jackson in Seeking Alpha, October 18th): "Interesting discussion from Inman News about traffic to real estate web sites: "The number of unique visitors to top real estate Web sites increased 17 percent from August 2005 to August 2006... The most visited site, Realtor.com [owned by Move Inc. (NASDAQ:MOVE)], had an 11 percent year-over-year decrease in unique visitors... HouseValues (SOLD) sites – which include JustListed.com, HouseValues.com and HomePages.com – saw traffic increase..."".
- LoopNet: The Anti-Zillow Has a Compelling Model (James Nicholson in Seeking Alpha, October 16th): "I think Zillow is a technical marvel and I like their clean interface. But I see two problems with their business model: 1) The site isn't sticky... 2) Zillow has competition... In contrast to the buzz surrounding Zillow, LoopNet is a real estate website that has largely flown under the radar. LoopNet (NASDAQ:LOOP) went public earlier this year and currently has a market cap around $500 million. One reason why you may never have heard of LoopNet is that the site caters exclusively to commercial real estate - apartment buildings, shopping centers, industrial warehouses."
- WCI Communities Investor Basswood Wants Better Performance (Lon Juricic in Seeking Alpha, October 18th): "In a 13D filing on WCI Communities (NYSE: WCI), 5% holder Basswood Partners disclosed a letter sent to the company... In the letter the firm said, "As of October 13th 2006, WCI's stock trades 16.5% below its March 2002 IPO price, while its peer group (as defined by the Company in its 2005 proxy statement) is up 88.9% over the same period." They also said, "WCI's stock is trading at a significant discount to its intrinsic value, especially given its large inventory of entitled land in coastal Florida purchased prior to 2000.""
- Orleans Homebuilders' Discount Looks Enticing (Paul Tracy in Seeking Alpha, October 17th): "Like most homebuilders, Orleans Homebuilders (OHB) has been hit hard over the past six months... But the news for OHB is far from terminal. Even after the guidance cut, OHB should earn close to $1.35 per share this year. Based on current prices, that works out to a multiple of barely ten times earnings. And if the property market does experience a soft landing, then OHB will easily beat those estimates. Bottom line: with long-term growth near +8%, OHB is starting to look much more compelling at current levels."
- Moat Check: Building Materials Holding Corp. (Fat Pitch Financials in Seeking Alpha, October 16th): "The return on invested capital [ROIC] for BMHC was below 10 percent for each year between 1996 and 2003. Only when the housing boom really got going did Building Materials Holding’s ROIC break into the double digits. ROIC is the most important numbers I use to determine whether or not a company has a sustainable competitive advantage (i.e., wide moat)... Given my review of Building Materials Holding Corporation, I do not believe that it has a sustainable competitive advantage. Actually, it doesn’t look like it really has much of a moat at all."
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