Housing Bubble and Real Estate Market Tracker

Here's our 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. Like all other topics and stock coverage from Seeking Alpha, you can get this sent to your blackberry or desktop email by signing up for our no-spam free email subscription service.

Real Estate Sales and House Prices

• Resurgent housing market to lose steam (Reuters.com, Nov. 14th) London: "The resurgent housing market will hold firm over the next couple of months, but then cool down early next year as higher interest rates and heady valuations curb demand, a Reuters poll shows. "The risks to house price inflation lie to the upside in the very near term and leading indicators of price inflation support that view"... Mortgage approvals are at their highest level in 2-1/2 years while the Halifax house price survey showed prices last month rose at their fastest annual rate since July. Economists are forecasting more strength to come in house prices, at least in the short term."

• KOR's Sunset Silver Lake: Pre-construction Bust? (Curbed LA, Nov. 14th): "A blogger's report on KOR's Sunset Silverlake loft project... "As for my own decision not to buy now, I have been spooked by the chilly housing market combined with my uncertainty about the scope and speed of Sunset Junction's gentrification. KOR has now decided to not market the lofts again until the new year, and has claimed that its released prices will "not go down."

• Buyers gain leverage edge in N.O. homes (New Orleans City Business, Nov. 13th): " Right after Katrina, a shortage of undamaged housing fueled sales and home values. But [now] the market has flipped upside down... From the North Shore to the South Shore, more properties are for sale than there is demand. In March, 4,495 homes were for sale in southeastern Louisiana. By September, there were 7,398 on the market, and only 1,262 sold. Undamaged uptown homes in all price ranges are taking much longer to sell than before Katrina... It now takes approximately 60 days to sell an Uptown home, a 91 percent increase over pre-Katrina.”

• It's a buyer's market, baby (The Albuquerque Tribune, Nov. 13th): "Buying a home in Albuquerque last year was often a race against time. But the market reversed itself this fall. The 4,695 existing homes on the market in Albuquerque as of September doubled from 2,319 a year earlier. Sellers now wait between a month and two months before their homes are sold... The rising inventory of homes is taking its toll on the construction industry as well...The number of building permits for single-family homes dropped 52 percent from one year ago and 67 percent less than the year's high of 964 permits issued in March."

• Builders Turn To Freebies To Attract Home Buyers (Charlotte Business Journal, Nov. 13th): "Buyers of new homes in Charlotte have been offered a variety of incentives from national builders... Charlotte is still a strong market, and so we don't have... severe incentives. The Carolinas, Texas and Georgia are among the few bright spots in the country's weakening housing market... [But] new-home buyers are going to see "very aggressive" moves by builders to grow market share in 2007... There's pressure on national builderssuch as Beazer Homes, Centex Homes and Pulte Homes -- with a presence in Charlotte-- to pick up sales to make up for the volume lost through overbuilding in some markets."

Real Estate Investing and Sentiment

• Real Estate Market Addressed (Courier Post Online, Nov. 15th): "From the Emerging Trends in Real Estate 2007, a conference presented by the Philadelphia District Council: Declining returns on real estate investment, but average or above-average performance. Restrained use of capital, fewer transactions and tightened underwriting standards. New commercial construction tempered by high material and labor costs. Housing prices climbing beyond buyer affordability limits; softening residential construction. Landlord revenues curbed by increasing property taxes and higher costs for energy and insurance."

• Affordable Housing Fraud In Santa Barbara County (KSBY.com, Nov. 14th): "In the late 80s, Santa Barbara County's housing lottery was instituted to help low income families. The County has helped 460 families buy their first home, but it may disappear because too many families are taking advantage of the system. The county is currently investigating 42 complaints of potential fraud... Almost 10% of families who qualified for the lottery are finding loopholes. The most popular? Renting their home to another family, which is a violation of their agreement."

