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.

Homebuilding Stocks

• Homebuilder CEOs Talking Down The Markets (Average Joe in Seeking Alpha, Nov. 10th): "You hear it everywhere right now: housing is just not getting better. The funny thing is where these comments are coming from - the CEOs of the major homebuilders like Toll Brothers (TOL), Hovnanian Enterprises (HOV), KB Home (KBH), and Pulte Homes (PHM). CNBC clips from a real estate investment banking conference today in NY show CEOs decrying the rapidly deteriorating market. So how bad is it really? I still think there could still be some flatness or weakness ahead for the housing market. But I'm figuring that the homebuilders are taking the tactic of "the best offense is a good defense" when it comes to the public markets right now. Business is not as much of a sure thing as it was, and what the market hates the most is downside uncertainty. So the faster and harder the homebuilders are able to talk down the markets, the sooner the companies can start meeting, and perhaps slightly beating analyst earnings projections. I still think that if this does happen that housing stocks are a longer term play - six months to a year at the very least, but the strong names like Toll and KB should come out the other side with little more than some flesh wounds."

• Nearing A Bottom In Housing? (Barry Ritholtz in Seeking Alpha, Nov. 10th): "Homebuilders keep getting downgraded, even if the analysts dropping the ratings don't like doing it. Lehman Brothers lowered its rating on Pulte Homes (PHM) Thursday morning to "equal weight" from "overweight," even though it says that "we're not fond of downgrading stocks" when they've already lost 25% on the year. However, Lehman says Pulte, which it previously liked because of geographic diversity, is running into trouble with over-concentration in areas that are at risk in 2007, such as Florida, Arizona, and Nevada. Lehman has had a buy rating on Pulte going all the way back to early 2004, so it rode the stock up and rode it back down. Pulte fell 1%."

• American Real Estate 3Q Profit Rises (Houston Chronicle, Nov. 9th): "American Real Estate Partners LP, owner of real estate holdings including condominiums, golf courses and casinos, said Thursday it swung to a profit in the third-quarter, helped by revenue from its recently acquired home fashion segment... Real estate revenue grew 38 percent to $33.1 million. The home fashion segment, made up of the recently acquired WestPoint Stevens Inc., a company that makes bed and bath products, had revenue of $240.5 million."

• How To Short Homebuilders: Look For The Fastest Growers (Phil Davis in Seeking Alpha, Nov. 9th): "Look for the fastest growing builders and assume they overbought at the top! Hovnanian Enterprises Inc. (HOV) projecting an actual LOSS for the current quarter! HOV CEO says "fourth quarter continued to be negatively impacted by high cancellation rates and increased use of concessions and incentives, particularly on the resale of those homes which experienced contract cancellations." Big trouble spots for HOV seem to be Florida, Orange County and San Diego where 35% of the people under contract walked away from their deposit rather than take delivery of the homes. Net contracts for the quarter were 3,100 -- a whopping decline of close to 40%. One reason cancellations are so high is that people think they can get the same house cheaper if they just wait a week or two... Of 11 analysts who track Hovnanian, only 1 had them listed as a sell with Citigroup Inc. (C), Deutsche Bank AG (DB) and Goldman Sachs Group Inc. (GS) all still listing them as a buy. Bank of America Corp. (BAC), who had them at neutral, expected earnings of $1.05 a share vs. new guidance of a $1.96 per $28 share loss!"

• Hovnanian Sees Q4 Net Loss, $300 Million Charge (Reuters.com, Nov 7): "Hovnanian Enterprises Inc. (HOV) reported a net loss in the fourth quarter due to land related charges, and sees 2006 earnings excluding these charges at the lower end of its previous outlook. The luxury home builder expects to incur $300 million in inventory impairment and land option deposit write-off charges."

• U.S. Home Builders Say Housing Slowdown Continues (Washington Post, Nov. 7th) "Luxury homebuilder Toll Brothers Inc. said it expects to report a 10 percent drop in quarterly home-building revenue, and warned of continuing softness in formerly booming markets such as Northern California and parts of Florida... Toll Brothers said quarterly total contracts suffered from a higher-than-normal 585 cancellations, one-fourth of which came in the Orlando and Northern California markets. The company lowered its land position by around 6,500 lots, ending the quarter with around 74,000 lots owned or controlled, a decline of 19 percent."

Real Estate Sales and House Prices

• Housing Bubble Hasn’t Burst Here, Yet (Tahlequah Daily Press, Nov. 9th) Oklahoma: "Tahlequah’s market remains strong. Along with the abundance of new construction, we have an equal abundance of buyers... The city issued nearly $9 million residential construction permits from April 2005 to April 2006, which indicates a strong growth cycle. First-time home buyers in Tahlequah [have incentives]: The U.S. Department of Agriculture’s Oklahoma Rural Development Guaranteed Loan Program. Although they have an income requirement, these loans will finance 100 percent of the purchase price and refund earnest money at closing... Rural Housing Service guarantees loans made by private-sector lenders. This means should an individual borrower default on a loan, RHS will pay the private financier. A family may borrow up to 100 percent of the appraised value of a home, thus eliminating the need for a down payment... Another program that assists first-time buyers is the My Community loan program. It’s similar to the Direct Loan program, but has no income requirement, which makes it available to a broader range of consumers. We can get these loans for our customers because of the poverty level here. So many people fall within the income guidelines, it makes it easy for credit-worthy first-time home buyers to get a loan.”

