Real Estate Sales and House Prices
- Real Estate Inventory Reduction? Hardly! (Barry Ritholtz in Seeking Alpha, Jan. 2nd): "Doug Kass on the supposed modest increase in new home sales: The Census Bureau does not adjust for cancellations in its compilation of house sales, which in a soft market like this one not only overstates sales, but understates inventory. Usually, cancellations run only about 15% of orders for publicly owned home builders. However, cancellations have soared this year. Here are third-quarter rates for each of the leading home builders: Centex (CTX), 37%; DR Horton (NYSE:DHI), 40%; KB Home (NYSE:KBH), 53%; Lennar (NYSE:LEN), 31%; Pulte Homes (NYSE:PHM), 36%; Beazer (NYSE:BZH), 57%; Hovnanian (NYSE:HOV), 35%; MDC Holdings (NYSE:MDC), 49%; and Standard Pacific (NYSE:SPF), 50%."
- Double-Digit Drop Recorded In Maine Real Estate Sales (Maine Today, Dec. 29th): "Maine real estate sales tumbled 12.5% in November as decreases in prices and sales followed a national track downward, according to Maine Realtors' multiple listing service. The sales drops were accompanied by decreases in the median price of an existing single-family home to $185,000, a 3.9 percent drop from the November '05 price of $192,500.The regional non-profit New England Economic Partnership projects the region's home prices will remain flat through 2010 and fall short of the U.S. forecast of 2.1 percent growth per year through the decade's end.
- The Housing Boom Ends (Providence Business News, Dec. 30th): "Rhode Island’s housing bubble burst in 2006, as home prices, sales and new construction stalled in dramatic fashion following a five-year run of record activity. Single-family home sales dropped by double-digit percentages in 2006, according to the Warren Group, a New England real estate data tracker. The state’s median sale price for a single-family home dropped to $262,500 in October – a 4.2-percent decline from $274,000 in October '05 … The sudden cooling of Rhode Island’s housing market – a local reflection of a national development – was driven in part by rising mortgage rates."
- State's Strong Economy Breeds Optimism For '07 (Salt Lake Tribune, Dec. 30th): "Home values in Q3 rose 17.4 percent, compared with the same period in 2005 (and 7.7% nationally). In 2007, homes probably will take longer to sell and appreciation is expected to fall from the double to single digits. John Hayes of Homevestors: "Utah real estate will continue to be a good investment in 2007, and beyond. Job growth will be the driving force. More jobs mean more people and more home purchases. Home prices [in Utah] have not overappreciated as some markets have, which means continued appreciation because Utah doesn't have a large inventory of houses for sale."
- End of housing bubble lands at top of list (Press Democrat, Dec. 31st): "The hot housing market went cold. The sales downturn was deeper than expected and prices fell for the longest stretch in a dozen years. Having peaked at $619,000 in August 2005, the price for the typical Sonoma County home dropped to $565,000. Low interest rates kept the hit from being worse, yet many buyers continued to stretch finances with potentially risky loans to purchase homes. By one estimate, the housing downturn wiped out 1,300 jobs in Sonoma County.
- Montebello Set To Buy Land For Housing (Whittierdailynews.com, Jan. 1st): "The Montebello City Council is planning to buy property from its own redevelopment agency in order to spend federal HOME funds before they expire, to build affordable housing and a parking structure in the downtown area of Whittier Boulevard…HOME funds are known as the Home Investment Partnerships and come from the federal Housing and Urban Development program. The HOME program makes up the largest federal block grant to state and local governments designed exclusively to create affordable housing for low-income households. Every year it allocates approximately $2 billion among the states to hundreds of localities nationwide."
Real Estate Investing and Sentiment
- Rising land prices foretells of strong housing market (Inside Collin County Business, Jan. 3rd): "Completion of the Dallas North Tollway up to US 380 in the fall of 2007 will bring many developable tracts online and we will see housing starts grow significantly in northern towns, such as Prosper, which were previously less accessible. We are also seeing greater demand for attached product -- particularly townhomes. Many builders looking for opportunities to cater to the empty nester, young professional and young married markets have found success in townhome product. Townhome developments in mixed use environments such as Legacy Town Center have done especially well."
- Mixed Views Of Housing (Press Enterprise.com, Dec. 30th): "In San Bernardino and Riverside counties, 10,000 Inland homes and condominiums changed hands in October 2005, vs. 7,500 in October 2006. Prices are marginally higher than a year ago… If the housing slump continues in 2007, renters could be beneficiaries. Over the past several years, developers opted for the more profitable condominiums, creating a dearth of apartments and driving up rents. With fewer buyers, more of these projects may become apartments. Inland developers, recognizing that more professionals are moving to the area, are building luxury apartments, with rents in the $1,500 zone, in cities such as Riverside, Corona and Moreno Valley."
