Real Estate Sales and House Prices
- Condo Sales Steady (The State.com, Jan.29th) So. Carolina: "Columbia’s downtown condo market is starting to define itself. First, condos are selling, slowly but steadily. Second, the strongest pre-construction sales are of moderately priced two-bedroom condos, from $175,000 to $350,000. And third, the second-home market is leading the trend. What’s not selling: one-bedroom condos that target young professionals. The theory was those small condos would be home to the vaunted “creative class” of young professionals who are supposed to make Columbia’s future, knowledge-based economy tick."
- Otteau Report On The Shore (Jersey Shore Real Estate Bubble, Jan. 27th): "Real Estate trend tracker Otteau Valuation Group: "A huge loss in high-paying private sector jobs in New Jersey could affect home sales along the shore while a corresponding rise in government jobs drives up property taxes…"New Jersey has added 59,700 jobs since December 2000 of which 53,700 have been government jobs." The private sector has lost about 120,000 of the higher paying jobs in professional and business services, manufacturing, information and financial employment. From a real estate perspective, this job loss equates to 31,000 home sales at $750,000 per house or 23,000 at $1 million per structure." The shore is at great risk here because it is the higher paying jobs that account for vacation-home purchases. New Jersey is losing these jobs, which will greatly reduce demand for vacation homes."
- Seth Jayson At Motley Fool Picks Up The Cash-Back Mortgage Fraud Story And Runs With It (Housing Panic, Jan. 27th): "I think we have a long way left before we find the bottom. And it doesn't take outright fraud to skew prices. I've long been skeptical about the National Association of Realtors' tired party line about a soft landing, as home prices are not being adjusted to reflect the major givebacks desperate sellers were offering in order to attract buyers, from expensive kitchen remodels to luxury cars."
- Existing-Home Sales Dismal, But Expected To Pick Up (Seeking Alpha, Jan. 26th): "The inventory of unsold existing homes is 23.3% above the year-ago period. The median price of an existing home last month was $222,000, up from $217,000 in November. A total of 6.42 million previously owned homes are forecast to be sold this year, down from 6.48 million last year. Sales in 2006 were the third-highest on record according to the NAR, but there was also a 42% jump in foreclosures. The Fed maintains that housing demand has likely stabilized and the economy should be able to expand moderately even as the housing slowdown continues."
- Home Values Down, Taxes Up (Detroit News, Jan. 25th): "For the second year in a row, most Metro Detroit homeowners are facing higher tax assessments despite a continuing drop in the market value of their homes... Their property tax bills likely will rise, though they can't exceed the current 3.7% rate of inflation set by the state… The middle class may be paying the biggest price. Oakland County's equalization manager: "The middle range homes have been hardest hit by slipping values -- $150,000 to $300,000. Homes that cost up to $150,000 or so are holding their values, as are those priced at $300,000 and up."
- Some Homeowners Turning To Auctions To Unload Cash-Draining Properties (Sun Sentinel, Jan. 25th): "Roughly 160 properties, most of them in South Florida, will be auctioned… Other real estate firms and individual sellers have held public auctions in recent months after the region's five-year housing boom cooled in 2006. Nat'l Auctioneers Ass'n: Nationwide, residential real estate auctions generated $16 billion in sales last year, up 12.5 % over 2005… Auctions appeal to certain sellers because they can fetch top dollar for the properties and attract a host of prospective buyers looking to make quick deals... Auction USA: Expect plenty of below-market sales at this event as the housing slump lingers in this region."
- State's Unsold Home Inventory Index Eases In December (East Bay Business Times, Jan. 25th): "Home sales decreased 15.3 % in December in California compared with the same period a year ago, while the median price of an existing home increased 3.7 %. Statewide, the 10 cities and communities with the highest median home prices in California during December 2006 were Los Altos, $1.46 million; Burlingame, $1.33 million; Manhattan Beach, $1.28 million; San Juan Capistrano, $1.17 million; Santa Barbara, $1.01 million; Danville, $995,000; Los Gatos, $970,000; Rancho Palos Verdes, $947,500; San Clemente, $916,000; and Santa Monica, $833,000."
