Real Estate Sales and House Prices
- Pending Home Sales Down Again (Smart Money.com, Dec. 7th): "David Lereah, Nat'l Ass'n of Realtor's chief economist, expects a "fairly steady pace" of home sales for the next two months. "It's important to focus on where the housing market is now - it appears to be stabilizing, and comparisons with an unsustainable boom mask the fact that home sales remain historically high - they'll stay that way through 2007... In addition, a temporary correction in prices distracts from the fact that it is primarily the number of home sales that affects the economy, and the number for this year will be the third highest on record," he said."
- “Going Back To More Normal Times” In Kansas (The Housing Bubble Blog, Dec. 6th): ‘There’s too many houses on the market,’ said local builder Sam Wiles. “A builder’s wait for a buyer can be costly. There’s utility payments, as well as taxes, insurance and interest. ‘Three months on a house will run you about $3,500 in interest so it doesn’t take long to eat your profit up." Wiles said he lost about $40,000 on one of his spec homes. Tonganoxie builder Richard Faherty said after months of not selling a house he built, eventually a renter came around. "All I know is pray hard," Faherty said."
- Housing Hot Spots Keep Popping Up Across The Valley (Tooele Transcript Bulletin, Dec. 5th) Utah: "No end in sight for the residential building boom sweeping across Tooele Valley... Overlake developers recently submitted a 20-year master plan to Tooele City that allows for almost 7,000 additional lots... At least 80 different developers are planning or building housing projects throughout Tooele valley, and a project status report from Tooele City lists 37 developments at various stages just within city limits. The developments range in size from three lots to a proposed 6,922 lots to be built over 20 years in the fast-growing community of Overlake."
- More On Housing Prices (NYTimes, Dec. 5th): "The Office of Federal Housing Enterprise Oversight index has three big weaknesses: First, it excludes any mortgage over $417,000, because Fannie Mae and Freddie Mac don't own loans so large. Second, the data for individual metropolitan areas includes not just house sales but also appraisals done for a mortgage refinancing. Appraisal values... tend to be inflated. Finally the index includes only houses that have actually sold lately. In a falling market, with an enormous number of properties for sale, the houses that are selling tend to be more appealing than the average house. Right now, all these flaws seem to be making house values look much stronger than they really are."
- Median Home Prices Are Bogus (Arizona Central, Dec. 4th): "As the ratio of expensive homes to lower-priced houses sold increases, median prices over the entirety of the housing stock will rise even if prices on all individual houses are falling. The conundrum is a result of using a median housing price measure because it measures aggregate and fails to take account of what happens to any single house or any reasonably close-priced houses. WSJ: The “median price gauge”is “plucked from a large pool of prices based on home sales" that “can be skewed by changes in the composition of the pool… The bad news: Median housing prices likely are understating the severity of the housing slump. The good news: The Fed likely is not looking at median housing prices in assessing the severity of the housing slump."
Real Estate Investing and Sentiment
- Real Estate 'Flipper' Books: Telling Sign Of Continued Excess (Barry Ritholtz in Seeking Alpha, Dec. 7th): "Is this really a bottom? Well, judging by all the Real Estate Flipper books that came out in 2006 -- or are about to come out in 2007 -- its a bit difficult to say the speculative excesses have been wrung out yet. In fact, based on what we could find on Amazon, more Flipper books have been published over the one year period ending March 2007 than we could find over the previous 20 years -- combined."
Mortgates and Real Estate Lending
- Georgia Foreclosures Jump 99%; Rate Is Nation's 3rd Highest (Atlanta Journal Constitution, Dec. 7th): "The taking of homes — generally because the owner hasn't been making mortgage payments — has always been brisk here because state laws are written for speed. Georgia is one of three states in which lenders can foreclose on houses in as few as 37 days... One sign of how widespread foreclosures have become is the growing willingness of lenders to negotiate with delinquent homeowners, said Herb Heitman, an Atlanta bankruptcy attorney. "Ten years ago, they never made deals."
- Subprime Loans Going From Boon To Housing Bane (NYTimes, Dec. 6th): "Delinquencies and foreclosures are rising fastest among "subprime" borrowers because they have troubled credit records or otherwise have difficulty obtaining a mortgage. There were almost six million such loans outstanding at the end of June...The rise in delinquencies is not expected to have much of a reverberating impact on the overall housing market and the national economy... [New] federal banking rules to tighten lending standards-- aiming chiefly at adjustable-rate mortgages-- will do little to help many subprime borrowers, for whom higher rates and a slowing economy would pose a tough challenge.