- Record housing construction permits in Gillette (Casper Star Tribune, Jan. 2nd): "GILLETTE, Wyo. - The city issued a record 631 housing construction permits in 2006, and contractor Jim Anderson expects the trend to continue in 2007. He also expects a local worker shortage will continue to make out-of-town subcontractors a necesssity. Robust coal, gas and oil development is fueling a local economic boom… Last year a U.S. Bureau of Land Management study predicted a need for 600 housing units a year for five years… City officials said that some 1,500 permit applications are waiting for review and more than 900 residential units are ready for building permits.
- Region among nation's top rental housing markets (Sacramento Business Journal, Jan 2nd): "Sacramento has one of the nation's top 10 multi-family rental housing markets, according to the latest Grubb & Ellis Investment Opportunity Monitor. Population growth, a high percentage of likely renters according to age, strong job creation and expensive housing are factors that will benefit the residential rental market in the coming year… Sacramento was one of five California housing markets and nine Western markets to make the top 10. Landlords can expect a slight increase in rental rates, and the vacancy rate should remain steady due to new construction."
- Vail's Answer To Housing Woes: Annex Some (Aspen Times, Jan. 1st): "Vail officials are looking outside Vail Valley for an affordable housing enclave. Steve Milgrom, owner of the River Run Apartments offered its annexation to Vail to allow some of the homes to become affordable housing. The apartments are almost two miles west, along Interstate 70, from the town's western border. They have long supplied less-expensive rental homes to area workers. Milgrom plans to remodel the apartments and sell them as condominiums… Homes in the two buildings that aren't on the Eagle River - which include about 44 of the 117 apartments - could be offered up as affordable housing."
Homebuilders And Housing Stocks
- Lennar to Post Quarterly Loss After Land Writedowns (Bloomberg, Jan. 2nd) Lennar Corp., the fourth-largest U.S. homebuilder will report a Q4 loss of as much as $500 million to write down land as customers cancel orders. Lennar CEO Stuart Miller: "Market conditions continued to weaken throughout Q4… we have not yet seen tangible evidence of a market recovery,'' New home orders slid 6 percent in Q4, and 3% for fiscal 2006. The backlog of orders at Nov. 30 was valued at $4 billion, down from $6.9 billion a year earlier. Q4 profit before charges will be 70-75 cents a share. In the year-earlier period, the company had a profit of $581.2 million, or $3.54 a share."
- Analyst Upgrades Equity Residential (Chron.com, Jan. 2nd): "An analyst upgraded Equity Residential late Friday as the real estate investment trust looks to capitalize on the sale of its Lexford Housing division and distance itself from condominiums. Citigroup (NYSE:C) analyst Jonathan Litt boosted his rating for Equity Residential (NYSE:EQR) to "Buy" from "Hold," and raised his price target to $60 from $55, implying 18 percent growth over the stock's Friday closing price of $50.75 on the New York Stock Exchange. He also emphasized the company's move away from condominiums. The units will represent 2 percent of its total funds from operations this year, down from 11 percent in 2005, according to Litt.
- Homebuilder Lennar To Miss Quarterly Numbers, Cutting Stake in LA Venture (SeekingAlpha.com, Jan. 3)) Homebuilder Lennar Corp. expects to post a loss of between $0.88-$1.28/share for its fiscal Q4 ended Nov. 30, due to (1) land charges related to valuation adjustments and (2) abandoned land options. Aside from these one-time items, Lennar would have earned $0.70-$0.75/share; full results will be released on Jan. 17. New orders fell 6% to 9,606 homes. CEO Stuart Miller noted that though deliveries were up overall in 2006, the company experienced "materially lower" gross margins "as a result of deteriorating market conditions in the home-building industry," and sees no signs the home-building market has hit bottom. Lennar also announced expanding its "LandSource" Los Angeles-area joint venture to include MW Housing Partners, which is managed in part by CalPERS.
