Real Estate Sales and House Prices
- Flint Housing Market Appears To Grow (ABC TV, Jan. 21st): "Flint appears to be bucking a housing trend and actually growing in housing sales. Flint's surprised finance director: "This year 2,452 homes were sold compared to 1,590 homes sold in 2005, and the average price of the homes increased… construction was up by nearly $30 million…" Not everyone is buying the good news… Builder's Association of Greater Flint: Recently released realtor numbers show housing sales actually dropped this past year, and the average Flint home sold for $10,000 less than 2005. "You keep hearing everyday about apartment buildings being shut down and homes going back to the Land Bank."
- Real Estate Briefs Of The Rich And Famous (Daily Report, Jan. 20th) Real-estate developer Herb Miller and his wife sold their Georgetown house, listed for $28 million, believed to be Washington D.C.'s highest-ever asking price… A lakefront home in Seattle's Denny Blaine neighborhood was on the market for $27 million, a record asking price for the city… Seattle's real-estate market cooled in 2006. Sales of single-family homes and condominiums in King County declined 16.5% y/o/y in December, although prices increased somewhat… Nobel Prize-winning economist Myron S. Scholes and his wife… sold their 1906 San Francisco home for $12 million, after a $2 million discount."
- Losing Steam: Housing Market Slows But Doesn't Crash As Inventory Grows (Wisconsin State Journal, Jan. 19th): " South Central Wisconsin MLS: A nearly decade long housing boom came to an end last year… The number of existing home sales dropped about 7% to 14,670 in the six-county region and declined 11.1% in Dane County to 7,097. The inventory of unsold homes swelled to 10,712 in the region by the end of 2006, up 26% from a year earlier…Veridian Homes, the state's largest home builder, trimmed its staff last year and reduced the number of homes built… But said strong sales in November and December point to a better 2007, when Veridian expects to build 475 to 500 homes."
- Bay Area Home Prices Flat, Slow Sales (Data Quick, Jan. 17th): "DataQuick: Bay Area home prices were flat last month while sales pace was the slowest in a decade… 7,488 new and resale houses and condos sold in December… Up 3.9% from 7,204 in November, and down 19.9% from 9,347 in December 2005… "The market is in a lull while potential buyers wait for lower prices. Seasonal factors may edge prices down during the next two months, but are likely to move up again in spring. [If] mortgage interest rates stay where they are... we should expect the market to pick up in March or April."
Mortgates and Real Estate Lending
- Many More Are Losing Their Homes (Boston.com, Jan. 21st): "In Bristol, Norfolk, and Plymouth counties, the total number of filings in 2006 is likely to be more than double that in 2004, according to ForeclosuresMass.com… Foreclosure notice filings in the first 10 months of last year increased 129% compared with the same period in 2004. From January through October last year, there were 1,453 filings in Bristol County, 1,130 in Norfolk County, and 1,780 in Plymouth County. One reason for the increase in filings was that properties were staying on the market longer, from 120 to 180 days."
- Valley Fighting Mortgage Fraud Wave (AZ Central, Jan. 20th): "A wave of mortgage fraud in the Valley, inflating home values through scams called cash-back deals… The fraud involves obtaining a mortgage for more than a home is worth and pocketing the extra money in cash. Home values are inflated… Homeowners stuck with overpriced mortgages may never recover the difference… Lenders end up with bad loans that, in the long run, could hurt the Arizona real estate market, the largest segment of the state economy… In cash-back deals, usually the buyer, appraiser, a mortgage broker and real estate agent are in on the scheme and split the extra cash."
- 12MoDef -- Hip Hop For A U.S. Housing Bubble On The Edge (Globe and Mail, Jan. 19th): "Signs of a market bubble: The proliferation of exotic new financial instruments… Mortgage Payment Deferral [offers] the "no payment for 12 months" mortgage, [the 12MoDef" mortgage]…For people who have some equity in their homes and [want] to refinance their mortgages… The lender makes the first 12 monthly payments, including property taxes and home owner's insurance, in exchange for the equity you've built up in the house. Like a mortgage equity withdrawal, except the bank is MEWing, [not] the consumer. Freed -- for a year -- from monthly mortgage payments, the consumer can then pay down his maxed-out credit cards."
