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

• This Isn't Their Moment (New York Magazine, Nov. 8th) “The tough thing is, the market went down. A lot of people are offering 10 percent less.” Experts say it’s best to hold onto real estate for a couple of years to avoid paying capital-gains taxes and to weather changing markets like this one. (When the market was sizzling, homeowners could sell in a year and make at least 10 percent. If that year was 1999, it was more like 25 percent.) But if you bought recently and have to sell now, you may be in a position not heard of since the early nineties: You can actually lose money on a New York apartment... But selling prematurely isn't always a problem... One apartment, in Morton Square, went in one day for full asking. “If it’s great and priced right, it’ll sell".

• Skagit's Housing Market Staying Strong (Skagit County Business Pulse, Nov. 7th) Skagit County, Washington State: "Despite the high cost of housing — a 38.3 percent increase in Skagit County alone in the past year — buying activity is up and inventory down. Skagit home sales have been driven by three principal demand sources: “The continued growth of our county’s work force, the desirability of our county as a place to live and raise kids, and pressure from tight housing supplies south and north of us.” Where in many locations around the country the housing boom shows signs of slowing, sales activity in Skagit County has increased appreciably over one year, from 645 units in August 2005 to 972 in the same month this year, Even though pending sales dropped from 259 to 209 in the same period and new listings decreased from 307 to 300."

• Real Estate Bubble Bursts While Home Sales Fall Across Nation (New York Times, Nov. 7th) Pheonix: "Until last year, Fulton Homes’ developers were able to raise prices on its new homes by $1,000 to $10,000 almost every week.“People were standing in line for lotteries. Now they just don’t show up. Such cancellations often mean forfeiting as much as 5 percent of the price. The reason? The prospective buyers got cold feet or simply couldn’t sell their old home. Today, the number of unsold homes in the area has soared to almost 46,000 from just a few thousand in early 2005. Sales cancellations among big builders are running as high as 40 percent, double the rate a year ago. New home sales are down by more than 20 percent from their peak last year. And that reported drop does not take account of the extras builders are throwing in free or at steep discounts to lure buyers, which means that effective prices are even lower. The reversal in fortune is at its starkest here in the West. For-sale signs in some new subdivisions are so common that Janet L. Yellen, the president of the Federal Reserve Bank of San Francisco, recently described them as “the new ghost towns of the West.”

• Home Sales, Prices Down In Denver (The Denver Business Journal, Nov. 7th) "Home sales and prices continued to slide in October, according to Denver-based Metrolist. The average price of all single family homes dropped from $283,131 in September to $280,551 in October. The pricing skid is even more pronounced when compared with October 2005 when the average price of a single-family home was $287,331. A more "telling" number is the number of expired listings -- 2,607 in October as compared with 2,241 in September and 2,054 a year ago. "More people are giving up". Are sellers who have taken their properties off the market doing so temporarily or are they so desperate that they are allowing their homes to go into foreclosure? The Colorado foreclosure rate continues to be the highest in the nation... leading the country in foreclosures for the second consecutive quarter with one foreclosure for every 127 homes, nearly three times the national average."

• House prices will fall in 2007 (Business Iafrica.com, Nov. 6th) South Africa: "House prices will fall by 2.0 percent next year in real terms, the first real decline since 1999. While nominal house price growth of 14 percent is predicted for this year, following a 14.7 percent gain on average recorded in the first ten months of the year, house price growth in nominal terms of 6.0 percent is forecast for 2007. According to the Absa House Price Index nominal house price growth of 12.7 percent year-on-year was recorded in October 2006, compared with a revised growth rate of 13.5 percent in September."

• Economic Summit Challenges The Notion Of A Housing Bubble (Leesburg Today, Nov. 2nd) Leesburg, Virginia: "The housing bubble, specifically the lack thereof, was the main message of speakers during the Dulles Area Association of Realtors' economic summit on Nov. 2nd. "There is no housing bubble nationwide. Though there might be the possibility of a bubble in some places such as fast-growing Las Vegas. Nationwide, declining housing prices are a correction of the market, but this correction differs from past corrections. Previous corrections were tied to problems in the economy. During this correction, national economic growth is decent, consumer spending is healthy, albeit slowed, and job growth is steady-3.9 million new jobs were created in the past 24 months."

• Local Housing Bubble Hasn't Burst (Associated Press, Oct. 27th) Springfield, Missouri: "The Springfield housing market continues to boast steady growth. The local median home price increased by 2.6 percent to $123,950 in September, compared with $120,775 in September 2005. The Springfield market is still very good... The prices have stayed steady and gone up a little bit... Unlike the national housing market, Springfield did not have 'the big bubble' to bust, and our properties have not seen the big appreciations."

