Housing Bubble and Real Estate Market Tracker

Nov.13.06 | About: ZipRealty, Inc. (ZIPR)

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

  • Home Sales Slid Again In October (The Capital, Nov. 12th) Annapolis, Maryland: "County home sales slid nearly 30 percent for a second consecutive month... But while high-end buyers are still scooping up million-dollar waterfront properties, homes stayed on the market an average 81 days - 97 percent longer than this time a year ago... Middle-class homeowners trying to sell off a home for around $400,000 are having the most difficulty. They want to purchase a more expensive home but must sell off their current home first."
  • It's Official: UK House Prices Have Gone Through The Roof (Homesgofast.com, Nov. 11th) UK: "UK property prices have soared at more than three times the rate of stock market returns in the past decade. Property values have tripled in three regions: London house prices have soared by 240 percent, Northern Ireland by 231 percent and south-west England by 213 percent."
  • France: GDP Stalls In Q3 (Fxstreet.com, Nov. 10th) France: "Most activity indicators have been fairly favourable during Q3, also in France. However, GDP figures for Q3 published this morning revealed another story. Following an excellent first half 2006, [the] French economy stagnated in Q3, posting GDP growth of 0.0%q/q... The slowing of the French housing market has probably impacted consumer demand negatively."
  • Bottom Fishing (Marketwatch.com, Nov. 10th): Realtor's Association: "Several "signs of recovery" in the housing market: inventories of new and existing homes for sale is falling, home builders are cutting production, mortgage applications have stabilized, mortgage rates have fallen and remain historically attractive, housing affordability is improving and price declines appear to luring buyers back into the market...The hot boom cities are the problem. But these were the boom markets because they had good economic fundamentals, and for the most part that is still true. This is a temporary correction in these hot markets -- but how you define temporary I just don't know."
  • North County Home Prices Mellow (San Diego Business Journal, Nov. 10th): "The median price for all homes in North County — single-family detached and single-family attached — declined from $557,500 in September to $545,000 in October, according to the monthly report of the North San Diego County Association of Realtors."
  • Sales Of Existing Homes Decline (Star Telegram, Nov. 8th) "Existing-home sales in North Texas slipped again in October. The 4 percent drop from year-ago levels was the seventh down month this year. “It’s really crazy right now. It’s definitely a buyer’s market.” Sales volume has been down seven out of 10 months, but... year-to-date sales are still up 3 percent. Job growth and movement into the Dallas-Fort Worth area are solid, but they’re not keeping up with the inventory that homeowners are putting on the market."

Real Estate Investing and Sentiment

  • NBK Launches A New Islamic European Real Estate Fund (AMEInfo.com, Nov. 11th) Kuwait: "National Bank of Kuwait [NBK] launched a diversified real estate fund which is compliant with Islamic Shari'ah, the Islamic European Real Estate Fund. The Fund will invest in a diversified portfolio of office, retail, warehouse and residential properties in Europe... [Specifically] the German market, which currently offers good cash flow opportunities with potential for appreciation in value. The Fund may also allocate a portion of its investment funds to properties in emerging markets such as Russia and Turkey and possibly other emerging markets."
  • Appearances Are Not Deceiving: Deflating Housing Market Raises Concerns (Default Servicing News, Nov. 8th): "The Wall Street Journal has reported that this is the first time median home prices have declined back-to-back since 1995, much less experiencing significant price drops in at least 38 years... Some, however, feel that the fear of a real estate bubble is just that--a fear. Michael Brush, a financial writer for the New York Times, argues that this is a speculative frenzy and that there is still room for investment in real estate. All these "bubble-sayers" are just hyping this up--similar to the heightened fears following the deflating technology stock bubble when Wall Street analysts, investment bankers, and fund managers were pushing the stocks for their own interests, so that they could sell them at a higher price."

Mortgates and Real Estate Lending

  • Homeowners Are Going Underwater As Loans Pass Home Values (Statesman.com, Nov. 12th) "In the next couple of years, a combination of rising mortgage interest rates and falling or slow-growing home value could plunge thousands of homeowners underwater-- meaning owing more than the house is worth. It's especially risky for people with interest-only mortgages and pay-option adjustable-rate mortgages... Some might be able to refinance or sell their houses. Still others will lose their houses to foreclosure. Assess your situation... If possible, refinance. There are plenty of loans from which to choose — from plain-vanilla 30-year, fixed-rate mortgages to 40-year loans to hybrid ARMs to more esoteric programs. Or get out."
  • London House Prices Force Group Buying (Homesgofast.com, Nov. 11th) UK: "Group buying of homes in London seem to be the only way forward for those stepping onto the property ladder. HSBC UK says it has seen a 50 per cent increase in group mortgage applications this year alone. More and more people are getting round high property prices by clubbing together with friends or family to buy a home and this is a trend which is expected to continue. Most group buyers opt to become "tenants in common" which means that each party holds separate shares in the property."

Macro Impact, and Will a Housing Crash Cause a Recession?