• Building Slowing In Cold Market (The Desert Sun, Nov. 8th) Palm Springs: "The notion that consumers are in a 'wait-and-see mode' is true... As jittery home buyers abandon sales contracts or balk at buying amid uncertainties in the housing market, builders in the valley and across Southern California have cut back on construction. Southern California recorded a 17 percent decline from the previous quarter. The slowdown in new-home building permits is in direct response to growing new-home inventory as builders cut back on construction starts to deal with this inventory. Home builders are reigning in escalating construction costs wherever possible and analyzing land deals-- watching their spending on everything from construction materials and marketing to payroll, while at the same time aggressively introducing new incentives to attract pensive buyers... Instead of first breaking ground on a development with more expensive homes, some are developing more moderately priced home communities."Because historically, as we've been through past cycles, we've seen that there's always a demand for more moderate-priced housing."

• Home Sales Slide, But Prices Are Still High (Herald.net, Nov. 8th) Seattle: "Home sales in Snohomish County continued to slip in October, but prices are still seeing double-digit growth from a year ago. The combination of slower sales and continued price increases are viewed by professionals as a leveling of what had been almost completely a seller's market... Since we've come off of the frenzy market of the past year, buyers have more selection, there's less competition for homes and interest rates are still low... We're on track to have the third most productive year in the history of [local] real estate... In Snohomish County, the median home price last month was $333,500. That's an 11.2 percent rise from the median price of $299,900 in October of 2005... The county continues to create jobs in aerospace and in many other areas, so people continue to come to the area and many are looking to buy a home."

Real Estate Investing and Sentiment

• Home: Can You Feel The Wealth Effect? (North County Times, Nov. 6th) "When stock prices soar, or when home prices go through the roof, owners feel more prosperous. That can lead to the "wealth effect," or the tendency to spend more and save less when major assets have risen substantially in value. Recent studies suggest that expanding housing wealth [creates a wealth effect of] as much as spending $9 more per every $100 in equity. In North County, homeowners have enjoyed watching the value of their properties double or even triple since the turn of the century. The downside, of course, is that declining values can put the brakes on consumer spending. Some North County companies, such as flooring stores and landscape architects, are already seeing revenues decline as home sales drop and prices flatten. Remodeling activity is expected to continue slumping, according to the Remodeling Activity Indicator, published by Harvard's Joint Center for Housing Studies. The October indicator shows that the nation's homeowners are still heavy into remodeling -- $160 billion in the third quarter ended Sept. 30 -- but down from a multiyear peak of $170 billion in the first quarter."

Mortgates, Real Estate Lending And Foreclosures

• U.S. Mortgage Rates Reverse, Rise In Latest Week (Reuters.com, Nov. 9th) "Average interest rates on U.S. 30-year mortgages rose to 6.33 percent from 6.31 percent in the latest week, and rates on 15-year mortgages also increased, to 6.04 percent from 6.02 percent, Freddie Mac said on Thursday. Mortgage rates had surged earlier in the week after the Labor Department reported the unemployment rate dropped in October. The jobless rate, at 4.4 percent, was the lowest since May 2001. Then, as economists considered the finer points of the employment number, such as the loss of construction jobs from a slowing housing market, mortgage rates drifted lower. "That same slowing housing market shaved a little over one percentage point from the growth rate of Gross Domestic Product [GDP] in the third quarter. We expect that the GDP growth rate will increase in the final quarter of this year, although that increase is expected to come from areas other than housing."

• Subprime Loans On Borrowed Time (OCRegister.com, Nov. 8th) "From Irvine to Newport Beach, subprime lenders are closing down or shrinking dramatically. New Century from Irvine said it expects all lenders to suffer a 10 percent drop in business nationwide. Ameriquest cut 3,800 positions after agreeing to a huge settlement with regulators over its lending practices... Subprime lending got families with damaged credit into homes, while giving investors extra cash to play housing's upswing... For almost two decades interest rates have gone down. That's created numerous refinancing opportunities for homeowners and lenders alike. Many of these customers rolled up a pile of expensive debts – everything from credit cards to old, adjustable mortgages – into one home-loan payment. Fed boss Ben Bernanke said that "although the emergence of risk-based pricing has increased access to credit for all households, it has also raised some concerns and questions, which are magnified in the case of lower-income borrowers." And this regulatory angst comes before any major wave of foreclosures or loan losses... For Orange County, subprime lending means the county risks losing a job-creation machine. Orange County lenders of all stripes grew payrolls between 1996 and last year by 25,000 – a 13 percent annual pace. That was 7 percent of all new jobs added in the period. In the year just ended in September, local lender payrolls were flat."

