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

• UBS Sees Home Prices Down 10% in 2007 (Janet Morrissey in MarketWatch, Nov. 6th): "Home prices will fall 10% on average in 2007 and it will likely take three years to clear out the huge inventory of empty unsold homes currently in the market, according to a UBS report released Monday... UBS analyst Margaret Whelan estimated that the industry overbuilt to the tune of 900,000 homes between 2003 and the first half of 2006... "It will take about three years to shift all of that excess inventory," said Whelan. As a result, she expects housing starts to fall 15% in 2007 from 2006 levels. [UBS chief economist Maury] Harris is predicting median home prices will fall 10% over the next year, and housing starts will fall by 180,000 units to 1.55 million in 2007 from 2006."

• How Well Will Homes Sell? Opinions Differ on Market for New Homes (Palm Beach Post, Nov. 5th): ""The current downturn should last two to five years," housing analyst Jack McCabe says. Bradley Hunter of Metrostudy says new-home sales will pick up in 18 months. The National Association of Home Builders says new-home prices will drop until at least 2008. David Berson of Fannie Mae says prices will perk up in 2009. And Mark Zandi of Moody's Economy.com says the worst of the downturn "is at hand.""

• Real Estate Slump Tough on Midwest (CS Monitor, Nov. 3): "South Bend, Ind. – The housing market slowdown is nationwide, yet it has taken its earliest toll in Midwestern communities where the word "boom" never applied to home prices... This region, characterized by slow job growth and gathering problems in the automotive industry and in a business where outright price declines are rare, was the first in recent years to post a drop in prices - with median single-family homes down 2 percent in the second quarter from the same period in 2005. Cities such as Detroit, Cleveland, and South Bend are struggling even though they never had a big run-up. In the industrial heartland of the Midwest... land is relatively cheap. In South Bend, "It's a way different market, towards the bad side," from just a couple of years ago. Some communities are doing well, thanks to good schools or newer homes, but in many parts of town homes are listed at $50,000 or less - and aren't selling. One home is listed for such a low price - $17,500 - that the monthly mortgage payment would be about $87, about the same as the property tax."

• Home Builders Try to Offset Sagging Sales (The Gazette, Nov. 2nd): "One Colorado Springs area home builder is offering landscaping, a sprinkler system and special financing to woo buyers... The number of single-family home-building permits issued in El Paso County plunged 45.5 percent to 188 in October compared with the same month last year, according to the Pikes Peak Regional Building Department."

• Is This Really 'A Great Time to Buy or Sell a Home'? (Barry Ritholtz in Seeking Alpha, Nov. 6th): "In fact, its such a good time, that the National Association of Realtors decided they need to drop $40 million telling you so... [The NYT discusses the National Realtors Association's new ad campaign to coax buyers and sellers in to the market.] "The ad by the National Association of Realtors cites a 4.3 percent increase in the number of existing home sales contracts signed in August, from July, as evidence that “prices over all have stabilized.” But new data released last week by the association showed that contract signings fell 1.1 percent in September, from August, and 13.6 percent from September 2005. A spokesman said that the first ads were prepared before the latest figures were available and would be updated next week. Mr. Stevens dismissed the idea that the campaign, the first of its kind undertaken by the association, could be viewed as a sign of desperation..."

Real Estate Investing and Sentiment

• Neighbor Island Home Sales are Reeling (Star Bulletin, Nov. 4): "The residential real estate markets on Kauai and the Big Island saw both median home sales prices and sales volume lag last month as demand for properties paled... "The market has changed substantially. Real-estate flippers have mostly left the Garden Isle as prices have moved high enough where it's hard to make short-term gains on resales"... Kauai realtor Phillip Fudge says: "I'm hoping that the downturn is just a seasonal thing, but I'm afraid that most of our investors were from the mainland and if their markets have been impacted it impacts us here as well," ... A total of 34 homes have sold this year on Kauai, a 26 percent drop from the 46 homes sold by this time in 2005. High home prices and limited inventory have turned many buyers to the condominium market, where sales volume has increased 7.9 percent this year to 601 units. The number of single-family homes sold on the Big Island in October fell 24.7 percent to 58 from the year-ago 77, while sales dropped by 40 percent in the condominium market... "Most... buyers are people who are moving to the Big Island, people that live here and want to upgrade or those that want to purchase second-home/vacation-rental properties for themselves. There are few speculative investors or flippers"."

Mortgages and Real Estate Lending

• New Home Sales: Look at Bigger Picture, Mortgage Applications (David Andrew Taylor in Seeking Alpha, Oct. 27th): "Yup, we're declining. But, take a look at the new home sales chart. We've seen some hyper accelerated results coming in from the very early 2000's. From here, we seem to have leveled out. We may have a little bit more to go in the decline to get us to what would be "normal". If you could apply the loose art of technical analysis to this chart, and draw a line up from the bottom of 1991, then we're about right for now. Last week's mortgage applications are a bit perkier: Clearly down from the highs of just about a year ago. But, there's a heartbeat that is keeping the industry moving. With my viewpoint that the economy is a lot stronger than most see it, I can see continued resiliency in this indicator, along with the housing market."