- US Housing Crash Continues: Who Disagrees? (Patrick.net, Jan. 19th): "Banks sell most loans to Fannie Mae or Freddie Mac. The conversion of low-quality housing debt into "high" quality Fannie Mae debt with implicit federal government backing is the main support for the housing bubble… Banks are not required to get any appraisals for loans they sell to Fannie Mae... This encourages banks to overstate values and sell bigger loans to Fannie, pushing the risk onto taxpayers. Even the "jumbo" loans that banks cannot sell to Fannie and Freddie.... banks designate interest as "income" whether they receive it or not… claiming higher "earnings". [This'll] end when those borrowers default."
- Problems Persist At Fannie, Freddie (Builder Online, Jan. 18th): "Office of Federal Housing Enterprise Oversight: Fannie Mae, which just last month restated $6.3 billion in profit for 2001 through mid-2004, had a $550 million loss in Q3'06 compared with a profit of $880 million in Q3'05. The financial results of Fannie Mae and Freddie Mac, the two biggest financiers in the $8 trillion U.S. home-mortgage market, continue to be volatile from quarter to quarter… Fannie Mae is the second-largest U.S. financial institution after Citigroup. Critics: [Both companies'] mortgage portfolios totaling more than $1 trillion - are improperly managed and pose a risk to the financial system."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Real Consumption Versus NAHB Housing Index Sentiment (Barry Ritholtz in Seeking Alpha, Jan. 22nd): "The NAHB Housing Index is a measure of Builder sentiment; it measures a combination of sales, traffic and new permits. What happens when we overlay the Housing Index against Real Personal Consumption? It turns out that, going back to 1985 anyway, it operates as a leading indicator: [click on chart to enlarge] I would like to see this going back further than 1985, but it certainly raises some interesting issues . . ."
Homebuilders And Housing Stocks
- WCI Communities - Housing Steal or Deal? (NY Sun, Jan. 22nd): "Major investments by four billionaires in Florida-based luxury homebuilder WCI Communities "Billionaire's Folly": Company share price on takeover speculation is overdone… the stock is overpriced on fundamentals and should be sold… Figures show 15 million WCI shares shorted… Wall Street expects WCI to lose money this year, and more next year… UBS homebuilding analyst Margaret Whelan: WCI is "top pan" for 2007… Company debt carry is above average, Florida's luxury condo market is likely to underperform for years to come, WCI's home and tower building orders have fallen a combined 66% y/o/y…WCI to continue to incur greater margin deterioration relative to its peers."
- Pulte Homes Cuts Q4 Guidance, Stock Drops in Extended Trading (Seeking Alpha, Jan. 19th): "Pulte Homes preliminary Q4 results were sharply lower than its previous guidance. Q4 EPS is now seen between -$0.05 to $0.05, from $0.30 to $0.70 previously... Impairments and land-related charges are now estimated between $330 million to $350m, or $0.83 to $0.88/share, more than double prior guidance of $150m. Q4 home closings totaled 12,566, or a 20% decline year-over-year and new orders of 6,466 represent a 34% decline. Pulte CEO: Demand for new homes during the fourth quarter still far below pre-2006 levels." In a positive note, average sales price per home was up 6% to approx. $341k. Backlog totaled 10,255 homes at the end of Q4, valued at $3.6b."
Housing Related Industries
- Slumping Home Sales Key To Lockbox Maker's Rise (TBO.com, Jan. 19th): "GE Security, maker of the front-door lockboxes to access houses is working around-the-clock to keep up with demand… Producing 6,600 electronic boxes each day. They hang on the doors of homes for sale and use a popular technology that enables real estate agents to gain access to homes by using a cell phone, an electronic key or a device such as a Palm Pilot. GE Security produced 1 million electronic lockboxes in 2006, an amount sufficient to cover demand for the previous three years during the hot real estate market. Now there are 3.8 million homes for sale nationwide."