• The NAR Tries to Sell the Lack of Home Sales (Tom Iacono in Seeking Alpha, Nov. 13th): "An NBC Nightline show... details "gimmicks" [to sell houses] - slashing prices, giving gifts, and creative marketing... Could homes be worth less in November of 2008 than right now? There are three phases - the absorption rate slows down, then a price correction phase, and finally a foreclosure phase. Right now, we're just in the beginning of the price correction phase. Not until the end of 2008 [will] we see a real turn around... It could go on even longer than that - in California, in Las Vegas, and you can be sure that this hangover is going to play into the election two years from now."

Mortgates and Real Estate Lending

• Can the US consumer live without equity extraction? (Money Week, Nov. 13th): "Back in 2000, when homes were worth $11.4 trillion, there were only $4.8 trillion in mortgages against them. In the second quarter of 2006, that mortgage debt increased to a whopping $9.3 trillion. Increases in consumer borrowing pushes up economic spending and corporate profits and is far more powerful than wage or salary increases. To put it simply, when a dollar is borrowed, the full amount can be spent; when a dollar is earned, taxes need to be paid so depending on your tax rate, you’re left with about $.60 - $.80 cents."

• Bubblemania (Freemarketnews.com, Nov. 13th): "Forbes: "The real estate market has never offered such opportunity for graft. Since the housing market started to soar in 2001, mortgage fraud has become the fastest-growing white-collar crime, according to the FBI. Last year crooks skimmed at least $1 billion from the $3 trillion U.S. mortgage market. Now that the market is slowing, fraud is only rising."

• In Danger Of Losing It All (Star-Telegram.com, Nov. 12th): "Borrowers in the Fort Worth-Arlington area are more likely to default on mortgage loans backed by government insurance than consumers in other major metropolitan areas in Texas and throughout the United States... Local lenders are tightening their standards. One big lender has stopped writing Federal Housing Administration-backed loans that include down-payment assistance... Such loans default nearly twice as often as other loans insured by the FHA... As a result FHA's share of the mortgage market has slipped from about 20 percent in 2000 to just 6 percent in 2005."

Macro Impact, And Will The Housing Slump Cause A Recession?

• The Housing Downturn Hits Home Depot (BusinessWeek.com, Nov. 15th): "The sector's hard times have filtered through to the large-scale retailers who supply the basic building ingredients. Retailer Home Depot (HD) reported weak results for the third quarter on Nov.14... on cooler activity in the sector. HD is also predicting a chilly fourth quarter, with per-share profits falling 12% to 16% from a year ago. "I still think we have deeper to go than we have seen," CEO Bob Nardelli said on a conference call with analysts. "I do not think we have seen bottom yet. I do not see anything that says it's going to get significantly better in '07. "

• Hot or Not? Thousands Of Brokers Gather In New Orleans To Assess The Cooling Real Estate Market (Newsweek, Nov. 14th): "The current housing slowdown isn't like the more typical real estate busts of the early 1980s or early 1990s. [Then] mortgage rates rose, job growth faded and the economy weakened, pinching people's ability to buy homes. Today, mortgages are still near 45-year lows and unemployment is down, yet many buyers are reluctant to make offers... NRA chief economist David Lereah attributes this to high prices reducing the number of people who can afford homes, falling demand by investors and the public's psychological shift from celebrating the boom to worrying about a bubble."

• U.S. Housing Slump Deepens, Spreads (Globeandmail.com, Nov. 14th): "The loss of jobs ... in the home construction market is at unprecedented levels,” CEO Bob Nardelli said on Tuesday. “Home builders [are] basically writing off earnest money and liquidating land. We're starting to see a lot of that unemployment find its way over to the small repair and remodel contractors.”

• Housing Market Change Will Mean Spending Shift (London Free Press, Nov. 13th) Canada: "The U.S. housing market correction will mean a shift in spending psychology... The U.S. consumer is highly indebted, is capable of abrupt shifts in spending behaviour, has been the main engine of global economic growth for a long time... The U.S. slowdown will not mean a recession, but global growth will slow by almost a full percentage point in 2007 to about 4 per cent. In the U.S. to about 2.2 per cent, Canada to 2.4 per cent, Europe to 1.6 per cent and Japan to 1.9 per cent."