Mortgates and Real Estate Lending
- Mortgage Lenders Network Halts Loans as Housing Slows (Bloomberg, Jan. 2nd): "Mortgage Lenders Network USA stopped making new loans from its wholesale arm, becoming the third mortgage company in a month to curtail operations as housing sales slowed and defaults by borrowers rose… MLN is the 15th-biggest issuer of sub-prime mortgages, with $3.3 billion of loans in the third quarter… Brokerage firms including Morgan Stanley (NYSE:MS), Barclays Plc (NYSE:BCS) and Deutsche Bank AG (NYSE:DB) have been buying mortgage companies, including sub-prime lenders and servicing units, so they can repackage home loans into larger securities, which spreads the risk of default. The firms can then sell the securities to clients who want interest income."
- States Issue Warning On Nontraditional Mortgages (Oregon Mail Tribune, Jan. 2nd): "Nineteen states and the District of Columbia have moved quickly to warn state-regulated lenders about the hazards to consumers from nontraditional mortgages. Tens of thousands of state-licensed lenders and mortgage brokers are affected by the advisories. Such loans include interest-only mortgages and other arrangements where the borrower cuts monthly costs by paying back less than full interest and principal. The states are following closely behind federal banking regulators, who issued a sternly worded advisory in late September to the lenders they supervise, telling them they should not make these loans to borrowers who may be unable to repay them."
- Home Mortgage Foreclosures Soar (NJBIZ, Jan. 1st): "Rising foreclosure rates in New Jersey are likely to remain on the upswing in 2007, but experts say the increases will not likely signal a crisis for the state’s housing market or its economy… For the first 11 months of 2006, home mortgage foreclosures in the state were 25,472, up 78 percent from 14,311 for all of 2005, according to Foreclosures.com, a real estate advisory firm in Sacramento, Calif… In affluent Bergen County, foreclosures jumped from 104 in 2005 to 1,367 last year. In Monmouth County, home to many shore communities, foreclosures rose from 883 in 2005 to 1,533 last year."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Will 2007 Be A Good Year? It All Depends on the Housing Market (Prakash Kolli in Seeking Alpha, Jan. 2nd): "I am not so optimistic that the housing market bottom has been reached. Granted, sales of new homes have increased slightly the past three months, but I believe incentives and moderately lower recent mortgage rates are driving this increase. However, housing starts and permits and mortgage applications are down. If manufacturing, housing, and certain service areas such as transportation and retail weaken together then 2007 may not be a good year for equities. If, however, the Fed maintains interest rates and capital remains cheap, then the housing market may stabilize and work through the inventory of unsold homes, and 2007 may be a good year after all."
- Home Sales Bode Well for Big Picture (Wall Street Journal, Dec. 29th): "If the housing slump is indeed bottoming out and starts to reverse itself in the months ahead, it would gradually lift a great weight off the broader economy. Housing-related industries have been shedding thousands of jobs in recent months, and builders have been forced to scale back construction to match waning demand. That has been a major factor behind the slowing economy this year, and many economists say growth -- now running at an inflation-adjusted annual rate of about 2.0% -- won't fully bounce back until the housing correction has run its course."
- Economy Poised For '07 Rebound, Forecasters Say (Moneyweb.com, Jan. 2nd): "Housing-related industries shed 145,000 jobs from May though November, according to Moody's... The drop in housing activity has affected all kinds of manufacturers, from drywall factories to furniture makers. The Institute for Supply Management, a purchasing managers' trade group, said that its index of manufacturing activity for November fell to 49.5, the lowest point since April 2003. (Any number below 50 indicates contraction.) By contrast, the ISM's index of service-sector activity for the same month rose."
- Housing Slump Weighing On Economy (Newsfactor.com, Jan. 2nd): "Slower growth means rising unemployment, with many analysts expecting the jobless rate to hit 5 percent in 2007, up from a five-year low of 4.4 percent in October... [but] still a historically low rate. For certain sectors of the economy, job losses will have a much bigger impact. Goldman Sachs economists estimate that housing-related industries -- construction, furniture manufacturing and sales, real estate agents, mortgage brokers -- will see more than 1 million jobs evaporate over the next two years because of the housing slowdown after five boom years for sales."
- Happy new-ish year (San DiegoUnion Tribune, Dec.31st): "The housing slowdown is impacting employment levels, especially in formerly hot housing markets like San Diego County. After reaching a peak of 96,300 workers in June, local construction companies axed 5,300 positions by November. During the same period, real estate firms shed about 600 workers. Chamber of Commerce: As the housing market continues to weaken next year, the county's jobless rate is projected to rise slightly to 4.1 percent. That's still a low level, but the cutbacks in hiring could have a ripple effect throughout the economy, as the laid-off workers cut back their spending. "
- Analysis: Housing bubble burst sending economy down (Post Gazette.com, Jan. 3rd): " The 2001 recession was caused by the bursting of a stock market bubble of about $7 trillion. The housing bubble is comparable in size -- about $5 trillion at peak. And the bubble wealth is much more widely distributed: Most Americans still have most of their assets in housing and little or nothing in stocks. As this housing wealth disappears, people cut spending, borrow less on their homes: from $600 billion in 2005 to about $350 billion for 2006. This borrowing, enabled by soaring house prices that allowed people to borrow more against the value of their homes, fueled the U.S. economic recovery since 2001."