- Pacific Lumber In Bankruptcy: Maxxam Unit Blames Limits Placed On Logging (Builder Online, Jan. 20th):"Maxxam's Pacific Lumber subsidiary has filed for Chapter 11 bankruptcy protection, saying California water quality regulations sharply cut its revenues… Logging operations will continue during the bankruptcy, and the filing will not affect Houston-based Maxxam's remaining businesses: Real estate and racing… Maxxam's real estate business develops residential and commercial projects in Arizona, California, Texas and Puerto Rico, including golf courses and resort-related facilities… While forest products have been the largest part of Maxxam's business from an asset and employee perspective, the real estate business has been the most profitable in recent quarters."
Commercial Real Estate and REITs
- Bad News REITs: Unsold Housing Exerts Downward Pressure On Rents (Vincent Fernando in Seeking Alpha, Jan. 22nd): "We warn investors about the prospects for Apartment REITs such as Avalon Bay (AVB) and Equity Residential (EQR) since we are now seeing signs of unsold housing exerting downward pressure on rents... REITs such as AVB and EQR are trading at historically high cash flow multiples and are paying out historically low dividends... If investors are willing to accept below-risk-free yields in a risky asset then they most surely are expecting cash flow growth. And when AVB pays only 2.3% vs. treasuries at 4.8% then we need a lot of growth in order to eventually match risk-free yields."
- CNL Hotels & Resorts, Inc. Agrees To Sell In A $6.6 Billion Transaction (PR Newswire, Jan. 19th): "CNL Hotels & Resort (CHR), the nation's second largest hotel real estate investment trust, is to be acquired by Morgan Stanley Real Estate. Morgan Stanley Real Estate will acquire CHR for $20.50 per share in cash, representing an aggregate purchase price of approximately $6.6 billion for all of CHR's outstanding common stock and the assumption of CHR's outstanding debt… Morgan Stanley Real Estate will [then] own a collection of the country's premier iconic lodging assets, comprised of eight luxury properties located in six destination markets throughout the United States and operated under internationally recognized brand names."
- After $10 Billion In Sales, MetLife Looks Outside New York (The Real Deal, Jan. 17th): "The October $5.4 billion sale of Peter Cooper Village and Stuyvesant Town [is part] of Metropolitan Life's diversification strategy to shed about $10 billion worth of its Manhattan real estate holdings… The company continues to invest in real estate in Miami (purchasing three buildings at Waterford at Blue Lagoon Office Park in Airport West for $97.5 million) and internationally in Mexico, the United Kingdom, Eastern Europe and Canada. In New York, MetLife currently has $6 billion in mortgage loans in addition to their two large properties, $30 billion in commercial mortgages and about $8 billion in real estate equities."
- $5.6 Billion Year For Valley (Mercury News, Jan. 16th): "Real Capital Analytics: $5.6 billion worth of commercial real estate traded hands in Silicon Valley in 2006, $700 million more than in 2005, and more than [double] 2004… CPS Corfac International: 88 transactions topped $10 million in 2006—a total of 31 million Sq.ft. of real estate sold... including the $1.1 billion sale of the 5.2-million-square-foot Peery-Arrillaga portfolio to RREEF… "The valley is in a sustained recovery... Companies [are] hiring more workers… rents are rising, vacancy is shrinking." Real Capital: "Fundamentals returning to where they were pre-tech bust." CPS receives calls several times a week from managers of newly formed funds seeking real estate to buy."
U.S. Housing & Global Liquidity
- UK Housing Asking Prices Rise Further In Jan Despite BoE Rate Rises – Rightmove (Forex TV, Jan. 22nd): "Rightmove property website: The Bank of England's two interest rate rises had very little, if any, impact on the UK's housing market in January as supply shortages continued to push up prices, particularly in London and the South East… The average asking house price in the country during the month rose by another 0.5% to a record £222,859… Y/o/y, the average asking house price has risen 13.5%... The highest since October 2004… Property shortages are at their lowest level since 2004… Long term excess of demand over supply is likely to mitigate impact of the latest interest rate rise."