Real Estate Investing and Sentiment
- Housing Market: Not As Bad As Feared (David Andrew Taylor in Seeking Alpha, Jan. 28th): "Our economy saw a highly lubed financing opportunity for homeowners… Now the free ride is over, and we are at growth levels that are probably normal. With the lowered interest rates, some Americans were able to take some cash out of their homes, reduce their debt burden, and help fuel the economy along. There are many that think this little bubble is going to continue to burst, and send our economy into a tailspin... Hardly…What fuels our economy is consumer spending… and numbers are coming in fairly strong for the Christmas season… We'll be weathering the downturn just fine."
- Home Sales Down 8.4%, Could Be At Bottom (Builder Online, Jan. 26th): "It looks like we are on the bottom, and we will be scraping bottom as we move along," said David Lereah, the NAR's chief economist. "The worst is over for existing-home sales, but I'm still troubled about new homes..." It's very premature at this point to jump to the conclusion that we've turned the corner," says Brian Bethune of Global Insight… Is the worst behind us? Most likely," says Joel Naroff, chief economist of Naroff Economic Advisors. "Are better times here? Doubtful..." Robert Kleinhenz, an economist for the California Association of Realtors: "I'm hopeful we'll see the bottom soon."
- No Slump For Trump: He's A Partner In W. Palm Project (Builder Online, Jan. 25th): "Donald Trump and Jorge Perez, two household names in South Florida real estate, plan to build a $200 million luxury high-rise in West Palm Beach… They're also building luxury condos in Hollywood and Sunny Isles Beach in Broward County... Rampant overbuilding in recent years across South Florida has left many condo buildings with large vacancies as investors struggle to find buyers… Projects have been shelved… Palm Beach County's condominium sales fell 23% in November, compared with November 2005… Perez is one of the nation's premier condo developers. His company, The Related Group, has a portfolio valued at more than $10 billion."
Mortgates and Real Estate Lending
- Seller Financing Makes A Comeback (Naples News, Jan. 28th): "Home-buyers in a stagnating real-estate market are hearing a term [from] the days of high interest rates: seller financing… Also known as carry back financing… [which] was popular in the late 1970s and early 1980s, when mortgage rates were in the high teens… Seller financing is similar to a conventional mortgage, though sellers can finance part or all of the sale price, and the interest charged can be lower than the market rate (as is typical when a seller is conveying the house to a family member) or higher than the market rate (for buyers who cannot qualify for conventional financing)."
- 50-Year Mortgages: Low Payments, Low Equity (Bankrate.com, Jan. 26th): "The 50-year mortgage… Some mortgage lenders see the idea as an alternative to "interest only" loans and a tool to shrink those monthly obligations -- especially in high-ticket areas such as California. John Marcell, past prez., Calif. Mortgage Ass'n: "It makes a lot of sense. You'll be able to buy a more expensive home than you could qualify for otherwise"... "It's definitely a bad idea," says Dave Ramsey, author of "The Total Money Makeover: "The family is still not building net worth… It's still just keeping the family in debt."
- Wachovia Closes Subprime Mortgage Unit (Baltimore Business Journal, Jan. 26th): "Wachovia Corp. has closed its subprime mortgage lending division, EquiBanc Mortgage… Wachovia decided to close the business after "an intensive strategic review of its mortgage business, which has altered the company's approach to the origination of nonconforming loans… EquiBanc was Wachovia's sole business dedicated to subprime lending." Wachovia (WB) has retail and commercial banking operations in 21 states and is the second-largest bank in Greater Baltimore when ranked by commercial lending and fourth-largest when ranked by deposits…As of Sept. 30, Wachovia had assets of $559.9 billion and market capitalization of $88.2 billion."