Real Estate Investing and Sentiment

• $200M Bascom Fund Targets Troubled Loans (Globestreet.com, Nov. 5th) Irvine, California: "The Bascom Group and New York City-based Warburg Pincus Real Estate I have launched a $200 million fund to invest in non-performing loans and distressed multifamily properties. Bascom says that some borrowers of high-interest-rate conduit loans that originated in the 1990s “are struggling” to repay loans due to high defeasance costs and concerns over high loan-to-value ratios. Bascom believes that the fund’s capacity to close on an all-cash basis will appeal to loan servicers, lenders and investors because it will enable them to “move challenged assets off their balance sheet quickly." The Bascom-Warburg Pincus JV will purchase both non-performing and sub-performing loans. It will target deals in the $1 million to $100 million range from banks, B-piece buyers, conduits loan sales advisers and other lenders, and will also look for distressed properties that it can buy directly... The JV sees significant potential for deals in the South, Southeast, Midwest apartment and condo markets, “given the rising distress” in those markets."

U.S./International Mortgates and Real Estate Lending

• Australia's Home-Loan Approvals Fall on Higher Rates (Bloomberg, Nov. 8th) "Australian home-loan approvals fell by the most in more than a year in September as rising interest rates deterred buyers, signaling housing may curb growth in the Asia- Pacific region's fifth-largest economy. The number of loans to owner-occupiers to build or buy homes or apartments dropped 1.2 percent to 62,083 from August, the Bureau of Statistics said in Sydney today, matching the decline in May 2005. The median forecast of 21 economists in a Bloomberg News survey was for a 3 percent fall. The Reserve Bank of Australia raised its benchmark interest rate today for the third time this year to stem inflation. The highest borrowing costs in almost six years may stifle a housing recovery that began earlier this year, putting a brake on the economy's 15-year expansion. The economy will come under pressure from the fallout in the housing market.''

• Will Mortgage Power Reignite Housing Bubble? (Reuters UK, Nov. 2nd) London: "Mortgage lenders' willingness to let first-time buyers borrow ever-larger multiples of their income may ring alarm bells for those who remember the housing market boom, and subsequent crash, two decades ago. Consumer borrowing and personal insolvencies are already at record highs and interest rates are rising -- hardly an ideal time for people to be mortgaging themselves to the hilt. Lenders, however, are confident they are not exposing themselves or their customers to undue risk. They point out that interest rates globally are more stable and capital markets more developed than in past decades. Abbey, Britain's second largest mortgage lender, said this week it would offer homebuyers up to five times their single or joint salaries -- well above the three to four times advertised by most high street banks."

• IAC/Interactive Discusses The Mortgage Lending Environment (David Jackson in Seeking Alpha, Nov. 1st) "From the transcript of IAC/Interactive Corp's (IACI) conference call; CFO Tom McInerney says: In lending, we continue to operate in an environment significantly less attractive from mortgage refinancing and home purchases in the prior year period. Close-rates across all home loan products, especially refinance, were lower in Q3, leading to year-over-year revenue declines. We have cut planned marketing expenditures in this business to strike the correct balance between gaining share and improving margins in the back half of the year. Although we did come in a little shy of our hopes on the revenue side in Q3, it cost us 4% less to acquire a new customer versus last year and 11% less versus Q2, leading to a 400 basis point increase in sequential margins. The fourth quarter in lending is an easier comp, and we look to grow profits again in Q4... In lending and real estate, we are obviously fighting a well-known macro environment. The mortgage market is down 29% in Q3 versus last year according to the Mortgage Bankers Association, with a 43% decline in refinance... [We continue to] focus on the purchased mortgage business. At LendingTree Loans, the number of purchased, dedicated loan officers has doubled year-over-year. Purchased closings at LendingTree Loans are up 39% year-over-year in a market that’s down 14%."

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

• September Consumer Borrowing Falls (The Boston Globe, Nov. 8th) "Consumer borrowing fell in September by the largest amount since the recession of the early 1990s. The Federal Reserve said yesterday that borrowing declined at an annual rate of 0.6 percent in September, compared with a 4.6 percent rate of increase in August. Borrowing fell $1.2 billion in September -- the biggest drop since a $1.78 billion decrease in April 1992. The overall economy has lost momentum due to the housing slump... Companies involved in home building, furniture making, and real estate slashed jobs as a result of the souring housing market... Economists have said they believe the recent declines in gasoline and other energy costs should help consumer spending in the months ahead and keep the country from falling into a full-blown recession. The Fed's consumer credit report does not cover mortgages or other loans that are secured by real estate."