• Distress Signal: State Leads In Foreclosures (Palm Beach Post, Nov. 8th) "Florida led the nation in foreclosure activity for the third quarter of this year. In Palm Beach County, one in every 153 households was in foreclosure in the third quarter — more than twice the national rate and up 26 percent over the third quarter of 2005. Compared with the previous quarter, foreclosures rose 38 percent. First-time homeowners in Palm Beach County and the Treasure Coast are struggling with surging property taxes, soaring insurance rates and escalating monthly payments on adjustable-rate mortgages... Forty-three percent of mortgages taken out by first-time home buyers nationwide were these exotic-style loans. From 2000 to 2005, the median price of an existing home in Palm Beach County shot up close to 200 percent. At the same time, median-income households could only afford to pay $200,000 less than the median home price. The result was that a number of first-time home buyers resorted to interest-only loans, no-down-payment loans, adjustable-rate mortgages and option ARMs to stretch their buying power. Now those ARMs are beginning to reset at higher monthly payments... and as taxes and insurance bills surge, many first-time homeowners are now in jeopardy of foreclosure... However, the majority of those in trouble now aren't buyers who took out ARM's but rather those who bought investment homes they meant to flip and have been unable to do so. "

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

• Faster U.S. Growth And Elevated Inflation To Keep Fed On Guard (Bloomberg, Nov. 10): "Economic growth in the U.S. will pick up and inflation will remain elevated through early next year, leaving the Federal Reserve little room to reduce interest rates, according to a survey of economists. The forecasts confirm the view of some Fed policy makers that the expansion may not slow fast enough to cool inflation. Low unemployment, rising incomes and cheaper energy will help consumers sustain the spending that makes up two-thirds of the economy, limiting the damage from the housing slump... Economists are predicting the pace of growth will pick up in the course of next year as the housing market starts to recover."

• The Economy ¦ Oops! Miscalculation Led Fed To Keep Money Cheap Too Long (Philadelphia Inquirer, Nov. 8th) "Last Thursday, Richard W. Fisher of the Fed said some bad data on inflation caused the Fed to hold interest rates too low for too long, fueling the house-price bubble of the last few years. As a consequence, "today... the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country." In 2001, after 9/11 and Enron, interest rates were already low, but then the central bank pushed them even lower- by mid-2003, down to 1 percent. The fed funds rate stayed at 1 percent a full year before raising it to the current 5.25 percent. In early 2003 the PCE index was running below 1 percent - uncomfortably close to zero. Determined to get growth going in this potentially deflationary environment, the [central bank] adopted an easy policy and promised to keep rates low. "A couple of years later, we learned that inflation had actually been a half point higher than first thought-- the difference between inflation and deflation back then. The result was an easy-money policy that encouraged speculation. Investors borrowed cheap, and bought assets such as gold, crude oil and real estate. Ordinary people did the same to bid up for houses. Prices soared - and now we're seeing the consequences."

• Housing Bubble Hasn’t Even Gotten Here (Central Valley Business Times, Nov. 8th): "The author of an investment newsletter says any real bursting of the U.S. housing bubble it at least two years away and that the current price and selling setbacks are nothing compared to what is likely to happen. Homeowners are in denial. Right now, sellers aren't selling ... They're still waiting for Santa to deliver their asking price, or close to it. The situation is about to get worse. Those who have interest-only, or "teaser-rate," mortgages could see their monthly payments more than double. Interest rates will rise on about $300 billion in adjustable-rate mortgages this year alone. That figure is projected to skyrocket to more than $1 trillion in each of the next two years. California, Arizona, Nevada and Florida will be hit particularly hard, and homeowners in these states may not see a 5 percent decline, as experts predict, "but could fall two or three times that number."

Commercial Real Estate

• Commercial Real Estate Seen As Strong (Houston Chronicle, Nov. 9th) "Judging by recent profit figures, many of the biggest commercial real estate companies have been unscathed by the housing market slowdown. A strong job market and increase in corporate outsourcing have bolstered real estate services revenues, enough to offset a slower pace of growth in investment sales that has set in since the booming recent years when offshore investors, real estate investment trusts and pension investors flooded the market. While all sectors of commercial real estate are performing well, leasing activity and property management in particular are surging ahead... The market for leasing office space has been helped by the strength of the job market. In October, the jobless rate fell to the lowest level in five years, and a low unemployment rate boosts demand for office space... As the industry sustains its strength, the market leader in real estate services, CB Richard Ellis Group Inc., said Oct. 31 it would buy rival Trammell Crow Co. in a deal that would increase its dominance... In the third quarter, CB Richard Ellis posted 62 percent higher profit, and Trammell Crow said income rose 14 percent, due mostly to gains from property management."

Tracking the Housing Market and Homebuilder Stocks You can track developments in the housing market and homebuilder stocks by bookmarking our Housing coverage or subscribing to our free email service. If you have a blog or website of your own, you can track developments in the sector and provide great content for your readers with our Housing Market widget (left). It's simple to add -- just select "Housing Market" from the drop-down menu here.

Comments

[Golf Club R...:]

If you are down on golf course real estate stocks, check out golfrentalandsales.com. It caters to golf courses, though is more in tuned to the rental markets.

It is an up and coming play in this sector. Great cashflow, and strong management team.

- Elijah
golfrentalandsales.com

2007 Dec 17 05:30 PM