- As Foreclosures Climb, Area Banks Attempt To Cut Potential Losses (Everything Michigan, Jan. 25th): "Michigan banks residential loan values down 271.9 % from Q3'05… Lenders [get] stuck with foreclosed homes and are forced to sell such properties at a higher discount…lowering property values in affected neighborhoods… Bruce Balmas, SVP Southeast Michigan Bank: "We sell a foreclosed house at the current market rate and those levels are down as much as 15-20%. Falling property values have as much an effect on us financially as homeowners…" Flagstar Bancorp increased its provision for loan losses as of Q3'06 by 34% from Q3'05... Repossessed assets from Dec. '05 to Dec. '06 jumped 49.8%."
- Convicted Con Artist Shows How System Flaws Could Allow Him To Steal Your Home (USA Today, Jan. 24th): "Those hurt by fraud are not only lenders, but also the thousands of other homeowners who pay higher interest rates as a result, and the neighborhoods where foreclosures depress property values, invite crime and drain city resources. Mortgage Asset Research Institute: Fraud cases are likely to continue rising this year and next… Because mortgage fraud is becoming harder to hide in today's slower housing market, when lenders have more time to review applications and appraisals. And because fraudulent loans tend to fall into foreclosure after about three years, many bad loans from the real estate boom have yet to surface."
Widening Foreclosure Impact
- Negligence Alleged In Home Deals (IndyStar.com, Jan. 26th): "California lender has filed a lawsuit against HMS Title Services of Greenwood and Affordable Lending of Terre Haute, contending their negligence forced it to foreclose on six Westfield and Indianapolis houses. For Pasadena-based IndyMac Bancorp, the failed deal amounts to a small loss in a huge loan portfolio. For Indianapolis, it's a reminder of the high foreclosure rate that continues to dog the region. Flooded by a spate of sour real estate schemes, the metro area ended 2006 with the nation's third-highest home foreclosure rate."
- Memphis Riskiest City For Mortgage (Memphis Business Journal, Jan. 25th): "CoreLogic, provider of residential mortgage risk management services, examined 379 metropolitan statistical areas for its data on at-risk mortgage markets. Memphis is the top at-risk mortgage market in the U.S… The five highest risk markets are Memphis, Detroit-Livonia-Dearborn, Mich., Youngstown-Warren-Boardman, Ohio-Pa., Warren-Troy-Farmington Hills, Mich., and Indianapolis-Carmel, Ind… Mark Fleming, chief economist at CoreLogic: "From low unemployment to high foreclosures, our data indicates that mortgage risk and fraud will continue to play an important role in the overall health of the housing market."
- Texas Takes Dubious Honor In Year-End Foreclosure Report (Houston Business Journal, Jan. 25th): "Realty Trac: Texas finished 2006 with a total of 156,876 foreclosure filings -- the highest aggregate total of any state… Texas' total filings equates to a rate of one foreclosure filing for every 51 households -- making it the state with the fourth highest foreclosure rate… RealtyTrac also ranked the nation's 100 largest MSAs (metropolitan statistical areas) by its foreclosure rate. The Detroit/Livonia/Dearborn MSA ranked No. 1 at a foreclosure rate of one filing for every 21 households, per the year-end report. A total of 40,219 foreclosures were filed over the course of 2006 in this metropolitan area."
Macro Impact, And Will The Housing Slump Cause A Recession?
- Anderson Company Site Of Lay Offs (Independent Mail, Jan. 28th): "VyTech Industries has fired about 135 of its 190 employees in Anderson County, and officials of the company intend to sell its assets… The company manufactures coverings for walls and floors for the manufactured housing and recreational vehicle industries… "Although market conditions have been difficult because of low interest rates, VyTech continues to gain market share because of its high-quality products, and the company has substantial positive EBITDA… Among VyTech’s products are Decraex vinyl wall covering, Decra-Paper wall covering, Tontine window products, and a variety of specialty printings and coatings."
- Housing Down, But So Is Deficit (Nashua Telegraph, Jan. 28th): "Looking at the housing market from another angle… Last week, Farooq Kathwari, Ethan Allen’s chairman, was interviewed by CNBC. He indicated that notwithstanding a first-half drop of 12% in wholesale sales, he thought we’d hit bottom. That’s the good news. The bad news is he didn’t expect things to improve for another nine months. And he didn’t say that with any conviction. Here’s the bottom line: We haven’t hit bottom, and the worst has yet to manifest itself. Expect continued price erosion along with an uptick in unemployment as construction begins to shed jobs."