• Deflating Housing Bubble = Comfy Landing For Equities (Phil Davis in Seeking Alpha, Oct. 29th) "For the past 3 years, a lot of America's money has gone to just 2 places -- oil and homes! Over $2.5T has poured into the commodity markets in the past 36 months, but that's nothing compared to the $12T that's been added to the value of U.S. homes in the past 3 years alone. Our current "housing bubble burst" may be effectively a non-event and may, in fact, usher in a new round of equity buying as a portion of the $30T tied up in 125M homes finds its way into the market, rather than going into more expensive homes, as it has been for the past 5 years. Today's buyer might also gamble a little in the market! With 7M homes turning over annually and the median home gaining (even after this year's drop to $220K) a median of $70K, that's $500B deposited in U.S. savings banks. If just 40% of that money finds it's way into mutual funds or stocks, that's a $200B market infusion of cash per year! Combine this $50B a month in money coming into the market from homes with a similar amount working its way out of other commodity stocks, add $13B a month consumers can spend on things besides gas when oil is down $20 a barrel, and you have the recipe for a very, very, soft, comfy landing!"

Housing Stocks, and Hedging Your House Price

• Housing Stocks: Watching the RSI (Bill Cara in Seeking Alpha, Nov. 8th) "The homebuilding industry has been doing all it can to cut back, which includes cutting selling prices on housing inventory, selling lots and in fact walking away from out-of-the-money option deposits. The financial impact on earnings, however, will balloon. For instance, where industry EPS declined 22 pct in 2006, UBS is now forecasting a further decline of 46 pct in 2007, and a 28 pct decline in top line revenue. Former Fed Chairman Alan Greenspan told an audience that the industry issues have reached the cycle bottom, but some of the homebuilders, like Toll Brothers, have denied that. Interestingly, UBS rates Toll Brothers (NYSE: TOL) a Buy with a 12-month Price Target of $37 based on a calendar year 2007 estimated EPS multiple of 11. TOL today is at $24.77."

• Results at Toll Brothers and Beazer Indicate Housing Slowdown Is Continuing (Judith Levy in Seeking Alpha, Nov. 8th) "The U.S. housing slowdown is showing no sign of abating, according to homebuilders Toll Brothers and Beazer Homes USA Inc. Orders at Toll Brothers skidded 56% and revenue dropped 10% in fiscal Q4. The company also expects to take Q4 write-downs of $50-100 million on both the land it owns and has options to buy, sharply up from a prior forecast of $4 million. The charges will reduce net EPS by $0.18 to $0.36. Cancellations have also soared to 37% of contracts in Q4, up from 18% in Q3. Beazer, meanwhile, reported a 44% drop in quarterly earnings and a 58% drop in fiscal Q4 orders. Beazer reported net income of $91.9 million, or $2.19 a share, down from $164.4 million, or $3.61 a share, a year earlier. Toll is a luxury homebuilder and Beazer primarily a builder of first-time homes, so their disappointing reports imply weakness across the entire sector. Consumer spending has been curtailed by rising interest rates and high energy prices, and prospective home buyers appear increasingly reluctant to enter the market before a bottom is in view. Though the companies' reports were not good, they were largely expected by the market; TOL took a small hit and then recovered by the close of trading and Beazer managed to show a slight gain."

Commercial Real Estate and REITs

• Clearwater REIT's Earnings Drop (Tampa Bay Business Journal, Nov. 6th) "American Land Lease (ANL) saw its home sales division slump, while its leasing division increased sales during the third quarter. The Clearwater-based real estate investment trust reported earnings of $2.1 million, or 27 cents a share, on revenue of $21.5 million compared with earnings of $2.2 million, or 29 cents a share, on revenue of $20.8 million for the same period last year. American Land Lease closed on 92 new homes during the quarter, compared with 115 closings during the quarter last year. Consistent with the entire home sales industry, new home closings were not as high as projected at the beginning of the year, the REIT said."

• Douglas Emmett Inc. -- Nice REIT, May Be Pricey (Market Participant in Seeking Alpha, Nov. 6th) "The biggest REIT IPO of 2006, Douglas Emmett Inc. (DEI) has an unmatched portfolio of trophy office property in Los Angeles and Honolulu. The company is profitable from the get-go, with prospects for internal growth. DEI is going to become a core holding for investors in BIGREITs: the large, actively traded real estate investment trusts that make up the Cohen & Steers Realty Majors Portfolio (ICF)... Most of DEI's future growth comes from fully leasing the few buildings in its portfolio that are partially vacant, and rolling leases. Most of DEI's growth is internal, which is low risk, but internal growth tends to converge (revert to the mean) of CPI+1% or so. Going forwards Douglas Emmett will have a hard time buying new properties for reasonable prices in its target markets. This is where professional real estate investors and the common public part ways. If you were to hand Douglas Emmett's management a term sheet for a deal that had %3 yield with 4% annualized growth, they would reject it. But if you give the public that same term sheet, it gets bought out for a premium."

Note: Emphasis added by the editor

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