- Top 5 Real Estate Foreclosure Investment Books (Stockerblog in Seeking Alpha, Dec. 5th): "1) The Pre-Foreclosure Property Investor's Kit: How to Make Money Buying Distressed Real Estate -- Before the Public Auction by Thomas Lucier. 2) The Pre-Foreclosure Real Estate Handbook: Insider Secrets to Locating and Purchasing Pre-Foreclosed Properties in Any Market by Frankie Orlando. 3) The Complete Guide to Investing in Foreclosures by Steve Berges. 4) Buying Real Estate Foreclosures by Melissa S. Kollen-Rice. 5) How To Buy Foreclosed Real Estate by Theodore J. Dallow
- Mortgage Bank Abruptly Closes (Denver Post, Dec. 5th): "Sebring Capital Partners, a Texas-based subprime lender fell prey to the rising rate of defaults and abruptly closed its doors Friday, signaling more trouble in the subprime lending industry. Subprime lenders - who cater to borrowers with poor credit - are struggling with rising default rates. Carrollton, Texas-based Sebring employed 325 people, including 50 in Denver."
- Big Surge In US Mortgage Delinquencies - Wall Street Journal (Finfacts.com, Dec. 5th): "WSJ: The surge in mortgage delinquencies in the past few months is squeezing lenders and unsettling investors world-wide in the $10 trillion US mortgage market. The pain is most apparent in subprime mortgages…[but] there are signs it is spreading to other parts of the mortgage market. Subprime mortgage originations climbed to $625 billion in 2005 from $120 billion in 2001… Like other types of mortgages, subprime home loans are often packaged into securities and sold to investors, helping lenders limit their risks."
- No Interest Rate Parity This Year (North County Times, Dec. 5th): "Last week, Freddie Mac and Fannie Mae decided not to raise the limit on so-called conforming loans. Based on nationwide average home costs, $417,000 is the largest loan amount that the government-backed loan companies will buy and guarantee. Mortgages under this limit get favorable interest rates. Those above the limit, known as "jumbo" loans, carry interest rates that are 1/4 to 1/2 a percentage higher. Fine if the median-priced home is $179,000 (like in Omaha, Neb.), but in San Diego, thousands of prospective home buyers will fail to qualify for a home loan next year… Larger loans carry a higher risk of default… But when the limit is substantially lower than a median-priced home, the risk seems greatly exaggerated."
- Denver Area Foreclosures Set Record (Rocky Mountain News, Dec. 5th): "In the first 11 months of 2006, 17,782 foreclosures were opened in the seven-county metro area. That's 3.85 percent higher than the record set in 1988, during the oil industry bust. Experts say other parts of the country that recently had hot real estate markets need only look to Denver to see what's in store for them... Last year, the FBI described Denver as one of the 10 top "hot spots" in the country for mortgage fraud. Boulder Lender: Despite rising foreclosures, "there has been no move to tighten borrowing requirements because the federal government wants to encourage homeownership."
- Comment from Scott Pasinski in Seeking Alpha: "The numbers of foreclosures are at all time highs throughout the US with no end in sight. There's a nationwide specialty program run by an ex Department of HUD commissioner who has extensive knowledge on 'how to stop foreclosure'. Check out this site if you are faced with a pre foreclosure or foreclosure situation."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Housing Market, Fed Policy, Deficit Spur Debate Over Economy In ’07 (The Hill.com, Dec. 6th): "Until recently, the consensus on Wall Street was that U.S. economic growth would be roughly in line with the trend rate (approximately 3.2 percent) in 2007. Sentiment has now shifted, stimulated by a debate surrounding three key macroeconomic factors: The housing sector decline and the size of the spillover effect it may have on consumption, the direction of monetary policy and the sustainability of the current account deficit, and the effect of a depreciating dollar... The dollar has recently depreciated sharply as doubts about the strength of the U.S. economy spread. A decline of the dollar to 1.40 or even 1.50 versus the euro seems likely in 2007 if the housing slowdown continues."
- Toll sees conditions improving for US housing (MSNBC.com, Dec. 6th): "Toll Bros. CEO pointed to the recent performance of the fast-growing metro area of Washington DC, one of the first regions to suffer from the slowdown in housing activity which is now rippling through the broader economy as a sign that "we may be seeing a floor in some markets." The company reported record annual revenues and its second-highest profit, despite slowing sales and falling margins."