- Employment Impact "The Big Story In 2007" (Housing Bubble Blog, Jan. 27th): "Univ. of San Diego economist: The regional housing downturn has prompted layoffs in real estate and construction… Hiring for real estate-related jobs has declined steadily over the past year in San Diego County… roughly 6,000 jobs were eliminated in November and December 2006… 2006 survey of local companies: 90% of the employers and 100% of the employees identified the high cost of housing as their top local business challenge… Far more people are leaving San Diego County than are moving here… only 900 people moved to San Diego County over the past two years, while more than 28,500 residents moved out."
- Caterpillar Reports Highest Ever Fourth Quarter And Full-Year Sales And Profit; Reaffirms 2007 Outlook of Higher Sales and Profit (Caterpillar Press Release, Jan. 26th): "CEO Jim Owens: "I'm anticipating great things for Caterpillar in 2007. Despite a sharp decline in two key North American industries -- highway truck engines and U.S. housing -- and an expected reduction in dealer inventories, we are projecting another record year in 2007… We expect to improve profit per share [PPS] at a higher rate than sales and revenues… [Therefore] a key focus in 2007 will be cost management… We are projecting sales and revenues in excess of $50 billion and compound annual growth in PPS of 15 to 20% from 2005-2010."
Homebuilders And Housing Stocks
- Latest Options Backdating Probe: KB Home (Seeking Alpha, Jan. 26th): "On January 19, 2007, KB Home, the fifth-largest U.S. homebuilder, announced that the Securities and Exchange Commission was now conducting a formal investigation in to its stock option granting practices... KB Home: "The Company has cooperated with the SEC regarding this matter and intends to continue to do so." KB Home started reviewing options granted to former chief executive Bruce Karatz in 1999 this August; Karatz resigned as CEO in November, and agreed to repay $13 million to cover ill-received gains."
- Lennar Seeks Cuts From Subcontractors (Builder Online, Jan. 25th): "Lennar, one of the biggest developers in Orange County with 8,000 to 14,000 homes on the drawing board, began circulating letters and meeting with subcontractors , seeking cuts that reflect lower home prices…"As our customers continue to pay us a lower price for our homes, we must in turn pay you a lower price for your services," Lennar wrote to subcontractors in California. The letter tells subcontractors to either reduce their "unpaid invoices" by a set percentage or "be excluded from bidding future work for a minimum of six months… From 5% to 20%, depending on their trade and location."
Commercial Real Estate and REITs
- Commercial Market Rentals Costing More (Sun Sentinel, Jan. 29th): "Jim Cahlin, a broker for Cushman & Wakefield: "At year-end 2006, the average rental rate for luxury downtown office space in Palm Beach County was $40.69 a square foot, up from $36.42 at year-end 2005… Broward's rental rate for comparable digs was $31.08 a square foot, up from $29.29. Rents in the Big Apple and other large cities are north of $50." Why so much? The high cost of construction is limiting the number of new office buildings in Palm Beach and Broward counties… Record building sales is driving up operating expenses… Palm Beach County's office vacancy rate dropped to 11.3% at year-end 2006 from 13.7% at year-end 2005… Broward's rate dipped to 11.7% from 12.9%."
- Commercial, Industrial Real Estate Projects Providing Boon For North County’s Economy (San Diego Business Journal, Jan. 29th): "Inland, coastal municipalities build their future with retail stores, hospitals and malls…A new, $40 million civic center and city hall for the city of Vista. Construction is scheduled to begin in April 2008, with an opening scheduled for 2010… The civic center is just one of several projects expected to dramatically transform Vista’s economic development in the coming years… A $5 million stage house at the Moonlight Amphitheater is planned, as is a $15 million sports park, and two fire stations, totaling $13 million."
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