- Turnaround Experts See Trouble For Auto Industry, Builders (Philadelphia Business Journal, Jan. 1st): "The automotive industry and home builders are the two sectors of the economy that will encounter the greatest difficulties in 2007, according to the Turnaround Management Association. Home builders took over the No. 2 spot, held by airlines a year ago. "Home builders are sitting on undeveloped land they once considered assets," says Houston attorney Tom Henderson. "Now the land's become just another form of liability as sales of new homes in most markets have slowed." Construction was No. 3 on the distressed industry list, followed by manufacturing."
Global Impact of U.S. Housing Market
- Africa: Continent Reaps the Benefits of U.S. Policy On Housing (All Africa.com, Jan. 1st): "While the US housing market has fallen on hard times thanks to fluctuating interest rates, there is a worldwide boom that is a direct result of changes in US foreign policy. Economist Hernando de Soto's research had shown President Bush that there's at least nine trillion dollars' worth of trapped capital in unregistered land in the developing world. Bush: "Many Africans find it impossible to get a loan for a business or home, making it difficult for people to build equity... The US has some of the most effective mortgage markets in the world. We understand the flow of capital, and we want to share this knowledge with the nations of Africa."
Commercial Real Estate and REITs
- Real Estate Investment Trusts: Rent or Buy? (Stockerblog in Seeking Alpha, Jan. 1st): "Mortgage REITs hold mortgages, mostly on homes, whereas equity REITs hold the properties themselves…With the downturn in the housing market, many potential buyers are taking a “wait and see” approach - opting to rent rather than buy. If mortgage defaults increase, debt REITs will suffer. However, if the number of renters increases, equity REITs specializing in apartments will benefit.Click on the chart of the highest yielding residential REITs. In each case, whether it is an equity or a debt REIT is specified, along with the type of property the REIT invests in.
- Real estate's rudder (OCRegister.com, Dec. 31st): ""The commercial real estate boom is injecting money and jobs into the economy just as other work opportunities are being drained by a drop in homebuilding and other residential real estate industries. Nonresidential construction should rise 4 percent in value next year to $2.4 billion. That compares with an 8.7 percent drop in housing construction to $2.1 billion.
- 2006 Not Great for Carpet (11Alive.com, Jan. 1st): "2006 probably won't be remembered fondly in North Georgia, home to some of the world's largest floor-covering makers. The carpet industry faced a slump in sales because of the slowdown in the housing industry, a high-profile U.S. Supreme Court case over illegal immigrants and several executive changes.Several carpet manufacturers suffered lower sales as the red-hot housing industry began to show signs of a slowdown. At Shaw Industries, based in Dalton, earnings for the third quarter of 2006 were $138 million, down about five percent from the same period of 2005.
- Copper Falls Most in 8 Weeks, Leading Declines in Other Metals (Jan. 2nd, Bloomberg): "Copper used in wires and pipes fell as much as 3.6 percent to $6,100. Other industrial metals were lower on increased speculation slowing demand will create a production surplus in 2007. ABN Amro Holding, said there will be a surplus of 100,000 tons of copper in 2007… Most of the increases in LME stockpiles took place in the U.S., the second-biggest copper-using nation. Inventory there rose to 75,600 tons, from less than 1,000 tons at the beginning of 2006. The weak U.S. housing market has resulted in an accumulation of inventory. "Prices will fall through $6,000."
- Job Cuts Came As A Surprise To Andersen Employees (Dunn County News, Jan. 2nd) Wisconsin: "Andersen Windows eliminated 40 jobs from its Menomonie facility as of Jan 2, 2007, in response to a decline in the new housing market. Menomonie mayor: “This is due to a downturn in the housing market, their production was over capacity." The loss of 40 jobs at Andersen Windows in Menomonie corresponded with the loss of 400 jobs at Andersen’s headquarters in Bayport… The job cuts represent more than 11 percent of the 340 workers in Menomonie and nearly 16 percent of the 2,600 employed in Bayport."
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