• Near a Housing Botttom? (Barry Ritholtz in Seeking Alpha, Nov. 12th): "One of the reasons I have been so skeptical about the staying power of the most recent rally has been the disconnect between stock prices and the macro environment. The rally appears to be based on several false premises: A soft landing, a bottom in real estate, a mid-cycle slow down that resumes almost as soon as it starts... A milder than average housing correction? The current housing cycle is [not] less extreme than prior cycles...The dollar-volume to GDP ratio reached a record high 16.3% in 2005, almost double the median percentage of the entire series dating back to 1968."

Homebuilder Stocks, and Hedging Your House Price By Shorting Stocks

• D.R. Horton Beats Estimates but Advises Caution (Judith Levy in Seeking Alpha, Nov. 15th): "D. R. Horton, the largest homebuilder in America, beat Q4 earnings estimates despite a 51% drop in profits by closing more home sales than expected in the quarter. But the company warned that the market is continuing to deteriorate... Management hopes to protect Horton from the downturn by restricting speculative home starts (homes built without a buyer in place) from the current 50% of its inventory to the low 30% range. It also plans to use most of its free cash flow next year to pay down debt and strengthen the balance sheet rather than buy new land."

• The Real Reason to Avoid Homebuilders (Michael Church in Seeking Alpha, Nov. 15th): "Regarding homebuilders: They are cheap and do present some interesting value here. Wages are growing. It is mostly a supply issue which can be worked off. Sentiment is at all time lows. Is it time to buy them? Not yet... The real estate industry is riddled with corruption... "Buyers agents", appraisers, real estate agents, mortage brokers, lenders, title insurers-- all conspiring together to make a sale and inflate the price. We know what a bursting bubble can do to an industry, and it starts and ends with regulation and investigation. The real reason to steer clear of these companies is corruption."

• Pulte pulls out of Extreme Networks HQ purchase (Silicon Valley Business Journal, Nov. 14th): "Pulte Homes Inc. (PHM) has pulled out of a $70 million deal to buy the Silicon Valley headquarters of Extreme Networks Inc. (EXTR)... The collapsed deal is the latest confirmation of the slowdown in national and regional home sales... At a per-acre purchase price of more than $4 million, this proposed transaction was on the richer side of the spectrum."

Commercial Real Estate and REITs

• Real Estate Funds Riding High (The Street.com, Nov. 14th): "Mutual funds that specialize in real estate are still flying high, benefiting from their exposure to commercial property through holdings in real estate investment trusts. Slower home sales [means] more people opt to rent, pushing rents higher and boosting profits at apartment REITs... Investors look to real estate to diversify their portfolios. For that reason, real estate fund managers typically try to generate returns that have a low correlation to the equity market... [The] only concern about apartment REITs is that they are overvalued. Overseas real estate investments are more attractive."

• A Tale of Two Real Estate Funds (Kiplinger.com, Nov. 13th): "From April 2000 through June 2005, CGM Realty returned 29% annualized while Alpine U.S. Real Estate Equity gained 34% per year... But from July 2005 to September 2006, CGM gained 37%, while Alpine surrendered 20%. CGM cashed in a huge stake in homebuilder stocks early in 2005 and now has about two-thirds of the $1.3-billion fund's assets in REITs that own or manage apartments, hotels, offices or shopping centers... Alpine predicts that builder stocks will recover once the housing slump hits bottom... in the first half of 2007... CGM is now more like a traditional real estate fund: 70% of assets in REITs, with big chunks in apartment, office and industrial trusts. CGM now yields 1.3%, compared with virtually zero for Alpine."

Web Site of the Day

Curbed is a Manhattan community-based weblog that claims it has: "established itself as the center of the virtual conversation about real estate in Manhattan, Brooklyn, Queens, and beyond. Sales and rental prices, celebrity deals, new developments, amusing broker stories, hot restaurants, and the latest neighborhood gossip." Curbed depends on local resident tip-offs to keep it up to date and says it is "the most-trafficked neighborhood and real-estate weblog on the web." Although Curbed presents itself as a gossip-based website, it says it fixes any inaccuracies brought to its attention. Definitely worth a look for New York real estate buyers and sellers tracking the real estate market through local data and anecdotes. There's also a Curbed LA and a Curbed SF.

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