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

• Housing Recession Nowhere Near Bottoming Out, Says Roubini (Nouriel Roubini, quoted in Seeking Alpha, Nov. 6th): "It is is certainly the case that we are already in a severe housing recession; and this housing recession is nowhere near bottoming out: building permits - the most important leading indicator of future housing - fell another 5% last month and are already down 30%, and likely to fall even more in the coming months."

• Housing Market Directly Cut GDP by 1%in Q3, But Indirect Effects Small (Dr. Scott Brown in Seeking Alpha, Nov. 7th): "The decline in residential construction subtracted more than a full percentage point from 3Q06 GDP growth (advance estimate) and will likely make a similar (negative) contribution in 4Q06. That’s not enough to push the economy into a recession, but the housing weakness leaves the economy vulnerable to shocks... What about the indirect effects of the housing slowdown? So far, these appear to be small."

• Home Builders Try to Offset Sagging Sales (The Gazette, Nov. 2): "The number of single-family home-building permits issued in El Paso County plunged 45.5 percent to 188 in October compared with the same month last year, according to the Pikes Peak Regional Building Department. Before October’s total of 188, the lowest number was 244, in December 2001... The Springs slide has the potential to whack the local economy... The home-building industry employs thousands, and some builders already have said they’ve laid off some employees...Colorado Springs and other local governments rely on sales taxes from the purchase of lumber, tools and other building materials as a major revenue generator. Revenue from building materials sales is up 2.4 percent so far this year...But many purchases of lumber and other materials come several months after permits are pulled. As a result, the city might not yet have felt the full effect of a slowdown in new-home construction."

Housing Stocks, and Hedging Your House Price

• Technical Olympic's Wakeup Call for Homebuilder Bulls (Herb Greenberg in Seeking Alpha, Nov. 7th): "During the housing boom, Florida homebuilder Technical Olympic USA (TOA) hasn’t been shy about setting up off-balance sheet joint ventures to acquire land and other housing assets. According to the company’s 10-K, these joint ventures ”reduce and share our risk associated with land ownership and development and extend our capital resources.” At least that’s the way it was supposed to work. In an SEC filing Monday, Technical Olympic said it has been advised by one of its lenders, Deutsche Bank Trust, that it’s in “multiple potential defaults” on $675 million in debt associated with an unconsolidated joint-venture created a year ago August through the purchase of Transeastern Properties."

• Despite Housing Slowdown, Realogy Maintains Outlook, Earnings Meet Expectations (Jonathan Liss in Seeking Alpha, Nov. 2nd): "Despite worries from Wall Street that a company so heavily involved in the slumping U.S. housing market would perform poorly during the third quarter, real estate brokerage company Realogy (H) met analysts expectation for the quarter and maintained its outlook for FY 2006. Realogy, which includes franchises such as Coldwell Banker and Sotheby's International Realty, earned $87 million, or 34 cents a share in the third quarter - down significantly from its earnings of $227 million, or 91 cents a share during the year earlier period. Revenue also fell, by 16% to $1.73 billion, within the range that management had forecast. The poorer numbers were reflective of the slowdown in U.S. home sales. Still, the company reiterated its full-year guidance, which it lowered in August, for revenue of $6.4 million to $6.7 billion and adjusted earnings of $1.44 to $1.76 per share. Shares fell nearly 4.5% during market trading yesterday. Earnings were reported after the close."

Commercial Real Estate and REITs

• REIT Landlords Can't Have It Both Ways (The Stalwart in Seeking Alpha, Nov. 2nd): "Will weakening residential housing market be good for residential REITS since people will increasingly opt to rent rather than buy their residence, in turn pushing up rental prices? Residential REIT Avalonbay (NYSE:AVB) reported 7.3% higher rental rates from established properties in 3Q06. And we have reports that apartment rents in general are "soaring". EQR's latest result show 5.9% higher same store revenue, and we're told that most of this has come from higher rental rates (rather than occupancy gains). This helped Free Funds from Operations (FFO) rise over 10% for the quarter. But when we then looked at the 9M FFO figures... FFO is actually down YoY, even after 3Q06's increase. Even if 3Q06 is just the beginning and there's further rental rate strength to come... why was FFO higher back when the housing market was stronger? Well, turns out these guys were making good money selling condos (converted from rental units) when the housing market was seeing better times. Thus even if housing weakness might be good for rents (and we don't wish to concede this point -- we don't believe it is), REITs that made money flipping condos will see this source of profits start to dry up."