- Wealth Creators (India Economic Times, Jan. 21st): "The real estate sector in the country is poised to be an important part of the country’s growth trajectory, leading to significant wealth creation. Real estate assets will be key link between real estate development and real estate investments. Realty assets in India are pegged at $50 to $80 billion that is just 6 to 10% of the country’s GDP. In most developed countries the ratio of realty assets to GDP is around 40 to 50%. Edelweiss report: “There is a possibility of further market cap creation of $160-220 billion in the next 10 years."
- Capital Keeps Falling on My Head (Goldseek.com, Jan. 21st): "When Sam Zell is selling, the rest of the investment world should take notice… Sam Zell sent a Christmas card to his friends with a song called Capital Keeps Falling on My Head… "To get things back to normal it's a long haul that's global. Yields won't improve 'til growth soaks up this liquid freefall. Capital keeps raining on my head. We need to be prepared for slim annuities… Illiquid assets have been alchemized into currency in play competing for returns." So why is Sam Zell getting $37 billion at what is under a 5% return on current cash flow?? Because there is money looking for a home and returns. The foundation of the flood of liquidity in the world."
- Here Come The Moneybags! (Rediff, Jan. 20th): "India: Demand for around 1,000 million Sq.ft. over five years across seven major cities. Top real estate funds… Blackstone, Broadstreet, Carlyle, Deutsche, Hines and Morgan Stanley are known to pump in big money and move in fast…Leading US real estate fund: "Our global fund managers run through 700 actionable mails (making decisions on the spot) a day. The pace is very fast and we don't mind if we make a few mistakes along the way." Foreign investors enter through joint ventures with local players who understand the regulations and market dynamics... Morgan Stanley, for instance, has come in by taking a stake in Bangalore-based Mantri Developers. "
- Lafarge JV In China Doubles Output At Cement Plant In Dujiangyan (Forbes, Jan. 19th): "Building materials company Lafarge said its Chinese joint venture, Lafarge Shui On Cement, has begun producing cement from a new 58 million USD production line at its plant in Dujiangyan, more than doubling the plant's output to 3 million tons per year. China uses 1 billion tons of cement annually, accounting for about half of the world market. Lafarge's partner in Shui On Cement is Shui On Construction and Materials Ltd. Shui On Cement is the market leader in southwest China, producing about 20 million tons per year."
- China Profit-Tax Plan Rattles Developers (Wall Street Journal, Jan. 18th): "China announces a tax starting Feb. 1 of 60% on developers' real-estate profits that will likely hit both domestic and foreign companies. Analysts said the move might do little to reduce the soaring property prices that officials worry are causing problems for the world's fourth-biggest economy… Analysts said it is likely aimed at reducing the attractiveness of property investing by local and foreign developers alike… Property developers' stock prices fell nearly 10% on the 17th… although profit taking partly explained the drop, as the property index jumped 159% in 2006, beating the 130% rise in the Shanghai Composite Index."
- Citigroup To Invest $30 Million In Bangalore Hotel Project (India PRwire, Jan. 16th): "Citigroup Property Investors, the New York-based real estate investment management arm of Citigroup, Tuesday announced it would invest $30 million (Rs.1.35 billion) in a luxury five-star hotel, estimated to cost about $100 million (Rs.4.5 billion), it is located in the prime area of the central business district. Nitesh Estates 'Citigroup is expected to make additional investment in phases as the project gets going,' Citigroup Property Investors: "Investment in the project would transform the hospitality section in India's silicon hub. We believe the real estate sector in Bangalore has tremendous growth potential."
- Lawyers Heller Ehrman Launches London Office - US Technology Law Firm Opens In London (Lawfuel.com, Jan. 16th): "Heller Ehrman LLP announced its London office opening in 2007. The expansion allows Heller Ehrman to extend three of its core practices—corporate, real estate, and competition… Real Estate: Two of the firm’s principal areas of real estate practice have experienced a significant surge in U.K. and European activity: U.S.-based private equity investment in European real estate and real estate ventures; and expansion of both the European portfolios of international hotel brands and the level of activity in hotel asset and M&A transactions."
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