- Weyerhaeuser Sees More Cutbacks As Housing Slumps (Reuters.com, Dec. 6th): "Weyerhaeuser Co., already reducing production amid a U.S. housing downturn, said it expects to further reduce North American production capacity because of weak demand for wood. The housing slowdown has already resulted in increased downtime and production cutbacks at about 70 percent of the company's residential wood products facilities... Weyerhaeuser, one of the world's largest forest products companies, said cutbacks have already led to "significant" Q4 production decreases across all product lines... and further actions might include plant closures."
Homebuilders and Housing Stocks
- WSB On Toll Brothers (Wall Street Breakfast in Seeking Alpha, Dec. 6th): "Analysts were surprised by Toll's boldness [in announcing a housing bottom]. Ivy Zelman of Credit Suisse: "I'm wondering which Kool-Aid you're drinking because I want some." Q4 company profits dropped 44%, to $173.8 million, or $1.07/share, from $310.3 million, or $1.84/share in 4Q05. Higher mortgage rates and declining demand for second and speculative homes sank new orders by 58%. Despite purchase incentives, new home cancellations remained at 42%."
- Hovnanian CEO Sees Housing Bottom (Houston Chronicle, Dec. 6th): "Hovnanian Enterprises Inc.'s chief executive on Wednesday predicted the housing market will hit a bottom in the first half of 2007 and drag a little before rebounding... "It's unusual for housing to slow amid a strong economy with good job growth." He's optimistic the recovery won't take as long as the bounceback from previous downturns caused by unemployment or higher interest rates because this downturn was spurred largely by buyer psychology... People are able to afford homes they're just skittish about collapsing prices, he said."
- Toll Brothers' Single Digit P/E Out the Door (William Trent in Seeking Alpha, Dec. 5th): "Despite a slowdown in the housing market, the homebuilder bulls have been able to take solace in the notion that the very low earnings multiples most homebuilding stocks boast would cushion the stocks from further downside. Unfortunately, the E can change as much or more as the P The old rule of thumb for cyclicals is to buy when the P/E is high and sell when it is low. The question now is whether it is high enough.
- HSBC Hit By Housing, Investment Bank Slowdown (Reuters.com, Dec. 5th): "HSBC Holdings, Europe's biggest and the world's third biggest bank, said its growth has slowed since the first half of the year due to a weak U.S. housing market and a slowdown at its investment bank arm, sending its shares to a 6-month low. The bank signaled the US housing market had deteriorated further in recent weeks… prompting it to take a more cautious stance on lending in some markets. "We are being cautious on underwriting quality and seeing how some of this debt can be placed in the market…We've seen more data coming into the fourth quarter and there is a weakening trend."
- Home Builders See Bottom Of Housing Slump (CNNMoney.com, Dec. 5th): "Toll Bros: Favorable factors contributing to better times [ahead] will be low (and declining) interest rates, solid wage and job growth and low inflation. Long term demographic trends also spell housing market growth. "Reno has been doing poorly, Toll said on a conference call to discuss the company's results. "Las Vegas qualifies as a rotten market. Phoenix did well for us ... but has turned south. On the other hand, New York is "roaring" and some other markets including Texas, Raleigh, N.C., and Maryland are also strong."
Commercial Real Estate and REITs
- An Economic Pillar On The Verge Of Collapse (Washington Post.com, Dec. 6th): "The $36 billion Equity Office Properties deal is 80% financed with debt, and the "cap rate" -- the rate of return from next year's rental income -- is an estimated 5.5 percent… [Commercial] real estate has once again become a highly leveraged investment class. So, when the inevitable downturn finally happens and the price falls by more than 20 percent, there's a pretty good chance the value of the collateral will fall below the value of the loans… Major institutional investors that used to stick to bonds and blue-chip stocks have concluded that the only way they can meet their investment targets is by allocating 15 percent of their portfolio to real estate."
Web Site of the Day
Matrix is a New York City real estate blog written by Jonathan Miller, head of the residential real estate appraisal firm Miller Samuel, generally considered the city's top real estate appraisal firm.
Miller's more than 20 years of real estate experience comes out in this no-nonsense blog about topics ranging from various projects in the local real estate market, to a high quality analysis of the available tools to determine housing prices in a local and national market so disparate.
Miller says he set up the site to fill the need for a" rapid, organized stream of information relating to local, national and international real estate issues pouring out of the news media." The site is updated daily, and is considered an invaluable resource for investors.
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