  • Economics: U.S. Spending Strong Despite Housing Slide (International Herald Tribune, Nov. 13th): "Combined with falling energy prices and a pickup in job and income growth, [the consumer's] buying spree heralds robust holiday sales and economic momentum heading into the new year...Housing is a major negative for the economy, but the consumer is still the best defense against recession in 2007... Most of the recent slowdown came from a drop in construction spending and a wider trade deficit; consumer spending rose at a 3.1 percent rate during the quarter after growing at a 2.6 percent clip the previous three months... "The 95 percent of the economy outside of housing remains on good footing," said Michael Moskow, [Chicago Fed Reserve president.]"
  • Honey, I Created A Bubble (Goldseek.com, Nov. 12th): "Since 2002... Interest rates caused people to bid up housing prices as the cost of financing plummeted. And the housing construction market responded, building more and more homes to satisfy that demand. Now, we can see they overestimated demand and built too much... Residential fixed investment [RFI] topped 6 percent of U.S. GDP in 2005, the highest level since the early 1950s. Since WWII, every time RFI has topped 5.5% of GDP and then dropped 10%, a recession has followed. RFI declined 10.1% from its peak of 6.3% of GDP in Q4-2005 to 5.66% in Q3-2006 and then dropped another 17.4% in the latest quarter... Yes, the service sector, which is 70% of the economy, is strong... one reason I think we'll get another mild recession rather than the typical serious recession that normally follows a housing bust. The overall economy is not as dependent on manufacturing and housing as it has been in past cycles."
  • Barron's Interview With Richard Arvedlund, Cypress Capital Management ( Barron's Summary in Seeking Alpha, Nov. 12th) "Recession: The preconditions are in place: (1) Housing drop of 10-20% (which usually signals a recession of unusual length). (2) Weak auto sales. (3) Inverted yield curve. Where we had been looking for a slowdown, we now think there's a 40% to 50% probability of a recession. Next year could be a very difficult time in the U.S. economy."
  • Local Economic Slowdown Continues (VoiceofSanDiego.org, Nov. 10th) San Diego: "The county's leading economic indicators sustained a sixth straight month of declines in September, attributed primarily to a drop of more than 30 percent in residential building permits issued compared to the previous year... The September data, compounded with the indexes of the previous five months, were cause for concern but not enough to forecast a recession... One of the big risks to the economy right now is the indirect effect-- that consumers are spending more than they earn... The increase in home value acted like a check on the table in some people's minds... Nationwide, personal savings rates have been negative for the past 18 months... The last time [the savings rate] was negative was in the Great Depression."
  • Euro Rates Mimic U.S., Sparking Global Slowdown Fear (Marketwatch, Nov. 10th) "The currently rapidly slowing US housing market not only poses severe risks to the U.S. economy but might also become a threat for some European countries... In the U.S., long-term rates have been nearly equal to or below short-term rates for over a year... Many economists, including Federal Reserve Chairman Ben Bernanke, believe that this time the yield curve inversion might be the result of an excess of savings in many countries... Interest rates are determined in the bond market, where a bond yield, or its interest rate, rises or falls inversely to its price... Nouriel Roubini of the Stern School of Business at New York University is convinced that this time-tested market mechanism of predicting the direction of the economy is signaling a recession, as it always has."
  • Housing Slowdown Forces Wolf To Lay Off 28 (The York Dispatch, Nov. 9th) Pennsylvania: "The Wolf Organization announced it is laying off 28 people because of a slowdown in the housing industry. The building products company, which employs about 600 people locally, has been in operation for more than 160 years... The outlook is that the housing industry might be at a halt until the third quarter of 2007, when the market adjusts to the large number of houses available on the market... Major home builders are off 30, 40 or 50 percent of their income from a year ago, and large dealers are just walking away from land options."

Hedging Your House Price By Shorting Stocks

  • "Home Prices Plunge!" (Motley Fool, Nov. 10th) "Builders are really the ones that will lead the price drops because they'll lower prices until someone buys. In order to compete, homeowners are also going to have to lower their prices. It's worth thinking about builders, because lower prices for new homes means their profits will be threatened. Some top builders include KB Home (NYSE:KBH), Hovnanian Enterprises (NYSE:HOV), Pulte Homes (NYSE:PHM), DR Horton (NYSE:DHI), Toll Brothers (NYSE:TOL), Lennar (NYSE:LEN), and Beazer Homes (NYSE:BZH)."
  • ZipRealty Cuts Forecast As Earnings Plunge 80% (L.A, Times, Nov. 9th) "Online brokerage ZipRealty (NASDAQ:ZIPR) lowered its full-year forecast and said the slowing housing market prompted third-quarter profit to plunge 80%. The Emeryville-based company said net income fell to $622,000, or 3 cents a share, from $2.9 million, or 11 cents, a year earlier. Sales fell 7% to $26.2 million. ZipRealty charges a reduced commission to home sellers and gives cash rebates to buyers."

Commercial Real Estate and REITs

  • Look For Continued REIT Weakness -- Barron's (Barron's Summary in Seeking Alpha, Nov. 12th): "The Trader takes a bearish stance on the already falling REIT sector... Equity Residential (NYSE:EQR) said... the weak market is causing owners to rent instead of sell, putting downward pressure on rents; Commercial REITs such as Mack-Cali Realty Corp. (NYSE:CLI) [-9%] have fared no better... And with commercial REITs still at a steep 19x forward earnings, and apartment REITs at 22x -- both almost double their historical averages -- and yields at just 4%, there's still plenty of downside potential."
  • My Annaly Capital Management Income Play With Options (David Neubert in Seeking Alpha, Nov. 8th): "This mortgage bond company [is] structured as a REIT. Annaly (NYSE:NLY) buys pools of mortgages and borrows short term to fund them. The flattening of the US yield curve has been a disaster for their earnings and portfolio and the value of the stock is down 27% in the last two years. However, I feel this is the best managed and most transparent of all the mortgage REITs. I also feel that this REIT is fairly valued but would buy more at lower prices and am happy to sell at higher prices."
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